Silicon Laboratories(SLAB) - 2023 Q3 - Quarterly Report

Part I. Financial Information This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, comprehensive income, changes in equity, and cash flows, along with detailed notes on significant accounting policies and other financial disclosures Condensed Consolidated Balance Sheets This statement provides a snapshot of the Company's assets, liabilities, and stockholders' equity at specific points in time Metric (in thousands) | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | Change | % Change | | :-------------------- | :----------- | :----------- | :----- | :------- | | Cash and cash equivalents | $159,928 | $499,915 | $(339,987) | -68.0% | | Short-term investments | $257,157 | $692,024 | $(434,867) | -62.8% | | Accounts receivable, net | $102,142 | $71,437 | $30,705 | 43.0% | | Inventories | $167,581 | $100,417 | $67,164 | 66.9% | | Total current assets | $773,535 | $1,461,363 | $(687,828) | -47.1% | | Total assets | $1,475,062 | $2,169,428 | $(694,366) | -32.0% | | Accounts payable | $48,086 | $89,860 | $(41,774) | -46.5% | | Revolving line of credit | $45,000 | — | $45,000 | N/A | | Convertible debt, net | — | $529,573 | $(529,573) | -100.0% | | Total liabilities | $215,140 | $764,420 | $(549,280) | -71.9% | | Total stockholders' equity | $1,259,922 | $1,405,008 | $(145,086) | -10.3% | Condensed Consolidated Statements of Income This statement details the Company's revenues, expenses, and net income over specific reporting periods Metric (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Oct 1, 2022 | Change (3M) | % Change (3M) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Oct 1, 2022 | Change (9M) | % Change (9M) | | :-------------------- | :------------------------------ | :----------------------------- | :---------- | :------------ | :----------------------------- | :---------------------------- | :---------- | :------------ | | Revenues | $203,760 | $269,817 | $(66,057) | -24.5% | $695,413 | $766,781 | $(71,368) | -9.3% | | Gross profit | $119,025 | $165,585 | $(46,560) | -28.1% | $416,660 | $485,260 | $(68,600) | -14.1% | | Operating income | $12,217 | $30,223 | $(18,006) | -59.6% | $48,957 | $95,185 | $(46,228) | -48.6% | | Net income | $10,348 | $20,999 | $(10,651) | -50.7% | $35,271 | $66,041 | $(30,770) | -46.6% | | Basic EPS | $0.33 | $0.62 | $(0.29) | -46.8% | $1.11 | $1.84 | $(0.73) | -39.7% | | Diluted EPS | $0.32 | $0.60 | $(0.28) | -46.7% | $1.07 | $1.79 | $(0.72) | -40.2% | Condensed Consolidated Statements of Comprehensive Income This statement presents net income and other comprehensive income items, reflecting changes in equity from non-owner sources Metric (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Oct 1, 2022 | Change (3M) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Oct 1, 2022 | Change (9M) | | :-------------------- | :------------------------------ | :----------------------------- | :---------- | :----------------------------- | :---------------------------- | :---------- | | Net income | $10,348 | $20,999 | $(10,651) | $35,271 | $66,041 | $(30,770) | | Other comprehensive income (loss) | $1,491 | $(2,412) | $3,903 | $8,089 | $(14,048) | $22,137 | | Comprehensive income | $11,839 | $18,587 | $(6,748) | $43,360 | $51,993 | $(8,633) | Condensed Consolidated Statements of Changes in Stockholders' Equity This statement outlines the changes in the Company's stockholders' equity over specific reporting periods Metric (in thousands) | Metric (in thousands) | Balance as of Dec 31, 2022 | Net income (9M 2023) | Other comprehensive income (9M 2023) | Stock issuances, net (9M 2023) | Repurchases of common stock (9M 2023) | Stock-based compensation (9M 2023) | Convertible debt activity (9M 2023) | Balance as of Sep 30, 2023 | | :-------------------- | :------------------------- | :------------------- | :----------------------------------- | :----------------------------- | :------------------------------------ | :--------------------------------- | :---------------------------------- | :------------------------- | | Total Stockholders' Equity | $1,405,008 | $35,271 | $8,089 | $(9,112) | $(213,130) | $37,360 | $(3,564) | $1,259,922 | Condensed Consolidated Statements of Cash Flows This statement reports the cash generated and used by the Company across operating, investing, and financing activities Metric (in thousands) | Metric (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Oct 1, 2022 | Change | | :-------------------- | :----------------------------- | :---------------------------- | :----- | | Net cash provided by (used in) operating activities | $(48,885) | $127,416 | $(176,301) | | Net cash provided by investing activities | $426,418 | $40,787 | $385,631 | | Net cash used in financing activities | $(717,520) | $(690,082) | $(27,438) | | Decrease in cash and cash equivalents | $(339,987) | $(591,346) | $251,359 | | Cash and cash equivalents at end of period | $159,928 | $483,277 | $(323,349) | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Significant Accounting Policies This note describes the key accounting principles and methods used in preparing the financial statements - The unaudited Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions, with fiscal 2023 and 2022 both having 52 weeks[22][24] - Revenue is recognized when control of promised goods or services is transferred to the customer, typically upon delivery of mixed-signal IC products, with variable consideration estimated and deferred if it does not meet recognition criteria[26][27] 2. Earnings Per Share This note details the calculation of basic and diluted earnings per share for the Company Metric (in thousands, except per share data) | Metric (in thousands, except per share data) | Three Months Ended Sep 30, 2023 | Three Months Ended Oct 1, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Oct 1, 2022 | | :------------------------------------------- | :------------------------------ | :----------------------------- | :----------------------------- | :---------------------------- | | Net income | $10,348 | $20,999 | $35,271 | $66,041 | | Shares used in computing basic EPS | 31,796 | 34,079 | 31,789 | 35,935 | | Effect of dilutive securities | 282 | 700 | 1,130 | 1,033 | | Shares used in computing diluted EPS | 32,078 | 34,779 | 32,919 | 36,968 | | Basic EPS | $0.33 | $0.62 | $1.11 | $1.84 | | Diluted EPS | $0.32 | $0.60 | $1.07 | $1.79 | - The Company settled its 0.625% convertible senior notes due 2025 in June 2023, paying $535.0 million in cash and issuing 0.9 million shares of common stock[28] 3. Fair Value of Financial Instruments This note provides information on the fair value measurements of the Company's financial assets and liabilities Description (in thousands) | Description (in thousands) | Fair Value at Sep 30, 2023 (Level 1) | Fair Value at Sep 30, 2023 (Level 2) | Total Fair Value at Sep 30, 2023 | | :------------------------- | :----------------------------------- | :----------------------------------- | :------------------------------- | | Money market funds | $57,144 | — | $57,144 | | Corporate debt securities | — | $166,868 | $166,868 | | Government debt securities | — | $90,289 | $90,289 | | Total | $57,144 | $257,157 | $314,301 | Description (in thousands) | Description (in thousands) | Fair Value at Dec 31, 2022 (Level 1) | Fair Value at Dec 31, 2022 (Level 2) | Total Fair Value at Dec 31, 2022 | | :------------------------- | :----------------------------------- | :----------------------------------- | :------------------------------- | | Money market funds | $310,969 | — | $310,969 | | Corporate debt securities | — | $501,014 | $501,014 | | Government debt securities | — | $191,010 | $191,010 | | Total | $310,969 | $695,273 | $1,006,242 | - The fair value of the 2025 Notes was $671.9 million as of December 31, 2022, but no notes were outstanding as of September 30, 2023, following their conversion or redemption in June 2023[38] 4. Derivative Financial Instruments This note describes the Company's use of derivative instruments to manage financial risks - The Company uses foreign currency forward contracts to manage exposure to foreign currency exchange rate variability, both as cash flow hedges for operating expenses (Norwegian Krone) and non-designated hedges for balance sheet exposures (Euro)[40][41][43] - As of September 30, 2023, cash flow hedges had an aggregate notional value of $2.0 million with maturities of one to three months, while non-designated hedges had an aggregate notional value of $7.4 million[42][44] 5. Supplemental Information This note provides additional details on specific financial statement line items, including inventories and lease income Inventories (in thousands) | Inventories (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------- | :----------- | :----------- | | Work in progress | $150,248 | $75,112 | | Finished goods | $17,333 | $25,305 | | Total | $167,581 | $100,417 | - Lease income from operating leases was $2.3 million for the nine months ended September 30, 2023, a decrease from $5.4 million in the prior year period[47] 6. Debt This note outlines the Company's debt obligations, including convertible notes and revolving credit facilities - The Company redeemed and converted its $535 million principal amount 0.625% Convertible Senior Notes due 2025 in June 2023, paying $533.6 million in cash and issuing 0.9 million shares of common stock for conversions, and redeeming the remaining $1.4 million at par[48][49] Interest Expense (in thousands) | Interest Expense (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Oct 1, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Oct 1, 2022 | | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | :---------------------------- | | Contractual interest expense | $— | $826 | $1,493 | $2,511 | | Amortization of debt issuance costs | $— | $498 | $960 | $1,492 | | Total | $— | $1,324 | $2,453 | $4,003 | - As of September 30, 2023, the Company had a $400 million revolving credit facility with $45.0 million outstanding, and was in compliance with all covenants[51][53] 7. Commitments and Contingencies This note discloses the Company's legal proceedings, commitments, and potential contingent liabilities - The Company is involved in various legal proceedings in the normal course of business, but does not expect them to have a material adverse effect on its financial statements[54] 8. Revenues This note provides a breakdown of the Company's revenues by product category and sales channel Revenue by Product Category (in thousands) | Revenue by Product Category (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Oct 1, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Oct 1, 2022 | | :----------------------------------------- | :------------------------------ | :----------------------------- | :----------------------------- | :---------------------------- | | Industrial & Commercial | $120,957 | $145,661 | $436,973 | $416,475 | | Home & Life | $82,803 | $124,156 | $258,440 | $350,306 | | Total | $203,760 | $269,817 | $695,413 | $766,781 | Revenue by Sales Channel (in thousands) | Revenue by Sales Channel (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Oct 1, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Oct 1, 2022 | | :-------------------------------------- | :------------------------------ | :----------------------------- | :----------------------------- | :---------------------------- | | Distributors | $164,444 | $217,355 | $556,963 | $621,563 | | Direct customers | $39,316 | $52,462 | $138,450 | $145,218 | | Total | $203,760 | $269,817 | $695,413 | $766,781 | 9. Stock-Based Compensation This note details the accounting for stock-based compensation expenses recognized by the Company Stock-Based Compensation Costs (in thousands) | Stock-Based Compensation Costs (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Oct 1, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Oct 1, 2022 | | :-------------------------------------------- | :------------------------------ | :----------------------------- | :----------------------------- | :---------------------------- | | Cost of revenues | $192 | $288 | $774 | $834 | | Research and development | $8,598 | $8,788 | $26,903 | $23,482 | | Selling, general and administrative | $(3,000) | $6,874 | $9,490 | $18,897 | | Total | $5,790 | $15,950 | $37,167 | $43,213 | - For the three months ended September 30, 2023, the Company recognized an expense reversal of $9.5 million due to a reduction in estimated achievement levels for unvested performance stock units[58] - As of September 30, 2023, total unrecognized compensation cost related to equity grants was approximately $103.8 million, expected to be recognized over a weighted-average period of 2.2 years[59] 10. Income Taxes This note explains the Company's income tax provision, effective tax rate, and unrecognized tax benefits Income Tax Metric (in millions) | Income Tax Metric (in millions) | Three Months Ended Sep 30, 2023 | Three Months Ended Oct 1, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Oct 1, 2022 | | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | :---------------------------- | | Provision for income taxes | $3.4 | $14.2 | $23.5 | $36.9 | | Effective tax rate | 24.7% | 40.3% | 40.0% | 35.8% | - The decrease in the effective tax rate for the three months ended September 30, 2023, was primarily due to decreased nondeductible stock compensation and a delay in foreign tax credit regulations, partially offset by increased impact of global intangible low-taxed income[61][103] - The Company had gross unrecognized tax benefits of $5.2 million as of September 30, 2023, and is appealing a Norwegian Tax Administration assessment for 2013 taxable income, which could result in $13.2 million additional tax[62][63] 11. Subsequent Event This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - The Company expects to incur approximately $6.5 million in restructuring-related expenses, primarily severance charges from a reduction-in-force, in the fourth quarter of fiscal year 2023[67] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and operational results, including macroeconomic impacts, business overview, highlights, and liquidity Impact of Macroeconomic Conditions This section discusses how broader economic factors influence the Company's financial performance and market demand - The Company experienced a decline in revenues in Q3 2023 and expects a continued decline into Q4 due to customers slowing purchases to reduce existing inventories in a softening market, influenced by inflationary pressure, rising interest rates, and geopolitical tension[70] Overview This section provides a general description of the Company's business, products, and market focus - Silicon Laboratories Inc. is a fabless semiconductor company specializing in secure, intelligent wireless technology for IoT applications, including connected home, industrial automation, smart metering, and medical instrumentation, with products grouped into Industrial & Commercial or Home & Life categories[71][72] - The sales cycle for ICs can be 12 months or more, with an additional 3-6 months for significant volume shipments, leading to potential delays between incurring R&D/SG&A expenses and corresponding sales[73] Current Period Highlights This section summarizes key financial and operational achievements and challenges during the reporting period - Revenues decreased by $66.1 million in Q3 2023 compared to Q3 2022, driven by declines in both Home & Life and Industrial & Commercial products, with gross profit decreasing by $46.6 million and gross margin falling to 58.4% from 61.4%[75] - Operating expenses decreased by $28.6 million in Q3 2023 due to cost containment measures (e.g., bonus elimination, reduced contract employees, travel suspension) and lower stock-based compensation[75] - The Company ended Q3 2023 with $417.1 million in cash, cash equivalents, and short-term investments, with net cash used in operating activities of $48.9 million for the nine-month period, while accounts receivable (DSO) increased to 45 days and inventory (DOI) increased to 178 days[76][108][109][110][111] - The Company introduced new dual-band SoCs and integrated Bluetooth® SoC and MCU families in the first nine months of fiscal 2023 to expand its product portfolio[77] Results of Operations This section provides a detailed analysis of the Company's revenues, expenses, and profitability trends Metric (as % of revenues) | Metric (as % of revenues) | Three Months Ended Sep 30, 2023 | Three Months Ended Oct 1, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Oct 1, 2022 | | :------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | :---------------------------- | | Revenues | 100.0% | 100.0% | 100.0% | 100.0% | | Cost of revenues | 41.6% | 38.6% | 40.1% | 36.7% | | Gross margin | 58.4% | 61.4% | 59.9% | 63.3% | | Research and development | 38.8% | 31.4% | 36.6% | 32.0% | | Selling, general and administrative | 13.6% | 18.8% | 16.3% | 18.8% | | Operating income | 6.0% | 11.2% | 7.0% | 12.4% | | Net income | 5.1% | 7.8% | 5.1% | 8.6% | - Revenue decreased by 24.5% in the three-month period and 9.3% in the nine-month period, primarily due to decreased Home & Life product revenues and overall weaker demand, with customers reducing inventory and requesting cancellations/price concessions[89][91][92] - Gross profit decreased due to lower unit volumes and variations in product mix, leading to a 3.0% (3M) and 3.4% (9M) decline in gross margin[93] - R&D expense decreased by $5.6 million (6.6%) in the three-month period due to lower personnel-related expenses (bonuses/variable compensation), but increased by $8.6 million (3.5%) in the nine-month period due to higher salary, stock compensation, and IT costs[95][96] - SG&A expense decreased by $22.9 million (45.3%) in the three-month period and $31.0 million (21.5%) in the nine-month period, mainly due to reduced personnel-related costs (stock compensation, bonuses/variable compensation) and lower outside services[99][100] - Interest income and other, net decreased in the three-month period due to lower interest-bearing investment balances but increased in the nine-month period due to higher market interest rates[101] Business Outlook This section presents management's expectations for future financial performance and market conditions Income Statement Item | Income Statement Item | Q4 2023 Estimate | | :-------------------- | :--------------- | | Revenues | $70 million to $100 million | | Gross margin | 53% | | Operating expenses | $123 million | | Diluted earnings (loss) per share | $(2.39) to $(1.95) | Liquidity and Capital Resources This section assesses the Company's ability to generate and manage cash, fund operations, and meet financial obligations - As of September 30, 2023, the Company had $417.1 million in cash, cash equivalents, and short-term investments, with $268.6 million held by U.S. entities[108] - Net cash used in operating activities was $48.9 million for the nine months ended September 30, 2023, a significant decrease from $127.4 million provided in the prior year, primarily due to changes in operating assets and liabilities[109] - Accounts receivable increased to $102.1 million (45 DSO) from $71.4 million (25 DSO) at December 31, 2022, partly due to extended payment terms offered to customers, while inventory increased to $167.6 million (178 DOI) from $100.4 million (90 DOI) to minimize supply disruptions and meet forecasted demand[110][111] - Net cash provided by investing activities increased to $426.4 million (9M 2023) from $40.8 million (9M 2022), mainly due to net purchases, sales, and maturities of marketable securities[112] - Net cash used in financing activities was $717.5 million (9M 2023), primarily due to $571.2 million in debt payments (convertible notes) offset by decreased stock repurchases and proceeds from the revolving credit facility[113] - The Company believes existing liquidity sources are sufficient for short-term and long-term capital requirements, but may seek additional funding for acquisitions or other reasons[116] Critical Accounting Estimates This section discusses accounting estimates that require significant judgment and could materially impact financial results - There have been no material changes to the Company's critical accounting estimates since the fiscal year ended December 31, 2022, as described in its Form 10-K[117] Quantitative and Qualitative Disclosures about Market Risk This section provides insights into the Company's exposure to market risks, including interest rate and foreign currency fluctuations - A 100 basis point decline in yield on the investment portfolio would decrease annual interest income by approximately $3.2 million[118] - A 100 basis point increase in interest rates would increase annual interest expense by approximately $0.5 million, based on the $45.0 million outstanding on the credit facility[119] - The Company is exposed to foreign currency exchange rate risk, primarily through foreign subsidiaries' assets, liabilities, and operating expenses denominated in non-U.S. dollar currencies, and uses foreign currency forward contracts to manage this exposure[120] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section incorporates by reference the market risk disclosures from management's discussion and analysis - Information related to quantitative and qualitative disclosures regarding market risk is incorporated by reference from Item 2[122] Item 4. Controls and Procedures This section details the evaluation of the Company's disclosure controls and procedures and reports on internal control changes - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2023, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[123] - There were no material changes in internal controls over financial reporting during the fiscal quarter ended September 30, 2023[124] Part II. Other Information This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and equity sales Item 1. Legal Proceedings This section refers to the notes to financial statements for information regarding ongoing legal matters - Information regarding legal proceedings is provided in Note 7, Commitments and Contingencies, to the Condensed Consolidated Financial Statements and is incorporated by reference[125] Item 1A. Risk Factors This section outlines various risks that could materially and adversely affect the Company's business, financial condition, and results of operations Global Business Risks This section details risks related to supply chain, industry cyclicality, international operations, competition, and product development - The Company relies on third-party vendors for manufacturing, assembly, and testing, exposing it to supply chain disruptions, capacity constraints, and geopolitical risks, particularly concerning Taiwan Semiconductor Manufacturing Co. (TSMC) and Semiconductor Manufacturing International Corporation (SMIC) in Asia[126][127][128][130] - The semiconductor industry is highly cyclical, characterized by rapid technological change, product obsolescence, and price erosion, leading to significant fluctuations in product supply and demand, with current macroeconomic conditions contributing to a downturn[133][134] - International operations, which accounted for 87% of revenues in the nine months ended September 30, 2023, are subject to risks like trade restrictions, geopolitical tensions (e.g., China-Taiwan relations), and currency fluctuations[136][138] - Concentration of manufacturers, assemblers, test service providers, distributors, and customers in the Pacific Rim region increases vulnerability to natural disasters, epidemics (like COVID-19), political unrest, and labor strikes[139][140] - The Company faces intense competition from larger competitors with greater resources, potentially leading to aggressive pricing, reduced sales, and lower gross profit[141][144][145] - Inability to manage growth, including expanding global operations and upgrading systems, could adversely affect the business, while cybersecurity threats and IT failures pose risks to operations, reputation, and financial condition[146][147][151] - Operating results may fluctuate significantly due to factors like order timing, new product introductions, market acceptance, supplier capacity, and product mix, leading to stock price volatility[153][154][157] - Future success depends on timely development and market acceptance of new products and technologies, with substantial R&D investment (36.6% of revenues for 9M 2023), and failure to anticipate new technologies or achieve market acceptance could harm competitive position[158][160][161] - Acquisitions and dispositions carry risks such as integration problems, diversion of management attention, financial resource needs, and potential loss of key employees or customer relationships[162][164][176] - Rapid decreases in average selling prices could negatively impact revenues and gross profit if not offset by increased sales volumes or reduced production costs[165] - Dependence on distributors (80% of 9M 2023 revenue) and lack of long-term customer commitments expose the Company to risks of channel management conflicts, price protection, inventory returns, and customer diversification efforts[166][167][168] - Building products based on customer forecasts before receiving purchase orders increases inventory risks, including high carrying costs and obsolescence, especially with indirect sales channels[168] - The COVID-19 pandemic and similar public health crises pose ongoing risks to business operations, supply chains, customer demand, and financial markets[169][170] - Product complexity and potential errors, especially in wireless connectivity and IoT products, could lead to liability claims, increased costs, and reputational damage, with risks disproportionately higher than product revenues[171][172][173] - Lengthy and expensive customer qualification processes for products offer no assurance of sales, and delays can impede growth, while manufacturing process complexity can lead to lower yields, affecting product availability and gross profit[174][178] - Reliance on customers to support products and potential competition from customer-developed products could diminish demand, while changes in privacy and data security laws (e.g., GDPR) increase operational costs and compliance risks[179][180][181] - Products must conform to evolving industry standards, particularly in the IoT market, and failure to comply or anticipate new standards could adversely affect market acceptance and competitive position[182][183] Intellectual Property Risks This section addresses risks associated with intellectual property litigation, protection, and third-party technology licensing - The semiconductor and software industries are prone to significant intellectual property litigation, which can be costly, time-consuming, and divert management attention, potentially leading to liabilities, invalidation of proprietary rights, or forced changes in product use/development[186][187] - Inability to protect proprietary technology through patents, copyrights, trademarks, and trade secrets, especially in foreign countries, could negatively affect the ability to compete[188] - Incorporating third-party licensed technology in products exposes the Company to infringement claims and performance risks, with indemnification often limited[189] Liquidity and Credit Risks This section covers risks related to financial market disruptions, accounts receivable, debt obligations, and capital availability - Disruptions in the financial services industry, such as bank closures, could impact the Company's access to cash, investments, or credit lines, and lead to less favorable financing terms[190] - The Company is exposed to credit risks related to accounts receivable, particularly from its ten largest customers/distributors, as it generally does not obtain letters of credit or other payment security[191] - Debt obligations, including the credit facility, are subject to financial covenants, and a breach could lead to immediate repayment demands, with the ability to service debt depending on future performance and economic conditions[192] - While current liquidity is believed sufficient, additional debt or equity capital may be needed for future activities or acquisitions, but availability and terms are uncertain, especially during financial market instability[193] Stock and Governance Risks This section discusses risks concerning stock price volatility and corporate governance provisions that could affect control - The Company's stock price may be volatile due to fluctuations in operating results, analyst estimates, market valuations of technology companies, new product introductions, changes in market standards, and other factors[194][197] - Provisions in the Company's charter documents and Delaware law, such as a classified Board of Directors and restrictions on stockholder actions, could prevent, delay, or impede a change in control and potentially reduce the market price of common stock[198][200] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section summarizes the Company's common stock repurchases under its authorized share repurchase program Period | Period | Total Number of Shares Purchased (in thousands) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (in thousands) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) | | :--------------------------- | :---------------------------------------------- | :--------------------------- | :-------------------------------------------------------------------------------------------- | :---------------------------------------------------------------------------------------------------- | | July 2, 2023 – July 29, 2023 | 82 | $145.89 | 82 | $104,047 | | July 30, 2023 – August 26, 2023 | 27 | $148.58 | 27 | $100,000 | | August 27, 2023 – September 30, 2023 | — | — | — | $100,000 | | Total | 109 | $146.56 | 109 | | - The Company's share repurchase program authorizes repurchases up to $600 million through December 2023, allowing for open market or private transactions[199] Item 3. Defaults Upon Senior Securities This section confirms that there are no applicable defaults upon senior securities - Not applicable[201] Item 4. Mine Safety Disclosures This section states that there are no applicable mine safety disclosures - Not applicable[201] Item 5. Other Information This section reports on Rule 10b5-1 trading arrangements by directors and officers - No Rule 10b5-1 trading arrangements were entered into or terminated by the Company's directors and officers during the quarter ended September 30, 2023[201] Item 6. Exhibits This section lists all exhibits filed as part of the report, including agreements, certificates, bylaws, and certifications - The report includes various exhibits such as the Asset Purchase Agreement, Certificate of Incorporation, Bylaws, Credit Agreement, and certifications required by the Sarbanes-Oxley Act[203]