SEMTECH CORP (SMTC) FY 2024 MD&A

Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and operating results should be read in conjunction with our Consolidated Financial Statements and related Notes included in Item 8 of this Annual Report on Form 10-K. See also “Special Note Regarding Forward Looking and Cautionary Statements” at the beginning of this Annual Report on Form 10-K.

Overview

We are a high-performance semiconductor, IoT systems and cloud connectivity service provider and were incorporated in Delaware in 1960. We design, develop, manufacture and market a wide range of products for commercial applications, the majority of which are sold into the infrastructure, high-end consumer and industrial end markets. Infrastructure end market includes data centers, PON, base stations, optical networks, servers, carrier networks, switches and routers, cable modems, wireless LAN and other communication infrastructure equipment. High-end consumer end market includes smartphones, tablets, wearables, desktops, notebooks, and other handheld products, wireless charging, set-top boxes, digital televisions, monitors and displays, digital video recorders and other consumer equipment. Industrial end market includes IoT applications, analog and digital video broadcast equipment, video-over-IP solutions, automated meter reading, smart grid, wireless charging, medical, security systems, automotive, industrial and home automation and other industrial equipment. Our end customers for our silicon solutions are primarily OEMs that produce and sell technology solutions. Our IoT module, router, gateway and managed connectivity solutions ship to IoT device makers and enterprises to provide IoT connectivity to end devices.

We report results on the basis of 52 and 53 week periods and our fiscal year ends on the last Sunday in January. Fiscal years 2024, 2023 and 2022 each consisted of 52 weeks.

We remained focused on furthering our role as a leading provider of disruptive platforms that enable our customers to deliver solutions to create a smarter planet. We continued to invest in secular trends that enable a smarter, more sustainable planet; enable higher bandwidth; and enable greater mobility.

The increasing adoption of our LoRa® technology for low power wide-area networks is providing connectivity solutions that enable IoT networks to make a smarter, more connected planet. Our portfolio of optical and copper connectivity solutions continue to address the demand for greater bandwidth and higher performance, while using less power by our global hyper-scale data center customers. Additionally, the unexpected pivot to online learning and remote work environments during the COVID-19 pandemic exposed the fragile nature of many global networks that struggled under the spike in demand. This has driven infrastructure suppliers around the world to accelerate their investments in high-speed connectivity using 5G wireless and PON technology where we are an industry leader. Though network capacities have normalized to accommodate remote environments, industry demand within hyperscale data centers expanded to support artificial intelligence-driven applications, as well as general compute data center applications.

The trend towards adoption of finer silicon geometries has accelerated across all categories of end systems, making them increasingly vulnerable to electrical and electromagnetic threats. Our protection solutions, which enable the highest levels of system performance, have found increased adoption across the board, driven by the need to maintain product functionality despite the challenging threat environment (electrical and electromagnetic), and increased system sensitivity to threats due to adoption of finer silicon geometries for implementation of system functions. Finally, the increasing demand for smaller, lower-powered higher performance mobile platforms with more enjoyable organic light-emitting diode displays has benefited our protection and proximity sensing solutions that protect these mobile devices and help our customers comply with radio frequency absorption regulations.

Through our acquisition of Sierra Wireless, Inc. ("Sierra Wireless") in January 2023, we supply cellular wireless devices and provide services in the wireless communications and information technology industry, enabling connectivity for IoT solutions through cellular and short range wireless technologies. These technologies primarily include 3G standards such as UMTS (including HSPDA and HSUPA) and EV-DO; 4G standards such as HSPA+, LTE, LTE-A; 5G standards such as fifth generation new radio (“5G NR”) standards (both millimeter wave and sub-6 Gigahertz frequencies); Low Power Wide Area ("LPWA") standards such as LTE-M and NB-IoT; and wireless local area network technologies such as Wi-Fi and Bluetooth; and Global Navigation Satellite System (“GNSS”) positioning.

We also offer IoT connectivity services that help customers simplify their IoT journey, whether their machines or other connected assets are regionally located or globally dispersed. Our connectivity services optimizes and simplifies North American deployments, with multi-carrier options for IoT deployments in the U.S., Canada, and Mexico and a single point of accountability for connectivity management. We also accelerate global IoT deployments by providing a solution for customers to maintain a secure connection to assets throughout the world.

Recent Developments

Leadership

Pursuant to the Cooperation Agreement entered into by and among us and Lion Point Capital, LP and certain of its affiliates on March 17, 2023 (the “Cooperation Agreement”), our board of directors (the “Board” or “Board of Directors”) appointed

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Gregory M. Fischer and Paul V. Walsh Jr. as members of the Board, effective April 14, 2023, to serve until our calendar year 2023 annual meeting of stockholders and until their successors are elected or qualified, or until their earlier deaths, resignations or removals. In accordance with the Cooperation Agreement, the Board Designees were nominated for election to the Board at our 2023 annual meeting of stockholders, and were elected to the Board at such meeting.

On May 24, 2023, the Board appointed Paul H. Pickle to serve as our President and Chief Executive Officer, which became effective as of June 30, 2023 (the “CEO Transition Date”). Mr. Pickle succeeded Mohan Maheswaran as the Company's President and Chief Executive Officer on the CEO Transition Date.

Effective June 30, 2023, the Board also appointed Mr. Pickle as a member of the Board to serve until our calendar year 2024 annual meeting of stockholders and until his successor is elected or qualified, or until his earlier death, resignation or removal.

Pursuant to the Cooperation Agreement, the Board appointed Hong Q. Hou as a member of the Board, effective July 1, 2023, to serve until our calendar year 2024 annual meeting of stockholders and until his successor is elected or qualified, or until his earlier death, resignation or removal.

On September 5, 2023, the Board appointed Mark Lin to serve as our Executive Vice President and Chief Financial Officer, which became effective on October 2, 2023 (the "CFO Transition Date"). Mr. Lin succeeded Emeka Chukwu as the Company’s Executive Vice President and Chief Financial Officer on the CFO Transition Date.

Pursuant to the Cooperation Agreement, the Board appointed Julie G. Ruehl as a member of the Board, effective December 1, 2023, to serve until our calendar year 2024 annual meeting of stockholders and until her successor is elected or qualified, or until her earlier death, resignation or removal.

Restructuring

During the second quarter of fiscal year 2024, we commenced a reduction in workforce plan. Additionally, during fiscal year 2024, we have undertaken structural reorganization actions to reduce our workforce as a result of cost-saving measures and internal resource alignment including from the realization of synergies of the acquisition of Sierra Wireless, Inc. completed on January 12, 2023 (the "Sierra Wireless Acquisition"). Total restructuring charges in fiscal year 2024 were $24.6 million, of which $6.0 million related to the reduction in workforce plan that commenced during the second quarter of fiscal year 2024 and was completed during the second half of fiscal year 2024. For additional information, see Note 17, Restructuring, to our Consolidated Financial Statements.

Financing

On February 24, 2023, we entered into the first amendment to the Credit Agreement (as defined below) to make certain modifications to the financial covenants in the Credit Agreement, as further described under “―Liquidity and Capital Resources―Expected Sources and Uses of Liquidity―Credit Agreement” below.

On June 6, 2023, we entered into the second amendment ("Second Amendment") to the Credit Agreement to provide certain financial covenant relief as further described under "―Liquidity and Capital Resources―Expected Sources and Uses of Liquidity―Credit Agreement" below.

On October 19, 2023, we entered into the third amendment to the Credit Agreement in order to, among other things, (i) extend the financial covenant relief period under the Credit Agreement by one year to April 30, 2026, (ii) increase the maximum consolidated leverage ratio covenant for certain test periods as set forth in the Third Amendment, (iii) reduce the minimum consolidated interest coverage ratio covenant for certain test periods as set forth in the Third Amendment and (iv) make certain other changes as set forth in the Third Amendment.

On October 26, 2023, we issued and sold $250.0 million in aggregate principal amount of our 4.00% Convertible Senior Notes due 2028 (the “2028 Notes”) in a private placement. The 2028 Notes were issued pursuant to an indenture, dated October 26, 2023, by and among the Company, the subsidiary guarantors party thereto, and U.S. Bank Trust Company, National Association, as trustee. In connection with entering into the Third Amendment, we used the proceeds from the offering of the 2028 Notes and cash on hand to repay $250 million aggregate principal amount of the term loans outstanding under the Credit Agreement. The 2028 Notes bear interest at a rate of 4.00% per year, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2024. The 2028 Notes will mature on November 1, 2028, unless earlier converted, redeemed or repurchased. For additional information on the 2028 Notes, see Note 10, Long-Term Debt, to our Consolidated Financial Statements.

Impact of Macroeconomic Conditions

Macroeconomic factors such as market volatility, inflationary pressures, elevated interest rates, geopolitical tensions and recessionary concerns have caused uncertainty in end customer demand and have resulted in elevated channel inventories. We believe that we can continue to take appropriate actions to align our inventory levels with anticipated customer demand profiles.

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Our Segments

We have four operating segments—Signal Integrity, Analog Mixed Signal and Wireless, IoT Systems, and IoT Connected Services—that represent four separate reportable segments. Historically, the Company had three operating segments—Signal Integrity, Wireless and Sensing, and Protection—that had been aggregated into two reportable segments identified as the High-Performance Analog Group, which was comprised of the Signal Integrity and Wireless and Sensing operating segments, and the System Protection Group, which was comprised of the Protection operating segment. In the fourth quarter of fiscal year 2023, as a result of organizational restructuring, the proximity sensing business and the power business were moved from the previous Wireless and Sensing operating segment into the newly formed Advanced Protection and Sensing operating segment, which also includes the Protection business. Following this organizational restructuring, the Company determined that Signal Integrity and the revised Wireless and Sensing operating segments were no longer economically similar and as a result the Company concluded that Signal Integrity should be separately reported as its own reportable segment. Also in the fourth quarter of fiscal year 2023, in conjunction with the Sierra Wireless Acquisition, the Company formed two additional operating segments including the IoT System operating segment, which absorbed the Company's revised Wireless and Sensing operating segment, and the IoT Connected Services operating segment. In the fourth quarter of fiscal year 2024, as a result of organizational restructuring, the wireless business, which was previously included in the IoT Systems operating segment, and the SDVoE business, which was previously included in the Signal Integrity operating segment, were moved into the Analog Mixed Signal and Wireless operating segment, formerly the Advanced Protection and Sensing operating segment, which also includes the proximity sensing, power and protection businesses. As a result of these changes, the Company has four reportable segments. All prior year information in the tables below has been revised retrospectively to reflect the change to the Company's reportable segments. See Note 16, Segment Information, to our Consolidated Financial Statements for segment information.

Factors Affecting Our Performance

Most of our sales to customers are made on the basis of individual customer purchase orders and many customers include cancellation provisions in their purchase orders. Net sales made through independent distributors in fiscal years 2024, 2023 and 2022 were 66%, 85% and 87%, respectively of net sales, and the remainder were made directly to customers. The lower percentage of distributor sales in fiscal year 2024 primarily relates to sales channels associated with the Sierra Wireless business, which we acquired in January 2023.

We are a global business with customers and suppliers around the world. A significant amount of our third-party subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located outside the United States, including China, Taiwan and Vietnam. Net sales outside the United States for fiscal years 2024, 2023 and 2022 constituted approximately 76%, 87% and 90%, respectively, of our net sales. Approximately 58%, 72% and 79% of net sales in fiscal years 2024, 2023 and 2022, respectively, were to customers located in the Asia-Pacific region. We are subject to export restrictions and trade regulations, which have limited our ability to sell to certain customers.

We use several metrics as indicators of future potential growth. The indicators that we believe best correlate to potential future sales growth are design wins and new product releases. There are many factors that may cause a design win or new product release to not result in sales, including a customer decision not to go to system production, a change in a customer’s perspective regarding a product’s value or a customer’s product failing in the end market. As a result, although a design win or new product introduction is an important step towards generating future sales, it does not necessarily result in us being awarded business or receiving a purchase commitment.

Inflationary factors could affect our future performance if we are unable to pass higher costs on to our customers.

Revenue

We derive our revenue primarily from the sale of our products into various end markets. Revenue is recognized when control of these products is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for these products. Control is generally transferred when products are shipped and, to a lesser extent, when the products are delivered.

Cloud and connectivity services, primarily reported in our IoT Connected Services segment, are provided on either a subscription or consumption basis. Revenue related to cloud and connectivity services provided on a subscription basis is recognized ratably over the contract period. Revenue related to cloud and connectivity services provided on a consumption basis is recognized based on the customer utilization of such resources. Revenues from SIM activation and initial application setup are deferred and recognized over the estimated customer life on a straight-line basis. Licenses for on-premise software provide the customer with a right to use the software as it exists when made available to the customer. Revenue from distinct on-premise licenses are recognized upfront at the point in time when the software is made available to the customer. Revenue from software maintenance, unspecified upgrades and technical support contracts are recognized over the period such items are delivered or services are provided. Revenue from technical support contracts extending beyond the current period is deferred and is recognized over the applicable earning period.

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Recovery of costs associated with product design and engineering services are recognized during the period in which services are performed and are reported as a reduction to product development and engineering expense. Historically, these recoveries have not exceeded the cost of the related development efforts. We include revenue related to granted technology licenses as part of "Net sales" in the Statements of Operations. Historically, revenue from these arrangements has not been significant though it is part of our recurring ordinary business.

We determine revenue recognition through the following five steps:

•Identification of the contract, or contracts, with a customer

•Identification of the performance obligations in the contract

•Determination of the transaction price

•Allocation of the transaction price to the performance obligations in the contract

•Recognition of revenue when, or as, performance obligations are satisfied

We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

Our customer contracts can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Net sales reflect the transaction prices for contracts, which include units shipped at selling prices reduced by variable consideration. Determination of variable consideration requires judgment by us. Variable consideration includes expected sales returns and other price adjustments. Variable consideration is estimated using the expected value method considering all reasonably available information, including our historical experience and our current expectations, and is reflected in the transaction price when sales are recorded. Sales returns are generally accepted at our discretion or from distributors with such rights. Our contracts with trade customers do not have significant financing components or non-cash consideration. We record net sales excluding taxes collected on our sales to our trade customers.

We provide an assurance type warranty, which is typically not sold separately and does not represent a separate performance obligation. Our payment terms are generally aligned with shipping terms.

Gross Profit

Gross profit is equal to our net sales less our cost of sales. Our cost of sales includes materials, depreciation on fixed assets used in the manufacturing process, shipping costs, direct labor and overhead, as well as amortization of acquired technology and acquired technology impairments. The majority of our manufacturing is outsourced, resulting in relatively low fixed manufacturing costs and variable costs that highly correlate with volume. We determine the cost of inventory by the first-in, first-out method.

Operating Costs and expenses, net

Our operating costs and expenses generally consist of selling, general and administrative, product development and engineering costs, costs associated with acquisitions, restructuring charges, and other operating related charges.

Results of Operations

A discussion of our results of operations for the fiscal years ended January 28, 2024 and January 29, 2023 and year-over-year comparisons between these fiscal years appears below. In the fourth quarter of fiscal year 2024, we made certain changes in our reportable segments due to organizational restructuring. See “―Our Segments” above. See also Note 16, Segment Information, to our Consolidated Financial Statements for additional segment information.

With the exception of net sales, gross profit and operating expenses, which are discussed below to reflect the changes to our reportable segments and reclassification of restructuring costs (see "Reclassification" below), a discussion of our results of operations for the fiscal year ended January 30, 2022 and year-over-year comparisons between fiscal years 2023 and 2022 have been omitted from this Annual Report on Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 29, 2023, filed with the Securities and Exchange Commission (“SEC”) on March 30, 2023.

Reclassification

During fiscal year 2024, we reclassified restructuring costs that were included in "Selling, general and administrative" and "Product development and engineering" within "Total operating costs and expenses, net" in the Statements of Operations to be separately presented in "Restructuring" within "Total operating costs and expenses, net" in the Statements of Operations. This was applied retrospectively, which resulted in the reclassification of $11.1 million of restructuring costs from "Selling, general and administrative" and $0.5 million of restructuring costs from "Product development and engineering" to "Restructuring" in the Statements of Operations for fiscal year 2023. There were no restructuring costs in fiscal year 2022. This reclassification did

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not impact our gross profit, operating income, net income or earnings per share for any historical periods and also did not impact the Balance Sheets or Statements of Cash Flows.

Fiscal Year 2024 Compared with Fiscal Year 2023

Net Sales

The following table summarizes our net sales by major end market:

Net sales for fiscal year 2024 were $868.8 million, an increase of 15% compared to $756.5 million for fiscal year 2023 driven by the Sierra Wireless Acquisition, which contributed $431.5 million of net sales from our industrial end market, partially offset by softer demand resulting in lower volume across all end markets. Net sales from our industrial end market increased $268.7 million versus the prior year primarily due to an approximately $235 million increase in module sales, an approximately $90 million increase in router sales and an approximately $88 million increase in managed connectivity sales all of which were driven by the Sierra Wireless Acquisition, partially offset by an approximately $118 million decrease in LoRa-enabled industrial product sales, an approximately $14 million decrease in industrial TVS product sales and an approximately $10 million decrease in broadcast sales, all of which were driven by softer demand. Net sales from our infrastructure end market decreased $123.3 million driven by an approximately $85 million decrease in PON sales, an approximately $19 million decrease in wireless infrastructure sales, an approximately $10 million decrease in infrastructure TVS product sales and an approximately $6 million decrease in data center sales. Net sales from our high-end consumer end market decreased $33.2 million primarily driven by an approximately $30 million decrease in consumer TVS product sales.

The following table summarizes our net sales by reportable segment:

Net sales from Signal Integrity decreased $121.3 million in fiscal year 2024 versus fiscal year 2023 primarily due to an approximately $85 million decrease in PON sales, a $19 million decrease in wireless infrastructure sales, a $10 million decrease in broadcast sales and a $6 million decrease in data center sales, all of which were driven by softer demand. Net sales from Analog Mixed Signal and Wireless decreased $183.0 million in fiscal year 2024 versus fiscal year 2023 primarily driven by an approximately $121 million decrease in LoRa-enabled product sales and an approximately $54 million decrease in total TVS product sales both driven by softer demand. Net sales from IoT Systems increased $325.1 million in fiscal year 2024 versus fiscal year 2023 primarily due to an approximately $235 million increase in module sales and a $90 million increase in router sales both driven by the Sierra Wireless Acquisition. Net sales from IoT Connected Services increased $91.4 million in fiscal year 2024 versus fiscal year 2023 primarily due to an approximately $88 million increase in managed connectivity sales driven by the Sierra Wireless Acquisition.

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Gross Profit

The following table summarizes our gross profit and gross margin by reportable segment:

In fiscal year 2024, gross profit decreased to $296.3 million from $478.6 million in fiscal year 2023. This decrease was primarily due to $91.8 million of acquired technology impairments, a $28.1 million increase in the amortization of acquired technology intangible assets related to the Sierra Wireless Acquisition, $3.3 million of inventory step-up related to the Sierra Wireless Acquisition, a $107.3 million decrease from Signal Integrity primarily driven by lower PON sales and lower wireless sales due to softer demand and a $127.9 million decrease from Analog Mixed Signal and Wireless primarily driven by lower LoRa-enabled product sales due to softer demand, partially offset by a $131.0 million increase from IoT Systems due to the Sierra Wireless Acquisition and a $44.7 million increase from IoT Connected Services due to the Sierra Wireless Acquisition.

Our gross margin was 34.1% in fiscal year 2024, compared to 63.3% in fiscal year 2023. Gross margin in Signal Integrity was 57.2% in fiscal year 2024, compared to 69.9% in fiscal year 2023 primarily due to an unfavorable product mix driven by lower sales, primarily in PON. Gross margin in Analog Mixed Signal and Wireless was 56.3% in fiscal year 2024, compared to 61.9% in fiscal year 2023 primarily due to an unfavorable product mix driven by lower LoRa-enabled product sales, as well as pricing pressures and lower overhead absorption. Gross margin in IoT Systems was 40.1% in fiscal year 2024, compared to 33.1% in fiscal year 2023 due to higher router and module sales driven by the Sierra Wireless Acquisition. Gross margin in IoT Connected Services was 48.9% in fiscal year 2024, compared to 47.9% in fiscal year 2023 due to higher managed connectivity sales driven by the Sierra Wireless Acquisition.

Operating Costs and Expenses, net

Selling, General & Administrative (“SG&A”) Expenses

Selling, general and administrative expenses decreased $4.6 million for fiscal year 2024 compared to fiscal year 2023 primarily as a result of a $34 million decrease in share-based compensation acceleration expense, offset by a $26 million net increase in staffing-related costs and a $5 million increase in consulting expenses, all of which related to the Sierra Wireless Acquisition.

Product Development and Engineering Expenses

Product development and engineering expenses increased $19.5 million for fiscal year 2024 compared to fiscal year 2023 primarily as a result of a $26 million net increase in staffing related costs due to higher headcount, a $3 million increase from new product introduction expenses, and a $2 million increase in transaction and integration expenses, offset by an $11 million decrease in share-based compensation acceleration expense, all of which related to the Sierra Wireless Acquisition. The levels of product development and engineering expenses reported in a fiscal period can be significantly impacted, and therefore experience period-over-period volatility, by the number of new product tape-outs and by the timing of recoveries from non-recurring engineering services, which are typically recorded as a reduction to product development and engineering expense.

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Intangible Amortization

Intangible amortization for fiscal year 2024 increased $14.1 million for fiscal year 2024 compared to fiscal year 2023 due to intangibles acquired in the Sierra Wireless Acquisition related to customer relationships and trade name. Amortization of acquired technology intangibles is reflected in cost of sales.

Restructuring Expenses

Restructuring expenses increased $12.3 million for fiscal year 2024 compared to fiscal year 2023 primarily due to structural reorganization actions to reduce our workforce as a result of cost-saving measures and internal resource alignment including from the realization of synergies of the Sierra Wireless Acquisition.

Gain on Sale of Business

Gain on sale of business decreased $18.3 million for fiscal year 2024 compared to fiscal year 2023 due to the divestiture of the Disposal Group in May 2022.

Intangible Impairments

Intangible impairments totaled $39.6 million for fiscal year 2024 primarily due to reduced earnings forecasts associated with the business acquired from Sierra Wireless and current macroeconomic conditions, including an elevated interest rate environment. There were no intangible impairments for fiscal year 2023.

Goodwill Impairment

Goodwill impairment was $755.6 million for fiscal year 2024 primarily due to reduced earnings forecasts associated with the business acquired from Sierra Wireless and current macroeconomic conditions, including an elevated interest rate environment. During the second quarter of fiscal year 2024, as a result of reduced earnings forecasts associated with the business acquired from Sierra Wireless and current macroeconomic conditions, including an elevated interest rate environment, the Company performed an interim impairment test using a quantitative assessment of the reporting units related to the Sierra Wireless Acquisition (specifically, the IoT Connected Services, IoT Systems–Modules and IoT Systems–Routers reporting units). This interim impairment test resulted in $279.6 million of total pre-tax non-cash goodwill impairment charges recorded during the second quarter of fiscal year 2024, consisting of $69.0 million of goodwill impairment for the IoT Connected Services reporting unit, $109.9 million of goodwill impairment for the IoT Systems–Modules reporting unit and $100.7 million goodwill impairment for the IoT Systems–Routers reporting unit. During the third quarter of fiscal year 2024, the Company recorded an additional $2.3 million of total pre-tax non-cash goodwill impairment charges resulting from the finalization of the measurement period adjustments, consisting of $1.6 million of goodwill impairment for the IoT Connected Services reporting unit, $0.2 million of goodwill impairment for the IoT Systems–Modules reporting unit and $0.5 million of goodwill impairment for the IoT Systems–Routers reporting unit. During the fourth quarter of fiscal year 2024, the Company performed its annual goodwill and intangible asset impairment assessment using a quantitative assessment for all of its reporting units. Due to a further reduction in earnings forecasts associated with the business acquired from Sierra Wireless, the Company recorded an additional $473.8 million of total pre-tax non-cash goodwill impairment charges resulting from a quantitative assessment of the reporting units, consisting of $138.4 million of goodwill impairment for the IoT Connected Services reporting unit, $135.1 million of goodwill impairment for the IoT Systems–Modules reporting unit and $200.3 million of goodwill impairment for the IoT Systems–Routers reporting unit. There was no goodwill impairment at any of the Company's other reporting units. There was no goodwill impairment for fiscal year 2023. See Note 8, Goodwill and Intangible Assets, to our Consolidated Financial Statements for additional information.

Interest Expense

Interest expense was $95.8 million and $17.6 million for fiscal years 2024 and 2023, respectively. The $78.2 million increase was primarily due to additional debt agreements entered into during fiscal year 2023 related to financings for the Sierra Wireless Acquisition and refinancing activities undertaken during fiscal year 2024, as well as higher interest rates on the portion of our outstanding floating-rate debt that was unhedged during the period.

Investment Impairments and Credit Loss Reserves

In fiscal year 2024, investment impairments and credit loss reserves totaled a loss of $3.9 million primarily due to $2.6 million of other-than-temporary impairments on certain non-marketable equity investments and adjustments to our credit loss reserve for our available-for-sale debt securities. In fiscal year 2023, investment impairments and credit loss reserves totaled a loss of $1.2 million as we had a recovery on our credit loss reserves of $0.3 million for our available-for-sale debt securities and recorded a $1.5 million other-than-temporary impairment on one of our non-marketable equity investments.

Provision for Income Taxes

We recorded income tax expense of $50.5 million for fiscal year 2024 compared to income tax expense of $17.3 million for fiscal year 2023. The effective tax rates for fiscal years 2024 and 2023 were (4.9%) and 22.0%, respectively. Our effective tax rate for fiscal year 2024 differs from the statutory federal income tax rate of 21% primarily due to our regional mix of income,

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changes in valuation allowance, non-deductibility of goodwill impairment and research and development ("R&D") tax credits. The Tax Act requires R&D costs incurred for tax years beginning after December 31, 2021 to be capitalized and amortized ratably over five or fifteen years for tax purposes, depending on where the research activities are conducted. We have elected to treat global intangible low-taxed income ("GILTI") as a period cost and the additional capitalization of R&D costs within GILTI increases our provision for income taxes.

We receive a tax benefit from a tax holiday that was granted in Switzerland. The tax holiday commenced on January 30, 2017, and was effective for five years (the “Initial Term”). Since we met certain staffing targets, the holiday has been extended for an additional five years. The maximum benefit under this tax holiday is CHF 500.0 million of cumulative after tax profit, which equates to a maximum potential tax savings of CHF 44.0 million. The extended term of the tax holiday is effective until fiscal year 2027. However, Switzerland implemented the Organization of Economic Co-operation and Development's ("OECD") global minimum tax ("Pillar Two") rules effective from January 1, 2024. These rules are expected to be applicable for us starting in fiscal year 2026 and will adversely impact our provision for income taxes.

As a global organization, we are subject to audit by taxing authorities in various jurisdictions. To the extent that an audit, or the closure of a statute of limitations results in adjusting our reserves for uncertain tax positions, our effective tax rate could experience extreme volatility since any adjustment would be recorded as a discrete item in the period of adjustment.

For further information on the effective tax rate and the Tax Act’s impact, see Note 12, Income Taxes, to our Consolidated Financial Statements.

Fiscal Year 2023 Compared with Fiscal Year 2022

The discussion below updates the discussion included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 29, 2023, filed with the SEC on March 30, 2023, to reflect the changes to our reportable segments and the Reclassification.

Net Sales

The following table summarizes our net sales by major end market:

Net sales for fiscal year 2023 were $756.5 million, an increase of 2% compared to $740.9 million for fiscal year 2022. Net sales from our industrial end market increased $54.8 million versus the prior year primarily due to an approximately $53 million increase in LoRa-enabled product sales led by an increase in pico gateways. Net sales from our infrastructure end market increased $22.8 million driven by an approximately $37 million increase in PON sales, partially offset by an approximately $11 million decrease in data center sales and an approximately $5 million decrease in wireless infrastructure sales. Net sales from our high-end consumer end market decreased $62.0 million primarily driven by an approximately $47 million decrease in our proximity sensing product sales, including smartphones and an approximately $23 million decrease in Protection product sales, including wearables, mobile computers and smartphones, partially offset by an approximately $7 million increase in industrial automation and automotive sales.

The following table summarizes our net sales by reportable segment:

Net sales for fiscal year 2023 were $756.5 million, an increase of 2% compared to $740.9 million for fiscal year 2022. Net sales from Signal Integrity increased $12.0 million in fiscal year 2023 versus fiscal year 2022 primarily due to an approximately $37

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million increase in PON sales, driven by higher 10G PON sales, partially offset by an approximately $11 million decrease in data center sales, an approximately $7 million decrease in broadcast sales and an approximately $5 million decrease in wireless infrastructure sales. Net sales from Analog Mixed Signal and Wireless decreased $11.4 million in fiscal year 2023 versus fiscal year 2022 primarily driven by an approximately $47 million decrease in proximity sensing sales and an approximately $23 million decrease in consumer product sales, including wearables, mobile computers and smartphones, offset by an approximately $53 million increase in LoRa-enabled product sales led by an increase in pico gateways. Net sales from IoT Systems increased $9.8 million in fiscal year 2023 versus fiscal year 2022 due to an approximately $6 million increase in module sales and an approximately $4 million increase in router sales driven by the Sierra Wireless Acquisition. Net sales from IoT Connected Services increased $5.2 million in fiscal year 2023 versus fiscal year 2022 primarily due to approximately $5 million in managed connectivity sales driven by the Sierra Wireless Acquisition.

Gross Profit

The following table summarizes our gross profit and gross margin by reportable segment:

In fiscal year 2023, gross profit increased to $478.6 million from $461.1 million in fiscal year 2022 as a result of higher sales. This increase included a $12.5 million increase from Signal Integrity primarily driven by higher PON sales, a $0.3 million increase from Analog Mixed Signal and Wireless primarily driven by higher LoRa-enabled sales, including pico gateways, a $3.2 million increase from IoT Systems and a $2.5 million increase from IoT Connected Services, both of which were driven by the Sierra Wireless Acquisition, partially offset by lower consumer sales.

Our gross margin was 63.3% in fiscal year 2023, compared to 62.2% in fiscal year 2022. Gross margin for Signal Integrity was 69.9% in fiscal year 2023, compared to 68.5% in fiscal year 2022 primarily driven by higher PON sales. Gross margin for Analog Mixed Signal and Wireless was 61.9% in fiscal year 2023, compared to 60.3% in fiscal year 2022 primarily driven by higher LoRa-enabled sales, including pico gateways. Gross margin for IoT Systems was 33.1% in fiscal year 2023 and gross margin for IoT Connected Services was 47.9% in fiscal year 2023.

Operating Costs and Expenses, net

Selling, General & Administrative Expenses

Selling, general and administrative expenses increased $56.6 million for fiscal year 2023 compared to fiscal year 2022 primarily driven by $34 million of share-based compensation acceleration expense and approximately $29 million of other transaction costs related to the Sierra Wireless Acquisition, partially offset by an $11 million decrease in share-based compensation caused by the impact of the lower closing stock price at year-end on the cash-settled awards.

Product Development and Engineering Expenses

Product development and engineering expenses increased $19.0 million for fiscal year 2023 compared to fiscal year 2022 primarily a result of $11 million of share-based compensation acceleration expense related to the Sierra Wireless Acquisition.

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New product introduction expenses, including costs related to Sierra Wireless during the post-acquisition period during fiscal year 2023, also contributed to the increase.

Intangible Amortization

Intangible amortization increased $0.8 million for fiscal year 2023 compared to fiscal year 2022 due to intangibles acquired in the Sierra Wireless Acquisition related to customer relationships and trade name. Amortization of acquired technology intangibles is reflected in cost of sales.

Restructuring Expenses

Restructuring expenses were $11.5 million in fiscal year 2023 due to structural reorganization actions to reduce our workforce as a result of cost-saving measures and internal resource alignment. There were no restructuring expenses for fiscal year 2022.

Gain on Sale of Business

Gain on sale of business was $18.3 million in fiscal year 2023, resulting from our divestiture of the Disposal Group in May 2022.

Changes in the Fair Value of Contingent Earn-out Obligations

The change in the fair value of contingent earn-out obligations in fiscal year 2022 reflects the difference between the final earn-out targets achieved for Cycleo SAS and the final earn-out payments made.

Liquidity and Capital Resources

Our capital requirements depend on a variety of factors including, but not limited to, the rate of increase or decrease in our existing business base; the success, timing and amount of investment required to bring new products to market; sales growth or decline; potential acquisitions or divestitures; the general economic environment in which we operate; and our ability to generate cash flows from operating activities.

We believe that our cash on hand, cash available from future operations and available borrowing capacity under the revolving credit facility under the Credit Agreement (the "Revolving Credit Facility") are sufficient to meet liquidity requirements for at least the next 12 months, including funds needed for our material cash requirements. As of January 28, 2024, we had $128.6 million in cash and cash equivalents and $282.2 million of available undrawn borrowing capacity on our Revolving Credit Facility, subject to net leverage limitations and customary conditions precedent, including the accuracy of representations and warranties and the absence of defaults. Over the longer-term, we expect to fund our business using cash flows from operating activities.

Under the Credit Agreement, we are required to maintain a maximum consolidated leverage ratio, a minimum interest expense coverage ratio and, through January 31, 2025, minimum liquidity. In response to adverse market demand conditions, the Company has taken actions to reduce expenses and maintain compliance with its financial covenants, including entering into amendments to the Credit Agreement in February 2023, June 2023 and October 2023 to provide additional financial flexibility with respect to the financial covenants in the Credit Agreement. These amendments resulted in, among other things, an increase in the maximum leverage ratio, a decrease in the minimum interest ratio, and also introduced the minimum liquidity covenant that applies through January 31, 2025. See Note 10, Long-Term Debt, to our Consolidated Financial Statements for additional information regarding these covenant requirements.

Compliance with the financial covenants in the Credit Agreement is measured quarterly and failure to meet the covenant requirements would constitute an event of default under the Credit Agreement. Due to risks and uncertainties with regards to forecasts and projections about our operations, industry, financial condition, performance, operating results and liquidity, we may not maintain compliance with the financial covenants over the next twelve months from the issuance of the accompanying consolidated financial statements, which noncompliance, should it occur, would raise substantial doubt about our ability to continue as a going concern. If an event of default occurs and we are unable to obtain necessary waivers or amendments, the requisite lenders may elect to declare all outstanding borrowings, together with accrued and unpaid interest and other amounts payable thereunder, to be immediately due and payable. Further, if an event of default occurs, the lenders will have the right to proceed against the collateral granted to them to secure that debt. If the debt under the Credit Agreement were to be accelerated, our assets may not be sufficient to repay in full the debt that may become due as a result of that acceleration. We could seek replacement financing at prevailing market rates or raise additional capital by issuing equity or debt securities; however, this may not be on terms favorable to us or available at all.

As of January 28, 2024, we were in compliance with the financial covenants in the Credit Agreement. In response to adverse market demand conditions, we have taken actions to reduce expenses and maintain compliance with our financial covenants. During the third quarter of fiscal year 2024, we entered into the Third Amendment (see “―Recent Developments―Financing” above) to extend and temporarily expand financial covenant relief under the Credit Agreement.

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Based on our current projections, management believes we will maintain compliance with our financial covenants and our existing cash, projected operating cash flows and available borrowing capacity under the Revolving Credit Facility are adequate to meet our operating needs, liabilities and commitments over the next twelve months from the issuance of the accompanying consolidated financial statements. Our ability to comply with the financial covenants in the Credit Agreement (particularly, the maximum consolidated leverage ratio requirement) in future periods may be adversely impacted if market conditions do not improve or the actions we are taking do not sufficiently counter the softer demand environment and reduced revenue levels we are continuing to experience in our end markets. For additional information regarding risks related to our compliance with covenants in the Credit Agreement, see Part I, Item 1A – Risk Factors.

As of January 28, 2024, there was $2.9 million outstanding under the letters of credit, swing line loans and alternative currency sub-facilities outstanding under the Revolving Credit Facility.

A meaningful portion of our capital resources, and the liquidity they represent, are held by our subsidiaries outside of the U.S. As of January 28, 2024, our foreign subsidiaries held $104.6 million of cash and cash equivalents, compared to $151.4 million at January 29, 2023. Our liquidity may be impacted by fluctuating exchange rates. For additional information on exchange rates, see "Item 7A - Quantitative and Qualitative Disclosures About Market Risk."

In connection with the enactment of the Tax Act, all historic and current foreign earnings are taxed in the U.S. Depending on the jurisdiction, these foreign earnings are potentially subject to a withholding tax, if repatriated. As of January 28, 2024, our historical undistributed earnings prior to fiscal year 2023 of our foreign subsidiaries are intended to be permanently reinvested outside of the U.S. With the enactment of the Tax Act, all post-1986 previously unremitted earnings for which no U.S. deferred tax liability had been accrued were subject to U.S. tax. Notwithstanding the U.S. taxation of these amounts, we have determined that none of our foreign earnings for fiscal years 2023 and 2024 will be permanently reinvested. If we needed to remit all or a portion of our historical undistributed earnings to the U.S. for investment in our domestic operations, any such remittance could result in increased tax liabilities and a higher effective tax rate. Determination of the amount of the unrecognized deferred tax liability on these unremitted earnings is not practicable.

We expect our future non-operating uses of cash will be for capital expenditures and debt repayment. We expect to fund these cash requirements through cash flows from operating activities.

Expected Sources and Uses of Liquidity

Operating Cash Flows

Our operating cash flows are driven by our ability to value price for the differentiated technology that we provide, as well as our fabless business model, which is highly flexible to changes in customer demand.

Credit Agreement

On November 7, 2019, we, with certain of our domestic subsidiaries as guarantors, entered into a credit agreement with the lenders party thereto and HSBC Bank USA, National Association, as administrative agent, swing line lender and letter of credit issuer. On September 26, 2022 (the “Third Restatement Effective Date”), we entered into a third amended and restated credit agreement (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) with the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, swing line lender and letter of credit issuer.

In fiscal year 2023, we borrowed $10.0 million and repaid $33.0 million on our Revolving Credit Facility and received proceeds of $895.0 million on the Term Loans. In fiscal year 2024, we borrowed $70.0 million and repaid $5.0 million on our Revolving Credit Facility and repaid $272.4 million on the Term Loans. As of January 28, 2024, we had $622.6 million outstanding under the Term Loans and $215.0 million outstanding under the Revolving Credit Facility, which had available undrawn borrowing capacity of $282.2 million, subject to net leverage limitations and customary conditions precedent, including the accuracy of representations and warranties and the absence of defaults. As of January 28, 2024, the borrowing capacity on the revolving credit facility under the Credit Agreement (the "Revolving Credit Facility") is $500.0 million, of which $162.5 million is scheduled to mature on November 7, 2024 and $337.5 million is scheduled to mature on January 12, 2028 (subject to, in certain circumstances, an earlier springing maturity), and the term loans thereunder (the “Term Loans”) are scheduled to mature on January 12, 2028 (subject to, in certain circumstances, an earlier springing maturity).

Up to $40.0 million of the Revolving Credit Facility may be used to obtain letters of credit, up to $25.0 million of the Revolving Credit Facility may be used to obtain swing line loans, and up to $75.0 million of the Revolving Credit Facility may be used to obtain revolving loans and letters of credit in certain currencies other than U.S. Dollars ("Alternative Currencies"). The proceeds of the Revolving Credit Facility may be used by us for capital expenditures, permitted acquisitions, permitted dividends, working capital and general corporate purposes.

On February 24, 2023, we entered into the first amendment (the “First Amendment”) to the Credit Agreement, in order to, among other things, (i) increase the maximum consolidated leverage ratio covenant for certain test periods as set forth therein, (ii) reduce the minimum consolidated interest coverage ratio covenant for certain test periods as set forth therein, (iii) provide that, during the period that financial covenant relief pursuant to the First Amendment is in effect, the interest rate margin for (1)

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Term SOFR loans is deemed to be 2.50% and (2) Base Rate (as defined below) loans is deemed to be 1.50% per annum and (iv) make certain other changes as set forth therein.

On June 6, 2023, we entered into the second amendment (the "Second Amendment") to the Credit Agreement, in order to, among other things, (i) increase the maximum consolidated leverage ratio covenant for certain test periods as set forth therein and described below, (ii) reduce the minimum consolidated interest coverage ratio covenant for certain test periods as set forth therein and described below, (iii) modify the pricing grid applicable to loans under the Credit Agreement during the covenant relief period as set forth therein and described below, (iv) impose a minimum liquidity covenant for certain periods during the covenant relief period as set forth therein and described below, (v) increase the annual amortization in respect of the term loans thereunder to 7.5% per annum for certain periods as set forth therein, (vi) impose an “anti-cash hoarding” condition to the borrowing of revolving loans as set forth therein, (vii) provide that the maturity date for the Term Loans and revolving loans shall be the day that is 91 days prior to the stated maturity date of the Notes if the Notes have not otherwise been refinanced or extended to at least 91 days after the stated maturity date of the Term Loans and revolving loans, the aggregate principal amount of non-extended outstanding Notes and certain replacement debt exceeds $50 million and a minimum liquidity condition is not satisfied, (viii) provide for the reduction of the aggregate revolving commitments thereunder by $100 million, (ix) require that we appoint a financial advisor and (x) make certain other modifications to the mandatory prepayments (including the imposition of an excess cash flow mandatory prepayment), collateral provisions and covenants (including additional limitations on debt, liens, investments and restricted payments such as dividends) as set forth therein.

On October 19, 2023, we entered into the third amendment (the "Third Amendment") to the Credit Agreement, in order to, among other things, (i) extend the financial covenant relief period by one year to April 30, 2026, (ii) increase the maximum consolidated leverage ratio covenant for certain test periods as set forth in the Third Amendment, (iii) reduce the minimum consolidated interest coverage ratio covenant for certain test periods as set forth in the Third Amendment and (iv) make certain other changes as set forth therein. These amendments had the effect of extending and temporarily expanding financial covenant relief under the Credit Agreement previously provided for in the First Amendment and the Second Amendment.

Effective June 6, 2023, in connection with entering into the Second Amendment, interest on loans made under the Credit Agreement in U.S. Dollars accrues, at the Company's option, at a rate per annum equal to (1) (x) the Base Rate (as defined in the Credit Agreement) plus (y) a margin ranging from 0.25% to 2.75% depending upon the Company’s consolidated leverage ratio (except that, during the period that financial covenant relief is in effect (including during the extended covenant relief period provided pursuant to the Third Amendment), the margin will not be less than 2.25% per annum) or (2) (x) Term SOFR Rate (as defined in the Credit Agreement) plus (y) a credit spread adjustment of (i) for term loans, 0.10% and (ii) for revolving credit borrowings, 0.11%, 0.26% or 0.43% for one, three and six month interest periods, respectively, plus (z) a margin ranging from 1.25% to 3.75% depending upon the Company's consolidated leverage ratio (except that, during the period that financial covenant relief pursuant to the Third Amendment is in effect, the margin will not be less than 3.25% per annum) (such margin, the "Applicable Margin"). Interest on loans made under the Revolving Credit Facility in Alternative Currencies accrues at a rate per annum equal to a customary benchmark rate (including, in certain cases, credit spread adjustments) plus the Applicable Margin.

All of our obligations under the Credit Agreement are unconditionally guaranteed by all of our direct and indirect domestic subsidiaries, other than certain excluded subsidiaries, including, but not limited to, any domestic subsidiary the primary assets of which consist of equity or debt of non-U.S. subsidiaries, certain immaterial non-wholly-owned domestic subsidiaries and subsidiaries that are prohibited from providing a guarantee under applicable law or that would require governmental approval to provide such guarantee. The Company and the guarantors have also pledged substantially all of their assets to secure their obligations under the Credit Agreement.

No amortization is required with respect to the revolving loans. Effective June 6, 2023, in connection with entering into a second amendment to the Credit Agreement, the Term Loans amortize (x) during the period that financial covenant relief is in effect (including during the extended covenant relief period provided pursuant to the Third Amendment), in equal quarterly installments of 1.875% of the aggregate principal amount outstanding on the Third Restatement Effective Date, and (y) otherwise, in equal quarterly installments of 1.25% of the aggregate principal amount outstanding on the Third Restatement Effective Date, with the balance due at maturity. The Company may voluntarily prepay borrowings at any time and from time to time, without premium or penalty, other than customary "breakage costs" in certain circumstances. In the third quarter of fiscal year 2024, the Company made a $250 million prepayment on the Term Loans in connection with the Third Amendment, after which there is no scheduled amortization remaining on the Term Loans.

The Credit Agreement contains customary representation and warranties, and affirmative and negative covenants, including limitations on the Company’s ability to, among other things, incur indebtedness, create liens on assets, engage in certain fundamental corporate changes, make investments, repurchase stock, pay dividends or make similar distributions, engage in certain affiliate transactions, or enter into agreements that restrict the Company's ability to create liens, pay dividends or make loan repayments. In addition, the Company must comply with financial covenants which, after effectiveness of the Third Amendment are as follows (in each case, during the covenant relief period):

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•maintaining a maximum consolidated leverage ratio, determined as of the last day of each fiscal quarter, of (i) 8.17 to 1.00 for the fiscal quarter ending on or around October 31, 2023, (ii) 10.27 to 1.00 for the fiscal quarter ending on or around January 31, 2024, (iii) 10.21 to 1.00 for the fiscal quarter ending on or around April 30, 2024, (iv) 9.93 to 1.00 for the fiscal quarter ending on or around July 31, 2024, (v) 8.42 to 1.00 for the fiscal quarter ending on or around October 31, 2024, (vi) 7.68 to 1.00 for the fiscal quarter ending on or around January 31, 2025, (vii) ) 6.75 to 1.00 for the fiscal quarter ending on or around April 30, 2025, (viii) 6.28 to 1.00 for the fiscal quarter ending on or around July 31, 2025, (ix) 5.81 to 1.00 for the fiscal quarter ending on or around October 31, 2025, (x) 5.30 to 1.00 for the fiscal quarter ending on or around January 31, 2026, and (xi) 3.75 to 1.00 for the fiscal quarter ending on or around April 30, 2026 and each fiscal quarter thereafter, subject to increase to 4.25 to 1.00 for the four full consecutive fiscal quarters ending on or after the date of consummation of a permitted acquisition that constitutes a "Material Acquisition" under the Credit Agreement, subject to the satisfaction of certain conditions;

•maintaining a minimum consolidated interest expense coverage ratio, determined as of the last day of each fiscal quarter, of (i) 1.66 to 1.00 for the fiscal quarter ending on or around October 31, 2023, (ii) 1.40 to 1.00 for the fiscal quarter ending on or around January 31, 2024, (iii) 1.37 to 1.00 for the fiscal quarter ending on or around April 30, 2024, (iv) 1.41 to 1.00 for the fiscal quarter ending on or around July 31, 2024, (v) 1.73 to 1.00 for the fiscal quarter ending on or around October 31, 2024, (vi) 1.90 to 1.00 for the fiscal quarter ending on or around January 31, 2025, (vii) 2.14 to 1.00 for the fiscal quarter ending on or around April 30, 2025, (viii) 2.37 to 1.00 for the fiscal quarter ending on or around July 31, 2025, (ix) 2.68 to 1.00 for the fiscal quarter ending on or around October 31, 2025, (x) 3.01 to 1.00 for the fiscal quarter ending on or around January 31, 2026, and (xi) 3.50 to 1.00 for the fiscal quarter ending on or around April 30, 2026 and each fiscal quarter thereafter; and

•until January 31, 2025, maintaining a minimum consolidated liquidity (as further defined in the Credit Agreement but excluding revolving credit commitments scheduled to expire in 2024) of $150 million as of the last day of each monthly accounting period of the Company.

Upon the termination of the covenant relief period under the Third Amendment, the ratio levels set forth above with respect to the leverage and interest expense coverage financial covenants are subject to step-up as set forth in the Credit Agreement, and the liquidity covenant shall no longer apply.

Compliance with the leverage and interest expense coverage financial covenants is measured quarterly based upon the Company’s performance over the most recent four quarters, and compliance with the liquidity covenant is measured as of the last day of each monthly accounting period. As of January 28, 2024, the Company was in compliance with the financial covenants in the Credit Agreement. See “Liquidity” in Note 1, Organization and Basis of Presentation, to our Consolidated Financial Statements for additional information about compliance with the financial covenants.

The Credit Agreement also contains customary provisions pertaining to events of default. If any event of default occurs, the obligations under the Credit Agreement may be declared due and payable, terminated upon written notice to us and existing letters of credit may be required to be cash collateralized.

Convertible Senior Notes due 2027

On October 12, 2022 and October 21, 2022, we issued and sold $300 million and $19.5 million, respectively, in aggregate principal amount of 1.625% Convertible Senior Notes due 2027 (the "2027 Notes") in a private placement. The 2027 Notes were issued pursuant to an indenture, dated October 12, 2022, by and among us, the Subsidiary Guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee. The 2027 Notes bear interest at a rate of 1.625% per year, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2023. The 2027 Notes will mature on November 1, 2027, unless earlier converted, redeemed or repurchased. The 2027 Notes were initially issued pursuant to an exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act.

We used approximately $29.7 million of the net proceeds from the Notes to pay for the cost of the Convertible Note Hedge Transactions (as defined in Note 10, Long-Term Debt), after such cost was partially offset by approximately $42.9 million of proceeds to us from the sale of Warrants in connection with the issuance of the 2027 Notes, all as described in Note 10, Long-Term Debt to our Consolidated Financial Statements. The Convertible Note Hedge Transactions and Warrants transactions are indexed to, and potentially settled in, our common stock and the net cost of $29.7 million has been recorded as a reduction to additional paid-in capital in the consolidated statement of stockholders’ equity (deficit). We used the remaining net proceeds to fund a portion of the consideration in the Sierra Wireless Acquisition and to pay related fees and expenses. For additional information on the Convertible Note Hedge Transactions and the Warrants, see Note 10, Long-Term Debt to our Consolidated Financial Statements.

Convertible Senior Notes due 2028

On October 26, 2023, we issued and sold $250.0 million in aggregate principal amount of the 2028 Notes in a private placement. The 2028 Notes were issued pursuant to an indenture, dated October 26, 2023, by and among the Company, the

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subsidiary guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee. The 2028 Notes bear interest at a rate of 4.00% per year, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2024. The 2028 Notes will mature on November 1, 2028, unless earlier converted, redeemed or repurchased. The 2028 Notes were offered and sold only to eligible purchasers who are both “qualified institutional buyers” within the meaning of Rule 144A under the Securities Act and “accredited investors” within the meaning of Rule 501(a) under the Securities Act, in reliance on Section 4(a)(2) under the Securities Act. For additional information on the 2028 Notes, see Note 10, Long-Term Debt to our Consolidated Financial Statements.

Capital Expenditures and Research and Development

We incur significant expenditures in order to fund the development, design and manufacture of new products. We intend to continue to focus on those areas that have shown potential for viable and profitable market opportunities, which may require additional investment in equipment and the hiring of additional design and application engineers aimed at developing new products. Certain of these expenditures, particularly the addition of design engineers, do not generate significant payback in the short-term. We plan to finance these expenditures with cash generated by our operating activities, our existing cash balances and additional draws on our Revolving Credit Facility, as needed. Borrowings under our Revolving Credit Facility are subject to customary conditions precedent, including the accuracy of representations and warranties and the absence of any defaults under the facility.

Purchases under our Stock Repurchase Program

We currently have in effect a stock repurchase program that was initially approved by our Board of Directors in March 2008. On March 11, 2021, our Board of Directors approved the expansion of the stock repurchase program by an additional $350.0 million. This program represents one of our principal efforts to return value to our stockholders. Under the program, subject to the terms of the Credit Agreement, we may repurchase our common stock at any time or from time to time, without prior notice, subject to market conditions and other considerations. Our repurchases may be made through Rule 10b5-1 and/or Rule 10b-18 or other trading plans, open market purchases, privately negotiated transactions, block purchases or other transactions.

We did not repurchase any shares of our common stock under the program during fiscal year 2024, compared to $50.0 million of repurchases of our common stock under the program during fiscal year 2023. As of January 28, 2024, the remaining authorization under the program was $209.4 million. To the extent we repurchase any shares of our common stock under the program in the future, we expect to fund such repurchases from cash on hand and borrowings on our Revolving Credit Facility. We have no obligation to repurchase any shares under the program and may suspend or discontinue it at any time.

Operating Leases

We have operating leases for real estate, vehicles, and office equipment with remaining lease terms of up to eight years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year. Our operating lease liabilities totaled $28.6 million and $32.7 million as of January 28, 2024 and January 29, 2023, respectively, and are included in "accrued liabilities" and "other long-term liabilities" in our Consolidated Balance Sheets.

Purchase Commitments

Capital purchase commitments and other open purchase commitments are for the purchase of plant, equipment, raw materials, supplies and services. They are not recorded liabilities in our Consolidated Balance Sheets as of January 28, 2024, as we have not yet received the related goods or taken title to the goods or received services. As of January 28, 2024, we had $5.5 million in open capital purchase commitments and $265.1 million in other open purchase commitments.

Compensation and Defined Benefit Plans

We maintain a deferred compensation plan for certain officers and key executives that allow participants to defer a portion of their compensation for future distribution at various times permitted by the plan. Our liabilities for deferred compensation under this plan were $39.7 million and $42.3 million as of January 28, 2024 and January 29, 2023, respectively, and are included in "accrued liabilities" and "other long-term liabilities" in the Consolidated Balance Sheets. The plan provides for a discretionary Company match up to a defined portion of the employee’s deferral, with any match subject to defined conditions.

We have purchased whole life insurance on the lives of certain of our current and former deferred compensation plan participants. This corporate-owned life insurance is held in a grantor trust and is intended to cover a majority of the costs of our deferred compensation plan. The cash surrender value of our corporate-owned life insurance was $29.6 million as of January 28, 2024, of which $25.1 million was included in "other assets" and $4.5 million was included in "other current assets" in the Consolidated Balance Sheets, compared to $33.7 million as of January 29, 2023, which was included in "other assets" in the Consolidated Balance Sheets. The $4.0 million decrease in the cash surrender value of the corporate-owned life insurance as of January 28, 2024 compared to January 29, 2023 was primarily related to $8.9 million of distributions used to settle payments related to the deferred compensation liability, partially offset by an overall $4.9 million increase in market value reflected in earnings.

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We maintain defined benefit pension plans for the employees of our Swiss subsidiaries and French subsidiary. Expected future payments under these plans totaled $27.3 million as of January 28, 2024.

The liability associated with vested, but unsettled restricted stock awards that are to be settled in cash totaled $4.4 million as of January 28, 2024, of which $2.6 million was included in "other long-term liabilities" and $1.8 million was included in "accrued liabilities" in the Balance Sheets, compared to $6.1 million as of January 29, 2023, which was included in "other long-term liabilities" in the Balance Sheets.

Working Capital

Working capital, defined as total current assets less total current liabilities including the current portion of long-term debt, fluctuates depending on end-market demand and our effective management of certain items such as receivables, inventory and payables. In times of escalating demand, our working capital requirements may increase as we purchase additional manufacturing materials and increase production. In addition, our working capital may be affected by potential acquisitions and transactions involving our debt instruments. Although investments made to fund working capital will reduce our cash balances, these investments are necessary to support business and operating initiatives.

Cash Flows

In summary, our cash flows for each period were as follows:

Operating Activities

Net cash provided by or used in operating activities is driven by net income or loss adjusted for non-cash items and fluctuations in operating assets and liabilities.

Operating cash flows for fiscal year 2024 compared to fiscal year 2023 were unfavorably impacted by higher interest payments on debt, integration costs related to the Sierra Wireless Acquisition, higher annual bonus payments related to increased headcount, higher restructuring costs, higher deferred compensation distributions and higher income tax payments, and were favorably impacted by a 14.8% increase in net sales, a $61.1 million incremental decrease in inventory spend and $45.7 million of share-based compensation acceleration expense in fiscal year 2023 related to the Sierra Wireless Acquisition.

Investing Activities

Net cash provided by or used in investing activities is primarily driven by acquisitions, net of any cash received, proceeds from divestitures, capital expenditures, purchases of investments, proceeds from or premiums paid for corporate-owned life insurance, proceeds from sales of property, plant and equipment, proceeds from sales of investments, and purchases of intangibles.

On January 12, 2023, we acquired all of the outstanding equity interests of Sierra Wireless for total purchase consideration, net of cash acquired of $1.2 billion. We funded the cash consideration with a combination of cash on hand and $895.0 million of capital from term loans as described in Note 10, Long-Term Debt, to our Consolidated Financial Statements.

During fiscal year 2023, we received $26.2 million of proceeds from the divestiture of the Disposal Group, net of cash disposed. For additional information on the divestiture, see Note 3, Acquisition and Divestiture, to our Consolidated Financial Statements.

Capital expenditures were $29.2 million and $28.3 million in fiscal years 2024 and 2023, respectively, as we made significant investments to update and expand our production capabilities.

In fiscal years 2024 and 2023, we paid $0.9 million and $6.7 million, respectively, for strategic investments, including investments in companies that are enabling the LoRa and LoRaWAN®-based ecosystem.

In fiscal year 2024, we received $8.9 million of proceeds from corporate-owned life insurance, which was used to pay deferred compensation distributions. In fiscal year 2023, we received $5.1 million of proceeds from corporate-owned life insurance death benefits, which included a $2.5 million gain. All $5.1 million of the proceeds were re-invested into our corporate-owned life insurance policy in order to provide substantive coverage for our deferred compensation liability.

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Financing Activities

Net cash provided by or used in financing activities is primarily attributable to proceeds from our Revolving Credit Facility, the Term Loans, the 2028 Notes, the 2027 Notes, the sale of the Warrants and stock option exercises, offset by the purchase of the Convertible Note Hedge Transactions, repurchases of outstanding common stock, payments on the Revolving Credit Facility and the Term Loans, deferred financing costs and payments related to employee share-based compensation payroll taxes.

In fiscal years 2024 and 2023, we paid $25.4 million and $21.8 million, respectively, in deferred financing costs related to the Revolving Credit Facility, the Term Loans, the 2028 Notes and the 2027 Notes.

In fiscal year 2024, we paid $6.7 million for employee share-based compensation payroll taxes. In fiscal year 2023, we paid $14.2 million for employee share-based compensation payroll taxes and received proceeds of $0.6 million from the exercise of stock options. We do not directly control the timing of the exercise of stock options. Such exercises are independent decisions made by grantees and are influenced most directly by the stock price and the expiration dates of stock option awards. Such proceeds are difficult to forecast, resulting from several factors which are outside our control. We believe that such proceeds will remain a nominal source of cash in the future.

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with GAAP. In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosure of contingent assets and liabilities. Accordingly, actual results could differ materially from our estimates. We consider an accounting policy to be a "critical accounting policy and estimate" if: (1) we must make assumptions that were uncertain when the judgment was made, and (2) changes in the estimate assumptions or selection of a different estimate methodology could have a significant impact on our financial position and the results that we report in our consolidated financial statements. While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when the estimate was made. We believe the following represent our most significant accounting estimates:

•Inventories - We value our inventory at the lower of cost or net realizable value, which requires us to make estimates regarding potential obsolescence or lack of marketability. We reduce the basis of our inventory due to changes in demand or change in product life cycles. The estimation of customer demand requires management to evaluate and make assumptions of the impact of changes in demand or changes in product life cycles on current sales levels. Our write-down to net realizable value at the end of fiscal year 2024 and 2023 represented 35.7% and 25.8% of gross inventory, respectively. Based on fiscal year 2024 ending inventory, an increase in the write-down by one percent of gross inventory would decrease net inventory and increase cost of goods sold by $2.3 million.

•Revenue recognition - Net sales reflect the transaction prices for contracts, which include units shipped at selling prices reduced by variable consideration. Determination of variable consideration requires judgment by us and includes expected sales returns and other price adjustments. Variable consideration is estimated using the expected value method considering all reasonably available information, including our historical experience and our current expectations, and is reflected in the transaction price when sales are recorded. In fiscal year 2024, net sales were reduced by $55.2 million in estimated variable consideration, or 6.0% of gross revenue. In fiscal year 2023, net sales were reduced by $24.2 million in estimated variable consideration, or 3.1% of gross revenue. If variable consideration were estimated to be one percent higher, fiscal year 2024 revenue would have decreased by $9.2 million.

•Income taxes - We make certain estimates and judgements in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of income tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of the recognition of certain expenses for tax and financial statement purposes. We assess the likelihood of the realization of deferred tax assets and record a corresponding valuation allowance as necessary if we determine those deferred tax assets may not be realized due to the uncertainty of the timing and amount to be realized. For example, we have valuation allowance against federal, state and certain foreign deferred tax assets in jurisdictions where we have cumulative losses or otherwise are not expected to utilize certain tax attributes. In reaching our conclusion, we evaluate certain relevant criteria including the existence of deferred tax liabilities that can be used to realize deferred tax assets, the taxable income in prior carryback years in the impacted state and international jurisdictions that can be used to absorb net operating losses and taxable income in future years. Our judgments regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors. These changes, if any, may require material adjustments to these deferred tax assets, which may result in an increase or decrease to our income tax provision in future periods.

We account for uncertain tax positions by first determining if it is “more likely than not” that a tax position will be sustained by the appropriate taxing authorities prior to recording any benefit in the financial statements. An uncertain income tax position is not recognized if it has less than a 50% likelihood of being sustained. For those tax positions where it is more likely than not that a tax position will be sustained, we have recorded the tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant

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information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. We classify interest and penalties related to uncertain tax positions within the provision for (benefit from) income taxes line of the Consolidated Statements of Income. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in known facts or circumstances, changes in tax law, effectively settled issues under audit, and new guidance on legislative interpretations. A change in these factors could result in the recognition of an increase or decrease to our income tax provision, which could materially impact our consolidated financial position and results of operations.

In the ordinary course of global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of cost reimbursement among related entities. Although we believe our estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in our historical income tax provisions and income tax liabilities. In the event our assumptions are incorrect, the differences could have a material impact on our income tax provision and operating results in the period in which such determination is made. In addition to the factors described above, our current and expected effective tax rate is based on then-current tax law. Significant changes during the year in enacted tax law could affect these estimates.

See Note 12, Income Taxes, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further discussion.

•Business Combinations, Goodwill and Intangible Assets - The Sierra Wireless Acquisition was accounted for under the acquisition method by assigning the purchase price to tangible and intangible assets acquired and liabilities assumed. Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill. In determining the fair value of the acquired assets and liabilities, we determined this in consultation with third-party valuation advisors. Acquired intangible assets with finite lives are amortized over their estimated useful lives. Adjustments to fair value assessments are recorded to goodwill over the purchase price allocation period. The determination of the estimated fair value of our acquired intangible assets requires significant judgements and estimates and is most sensitive to future revenue forecasts.

Goodwill and acquired intangible assets with indefinite lives are not amortized. We review goodwill and acquired indefinite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. We also perform an annual impairment test in the fourth quarter of each year. We test goodwill and acquired indefinite-lived intangible assets for impairment between annual tests if events occur or circumstances change that would more likely than not reduce our enterprise fair value below its book value. These events or circumstances could include a significant change in the business climate, including a significant sustained decline in an entity’s market value, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business, or other factors.

We may use either a qualitative or quantitative approach when testing a reporting unit’s goodwill for impairment. For selected reporting units where we use the qualitative approach, we perform a qualitative evaluation of events and circumstances impacting the reporting unit to determine the likelihood of goodwill impairment. Based on that qualitative evaluation, if we determine it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, no further evaluation is necessary. Otherwise we perform a quantitative impairment test. We perform a quantitative test for each reporting unit at least once every three years.

For goodwill impairment testing using the quantitative approach, we estimate the fair value of the selected reporting units through the use of a discounted cash flow model (an income approach), and earnings multiples (a market approach). The discounted cash flow model is based on our best estimate of amounts and timing of future revenues and cash flows and our most recent business and strategic plans, and requires judgmental assumptions about projected revenue growth, future operating margins, discount rates and terminal values over a multi-year period. There are inherent uncertainties related to these assumptions and management’s judgment in applying them to the analysis of goodwill impairment. While we believe we have made reasonable estimates and assumptions to calculate the fair value of our reporting units, it is possible a material change could occur. If actual results are not consistent with management’s estimates and assumptions, goodwill may be overstated and a charge would need to be taken against net earnings.

When using a quantitative approach, changes in our projections used in the discounted cash flow model and public company guideline model could affect the estimated fair value of certain of our reporting units and could result in a goodwill impairment charge in a future period. Due to the many variables inherent in the estimation of a reporting unit’s fair value and the relative size of our recorded goodwill, differences in assumptions may have a material effect on the results of our impairment analysis.

Intangible assets with finite lives and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of intangible assets with finite lives and other long-lived assets is measured by a comparison of the carrying amount of an asset or asset group to

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future undiscounted cash flows expected to be generated by the asset or asset group. Asset groups are determined at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If these comparisons indicate that an asset is not recoverable, we will recognize an impairment loss for the amount by which the carrying value of the asset or asset group exceeds the related estimated fair value.

During fiscal year 2024, we had six reporting units for goodwill impairment testing. A quantitative test was performed for all of the reporting units. Our analysis for fiscal year 2024 resulted in goodwill impairment charges of $755.6 million. During the second quarter of fiscal year 2024, as a result of reduced earnings forecasts associated with the business acquired from Sierra Wireless and current macroeconomic conditions, including an elevated interest rate environment, the Company performed an interim impairment test using a quantitative assessment of the reporting units related to the Sierra Wireless Acquisition (specifically, the IoT Connected Services, IoT Systems–Modules and IoT Systems–Routers reporting units). This interim impairment test resulted in $279.6 million of total pre-tax non-cash goodwill impairment charges recorded during the second quarter of fiscal year 2024, consisting of $69.0 million of goodwill impairment for the IoT Connected Services reporting unit, $109.9 million of goodwill impairment for the IoT Systems–Modules reporting unit and $100.7 million goodwill impairment for the IoT Systems–Routers reporting unit. During the third quarter of fiscal year 2024, the Company recorded an additional $2.3 million of total pre-tax non-cash goodwill impairment charges resulting from the finalization of the measurement period adjustments, consisting of $1.6 million of goodwill impairment for the IoT Connected Services reporting unit, $0.2 million of goodwill impairment for the IoT Systems–Modules reporting unit and $0.5 million of goodwill impairment for the IoT Systems–Routers reporting unit. During the fourth quarter of fiscal year 2024, the Company performed its annual goodwill and intangible asset impairment assessment using a quantitative assessment for all of its reporting units. Due to a further reduction in earnings forecasts associated with the business acquired from Sierra Wireless, the Company recorded an additional $473.8 million of total pre-tax non-cash goodwill impairment charges resulting from a quantitative assessment of the reporting units, consisting of $138.4 million of goodwill impairment for the IoT Connected Services reporting unit, $135.1 million of goodwill impairment for the IoT Systems–Modules reporting unit and $200.3 million of goodwill impairment for the IoT Systems–Routers reporting unit. There was no goodwill impairment at any of the Company's other reporting units.

During fiscal year 2023, we had three reporting units for goodwill impairment testing. A qualitative test was performed for one reporting unit and a quantitative test was performed for the remaining two reporting units. Our analysis for fiscal year 2023 indicated that in all instances, the fair value of our reporting units exceeded their carrying values and consequently did not result in an impairment charge.

In performing the annual goodwill impairment testing during the fourth quarter of fiscal year 2024, we also determined that the carrying amounts of our asset groups related to the Sierra Wireless Acquisition may not be recoverable. We therefore performed impairment tests on the long-lived assets in each asset group, including definite-lived intangible assets using an undiscounted cash flow analysis, to determine whether the carrying amounts of each asset group related to the Sierra Wireless Acquisition are recoverable. All three asset groups failed the undiscounted cash flow recoverability test and, therefore, we estimated the fair value of the asset groups to determine whether any asset impairment was present. Our estimation of the fair value of the long-lived assets included the use of discounted cash flow analyses. Based on these analyses, we concluded that the fair values of certain assets were lower than their carrying amounts. During the fourth quarter of fiscal year 2024, we recognized intangible impairment charges of $91.8 million for core technologies, $34.8 million for customer relationships and $4.8 million for trade name, reducing the carrying amounts to $28.1 million for core technologies, $4.1 million for customer relationships and $1.5 million for trade name.

Recent Accounting Pronouncements

Recent accounting pronouncements are discussed in Note 2, Significant Accounting Policies, to our Consolidated Financial Statements.