UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~July 26, 2020~~May 2, 2021


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 001-06395

____________________________________

SEMTECH CORPORATION

(Exact name of registrant as specified in its charter)

____________________________________



Delaware						95-2119684
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

200 Flynn Road, Camarillo, California, 93012-8790

(Address of principal executive offices, Zip Code)

Registrant’s telephone number, including area code: (805) 498-2111

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock par value $0.01 per share

SMTC

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

Number of shares of common stock, $0.01 par value per share, outstanding at ~~August 21, 2020: 65,162,169~~May 28, 2021: 64,926,331

SEMTECH CORPORATION

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED ~~JULY 26, 2020~~MAY 2, 2021

Unless the context otherwise requires, the use of the terms "Semtech," "the Company," "we," "us" and "our" in this Quarterly Report on Form 10-Q refers to Semtech Corporation and, as applicable, its consolidated subsidiaries. This Quarterly Report on Form 10-Q may contain references to the Company’s trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q, including logos, artwork and other visual displays, may appear without the ® or ^TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies' trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other company.

Special Note Regarding Forward-Looking and Cautionary Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on our current expectations, estimates and projections about our operations, industry, financial condition, performance, results of operations, and liquidity. Forward-looking statements are statements other than historical information or statements of current condition and relate to matters such as future financial performance, future operational performance, the anticipated impact of specific items on future earnings, and our plans, objectives and expectations. Statements containing words such as "may," "believe," "anticipate," "expect," "intend," "plan," "project," "estimate," "should," "will," "designed to," "projections," or "business outlook," or other similar expressions constitute forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that could cause actual results and events to differ materially from those projected. Potential factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: the uncertainty surrounding the impact and duration of the COVID-19 pandemic on global economic conditions and on the Company’s business and results of operations; ~~export restrictions and laws affecting the Company’s trade and investments including with respect to Huawei~~ ~~and certain of its affiliates, and tariffs or the occurrence of trade wars;~~ competitive changes in the marketplace including, but not limited to, the pace of growth or adoption rates of applicable products or technologies; downturns in the business cycle; decreased average selling prices of the Company’s products; the Company’s reliance on a limited number of suppliers and subcontractors for components and materials; changes in projected or anticipated end-user markets; export restrictions and laws affecting the Company’s ~~ability~~trade and investments including with respect to ~~forecast~~Huawei and certain of its ~~effective tax rates due to changing income in higher~~affiliates, and tariffs or ~~lower tax jurisdictions and other factors that contribute to~~ the ~~volatility~~occurrence of ~~the Company’s effective tax rates and impact anticipated tax benefits;~~trade wars; and the ~~Company's~~Company’s ability to forecast and achieve anticipated net sales and earnings estimates in light of periodic economic uncertainty, ~~to include~~including impacts arising from Asian, European, and global economic dynamics.

Additionally, forward-looking statements should be considered in conjunction with the cautionary statements contained in this Quarterly Report on Form 10-Q, including, without limitation, information under the captions "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" and additional factors that accompany the related forward-looking statements in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the fiscal year ended January ~~26, 2020~~31, 2021 including, without limitation, information under the caption "Risk Factors," in our other filings with the U.S. Securities and Exchange Commission (“SEC”), and in material incorporated herein and therein by reference. In light of the significant risks and uncertainties inherent in the forward-looking information included herein that may cause actual performance and results to differ materially from those predicted, any such forward-looking information should not be regarded as representations or guarantees by the Company of future performance or results, or that its objectives or plans will be achieved, or that any of its operating expectations or financial forecasts will be realized. Reported results should not be considered an indication of future performance. Investors are cautioned not to place undue reliance on any forward-looking information contained herein, which reflect management’s analysis only as of the date hereof. Except as required by law, the Company assumes no obligation to publicly release the results of any update or revision to any forward-looking statement that may be made to reflect new information, events or circumstances after the date hereof or to reflect the occurrence of unanticipated or future events, or otherwise.

The factors noted above, and the risks included in our SEC filings, may be increased or intensified as a result of the COVID-19 pandemic. The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted. ~~See the risk factors in "Part II - Item 1A. Risk Factors" in this Quarterly Report on Form 10-Q.~~ In addition to regarding forward-looking statements with caution, you should consider that the preparation of the consolidated financial statements requires us to draw conclusions and make interpretations, judgments, assumptions and estimates with respect to certain factual, legal, and accounting matters. Our consolidated financial statements might have been materially impacted if we had reached different conclusions or made different interpretations, judgments, assumptions or estimates.

PART I - FINANCIAL INFORMATION

ITEM 1.Financial Statements

SEMTECH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)


		Three Months Ended						Six Months Ended					Three Months Ended
		July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019			May 2, 2021		April 26, 2020
Net sales	Net sales	$	143,660	$	137,146	$	276,362	$	268,500	Net sales	$	170,372	$	132,702
Cost of sales	Cost of sales	55,409		52,262		107,350		102,341		Cost of sales	65,511		51,941
Gross profit	Gross profit	88,251		84,884		169,012		166,159		Gross profit	104,861		80,761
Operating costs and expenses:	Operating costs and expenses:									Operating costs and expenses:
Selling, general and administrative	Selling, general and administrative	38,255		43,325		72,855		82,297		Selling, general and administrative	38,804		34,600
Product development and engineering	Product development and engineering	29,220		25,882		56,806		53,036		Product development and engineering	36,790		27,586
Intangible amortization	Intangible amortization	2,020		3,908		4,860		9,051		Intangible amortization	1,298		2,840

Changes in the fair value of contingent earn-out obligations	Changes in the fair value of contingent earn-out obligations	—		—		(33)		(2,161)		Changes in the fair value of contingent earn-out obligations	0		(33)

Total operating costs and expenses	Total operating costs and expenses	69,495		73,115		134,488		142,223		Total operating costs and expenses	76,892		64,993
Operating income	Operating income	18,756		11,769		34,524		23,936		Operating income	27,969		15,768
Interest expense	Interest expense	(1,252)		(2,597)		(2,811)		(5,064)		Interest expense	(1,199)		(1,559)
Non-operating (expense) income, net		(176)		1,213		247		2,256
Non-operating income, net										Non-operating income, net	94		423
Investment impairments and credit loss reserves	Investment impairments and credit loss reserves	(1,485)		—		(5,115)		—		Investment impairments and credit loss reserves	(246)		(3,630)
Income before taxes and equity in net (losses) gains of equity method investments		15,843		10,385		26,845		21,128
(Benefit) provision for income taxes		(416)		8,361		943		5,945
Net income before equity in net (losses) gains of equity method investments		16,259		2,024		25,902		15,183
Equity in net (losses) gains of equity method investments		(137)		168		(148)		(243)
Income before taxes and equity in net gains (losses) of equity method investments										Income before taxes and equity in net gains (losses) of equity method investments	26,618		11,002
Provision for income taxes										Provision for income taxes	3,198		1,359
Net income before equity in net gains (losses) of equity method investments										Net income before equity in net gains (losses) of equity method investments	23,420		9,643
Equity in net gains (losses) of equity method investments										Equity in net gains (losses) of equity method investments	78		(11)
Net income	Net income	16,122		2,192		25,754		14,940		Net income	23,498		9,632
Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	(3)		—		(6)		—		Net loss attributable to noncontrolling interest	(2)		(3)
Net income attributable to common stockholders	Net income attributable to common stockholders	$	16,125	$	2,192	$	25,760	$	14,940	Net income attributable to common stockholders	$	23,500	$	9,635
Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	0.25	$	0.03	$	0.39	$	0.23	Basic	$	0.36	$	0.15
Diluted	Diluted	$	0.24	$	0.03	$	0.39	$	0.22	Diluted	$	0.36	$	0.15
Weighted-average number of shares used in computing earnings per share:	Weighted-average number of shares used in computing earnings per share:									Weighted-average number of shares used in computing earnings per share:
Basic	Basic	65,084		66,519		65,337		66,312		Basic	65,089		65,589
Diluted	Diluted	66,004		67,746		66,099		67,814		Diluted	66,110		66,174

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

SEMTECH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

Three Months Ended Six Months Ended
July 26, 2020 July 28, 2019 July 26, 2020 July 28, 2019
Net income $ 16,122 $ 2,192 $ 25,754 $ 14,940
Other comprehensive loss, net:
Unrealized gain (loss) on foreign currency cash flow hedges, net 479 (229) 358 (280)
Reclassifications of realized loss on foreign currency cash flow hedges, net to net income 6 38 6 9
Unrealized loss on interest rate cash flow hedges, net (317) — (1,620) —
Reclassifications of realized loss on interest rate cash flow hedges, net to net income 94 — 73 —
Unrealized gain on available-for-sale securities 133 — 386 —
Reclassification of realized gain on available-for-sale securities, net to net income (757) — (757) —
Change in defined benefit plans, net 193 69 379 137
Other comprehensive loss, net (169) (122) (1,175) (134)
Comprehensive income 15,953 2,070 $ 24,579 $ 14,806
Comprehensive loss attributable to noncontrolling interest (3) — (6) —
Comprehensive income attributable to common stockholders $ 15,956 $ 2,070 $ 24,585 $ 14,806


	Three Months Ended
		May 2, 2021		April 26, 2020
Net income		$	23,498	$	9,632
Other comprehensive income (loss), net:
Unrealized loss on foreign currency cash flow hedges, net		0		(121)

Unrealized gain (loss) on interest rate cash flow hedges, net		464		(1,303)
Reclassifications of realized gain on interest rate cash flow hedges, net to net income		(179)		(21)
Unrealized gain on available-for-sale securities		0		253

Change in defined benefit plans, net		155		186

Other comprehensive income (loss), net		440		(1,006)
Comprehensive income		$	23,938	$	8,626
Comprehensive loss attributable to noncontrolling interest		(2)		(3)
Comprehensive income attributable to common stockholders		$	23,940	$	8,629

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

SEMTECH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)


		July 26, 2020		January 26, 2020			May 2, 2021		January 31, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	281,456	$	293,324	Cash and cash equivalents	$	258,219	$	268,891
Accounts receivable, less allowances of $529 and $633, respectively		51,672		61,927
Accounts receivable, less allowances of $682 and $721, respectively						Accounts receivable, less allowances of $682 and $721, respectively	66,518		70,433
Inventories	Inventories	77,548		73,010		Inventories	93,919		87,494
Prepaid taxes	Prepaid taxes	20,990		10,718		Prepaid taxes	16,397		22,083
Other current assets	Other current assets	22,205		21,757		Other current assets	26,309		25,827
Total current assets	Total current assets	453,871		460,736		Total current assets	461,362		474,728
Non-current assets:	Non-current assets:					Non-current assets:
Property, plant and equipment, net of accumulated depreciation of $225,807 and $214,787, respectively		125,542		124,418
Property, plant and equipment, net of accumulated depreciation of $239,557 and $233,779, respectively						Property, plant and equipment, net of accumulated depreciation of $239,557 and $233,779, respectively	131,255		130,934
Deferred tax assets	Deferred tax assets	26,929		20,094		Deferred tax assets	25,413		25,483
Goodwill	Goodwill	351,141		351,141		Goodwill	351,141		351,141
Other intangible assets, net	Other intangible assets, net	15,152		20,012		Other intangible assets, net	10,448		11,746
Other assets	Other assets	81,396		76,032		Other assets	89,998		88,070
TOTAL ASSETS	TOTAL ASSETS	$	1,054,031	$	1,052,433	TOTAL ASSETS	$	1,069,617	$	1,082,102
Liabilities and Equity	Liabilities and Equity					Liabilities and Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	39,319	$	48,009	Accounts payable	$	51,195	$	50,189
Accrued liabilities	Accrued liabilities	62,753		50,632		Accrued liabilities	45,317		59,384
Total current liabilities	Total current liabilities	102,072		98,641		Total current liabilities	96,512		109,573
Non-current liabilities:	Non-current liabilities:					Non-current liabilities:
Deferred tax liabilities	Deferred tax liabilities	3,735		3,600		Deferred tax liabilities	955		976
Long term debt	Long term debt	186,955		194,743		Long term debt	175,316		179,195
Other long-term liabilities	Other long-term liabilities	83,536		78,249		Other long-term liabilities	92,349		93,405

Commitments and contingencies (Note 11)	Commitments and contingencies (Note 11)					Commitments and contingencies (Note 11)	0		0

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock, $0.01 par value, 250,000,000 shares authorized, 78,136,144 issued and 65,019,501 outstanding and 78,136,144 issued and 65,758,115 outstanding, respectively		785		785
Treasury stock, at cost, 13,116,643 shares and 12,378,029 shares, respectively		(424,095)		(387,851)
Common stock, $0.01 par value, 250,000,000 shares authorized, 78,136,144 issued and 64,897,920 outstanding and 78,136,144 issued and 65,098,379 outstanding, respectively						Common stock, $0.01 par value, 250,000,000 shares authorized, 78,136,144 issued and 64,897,920 outstanding and 78,136,144 issued and 65,098,379 outstanding, respectively	785		785
Treasury stock, at cost, 13,238,224 shares and 13,037,765 shares, respectively						Treasury stock, at cost, 13,238,224 shares and 13,037,765 shares, respectively	(460,249)		(438,798)
Additional paid-in capital	Additional paid-in capital	471,091		458,579		Additional paid-in capital	476,773		473,728
Retained earnings	Retained earnings	637,053		611,607		Retained earnings	694,696		671,196
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(7,341)		(6,166)		Accumulated other comprehensive loss	(7,728)		(8,168)
Total stockholders’ equity	Total stockholders’ equity	677,493		676,954		Total stockholders’ equity	704,277		698,743

Noncontrolling interest	Noncontrolling interest	240		246		Noncontrolling interest	208		210
Total equity	Total equity	677,733		677,200		Total equity	704,485		698,953
TOTAL LIABILITIES AND EQUITY	TOTAL LIABILITIES AND EQUITY	$	1,054,031	$	1,052,433	TOTAL LIABILITIES AND EQUITY	$	1,069,617	$	1,082,102

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

SEMTECH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)


		Three Months Ended July 26, 2020																																													Three Months Ended May 2, 2021
		Common Stock											Accumulated Other Comprehensive Loss											Common Stock															Accumulated Other Comprehensive Loss
		Number of Shares Outstanding	Amount		Treasury Stock, at Cost		Additional Paid-in Capital		Retained Earnings						Stockholders’ Equity			Noncontrolling Interest			Total Equity		Number of Shares Outstanding			Amount			Treasury Stock, at Cost			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Stockholders’ Equity				Noncontrolling Interest				Total Equity
Balance at April 26, 2020		65,132,030	$	785	$	(414,028)	$	460,961	$	620,928	$	(7,172)	$	661,474		$	243		$	661,717
Balance at January 31, 2021																					Balance at January 31, 2021	65,098,379		$	785		$	(438,798)		$	473,728		$	671,196		$	(8,168)				$	698,743			$	210			$	698,953

Net income	Net income	—	—		—		—		16,125		—		16,125			(3)			16,122		Net income	—		—			—			—			23,500			—			23,500				(2)				23,498
Other comprehensive loss		—	—		—		—		—		(169)		(169)			—			(169)
Other comprehensive income																					Other comprehensive income	—		—			—			—			—			440			440				—				440
Share-based compensation	Share-based compensation	—	—		—		11,343		—		—		11,343			—			11,343		Share-based compensation	—		—			—			12,196			—			—			12,196				—				12,196
Repurchase of common stock	Repurchase of common stock	(232,871)	—		(12,387)		—		—		—		(12,387)			—			(12,387)		Repurchase of common stock	(360,942)		—			(25,000)			—			—			—			(25,000)				—				(25,000)
Treasury stock reissued	Treasury stock reissued	120,342	—		2,320		(1,213)		—		—		1,107			—			1,107		Treasury stock reissued	160,483		—			3,549			(9,151)			—			—			(5,602)				—				(5,602)
Balance at July 26, 2020		65,019,501	$	785	$	(424,095)	$	471,091	$	637,053	$	(7,341)	$	677,493		$	240		$	677,733
Balance at May 2, 2021																					Balance at May 2, 2021	64,897,920		$	785		$	(460,249)		$	476,773		$	694,696		$	(7,728)		$	704,277			$	208			$	704,485


		Six Months Ended July 26, 2020																																		Three Months Ended April 26, 2020
		Common Stock																			Common Stock												Accumulated Other Comprehensive Loss
		Number of Shares Outstanding	Amount		Treasury Stock, at Cost		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Stockholders’ Equity		Noncontrolling Interest		Total Equity			Number of Shares Outstanding	Amount		Treasury Stock, at Cost		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss						Noncontrolling Interest			Total Equity
Balance at January 26, 2020	Balance at January 26, 2020	65,758,115	$	785	$	(387,851)	$	458,579	$	611,607	$	(6,166)	$	676,954	$	246	$	677,200	Balance at January 26, 2020	65,758,115	$	785	$	(387,851)	$	458,579	$	611,607			$	676,954				$	246		$	677,200
Cumulative-effect adjustment to beginning balance from adoption of ASU 2016-13	Cumulative-effect adjustment to beginning balance from adoption of ASU 2016-13	—	—		—		—		(314)		—		(314)		—		(314)		Cumulative-effect adjustment to beginning balance from adoption of ASU 2016-13	—	—		—		—		(314)				—				(314)			—			(314)
Net income	Net income	—	—		—		—		25,760		—		25,760		(6)		25,754		Net income	—	—		—		—		9,635		—				9,635			(3)			9,632
Other comprehensive loss	Other comprehensive loss	—	—		—		—		—		(1,175)		(1,175)		—		(1,175)		Other comprehensive loss	—	—		—		—		—		(1,006)				(1,006)			—			(1,006)

Share-based compensation	Share-based compensation	—	—		—		22,424		—		—		22,424		—		22,424		Share-based compensation	—	—		—		11,081		—		—				11,081			—			11,081
Repurchase of common stock	Repurchase of common stock	(1,087,913)	—		(42,387)		—		—		—		(42,387)		—		(42,387)		Repurchase of common stock	(855,042)	—		(30,000)		—		—		—				(30,000)			—			(30,000)
Treasury stock reissued	Treasury stock reissued	349,299	—		6,143		(9,912)		—		—		(3,769)		—		(3,769)		Treasury stock reissued	228,957	—		3,823		(8,699)		—		—				(4,876)			—			(4,876)
Balance at July 26, 2020		65,019,501	$	785	$	(424,095)	$	471,091	$	637,053	$	(7,341)	$	677,493	$	240	$	677,733
Balance at April 26, 2020																			Balance at April 26, 2020	65,132,030	$	785	$	(414,028)	$	460,961	$	620,928	$	(7,172)			$	661,474		$	243		$	661,717

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

~~SEMTECH CORPORATION AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)~~

~~(in thousands, except share data)~~

~~(unaudited)~~

Three Months Ended July 28, 2019
Common Stock Accumulated Other Comprehensive Loss
Number of Shares Outstanding Amount Treasury Stock, at Cost Additional Paid-in Capital Retained Earnings Stockholders’ Equity Noncontrolling Interest Total Equity
Balance at April 28, 2019 66,644,921 $ 785 $ (327,442) $ 433,021 $ 592,484 $ (3,619) $ 695,229 $ — $ 695,229
Net income — — — — 2,192 — 2,192 — 2,192
Other comprehensive loss — — — — — (122) (122) — (122)
Share-based compensation — — — 12,305 — — 12,305 — 12,305
Repurchase of common stock (446,270) — (20,000) — — — (20,000) — (20,000)
Treasury stock reissued 116,282 — 1,633 (1,088) — — 545 — 545
Balance at July 28, 2019 66,314,933 $ 785 $ (345,809) $ 444,238 $ 594,676 $ (3,741) $ 690,149 $ — $ 690,149

Six Months Ended July 28, 2019
Common Stock Accumulated Other Comprehensive Loss
Number of Shares Outstanding Amount Treasury Stock, at Cost Additional Paid-in Capital Retained Earnings Stockholders’ Equity Noncontrolling Interest Total Equity
Balance at January 27, 2019 65,238,255 $ 785 $ (346,218) $ 451,884 $ 579,736 $ (3,607) $ 682,580 $ — $ 682,580
Net income — — — — 14,940 — 14,940 — 14,940
Other comprehensive loss — — — — — (134) (134) — (134)
Share-based compensation — — — 23,319 — — 23,319 — 23,319
Repurchase of common stock (448,481) — (20,110) — — — (20,110) — (20,110)
Treasury stock reissued 1,525,159 — 20,519 (30,965) — — (10,446) — (10,446)
Balance at July 28, 2019 66,314,933 $ 785 $ (345,809) $ 444,238 $ 594,676 $ (3,741) $ 690,149 $ — $ 690,149

~~The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.~~

SEMTECH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


		Six Months Ended							Three Months Ended
		July 26, 2020		July 28, 2019			May 2, 2021		April 26, 2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	25,754	$	14,940	Net income	$	23,498	$	9,632
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	16,281		20,543		Depreciation and amortization	7,420		7,575
Amortization of right-of-use assets						Amortization of right-of-use assets	1,055		966

Investment impairments and credit loss reserves	Investment impairments and credit loss reserves	5,115		—		Investment impairments and credit loss reserves	246		3,630
Accretion of deferred financing costs and debt discount	Accretion of deferred financing costs and debt discount	242		247		Accretion of deferred financing costs and debt discount	121		121

Deferred income taxes	Deferred income taxes	(6,209)		2,544		Deferred income taxes	(29)		(184)
Share-based compensation	Share-based compensation	22,565		24,403		Share-based compensation	11,839		9,379
(Gain) loss on disposition of assets		(20)		426
Gain on disposition of assets						Gain on disposition of assets	(20)		0
Changes in the fair value of contingent earn-out obligations	Changes in the fair value of contingent earn-out obligations	(33)		(2,161)		Changes in the fair value of contingent earn-out obligations	0		(33)
Equity in net losses of equity method investments		148		243
Equity in net (gains) losses of equity method investments						Equity in net (gains) losses of equity method investments	(78)		11

Corporate owned life insurance, net	Corporate owned life insurance, net	2,030		756		Corporate owned life insurance, net	2,562		(175)
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable, net	Accounts receivable, net	10,255		20,580		Accounts receivable, net	3,915		12,476
Inventories	Inventories	(4,538)		(11,381)		Inventories	(6,425)		(3,923)
Other assets	Other assets	(3,798)		(6,950)		Other assets	5,815		(3,207)
Accounts payable	Accounts payable	(5,820)		(2,256)		Accounts payable	1,513		(2,860)
Accrued liabilities	Accrued liabilities	543		(18,041)		Accrued liabilities	(14,659)		(5,466)
Income taxes payable		—		(2,105)

Other liabilities	Other liabilities	784		(1,695)		Other liabilities	(4,188)		(1,859)
Net cash provided by operating activities	Net cash provided by operating activities	63,299		40,093		Net cash provided by operating activities	32,585		26,083
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:

Proceeds from sales of property, plant and equipment	Proceeds from sales of property, plant and equipment	20		143		Proceeds from sales of property, plant and equipment	32		0
Purchase of property, plant and equipment	Purchase of property, plant and equipment	(14,640)		(16,893)		Purchase of property, plant and equipment	(5,760)		(7,672)
Purchase of investments	Purchase of investments	(6,688)		(7,692)		Purchase of investments	(2,927)		(3,888)

Proceeds from sale of investments		327		—

Net cash used in investing activities	Net cash used in investing activities	(20,981)		(24,442)		Net cash used in investing activities	(8,655)		(11,560)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Payments of term loans		—		(9,375)

Payments of revolving line of credit	Payments of revolving line of credit	(8,000)		—		Payments of revolving line of credit	(4,000)		(4,000)
Deferred financing costs	Deferred financing costs	(30)		—		Deferred financing costs	0		(24)

Payment for employee share-based compensation payroll taxes	Payment for employee share-based compensation payroll taxes	(6,750)		(13,401)		Payment for employee share-based compensation payroll taxes	(6,230)		(5,764)
Proceeds from exercise of stock options	Proceeds from exercise of stock options	2,981		2,954		Proceeds from exercise of stock options	628		888
Repurchase of common stock	Repurchase of common stock	(42,387)		(20,110)		Repurchase of common stock	(25,000)		(30,000)

Net cash used in financing activities	Net cash used in financing activities	(54,186)		(39,932)		Net cash used in financing activities	(34,602)		(38,900)
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	(11,868)		(24,281)		Net decrease in cash and cash equivalents	(10,672)		(24,377)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	293,324		312,120		Cash and cash equivalents at beginning of period	268,891		293,324
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	281,456	$	287,839	Cash and cash equivalents at end of period	$	258,219	$	268,947
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Interest paid	Interest paid	$	2,664	$	4,348	Interest paid	$	1,065	$	1,570
Income taxes paid	Income taxes paid	$	4,632	$	7,580	Income taxes paid	$	2,917	$	3,866
Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Accounts payable related to capital expenditures	Accounts payable related to capital expenditures	$	1,377	$	2,024	Accounts payable related to capital expenditures	$	2,355	$	2,435

Conversion of notes into equity						Conversion of notes into equity	$	626	$	0

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

SEMTECH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Organization and Basis of Presentation

Nature of Business

Semtech Corporation (together with its consolidated subsidiaries, the "Company" or "Semtech") is a leading global supplier of high performance analog and mixed-signal semiconductors and advanced algorithms. The end customers for the Company’s products are primarily original equipment manufacturers ("OEMs") that produce and sell electronics.

Fiscal Year

The Company reports results on the basis of 52 and 53-week periods and ends its fiscal year on the last Sunday in January. The other quarters generally end on the last Sunday of April, July and ~~October.~~October, although the first and second quarters of fiscal year 2022 end on the first Sunday of May and August, respectively. All quarters consist of 13 weeks except for one 14-week period in the fourth quarter of 53-week years. The ~~second~~first quarters of fiscal years ~~2021~~2022 and ~~2020~~2021 each consisted of 13 weeks.

Principles of Consolidation

The accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company, in accordance with accounting principles generally accepted in the United States ("GAAP") and on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January ~~26, 2020~~31, 2021 ("Annual Report"). The Company’s interim unaudited condensed consolidated statements of income are referred to herein as the "Statements of Income." The Company’s interim unaudited condensed consolidated balance sheets are referred to herein as the "Balance Sheets" and interim unaudited condensed consolidated statements of cash flows as the "Statements of Cash Flows." In the opinion of the Company, these interim unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly, in all material respects, the financial position of the Company for the interim periods presented. All intercompany balances have been eliminated. Because the interim unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for a complete set of consolidated financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report. The results reported in these interim unaudited condensed consolidated financial statements should not be regarded as indicative of results that may be expected for any subsequent period or for the entire year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

~~Correction of Immaterial Errors~~

During the fourth quarter of fiscal year 2020, management identified certain immaterial errors related to share-based compensation expense of market-condition awards granted during fiscal years 2018, 2019 and 2020. The errors resulted from adjustments to the grant date fair value of the market-condition awards that were incorrectly accounted for as performance-based awards. The Company has corrected its consolidated financial statements for these errors for the impacted prior periods presented in this Quarterly Report on Form 10-Q. Refer to Note 16 for a discussion of the Company's assessment of the errors and impact on its consolidated financial statements.

Recently Adopted Accounting Guidance

In ~~June 2016,~~December 2019, the Financial Accounting Standards Board ~~("FASB")~~ issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments–Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This guidance requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. It also requires credit losses on available-for-sale debt securities to be presented as an allowance, rather than reducing the carrying amount. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years. The Company adopted ~~ASU 2016-13~~ ~~in the first quarter of fiscal year 2021, resulting in a $0.3 million reduction to beginning retained earnings, net of tax, and the recognition of a $0.4 million credit loss reserve.~~

~~Accounting Guidance Issued, but not yet Adopted as of July 26, 2020~~

~~In December 2019, the FASB issued ASU~~ No. 2019-12, Simplifying the Accounting for Income Taxes, which modifies Accounting Standards Codification ("ASC") 740 to simplify the accounting for income taxes. This guidance impacts the accounting for hybrid tax regimes, the tax basis step-up in goodwill obtained in a transaction that is not a business combination,

separate financial statements of legal entities not subject to tax, the intraperiod tax allocation exception to the incremental approach, ownership changes in investments from a subsidiary to an equity method investment and vice versa, interim period accounting for enacted changes in tax law and the year-to-date loss limitation in interim period tax accounting. This guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within this those fiscal years, with early adoption permitted. The Company ~~will adopt~~adopted this guidance in the first quarter of fiscal year ~~2022 and is still evaluating the~~2022. Adoption of this guidance did not have a material impact on ~~its~~the Company's consolidated financial statements.

Note 2: Earnings per Share

The computation of basic and diluted earnings per common share was as follows:


		Three Months Ended						Six Months Ended							Three Months Ended
(in thousands, except per share data)	(in thousands, except per share data)	July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019		(in thousands, except per share data)	May 2, 2021		April 26, 2020
Net income attributable to common stockholders	Net income attributable to common stockholders	$	16,125	$	2,192	$	25,760	$	14,940	Net income attributable to common stockholders	$	23,500	$	9,635

Weighted-average common shares outstanding–basic	Weighted-average common shares outstanding–basic	65,084		66,519		65,337		66,312		Weighted-average common shares outstanding–basic	65,089		65,589
Dilutive effect of share-based compensation	Dilutive effect of share-based compensation	920		1,227		762		1,502		Dilutive effect of share-based compensation	1,021		585
Weighted-average common shares outstanding–diluted	Weighted-average common shares outstanding–diluted	$	66,004	67,746		66,099		67,814		Weighted-average common shares outstanding–diluted	66,110		66,174

Basic earnings per common share	Basic earnings per common share	$	0.25	$	0.03	$	0.39	$	0.23	Basic earnings per common share	$	0.36	$	0.15
Diluted earnings per common share	Diluted earnings per common share	$	0.24	$	0.03	$	0.39	$	0.22	Diluted earnings per common share	$	0.36	$	0.15

Anti-dilutive shares not included in the above calculations	Anti-dilutive shares not included in the above calculations	201		525		306		443		Anti-dilutive shares not included in the above calculations	0		405

Diluted earnings per common share incorporates the incremental shares issuable, calculated using the treasury stock method, upon the assumed exercise of non-qualified stock options and the vesting of restricted stock units and market-condition restricted stock unit awards if certain conditions have been met, but excludes such incremental shares that would have an anti-dilutive effect.

Note 3: Share-Based Compensation

Financial Statement Effects and Presentation

Pre-tax share-based compensation was included in the Statements of Income as follows:

Three Months Ended Six Months Ended
(in thousands) July 26, 2020 July 28, 2019 July 26, 2020 July 28, 2019
Cost of sales $ 550 $ 402 $ 1,080 $ 829
Selling, general and administrative 9,501 9,532 15,460 18,471
Product development and engineering 3,135 2,491 6,025 5,103
Total share-based compensation $ 13,186 $ 12,425 $ 22,565 $ 24,403

~~Total Stockholder Return ("TSR") Market-Condition Restricted Stock Units~~

The Company grants TSR market-condition restricted stock units (the "TSR Awards") to certain executives of the Company. The TSR Awards have a pre-defined market-condition, which determines the number of shares that ultimately vest, as well as a service condition. The TSR Awards are valued as of the measurement date using a Monte Carlo simulation which takes into consideration the possible outcomes pertaining to the TSR market condition and expense is recognized on a straight line basis over the vesting periods and is adjusted for any actual forfeitures.

In the six months ended July 26, 2020, the Company granted 137,224 TSR Awards, which are accounted for as equity awards. The market condition is determined based upon the Company’s TSR benchmarked against the TSR of the S&P SPDR Semiconductor ETF (NYSE:XSD) over a ~~one~~, ~~two~~ ~~and~~ ~~three~~ year period (one-third of the awards vesting each performance period). Generally, the fiscal year 2021 award recipients must be employed for the entire performance period and be an active employee at the time of vesting of the awards. The grant-date fair value per unit of the awards granted in the six months ended July 26, 2020 for each one, two and three year performance periods was $29.04, $32.94 and $35.99, respectively.

During the fourth quarter of fiscal year 2020, management identified certain immaterial errors related to share-based compensation expense of market-condition awards granted during fiscal years 2018, 2019 and 2020. The impact of the errors was not material and the Company has corrected the consolidated financial statements and all other financial information presented in this Quarterly Report on Form 10-Q. Refer to Note 16 for a discussion of the Company's assessment of the errors and impact on its consolidated financial statements.


	Three Months Ended
(in thousands)	May 2, 2021		April 26, 2020
Cost of sales	$	718	$	530
Selling, general and administrative	7,359		5,959
Product development and engineering	3,762		2,890
Total share-based compensation	$	11,839	$	9,379

Restricted Stock Units, Employees

The Company grants restricted stock units to certain employees, which are expected to be settled with shares of the Company's common stock. The grant date for these awards is equal to the measurement date. These awards are valued as of the measurement date, based on the fair value of the Company's common stock at the grant date, and recognized as share-based compensation expense over the requisite vesting period (typically 4 years). In the ~~six~~three months ended ~~July 26, 2020,~~May 2, 2021, the Company granted ~~255,370~~134,944 restricted stock units to employees.

Total Stockholder Return ("TSR") Market-Condition Restricted Stock Units ~~Non-Employee Directors~~

The Company ~~maintains a compensation program pursuant to which~~grants TSR market-condition restricted stock units (the "TSR Awards") to certain executives of the Company. The TSR Awards have a pre-defined market-condition, which determines the number of shares that ultimately vest, as well as a service condition. The TSR Awards are ~~granted~~valued as of the grant date using a Monte Carlo simulation which takes into consideration the possible outcomes pertaining to the ~~Company’s directors that are not employed by~~TSR market condition and expense is recognized on a straight line basis over the vesting periods and is adjusted for any actual forfeitures.

In the three months ended May 2, 2021, the Company ~~or any~~granted 81,688 TSR Awards, which are accounted for as equity awards. The market condition is determined based upon the Company’s TSR benchmarked against the TSR of ~~its subsidiaries. Under~~ the ~~Company's director compensation program,~~S&P SPDR Semiconductor ETF (NYSE:XSD) over one, two and three year periods (one-third of the awards vesting each performance period). Generally, the fiscal year 2022 award recipients must be employed for the entire performance period and be an active employee at the time of vesting of the awards. The grant-date fair value per unit of the awards granted in the three months ended May 2, 2021 for each one, two and three year performance period was $67.28, $83.94 and $95.52, respectively.

Market-Condition Restricted Stock Units

In the three months ended May 2, 2021, the Company granted 54,928 restricted stock units with a ~~portion of~~market condition. The awards are eligible to vest during the period commencing March 9, 2021, and ending May 5, 2024 (the "Performance Period") as follows: the restricted stock units ~~granted under~~covered by the ~~program~~award will ~~be settled in cash~~vest if, during any consecutive 30 trading day period that commences and ~~a portion will be settled in shares~~ends during the Performance Period, the average per-share closing price of the ~~Company's~~Company’s common ~~stock. Restricted~~ stock ~~units awarded under~~equals or exceeds $95.00. The grant-date fair value per unit of the ~~program are scheduled to vest on the earlier of (i) one year after the grant date or (ii) the day immediately preceding the annual meeting of stockholders~~awards granted in the year following the grant. The portion of a restricted stock unit award under the program that is to be settled in cash will, subject to vesting, be settled when the director who received the award separates from the board of directors. The portion of a restricted stock unit award under the program that is to be settled in shares of the Company's common stock will, subject to vesting, be settled promptly following vesting. In the sixthree months ended ~~July 26, 2020, the Company granted 12,536 restricted stock units that settle in cash and 10,968 restricted stock units that settle in shares.~~

12May 2, 2021 was $49.55.

Note 4: Available-for-sale securities

The following table summarizes the values of the Company’s available-for-sale securities:


		July 26, 2020										January 26, 2020											May 2, 2021				January 31, 2021
(in thousands)	(in thousands)	Fair Value		Amortized Cost		Gross Unrealized Gain/(Loss)		Fair Value		Amortized Cost		Gross Unrealized Gain/(Loss)		(in thousands)	Fair Value		Amortized Cost		Gross Unrealized Gain/(Loss)		Fair Value		Amortized Cost		Gross Unrealized Gain/(Loss)
Convertible debt	Convertible debt	$	10,638	$	11,042	$	(404)	$	10,700	$	8,715	$	1,985	Convertible debt	$	11,603	$	12,916	$	(1,313)	$	11,989	$	13,244	$	(1,255)
Total available-for-sale securities	Total available-for-sale securities	$	10,638	$	11,042	$	(404)	$	10,700	$	8,715	$	1,985	Total available-for-sale securities	$	11,603	$	12,916	$	(1,313)	$	11,989	$	13,244	$	(1,255)

The following table summarizes the maturities of the Company’s available-for-sale securities:


		July 26, 2020						January 26, 2020							May 2, 2021
(in thousands)	(in thousands)	Fair Value		Amortized Cost		Fair Value		Amortized Cost		(in thousands)	Fair Value		Amortized Cost
Within 1 year	Within 1 year	$	9,418	$	9,276	$	10,200	$	8,215	Within 1 year	$	10,591	$	11,041
After 1 year through 5 years	After 1 year through 5 years	1,220		1,766		500		500		After 1 year through 5 years	1,012		1,875
Total available-for-sale securities	Total available-for-sale securities	$	10,638	$	11,042	$	10,700	$	8,715	Total available-for-sale securities	$	11,603	$	12,916

The Company's available-for-sale securities consist of investments in convertible debt instruments issued by privately-held companies. The available-for-sale securities with maturities within one year were included in "Other current assets" and ~~with~~ maturities greater than one year were included in "Other assets" in the Balance Sheets.

Note 5: Fair Value Measurements

The following fair value hierarchy is applied for disclosure of the inputs used to measure fair value and prioritizes the inputs into three levels as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities in active markets or other inputs that are observable for the assets or liabilities, either directly or indirectly.

Level 3—Unobservable inputs based on the Company’s own assumptions, requiring significant management judgment or estimation.

Instruments Measured at Fair Value on a Recurring Basis

~~Financial~~The fair values of financial assets and liabilities measured and recorded at fair value on a recurring basis were presented in the Balance Sheets as follows:


		Fair Value as of July 26, 2020														Fair Value as of January 26, 2020															May 2, 2021				January 31, 2021
(in thousands)	(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)		(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)
Financial assets:	Financial assets:																	Financial assets:
Convertible debt	Convertible debt	$	10,638	$	—	$	—	$	10,638	$	10,700	$	—	$	—	$	10,700	Convertible debt	$	11,603	$	0	$	0	$	11,603	$	11,989	$	0	$	0	$	11,989
Foreign currency forward contracts		473		—		473		—		—		—		—		—

Total financial assets	Total financial assets	$	11,111	$	—	$	473	$	10,638	$	10,700	$	—	$	—	$	10,700	Total financial assets	$	11,603	$	0	$	0	$	11,603	$	11,989	$	0	$	0	$	11,989

Financial liabilities:	Financial liabilities:																	Financial liabilities:
Cycleo Earn-out		$	1,958	$	—	$	—	$	1,958	$	2,108	$	—	$	—	$	2,108

Interest rate swap agreement	Interest rate swap agreement	1,971		—		1,971		—		—		—		—		—		Interest rate swap agreement	$	1,417	$	0	$	1,417	$	0	$	1,782	$	0	$	1,782	$	0
Total return swap contracts																		Total return swap contracts	12		0		12		0		167		0		167		0
Total financial liabilities	Total financial liabilities	$	3,929	$	—	$	1,971	$	1,958	$	2,108	$	—	$	—	$	2,108	Total financial liabilities	$	1,429	$	0	$	1,429	$	0	$	1,949	$	0	$	1,949	$	0

During the ~~six~~three months ended ~~July 26, 2020,~~May 2, 2021, the Company had no transfers of financial assets or liabilities between Level 1, Level 2 or Level 3. As of ~~July 26, 2020~~May 2, 2021 and January ~~26, 2020,~~31, 2021, the Company had not elected the fair value option for any financial assets and liabilities for which such an election would have been permitted.

The convertible debt investments are valued utilizing a combination of estimates that are based on the estimated discounted cash flows associated with the debt and the fair value of the equity into which the debt may be converted, all of which are Level 3 inputs.

The following table presents a reconciliation of the changes in the convertible debt investments in the ~~six~~three months ended ~~July 26, 2020:~~May 2, 2021:

(in thousands)

Balance at January ~~26, 2020~~31, 2021

~~10,700~~11,989

Additions

~~1,850~~200

Increase in credit loss reserve

~~(2,389)~~

(246)

Interest accrued

~~477~~286

Conversion to equity

(626)

Balance at ~~July 26, 2020~~May 2, 2021

~~10,638~~11,603

The foreign currency forward contracts are valued using readily available foreign currency forward and interest rate curves (Level 2 inputs). The fair value of each contract is determined by comparing the contract rate to the forward rate and discounting to the present value. Contracts in a gain position are recorded in "Other current assets" in the Balance Sheets and the value of contracts in a loss position are recorded in "Accrued liabilities" in the Balance Sheets. See Note 15 for further discussion of the Company’s derivative instruments.

The interest rate swap agreement is ~~valued~~measured at fair value using readily available interest rate curves (Level 2 inputs). The fair value of the agreement is determined by comparing, for each settlement, the contract rate to the forward rate and discounting to the present value. Contracts in a gain position are recorded in "Other current assets" and "Other assets" in the Balance Sheets and the value of contracts in a loss position are recorded in "Accrued liabilities" and "Other long term liabilities" in the Balance Sheets. See Note 15 for further discussion of the Company’s derivative instruments.

The total return swap contracts are measured at fair value using quoted prices of the underlying investments (Level 2 inputs). The fair values of the total return swap contracts are recognized in the Balance Sheets in "Accrued Liabilities" if the instruments are in a loss position and in "Other Current Assets" if the instruments are in a gain position. See Note15 for further discussion of the Company's derivative instruments.

The Cycleo Earn-out liability (see Note 11) is valued utilizing estimates of annual sales and operating income (Level 3 inputs) through April 2020. These estimates represent inputs for which market data is not available and are developed using the best information available about the assumptions that market participants would use when pricing the liability.

The Company measures contingent earn-out liabilities at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy. The significant unobservable inputs used in the fair value measurements are sales projections over the earn-out period, and the probability outcome percentages assigned to each scenario. Significant increases or decreases to either of these inputs in isolation would result in a significantly higher or lower liability, with a higher liability capped by the contractual maximum of the contingent earn-out obligation. Ultimately, the liabilities will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings. For the Cycleo Earn-out, Cycleo SAS has a business profile comparable to a start-up company. Accordingly, its sales projections are subject to significant revisions. This characteristic can result in volatile changes to the measurement of fair value for a given earn-out.

The Company reviews and re-assesses the estimated fair value of earn-out obligations on a recurring basis, and the updated fair value could differ materially from the previous estimates. Adjustments to the estimated fair values related to contingent consideration are reported in changes in fair value of contingent earn-out obligations, while changes in all other unobservable inputs are reported in operating income.

~~The following table presents a reconciliation of the changes in the earn-out liability in the six months ended July 26, 2020:~~


~~(in thousands)~~
~~Balance at January 26, 2020~~	$	~~2,108~~
~~Changes in the fair value of contingent earn-out obligations~~	~~(33)~~
~~Changes in the fair value of non-contingent earn-out obligations~~	~~(117)~~

~~Balance at July 26, 2020~~	$	~~1,958~~

Instruments Not Recorded at Fair Value on a Recurring Basis

Some of the Company’s financial instruments are not measured at fair value on a recurring basis, but are recorded at amounts that approximate fair value due to their liquid or short-term nature. Such financial assets and financial liabilities include: cash and cash equivalents including money market deposits, net receivables, certain other assets, accounts payable, accrued expenses, accrued personnel costs, and other current liabilities. The Company’s long-term debt is recorded at cost, which approximates fair value as the long-term debt bears interest at a floating rate.

Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis

The Company reduces the carrying amounts of its goodwill, intangible assets, long-lived assets and non-marketable equity securities to fair value when held for sale or determined to be impaired.

Investment Impairments and Credit Loss Reserves

The total credit loss reserve for the Company's held-to-maturity debt securities and available-for-sale debt securities was $3.6 million and $3.4 million as of May 2, 2021 and January 31, 2021, respectively. During the three months ended May 2, 2021, the Company increased its expected credit loss reserves by $0.2 million, for its available-for-sale debt securities. Upon the adoption of ASU 2016-13 in the first quarter of fiscal year 2021, the Company recorded expected credit loss reserves of $0.4 million related to its held-to-maturity debt securities. During the three ~~and six~~ months ended ~~July~~April 26, 2020, the Company increased its expected credit loss reserves by ~~zero and~~ $2.4 million ~~respectively,~~ for its held-to-maturity debt securities and available-for-sale debt securities. These increases were, in-part, due to the impact of the COVID-19 pandemic on early-stage development companies. ~~The total credit loss reserve for the Company's available-for-sale debt securities and held-to-maturity debt securities was $2.9 million as of July 26, 2020. In addition, during~~During the three ~~and six~~ months ended ~~July~~April 26, 2020, the Company recorded ~~$1.7~~$1.2 million ~~and $2.9 million, respectively,~~ of impairments on its non-marketable equity securities as the Company determined that these investments were other than temporarily impaired. During the three and six months ended July 28, 2019, there were no impairments on the Company's non-marketable equity securities, held-to-maturity debt investments, or available-for-sale debt securities.

Note 6: Inventories

Inventories, consisting of material, material overhead, labor, and manufacturing overhead, are stated at the lower of cost (first-in, first-out) or net realizable value and consisted of the following:


(in thousands)	(in thousands)	July 26, 2020		January 26, 2020		(in thousands)	May 2, 2021		January 31, 2021
Raw materials	Raw materials	$	2,957	$	2,223	Raw materials	$	3,566	$	2,936
Work in progress	Work in progress	50,714		50,640		Work in progress	67,192		59,523
Finished goods	Finished goods	23,877		20,147		Finished goods	23,161		25,035
Inventories	Inventories	$	77,548	$	73,010	Inventories	$	93,919	$	87,494

Note 7: Goodwill and Intangible Assets

Goodwill

The carrying amounts of goodwill by applicable reporting unit were as follows:

(in thousands) Signal Integrity Wireless and Sensing Protection Total
Balance at January 26, 2020 $ 274,085 $ 72,128 $ 4,928 $ 351,141
Balance at July 26, 2020 $ 274,085 $ 72,128 $ 4,928 $ 351,141


(in thousands)	Signal Integrity		Wireless and Sensing		Protection		Total
Balance at January 31, 2021	$	274,085	$	72,128	$	4,928	$	351,141

Balance at May 2, 2021	$	274,085	$	72,128	$	4,928	$	351,141

Goodwill is not amortized, but is tested for impairment at the reporting unit level using either a qualitative or quantitative assessment on an annual basis during the fourth quarter of each fiscal year, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair market value of the reporting unit. As of ~~July 26, 2020,~~May 2, 2021, there was no0 indication of impairment of the Company's goodwill balances.

Purchased Intangibles

The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and technology licenses purchased, which are amortized over their estimated useful lives:


			July 26, 2020										January 26, 2020												May 2, 2021				January 31, 2021
(in thousands, except estimated useful life)	(in thousands, except estimated useful life)	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		(in thousands, except estimated useful life)	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Core technologies	Core technologies	3-8 years	$	43,300	$	(28,148)	$	15,152	$	82,857	$	(63,434)	$	19,423	Core technologies	3-8 years	$	29,300	$	(18,852)	$	10,448	$	29,300	$	(17,554)	$	11,746
Customer relationships			—		—		—		6,000		(5,411)		589

Total finite-lived intangible assets	Total finite-lived intangible assets		$	43,300	$	(28,148)	$	15,152	$	88,857	$	(68,845)	$	20,012	Total finite-lived intangible assets		$	29,300	$	(18,852)	$	10,448	$	29,300	$	(17,554)	$	11,746

Amortization expense of finite-lived intangible assets recorded in the Statements of Income for each period was as follows:


		Three Months Ended						Six Months Ended							Three Months Ended
(in thousands)	(in thousands)	July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019		(in thousands)	May 2, 2021		April 26, 2020
Core technologies	Core technologies	$	1,798	$	3,475	$	4,271	$	7,634	Core technologies	$	1,298	$	2,473
Customer relationships	Customer relationships	222		433		589		1,417		Customer relationships	0		367
Total amortization expense	Total amortization expense	$	2,020	$	3,908	$	4,860	$	9,051	Total amortization expense	$	1,298	$	2,840

Future amortization expense of finite-lived intangible assets is expected as follows:

(in thousands)

Fiscal Year Ending:

Fiscal year ~~2021~~2022 (remaining ~~six~~nine months)

~~3,406~~

~~Fiscal year 2022~~

~~4,942~~3,644

Fiscal year 2023

4,002

Fiscal year 2024

1,676

Fiscal year 2025

~~287~~288

Fiscal year 2026

288

Thereafter

~~839~~550

Total expected amortization expense

~~15,152~~10,448

Note 8: Long-Term Debt

Long-term debt and the current period interest rates were as follows:


		Balance as of
(in thousands, except percentages)	(in thousands, except percentages)	July 26, 2020			January 26, 2020			(in thousands, except percentages)	May 2, 2021			January 31, 2021
Revolving loans	Revolving loans	$	189,000		$	197,000		Revolving loans	$	177,000		$	181,000

Debt issuance costs	Debt issuance costs	(2,045)			(2,257)			Debt issuance costs	(1,684)			(1,805)
Total long-term debt, net of debt issuance costs	Total long-term debt, net of debt issuance costs	$	186,955		$	194,743		Total long-term debt, net of debt issuance costs	$	175,316		$	179,195
Effective interest rate⁽¹⁾	Effective interest rate⁽¹⁾	1.87		%	2.95		%	Effective interest rate (1)	1.87		%	1.88		%

⁽¹⁾The revolving loans bear interest at a variable rate based on LIBOR or a Base Rate, at the Company’s option, plus an applicable margin that varies based on the Company’s consolidated leverage ratio. In the first quarter of fiscal year 2021, the Company entered into an interest rate swap agreement that fixed the interest on the first $150.0 million of debt outstanding under the revolving loans at 1.9775%. As of ~~July 26, 2020,~~May 2, 2021, the effective interest rate is a weighted-average rate that represents interest on the first $150.0 million of the debt outstanding at a fixed LIBOR rate of 0.7275% plus a margin of 1.25% (total fixed rate of 1.9775%), and the remainder of the debt outstanding at a variable rate based on the one-month LIBOR rate, which was ~~0.19%~~0.12% as of ~~July 26, 2020,~~May 2, 2021, plus a margin of 1.25% (total variable rate of ~~1.44%~~1.37%). As of January ~~26, 2020,~~31, 2021, the effective interest rate ~~was~~is a weighted-average rate that represents interest on the first $150.0 millionof the debt outstanding at a fixed LIBOR rate of 0.7275% plus a margin of 1.25% (total fixed rate of 1.9775%), and the remainder of the debt outstanding at a variable rate based on the one-month LIBOR rate, which was ~~1.7%~~0.14% as of January ~~26, 2020,~~31, 2021, plus a margin of 1.25% (total variable rate of ~~2.95%~~1.39%).

On November 7, 2019, the Company, with certain of its domestic subsidiaries as guarantors, entered into an amended and restated credit agreement with the lenders party thereto and HSBC Bank USA, National Association, as administrative agent, swing line lender and letter of credit ~~issuer in order to provide a more flexible borrowing structure by expanding the~~issuer. The borrowing capacity of the revolving loans under the senior secured first lien credit facility (the "Credit Facility") tois $600.0 million ~~eliminating the term loans under the prior facility~~ and ~~extending the maturity to~~matures on November 7, 2024. As of ~~July 26, 2020,~~May 2, 2021, the Company had ~~$189.0~~$177.0 million outstanding under its Credit Facility, which had ~~$411.0~~$423.0 million of undrawn borrowing capacity, and the Company was in compliance with the ~~financial~~ covenants required under the Credit Facility.

Interest expense was comprised of the following components for the periods presented:


		Three Months Ended						Six Months Ended							Three Months Ended
(in thousands)	(in thousands)	July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019		(in thousands)	May 2, 2021		April 26, 2020
Contractual interest(1)	Contractual interest(1)	$	1,131	$	2,475	$	2,569	$	4,817	Contractual interest(1)	$	1,078	$	1,438
Amortization of debt discount and issuance costs	Amortization of debt discount and issuance costs	121		122		242		247		Amortization of debt discount and issuance costs	121		121
Total interest expense	Total interest expense	$	1,252	$	2,597	$	2,811	$	5,064	Total interest expense	$	1,199	$	1,559

(1) Contractual interest represents the interest on the Company's outstanding debt after giving effect to the interest rate swap agreement.

As of ~~July 26, 2020,~~May 2, 2021, there were no amounts outstanding under the letters of credit, swing line loans and alternative currency sub-facilities.

Note 9: Income Taxes

The Company’s effective tax rate differs from the statutory federal income tax rate of 21% primarily due to the regional mix of income, ~~return-to-provision adjustments, withholding taxes on certain foreign earnings~~excess tax benefits from share-based compensation and research and development tax credits.

The Company uses a two-step approach to recognize and measure uncertain tax positions ("UTP"). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained in audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (before the federal impact of state items) is as follows:


(in thousands)
Balance at January ~~26, 2020~~31, 2021	$	~~25,466~~26,850
Additions/(decreases) based on tax positions related to the current fiscal year	~~2,471~~102
Additions/(decreases) based on tax positions related to the prior fiscal years	~~(943)~~36

Balance at ~~July 26, 2020~~May 2, 2021	$	~~26,994~~26,988

Included in the balance of gross unrecognized tax benefits at ~~July 26, 2020~~May 2, 2021 and January ~~26, 2020~~31, 2021 are ~~$9.5~~$9.8 million and ~~$8.6~~$9.7 million, respectively, of net tax benefits (after the federal impact of state items), that, if recognized, would impact the effective tax rate, prior to consideration of any required valuation allowance.

The liability for UTP is reflected in the Balance Sheets as follows:


(in thousands)	(in thousands)	July 26, 2020		January 26, 2020		(in thousands)	May 2, 2021		January 31, 2021
Deferred tax assets - non-current	Deferred tax assets - non-current	$	16,113	$	15,575	Deferred tax assets - non-current	$	15,817	$	15,770
Other long-term liabilities	Other long-term liabilities	9,539		8,555		Other long-term liabilities	9,819		9,731
Total accrued taxes	Total accrued taxes	$	25,652	$	24,130	Total accrued taxes	$	25,636	$	25,501

The Company’s policy is to include net interest and penalties related to unrecognized tax benefits in the ~~"(Benefit) provision~~"Provision for income taxes" in the Statements of Income.

Tax years prior to 2013 (the Company’s fiscal year 2014) are generally not subject to examination by the U.S. Internal Revenue Service except for items involving tax attributes that have been carried forward to tax years whose statute of limitations remains open. For state returns, the Company is generally not subject to income tax examinations for calendar years prior to 2012 (the Company’s fiscal year 2013). The Company has a significant tax presence in Switzerland for which Swiss tax filings have been examined through fiscal year 2019. The Company is also subject to routine examinations by various foreign tax jurisdictions in which it operates. The Company believes that adequate provisions have been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with the Company's expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

The Company’s regional income (loss) from continuing operations before taxes and equity in net gains ~~(losses)~~ of equity method investments was as follows:


		Three Months Ended						Six Months Ended							Three Months Ended
(in thousands)	(in thousands)	July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019		(in thousands)	May 2, 2021		April 26, 2020
Domestic	Domestic	$	(10,125)	$	(9,902)	$	(17,012)	$	(19,062)	Domestic	$	(5,484)	$	(6,978)
Foreign	Foreign	25,968		20,287		43,857		40,190		Foreign	32,102		17,980
Total	Total	$	15,843	$	10,385	$	26,845	$	21,128	Total	$	26,618	$	11,002

Note 10: Leases

The Company has operating leases for real estate, vehicles, and office equipment. Real estate leases are used to secure office space for the Company's administrative, engineering, production support and manufacturing activities. The Company's leases have remaining lease terms of up to approximately 10 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.

The components of lease expense were as follows:


		Three Months Ended						Six Months Ended							Three Months Ended
(in thousands)	(in thousands)	July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019		(in thousands)	May 2, 2021		April 26, 2020
Operating lease cost	Operating lease cost	$	1,178	$	1,214	$	2,355	$	2,428	Operating lease cost	$	1,337	$	1,177
Short-term lease cost	Short-term lease cost	—		83		—		161		Short-term lease cost	244		0

Sublease income	Sublease income	(34)		(32)		(67)		(65)		Sublease income	(20)		(33)
Total lease cost	Total lease cost	$	1,144	$	1,265	$	2,288	$	2,524	Total lease cost	$	1,561	$	1,144

Supplemental cash flow information related to leases was as follows:


		Six Months Ended							Three Months Ended
(in thousands, except percentage)		July 26, 2020		July 28, 2019
(in thousands)						(in thousands)	May 2, 2021		April 26, 2020
Cash paid for amounts included in the measurement of lease liabilities	Cash paid for amounts included in the measurement of lease liabilities	$	2,283	$	2,560	Cash paid for amounts included in the measurement of lease liabilities	$	1,731	$	1,144
Right-of-use assets obtained in exchange for new operating lease liabilities	Right-of-use assets obtained in exchange for new operating lease liabilities	$	8,298	$	25	Right-of-use assets obtained in exchange for new operating lease liabilities	$	33	$	6,073



			May 2, 2021
Weighted-average remaining lease term–operating leases (in years)	~~5.93 years~~5.87
Weighted-average discount ~~rate–~~rate on remaining lease payments–operating leases	~~6.8~~7.2	%

Supplemental balance sheet information related to leases was as follows:


		Balance as of
(in thousands)	(in thousands)	July 26, 2020		January 26, 2020		(in thousands)	May 2, 2021		January 31, 2021
Operating lease right-of-use assets in "Other assets"	Operating lease right-of-use assets in "Other assets"	$	17,206	$	10,958	Operating lease right-of-use assets in "Other assets"	$	15,302	$	16,337

Operating lease liabilities in "Accrued liabilities"	Operating lease liabilities in "Accrued liabilities"	$	3,870	$	3,273	Operating lease liabilities in "Accrued liabilities"	$	3,459	$	3,975
Operating lease liabilities in "Other long-term liabilities"	Operating lease liabilities in "Other long-term liabilities"	14,020		8,185		Operating lease liabilities in "Other long-term liabilities"	12,358		13,172
Total operating lease liabilities	Total operating lease liabilities	$	17,890	$	11,458	Total operating lease liabilities	$	15,817	$	17,147

Maturities of lease liabilities as of ~~July 26, 2020~~May 2, 2021 are as follows:

(in thousands)
Fiscal Year Ending:
2021 (remaining six months) $ 2,489
2022 4,405
2023 3,068
2024 2,806
2025 2,684
Thereafter 6,563
Total lease payments 22,015
Less: imputed interest (4,125)
Total $ 17,890


(in thousands)
Fiscal Year Ending:
2022 (remaining nine months)	$	3,285
2023	3,469
2024	3,060
2025	2,943
2026	2,129
Thereafter	4,549
Total lease payments	19,435
Less: imputed interest	(3,618)
Total	$	15,817

Note 11: Commitments and Contingencies

In accordance with ASC 450-20, Loss Contingencies, the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated. The Company also discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for its consolidated financial statements not to be misleading. The Company does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote. The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of liability that has been previously accrued, and makes adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount. The Company may be unable to estimate a possible loss or range of possible loss due to various reasons, including, among others: (i) if the damages sought are indeterminate; (ii) if the proceedings are in early stages, (iii) if there is uncertainty as to the outcome of pending appeals, motions or settlements, (iv) if there are significant factual issues to be determined or resolved, and (v) if there are novel or unsettled legal theories presented. In such instances, there is considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any.

Because the outcomes of litigation and other legal matters are inherently unpredictable, the Company’s evaluation of legal matters or proceedings often involves a series of complex assessments by management about future events and can rely heavily on estimates and assumptions. While the consequences of certain unresolved matters and proceedings are not presently determinable, and an estimate of the probable and reasonably possible loss or range of loss in excess of amounts accrued for such proceedings cannot be reasonably made, an adverse outcome from such proceedings could have a material adverse effect on the Company’s earnings in any given reporting period. However, in the opinion of management, after consulting with legal counsel, any ultimate liability related to current outstanding claims and lawsuits, individually or in the aggregate, is not expected to have a material adverse effect on the Company’s consolidated financial statements, as a whole. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond the Company’s control.

As such, even though the Company intends to vigorously defend itself with respect to its legal matters, there can be no assurance that the final outcome of these matters will not materially and adversely affect the Company’s business, financial condition, operating results, or cash flows.

From time to time, the Company is involved in various claims, litigation, and other legal actions that are normal to the nature of its business, including with respect to intellectual property, contract, product liability, employment, and environmental matters. In the opinion of management, after consulting with legal counsel, any ultimate liability related to current outstanding claims and lawsuits, individually or in the aggregate, is not expected to have a material adverse effect on the Company’s consolidated financial statements, as a whole.

~~Settlement~~

On August 1, 2018, the Company announced the settlement of a lawsuit filed against HiLight Semiconductor Limited and related individual defendants in accordance with which the Company was paid approximately $9.0 million to cover damages for claims, costs and attorneys' fees. The Company recorded gains of $8.0 million during fiscal year 2019 and $1.0 million in the first quarter of fiscal year 2020 for recoveries related to this settlement. All recoveries were presented in "Selling, general and administrative" ("SG&A") expense in the Statements of Income in the respective periods in which the cash was received.

~~The Company’s currently pending legal matters of note are discussed below:~~

Environmental Matters

The Company vacated a former facility in Newbury Park, California in 2002, but continues to address groundwater and soil contamination at the site. The Company’s efforts to address site conditions have been at the direction of the Los Angeles Regional Water Quality Control Board (“RWQCB”). In October 2013, an order was issued including a scope of proposed additional site work, monitoring, and remediation activities. The Company has been complying with RWQCB orders and direction, and continues to implement an approved remedial action plan addressing the soil, groundwater, and soil vapor at the site.

The Company has accrued liabilities where it is probable that a loss will be incurred and the cost or amount of loss can be reasonably estimated. Based on the latest determinations by the RWQCB and the most recent actions taken pursuant to the remedial action plan, the Company estimates the range of probable loss between ~~$6.4~~$7.4 million and $8.0 million. To date, the Company has made ~~$5.1~~$5.5 million in payments towards the remedial action plan and, as of ~~July 26, 2020,~~May 2, 2021, has a remaining accrual of ~~$1.3~~$1.9 million related to this matter. Given the uncertainties associated with environmental assessment and the remediation activities, the Company is unable to determine a best estimate within the range of loss. Therefore, the Company has recorded the minimum amount of probable loss. These estimates could change as a result of changes in planned remedial actions, further actions from the regulatory agency, remediation technology, and other factors.

Indemnification

The Company has entered into agreements with its current and former executives and directors indemnifying them against certain liabilities incurred in connection with the performance of their duties. The Company’s Certificate of Incorporation and Bylaws contain comparable indemnification obligations with respect to the Company’s current directors and employees.

Product Warranties

The Company’s general warranty policy provides for repair or replacement of defective parts. In some cases, a refund of the purchase price is offered. In certain instances, the Company has agreed to other or additional warranty terms, including indemnification provisions.

The product warranty accrual reflects the Company’s best estimate of probable liability under its product warranties. The Company accrues for known warranty issues if a loss is probable and can be reasonably estimated, and accrues for estimated incurred but unidentified issues based on historical experience. Historically, warranty expense and the related accrual has been immaterial to the Company’s consolidated financial statements.

Deferred Compensation

The Company maintains a deferred compensation plan for certain officers and key executives that allows participants to defer a portion of their compensation for future distribution at various times permitted by the plan. This plan provides for a discretionary Company match up to a defined portion of the employee's deferral, with any match subject to a vesting period.

The Company's liability for the deferred compensation plan is presented below:


(in thousands)	(in thousands)	July 26, 2020		January 26, 2020		(in thousands)	May 2, 2021		January 31, 2021
Accrued liabilities	Accrued liabilities	$	5,054	$	1,365	Accrued liabilities	$	1,917	$	1,709
Other long-term liabilities	Other long-term liabilities	32,819		35,243		Other long-term liabilities	43,237		39,299
Total deferred compensation liabilities under this plan	Total deferred compensation liabilities under this plan	$	37,873	$	36,608	Total deferred compensation liabilities under this plan	$	45,154	$	41,008

The Company has purchased whole life insurance on the lives of certain current deferred compensation plan participants. This Company-owned life insurance is held in a grantor trust and is intended to cover a majority of the Company's costs of the deferred compensation plan. The cash surrender value of the Company-owned life insurance was ~~$24.1~~$29.6 million and ~~$24.3~~$27.6 million as of ~~July 26, 2020~~May 2, 2021 and January ~~26, 2020,~~31, 2021, respectively, and is included in "Other assets" in the Balance Sheets.

Earn-out Liability

Pursuant to the terms of an amended earn-out arrangement ("Cycleo Earn-out") with the former shareholders of Cycleo SAS ("Cycleo Earn-out Beneficiaries"), which the Company acquired in March 2012, the Company must make payments based on the achievement of a combination of certain sales and operating income milestones over the period of April 27, 2015 to April 26, 2020. ~~The Cycleo Earn-out liability as of July 26, 2020 represents management's best estimate of~~No payments have been made during fiscal years 2022 and 2021 for the ~~final payment. For certain of the Cycleo Earn-out Beneficiaries,~~remaining earn-out milestone. Any remaining payment offor the earn-out ~~liability is contingent upon continued employment and is accounted for as post-acquisition compensation expense over the service period. The portion of the earn-out liability that~~ is not ~~dependent on continued employment is not considered as compensation expense.~~

~~A summary of the earn-out liability, which was included in "Accrued liabilities" in the Balance Sheets, follows:~~

(in thousands) July 26, 2020 January 26, 2020
Compensation expense $ 1,713 $ 1,830
Not conditional upon continued employment 245 278
Total liability $ 1,958 $ 2,108
Amount expected to be settled within twelve months $ 1,958

~~Restructuring~~

~~From time~~expected to time, the Company takes steps to realign the business to focus on high-growth areas, provide customer value and make the Company more efficient. As a result, the Company has re-aligned resources and infrastructure predominantly related to its wireless charging business, which resulted in restructuring expense of $2.0 million and $2.1 million in the three and six months ended July 28, 2019, respectively, which were included in SG&A expenses in the Statements of Income. The Company did not have any restructuring expense during the three and six months ended July 26, 2020.

21be material.

Note 12: Concentration of Risk

The following significant customers accounted for at least 10% of net sales in one or more of the periods indicated:


		Three Months Ended						Six Months Ended							Three Months Ended
(percentage of net sales)	(percentage of net sales)	July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019		(percentage of net sales)	May 2, 2021		April 26, 2020
Frontek Technology Corporation (and affiliates)										Frontek Technology Corporation (and affiliates)	19	%	12	%
Trend-tek Technology Ltd. (and affiliates)	Trend-tek Technology Ltd. (and affiliates)	21	%	14	%	18	%	13	%	Trend-tek Technology Ltd. (and affiliates)	16	%	15	%
Frontek Technology Corporation (and affiliates)		15	%	10	%	13	%	10	%
Arrow Electronics (and affiliates)										Arrow Electronics (and affiliates)	11	%	9	%
CEAC International Limited	CEAC International Limited	12	%	8	%	12	%	6	%	CEAC International Limited	10	%	12	%
Arrow Electronics (and affiliates)		10	%	9	%	9	%	9	%
Premier Technical Sales Korea, Inc. (and affiliates) ⁽¹⁾	Premier Technical Sales Korea, Inc. (and affiliates) ⁽¹⁾	2	%	8	%	5	%	7	%	Premier Technical Sales Korea, Inc. (and affiliates) (1)	7	%	9	%
Samsung Electronics (and affiliates) ⁽¹⁾	Samsung Electronics (and affiliates) ⁽¹⁾	2	%	3	%	2	%	6	%	Samsung Electronics (and affiliates) (1)	1	%	2	%
Huawei Technologies Co. Ltd. (and affiliates)		4	%	5	%	5	%	10	%

⁽¹⁾ Premier is a distributor with a concentration of sales to Samsung. The above percentages represent the Company's estimate of the sales activity related to Samsung that is passing through this distributor.

The following table shows the customers that had an outstanding receivable balance that represented at least 10% of total net receivables as of one or more of the dates indicated:


		Balance as of
(percentage of net receivables)	(percentage of net receivables)	July 26, 2020		January 26, 2020		(percentage of net receivables)	May 2, 2021		January 31, 2021
Frontek Technology Corporation (and affiliates)						Frontek Technology Corporation (and affiliates)	17	%	10	%
Trend-tek Technology Ltd (and affiliates)						Trend-tek Technology Ltd (and affiliates)	12	%	14	%
CEAC International Limited	CEAC International Limited	14	%	11	%	CEAC International Limited	10	%	14	%
Trend-tek Technology Ltd. (and affiliates)		13	%	13	%
Frontek Technology Corporation (and affiliates)		13	%	11	%

Outside Subcontractors and Suppliers

The Company relies on a limited number of third-party subcontractors and suppliers for the production of silicon wafers, packaging and certain other tasks. Disruption or termination of supply sources or subcontractors, including due to the COVID-19 pandemic or natural disasters such as an earthquake or other causes, have delayed and could delay shipments and could have a material adverse effect on the Company. Although there are generally alternate sources for these materials and services, qualification of the alternate sources could cause delays sufficient to have a material adverse effect on the Company. ~~Several~~A significant amount of the Company’s third-party subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located in ~~foreign countries, including China, Israel~~the U.S., Taiwan and ~~South Korea.~~China. A significant amount of the Company’s assembly and test operations are conducted by third-party contractors in China, Malaysia, Taiwan, Thailand, South Korea and the Philippines. During the three months ended July 26, 2020 and July 28, 2019, approximately 18% and 23%, respectively, of the Company’s silicon in terms of cost of wafers was supplied by a third-party foundry in China, and approximately 10% and 14%, respectively, of the Company’s silicon in terms of cost of wafers was supplied by a third-party foundry in Israel. During the six months ended July 26, 2020 and July 28, 2019, approximately 20% and 20%, respectively, of the Company’s silicon in terms of cost of wafers was supplied by a third-party foundry in China, and approximately 9% and 13%, respectively, of the Company’s silicon in terms of cost of wafers was supplied by a third-party foundry in Israel. These percentages could be higher in future periods.

Note 13: Segment Information

The Company’s CEO functions as the chief operating decision maker ("CODM"). The CODM makes operating decisions and assesses performance based on the Company's major product lines, which represent its operating segments. The Company has 3 operating segments—Signal Integrity, Wireless and Sensing, and Protection—that have similar economic characteristics and have been aggregated into 1 reportable segment identified as the "Semiconductor Products Group."

The Company’s assets are commingled among the ~~three~~3 operating segments and the CODM does not use asset information in making operating decisions or assessing performance. Therefore, the Company has not included asset information by segment in the segment disclosures below.

Net sales by segment were as follows:


		Three Months Ended						Six Months Ended							Three Months Ended
(in thousands)	(in thousands)	July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019		(in thousands)	May 2, 2021		April 26, 2020
Semiconductor Products Group	Semiconductor Products Group	$	143,660	$	137,146	$	276,362	$	268,500	Semiconductor Products Group	$	170,372	$	132,702

Total	Total	$	143,660	$	137,146	$	276,362	$	268,500	Total	$	170,372	$	132,702

The following table presents a reconciliation of operating income by segment to consolidated income before taxes. Historical amounts have been adjusted to conform to the current presentation:


		Three Months Ended						Six Months Ended							Three Months Ended
(in thousands)	(in thousands)	July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019		(in thousands)	May 2, 2021		April 26, 2020
Semiconductor Products Group	Semiconductor Products Group	$	34,818	$	31,505	$	62,916	$	60,133	Semiconductor Products Group	$	41,469	$	28,098

Operating income by segment	Operating income by segment	34,818		31,505		62,916		60,133		Operating income by segment	41,469		28,098
Items to reconcile segment operating income to consolidated income before taxes:	Items to reconcile segment operating income to consolidated income before taxes:									Items to reconcile segment operating income to consolidated income before taxes:
Share-based compensation	Share-based compensation	13,186		12,425		22,565		24,403		Share-based compensation	11,839		9,379
Intangible amortization	Intangible amortization	2,020		3,908		4,860		9,051		Intangible amortization	1,298		2,840
Investment impairments and credit loss reserves	Investment impairments and credit loss reserves	1,485		—		5,115		—		Investment impairments and credit loss reserves	246		3,630
Changes in the fair value of contingent earn-out obligations	Changes in the fair value of contingent earn-out obligations	—		—		(33)		(2,161)		Changes in the fair value of contingent earn-out obligations	0		(33)
Restructuring and other reserves		502		2,571		502		2,711

Litigation cost, net of recoveries	Litigation cost, net of recoveries	105		799		251		725		Litigation cost, net of recoveries	540		146
Transaction and integration related	Transaction and integration related	249		33		247		1,468		Transaction and integration related	(177)		(2)
Interest expense	Interest expense	1,252		2,597		2,811		5,064		Interest expense	1,199		1,559
Non-operating expense (income), net		176		(1,213)		(247)		(2,256)
Income before taxes and equity in net (losses) gains of equity method investments		$	15,843	$	10,385	$	26,845	$	21,128
Non-operating income, net										Non-operating income, net	(94)		(423)
Income before taxes and equity in net gains of equity method investments										Income before taxes and equity in net gains of equity method investments	$	26,618	$	11,002

Information by Product Line

The Company operates exclusively in the semiconductor industry and primarily within the analog and mixed-signal sector.

The table below provides net sales activity by product line on a comparative basis:

Three Months Ended Six Months Ended
(in thousands, except percentages) July 26, 2020 July 28, 2019 July 26, 2020 July 28, 2019
Signal Integrity $ 71,645 50 % $ 55,094 40 % $ 131,574 48 % $ 105,350 39 %
Wireless and Sensing 38,830 27 % 41,696 30 % 71,788 26 % 83,903 31 %
Protection 33,185 23 % 40,356 30 % 73,000 26 % 79,247 30 %
Total net sales $ 143,660 100 % $ 137,146 100 % $ 276,362 100 % $ 268,500 100 %


	Three Months Ended
(in thousands, except percentages)	May 2, 2021				April 26, 2020
Signal Integrity	$	66,695	39	%	$	59,929	45	%
Wireless and Sensing	58,507		34	%	32,958		25	%
Protection	45,170		27	%	39,815		30	%
Total net sales	$	170,372	100	%	$	132,702	100	%

Information by Sales Channel


(in thousands, except percentages)	(in thousands, except percentages)	Three Months Ended														Six Months Ended													(in thousands, except percentages)	Three Months Ended
		July 26, 2020						July 28, 2019						July 26, 2020								July 28, 2019						May 2, 2021		April 26, 2020
Distributor	Distributor	$	116,545	81	%	$	99,138	72	%	$	220,493	80	%	$	180,280	67	%	Distributor	$	146,400	86		%	$	103,948	78	%
Direct	Direct	27,115		19	%	38,008		28	%	55,869		20	%	88,220		33	%	Direct	23,972		14		%	28,754		22	%
Total net sales	Total net sales	$	143,660	100	%	$	137,146	100	%	$	276,362	100	%	$	268,500	100	%	Total net sales	$	170,372	100		%	$	132,702	100	%

Generally, the Company does not have long-term contracts with its distributors and most can terminate their agreement with little or no notice. For the ~~second~~first quarter of fiscal year ~~2021,~~2022, the Company's largest distributors were based in Asia.

Geographic Information

Net sales activity by geographic region was as follows:


		Three Months Ended						Six Months Ended							Three Months Ended
(percentage of total net sales)	(percentage of total net sales)	July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019		(percentage of total net sales)	May 2, 2021		April 26, 2020
Asia-Pacific	Asia-Pacific	80	%	74	%	80	%	76	%	Asia-Pacific	78	%	80	%
North America	North America	12	%	16	%	12	%	14	%	North America	13	%	12	%
Europe	Europe	8	%	10	%	8	%	10	%	Europe	9	%	8	%
		100	%	100	%	100	%	100	%		100	%	100	%

The Company attributes sales to a country based on the ship-to address. The table below summarizes sales activity to countries that represented greater than 10% of total net sales for at least one of the periods presented:


		Three Months Ended						Six Months Ended							Three Months Ended
(percentage of total net sales)	(percentage of total net sales)	July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019		(percentage of total net sales)	May 2, 2021		April 26, 2020
China (including Hong Kong)	China (including Hong Kong)	63	%	52	%	60	%	52	%	China (including Hong Kong)	60	%	57	%
United States	United States	9	%	9	%	9	%	10	%	United States	11	%	9	%

Although a large percentage of ~~our~~the Company's products is shipped into the Asia-Pacific region, a significant number of the products produced by these customers and incorporating ~~our~~the Company's semiconductor products are then sold outside this region.

Note 14: Stock Repurchase Program

The Company maintains a stock repurchase program that was initially approved by its Board of Directors in March 2008. The stock repurchase program does not have an expiration date and the Company’s Board of Directors has authorized expansion of the program over the years. The following table summarizes activity under the program for the presented periods:

Three Months Ended Six Months Ended
July 26, 2020 July 28, 2019 July 26, 2020 July 28, 2019
(in thousands, except number of shares) Shares Amount Paid Shares Amount Paid Shares Price Paid Shares Price Paid
Shares repurchased under the stock repurchase program 232,871 $ 12,387 446,270 $ 20,000 1,087,913 $ 42,387 448,481 $ 20,110


	Three Months Ended
	May 2, 2021			April 26, 2020
(in thousands, except number of shares)	Shares	Amount Paid		Shares	Amount Paid
Shares repurchased under the stock repurchase program	360,942	$	25,000	855,042	$	30,000

On ~~May 24, 2018,~~March 11, 2021, the Company's Board of Directors ~~authorized~~approved the expansion of the stock repurchase program by ~~$250.0~~$350.0 million. As of ~~July 26, 2020,~~May 2, 2021, the Company had repurchased ~~$380.2~~$434.2 million in shares of its common stock under the program since inception and the remaining authorization under the program was ~~$68.2~~$364.2 million. Under the program, the Company may repurchase its common stock at any time or from time to time, without prior notice, subject to market conditions and other considerations. The Company’s 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. The Company intends to fund repurchases under the program from cash on hand. The Company has no obligation to repurchase any shares under the program and may suspend or discontinue it at any time.

Note 15: Derivatives and Hedging Activities

The Company is exposed to certain risk arising from both its business operations and economic conditions and principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company, on a routine basis and in the normal course of business, experiences expenses denominated in Swiss Franc ("CHF"), Canadian Dollar ("CAD") and Great British Pound ("GBP"). Such expenses expose the Company to exchange rate fluctuations between these foreign currencies and the U.S. Dollar ("USD"). The Company occasionally uses derivative financial instruments, in the form of forward contracts, to mitigate a portion of the risk associated with adverse movements in these foreign currency exchange rates during a twelve-month window. Currency forward contracts involve fixing the exchange rate for delivery of a specified amount of foreign currency on a specified date.

The Company’s accounting treatment for these instruments is based on whether or not the instruments are designated as a hedging instrument. ~~The~~As of May 2, 2021 and January 31, 2021, the Company ~~is currently applying hedge accounting to all~~had no outstanding foreign currency ~~derivatives and has designated these hedges as cash flow hedges.~~forward contracts.

~~The Company's foreign exchange contracts had the following outstanding balances:~~

Balance as of
(in thousands, except number of instruments data) July 26, 2020 January 26, 2020
Foreign Exchange Contracts Number of Instruments Sell Notional Value Buy Notional Value Number of Instruments Sell Notional Value Buy Notional Value
Sell USD/Buy CAD Forward Contract 6 $ 8,571 C$ 12,000 — $ — C$ —
Sell USD/Buy GBP Forward Contract 6 $ 4,508 £ 3,600 — $ — £ —
Total 12 —

These contracts have been designated as cash flows hedges and the unrealized gains or losses, net of tax, are recorded as a component of "Accumulated other comprehensive income or loss" ("AOCI") in the Balance Sheets. The effective portions of the cash flow hedges are recorded in AOCI until the hedged item is recognized in "SG&A expense" in the Statements of Income once the foreign exchange contract matures, offsetting the underlying hedged expenses. Any ineffective portions of the cash flow hedges are recorded in "Non-operating expense, net" in the Statements of Income.

InDuring the first quarter of fiscal year 2021, the Company entered into an interest rate swap agreement with a three-year term to hedge the variability of interest payments on the first $150.0 million of debt outstanding under the Company's Credit Facility. Interest payments on $150.0 million of the Company's debt are now fixed at a rate of 1.9775%, based on the Company's current leverage ratio. The interest rate swap agreement has been designated as a cash flow hedge and unrealized gains or losses, net of income tax, are recorded as a component of ~~AOCI~~"Accumulated Other Comprehensive Income or Loss" in the Balance Sheets. As the various settlements are made on a monthly basis, the realized gain or loss on the settlements are recorded in "Interest expense" in the Statements of Income. The realized loss on the interest rate swap agreement was $0.2 million for the three months ended May 2, 2021. The realized gain on the interest rate swap agreement was not material for the three ~~and six~~ months ended ~~July~~April 26, 2020.

The fair values of the Company's derivative assets and liabilities that qualify as cash flow hedges in the Balance Sheets were as follows:

~~Balance as of~~

~~(in thousands)~~

~~July 26, 2020~~

~~January 26, 2020~~

~~Foreign currency forward contracts~~

~~473~~

—

~~Total other current assets~~

~~473~~

—

~~Interest rate swap agreement~~

~~795~~

—

~~Total accrued liabilities~~

~~795~~

—

~~Interest rate swap agreement~~

~~1,176~~

—

~~Total other long-term liabilities~~

~~1,176~~

—

~~Note 16: Correction of Immaterial Errors in Prior Period Financial Statements~~


	Balance as of
(in thousands)	May 2, 2021		January 31, 2021





Interest rate swap agreement	$	811	$	849
Total accrued liabilities	$	811	$	849


Interest rate swap agreement	$	606	$	933
Total other long-term liabilities	$	606	$	933

During the fourth quarter of fiscal year 2020, management identified certain immaterial errors related to share-based compensation expense of market-condition awards granted during fiscal years 2018, 2019 and 2020. At the inception of these grants,2021, the Company ~~appropriately determined~~entered into an economic hedge program that ~~the awards contained a market condition and that the effect of~~uses total return swap contracts to hedge the market ~~condition should be reflected in the grant date fair value of the awards,~~risk associated with the resulting compensation expense fixed at inception and recognized ratably over the requisite service period, regardless of when, if ever, the market condition is satisfied. The actual awards, however, were incorrectly accounted for as performance-based awards, whereby the number of shares expected to vest and corresponding compensation expense was adjusted on a quarterly basis. The Company assessed the materiality of the errors from a qualitative and quantitative perspective, and concluded that the impact of the errors is not material. Therefore, the correction of the errors did not require the amendmentunfunded portion of the Company's ~~previously filed Annual Reports on Form 10-K or its Quarterly Reports on Form 10-Q for~~deferred compensation liability. The total return swap contracts generally have a duration of one month and are rebalanced and re-hedged at the ~~impacted periods. The~~end of each monthly term. While the total returns swap contracts are treated as economic hedges, the Company has ~~corrected its consolidated financial statements~~not designated them as hedges for ~~these errors~~accounting purposes. The total return swap contracts are measured at fair value and recognized in the Balance Sheets in "Accrued Liabilities" if the instruments are in a loss position and in "Other Current Assets" if the instruments are in a gain position. Unrealized gains and losses, as well as realized gains and losses for ~~the impacted prior periods presented in this Quarterly Report on Form 10-Q.~~

~~The impact of the corrections~~settlements, on the ~~Company's Statements of Income~~total return swap contracts are recognized in "Selling, general and ~~Statements of Comprehensive Income for the three and six months ended July 28, 2019, are presented in the table below:~~

Three Months Ended Six Months Ended
July 28, 2019 July 28, 2019
(in thousands, except per share data) As Reported As Corrected As Reported As Corrected
Selling, general and administrative $ 39,875 $ 43,325 $ 78,252 $ 82,297
Product development and engineering $ 25,553 $ 25,882 $ 52,652 $ 53,036
Total operating costs and expenses $ 69,336 $ 73,115 $ 137,794 $ 142,223
Operating income $ 15,548 $ 11,769 $ 28,365 $ 23,936
Income before taxes and equity in net gains (losses) of equity method investments $ 14,164 $ 10,385 $ 25,557 $ 21,128
Provision for income taxes $ 8,966 $ 8,361 $ 6,654 $ 5,945
Net income before equity in net gains (losses) of equity method investments $ 5,198 $ 2,024 $ 18,903 $ 15,183
Net income $ 5,366 $ 2,192 $ 18,660 $ 14,940
Earnings per share:
Basic $ 0.08 $ 0.03 $ 0.28 $ 0.23
Diluted $ 0.08 $ 0.03 $ 0.28 $ 0.22
Comprehensive income $ 5,244 $ 2,070 $ 18,526 $ 14,806

~~There was no impact to the Company's Balance Sheets or to total operating cash flows~~administrative expenses" in the Statements of ~~Cash Flows~~Income. As of May 2, 2021 and January 31, 2021, the notional values of the total return swap contracts were $14.9 million and $11.9 million, respectively, and the fair value resulted in a liability balance of $0.01 million and $0.2 million, respectively. The net gain recognized in earnings on the total return swap contracts was $1.0 million for ~~any periods presented in this Quarterly Report on Form 10-Q.~~

27the three months ended May 2, 2021.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following "Management’s Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with our interim unaudited condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this "Quarterly Report"), and the "Special Note Regarding Forward-Looking and Cautionary Statements"~~, and "Part II. Item 1A. Risk Factors"~~ in this Quarterly Report.

Overview

Semtech Corporation (together with its consolidated subsidiaries, the "Company", "we", "our", or "us") designs, develops, manufactures and markets high-performance analog and mixed signal semiconductors and advanced algorithms. We operate and account for results in one reportable segment through three product lines: Signal Integrity, Wireless and Sensing, and Protection.

Signal Integrity. We design, develop and market a portfolio of optical data communications and video transport products used in a wide variety of enterprise computing, communications, and industrial applications. Our comprehensive portfolio of integrated circuits ("ICs") for data centers, enterprise networks, passive optical networks ("PON"), and wireless base station optical transceivers and high-speed interfaces ranges from 100Mbps to ~~400Gbps~~800Gbps and supports key industry standards such as Fibre Channel, Infiniband, Ethernet, PON and synchronous optical networks. Our video products offer advanced solutions for next generation high-definition broadcast applications, as well as highly differentiated video-over-IP technology for professional audio video ("Pro AV") applications.

Wireless and Sensing. We design, develop and market a portfolio of specialized radio frequency products used in a wide variety of industrial, medical and communications applications, and specialized sensing products used in industrial and consumer applications. Our wireless products, which include our LoRa® devices and wireless radio frequency technology ("LoRa Technology"), feature industry leading and longest range industrial, scientific and medical radio, enabling a lower total cost of ownership and increased reliability in all environments. This makes these products particularly suitable for machine to machine and Internet-of-Things ("IoT") applications. Our unique sensing technology enables proximity sensing and advanced user interface solutions for our mobile and consumer products. Our wireless and sensing products can be found in a broad range of applications in the industrial, medical, and consumer markets. We also design, develop, and market power product devices that control, alter, regulate, and condition the power within electronic systems focused on the LoRa and IoT infrastructure segment. The highest volume product types within this category are switching voltage regulators, combination switching and linear regulators, smart regulators, isolated switches, and wireless charging.

Protection. We design, develop and market high-performance protection devices, which are often referred to as transient voltage suppressors ("TVS"). TVS devices provide protection for electronic systems where voltage spikes (called transients), such as electrostatic discharge, electrical over stress or secondary lightning surge energy, can permanently damage sensitive ICs. Our portfolio of protection solutions include filter and termination devices that are integrated with the TVS device. Our products provide robust protection while preserving signal integrity in high-speed communications, networking and video interfaces. These products also operate at very low voltage. Our protection products can be found in a broad range of applications including smart phones, LCD and organic light-emitting diode TVs and displays, set-top boxes, monitors and displays, tablets, computers, notebooks, base stations, routers, automobile and industrial instruments.

Our interim unaudited condensed consolidated balance sheets are referred to herein as the "Balance Sheets" and interim unaudited condensed consolidated statements of income are referred to herein as the "Statements of Income."

Our net sales by product line were as follows:


		Three Months Ended						Six Months Ended					Three Months Ended
(in thousands)	(in thousands)	July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019		(in thousands)	May 2, 2021		April 26, 2020
Signal Integrity	Signal Integrity	$	71,645	$	55,094	$	131,574	$	105,350	Signal Integrity	$	66,695	$	59,929
Wireless and Sensing	Wireless and Sensing	38,830		41,696		71,788		83,903		Wireless and Sensing	58,507		32,958
Protection	Protection	33,185		40,356		73,000		79,247		Protection	45,170		39,815
Total	Total	$	143,660	$	137,146	$	276,362	$	268,500	Total	$	170,372	$	132,702

We design, develop 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. During the first quarter of fiscal year 2021, we reviewed the process for mapping our net sales to our end markets. This process can be challenging for the semiconductor industry due to the large number of products that can be used across multiple customer platforms and in different end markets. As a result, effective as of the beginning of the first quarter of fiscal year 2021, we combined our Enterprise Computing and Communications end markets, which were historically presented separately, into our Infrastructure end market, which we believe better reflects actual end-market consumption. Accordingly, we now categorize our net sales into the following three end markets:

Infrastructure: data centers, PON, base stations, optical networks, servers, carrier networks, switches and routers, cable modems, wireless local area network ("LAN") and other communication infrastructure equipment.

High-End Consumer: 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: ~~IoT,~~Internet of Things ("IoT"), analog and digital video broadcast equipment, video-over-IP solutions, automated meter reading, smart grid, wireless charging, military and aerospace, medical, security systems, automotive, industrial and home automation and other industrial equipment.

Our end customers are primarily original equipment manufacturers ("OEMs") that produce and sell electronics.

Impact of COVID-19

The COVID-19 pandemic has significantly affected health and economic conditions throughout the United States and the rest of the world including Asia, where a significant percentage of our customers, suppliers, third party foundries and subcontractors are located. As a result of the pandemic, certain of our facilities and the third-party foundries and assembly and test contractors which we outsource our manufacturing functions to, have had to periodically reduce or suspend operations. The disruption experienced during such closures has resulted in reduced production of our products, delays for delivery of our products to our customers, and reduced ability to receive supplies, which have had and may continue to have an adverse effect on our results. ~~Our~~

Currently, customer demand remains strong and supply tight, with many of our suppliers running at or near capacity and our customers competing for the limited supply. While we have ~~also experienced~~increased our inventory levels to prepare for the strong backlog of orders, we cannot assure you that we will have sufficient inventory if this high level of demand is sustained over the longer term. In addition, the prices to obtain and convert the necessary inventory have increased in certain cases, and may continue to ~~or again experience, reductions or closures of their manufacturing facilities or inability~~increase. While we have been largely successful with passing on selective price increases to ~~obtain other components, either of which could negatively impact demand for~~ our ~~products, which are incorporated into our customers' devices and solutions. We~~customers, we cannot assure you that such facilities will not have to reduce or suspend operations again, and such reductions or closures could extend for a longer term than the prior shutdown of such facilities, thereby causing a disruption to the manufacturing and shipping of our products.

~~Because a significant majority of our net sales is~~all future, potential price increases can be absorbed through ~~authorized distributors, the financial health of our distributors is critical~~increased pricing to our success. Our authorized distributors have experienced disruptions to their operations, including temporary reductions or closures during which they have diminished ability or are unable to sell our products. The ability of our distributors to purchase our products may be materially impacted depending on the length and severity of the pandemic, including the impact on general economic conditions. Further, if credit conditions worsen in response to the COVID-19 pandemic, our customers may ask for extension of payment terms and are more likely to default, thereby increasing risk of receivables being uncollectible.customers.

We believe ~~our liquidity position will allow us to withstand some of~~we have good visibility going into the uncertainties in the current environment. As of July 26, 2020, we had $281.5 million of cash and cash equivalents and $411.0 million of undrawn capacity on our credit facility. Our business is structured in a manner that is not capital intensive, which enhances our ability to preserve our overall liquidity even if conditions were to deteriorate further.

As a result of the COVID-19 pandemic, we continue to evaluate the impact on long-lived assets, such as goodwill and intangible assets for possible impairment. We did not record a goodwill impairment charge during the first six monthssecond quarter of fiscal year 2021. We recorded $1.5 million and $5.1 million of investment impairments and credit loss reserves during the three and six months ended July 26, 2020, respectively, some of which were in part due to the impact2022; however, it is unknown how much of the ~~COVID-19 pandemic on our investees.~~

~~Although some of~~increased demand reflects real end market strength. We believe the ~~government measures implemented to reduce the spread of the virus have been lifted or scaled back, a recent resurgence of COVID-19~~general supply chain constrains in the ~~United States~~industry may be motivating certain customers to increase their orders and ~~some other countries has resulted~~inventory levels to protect against the supply risk. To the extent that this is occurring, we could experience a decrease in the reinstatement of restrictions and may lead to other restrictions being reinstated in a response to efforts to reduce the spread of the virus. The COVID-19 pandemic has negatively impacted our financial results by decreasing sales in the high-end consumer and industrial end markets and increasing impairments for the first half of fiscal year 2021. We expect it to continue to have an adverse impact on our financial results for the remainder of fiscal year 2021, including having a potentially larger impact on our results of operations than that which has been reflected in our results for our first six months of fiscal year 2021. We believe, however, that our strong liquidity position, continued strong bookings, and a predominantly fabless business model will help us to navigate through these uncertain times.future demand as potential excess inventory chain is worked down.

Factors Affecting Our Performance

Most of our sales to customers are made on the basis of individual customer purchase orders. Many customers include cancellation provisions in their purchase orders. Trends within the industry toward shorter lead-times and "just-in-time" deliveries have resulted in our reduced ability to predict future shipments. As a result, we rely on orders received and shipped within the same quarter for a significant portion of our sales. Orders received and shipped in the ~~second~~first quarters of fiscal years 2022 and 2021 represented 18% and ~~2020 represented 24% and 41%~~34% of net sales, respectively. Sales made directly to customers during the ~~second~~first quarters of fiscal years 2022 and 2021 were 14% and ~~2020 were 19% and 28%~~22% of net sales, respectively. The remaining sales were made through independent distributors. The decline in direct sales is due to customers electing to leverage the value of distribution to better manage their supply chain.

Our business relies on foreign-based entities. ~~Most~~Many of our ~~outside~~third-party subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located in foreign countries including ~~China,~~ Taiwan and ~~Israel. For the second quarters of fiscal years 2021 and 2020, approximately 18% and 23%, respectively, of the Company’s silicon in~~

terms of cost of wafers was supplied by a third-party foundry in China, and approximately 10% and 14%, respectively, of the Company’s silicon in terms of cost of wafers was supplied by a third-party foundry in Israel. These percentages could be higher in future periods.China. Foreign sales constituted approximately 89% and 91% of our net sales during the ~~second~~first quarters ~~for each~~ of fiscal years ~~2021~~2022 and ~~2020.~~2021. Approximately ~~80%~~78% and ~~74%~~80% of sales during the ~~second~~first quarters of fiscal years ~~2021~~2022 and ~~2020,~~2021, respectively, were to customers located in the Asia-Pacific region. The remaining foreign sales were primarily to customers in Europe, Canada, and Mexico. Doing business in foreign locations also subjects us to export restrictions and trade laws, which may limit our ability to sell to certain customers. For example, the U.S. Department of Commerce expanded its restrictions on certain technology sold to or for Huawei in 2020, which adversely impacted our sales to this customer.

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 not to result in sales, including a customer's 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 inevitably result in us being awarded business or receiving a purchase commitment.

We are continuing to monitor the near term geopolitical uncertainty and export restrictions on shipments to certain customers, such as Huawei Technologies Co., Ltd. ("Huawei") and certain of its affiliates. For example, on August 17, 2020 the U.S. Department of Commerce expanded the scope of the foreign product rule as applied to products sold to or for Huawei, which we expect will further impact our ability to ship to Huawei, as well as certain other customers who we believe incorporate our products into their products sold to Huawei. As of the date of this report, we are unable to predict the magnitude of the impact or duration of the export restrictions imposed on Huawei and the corresponding future effects on our business. The following and above discussions reflect our current assessment of the near term impact of these uncertainties, as well as the recent COVID-19 pandemic.

Results of Operations

The following table sets forth, for the periods indicated, our Statements of Income expressed as a percentage of net sales.


		Three Months Ended						Six Months Ended							Three Months Ended
		July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019			May 2, 2021		April 26, 2020
Net sales	Net sales	100.0	%	100.0	%	100.0	%	100.0	%	Net sales	100.0	%	100.0	%
Cost of sales	Cost of sales	38.6	%	38.1	%	38.8	%	38.1	%	Cost of sales	38.5	%	39.1	%
Gross profit	Gross profit	61.4	%	61.9	%	61.2	%	61.9	%	Gross profit	61.5	%	60.9	%
Operating costs and expenses:	Operating costs and expenses:									Operating costs and expenses:
Selling, general and administrative	Selling, general and administrative	26.6	%	31.6	%	26.4	%	30.7	%	Selling, general and administrative	22.8	%	26.1	%
Product development and engineering	Product development and engineering	20.3	%	18.9	%	20.6	%	19.8	%	Product development and engineering	21.6	%	20.8	%
Intangible amortization	Intangible amortization	1.4	%	2.8	%	1.8	%	3.4	%	Intangible amortization	0.8	%	2.1	%

Changes in the fair value of contingent earn-out obligations		—	%	—	%	—	%	(0.8)	%

Total operating costs and expenses	Total operating costs and expenses	48.4	%	53.3	%	48.7	%	53.0	%	Total operating costs and expenses	45.1	%	49.0	%
Operating income	Operating income	13.1	%	8.6	%	12.5	%	8.9	%	Operating income	16.4	%	11.9	%
Interest expense	Interest expense	(0.9)	%	(1.9)	%	(1.0)	%	(1.9)	%	Interest expense	(0.7)	%	(1.2)	%
Non-operating (expense) income, net		(0.1)	%	0.9	%	0.1	%	0.8	%
Non-operating income, net										Non-operating income, net	0.1	%	0.3	%
Investment impairments and credit loss reserves	Investment impairments and credit loss reserves	(1.0)	%	—	%	(1.9)	%	—	%	Investment impairments and credit loss reserves	(0.1)	%	(2.7)	%
Income before taxes and equity in net (losses) gains of equity method investments		11.0	%	7.6	%	9.7	%	7.9	%
(Benefit) provision for income taxes		(0.3)	%	6.1	%	0.3	%	2.2	%
Net income before equity in net (losses) gains of equity method investments		11.3	%	1.5	%	9.4	%	5.7	%
Equity in net (losses) gains of equity method investments		(0.1)	%	0.1	%	(0.1)	%	(0.1)	%
Income before taxes and equity in net gains (losses) of equity method investments										Income before taxes and equity in net gains (losses) of equity method investments	15.6	%	8.3	%
Provision for income taxes										Provision for income taxes	1.9	%	1.0	%
Net income before equity in net gains (losses) of equity method investments										Net income before equity in net gains (losses) of equity method investments	13.7	%	7.3	%
Equity in net gains (losses) of equity method investments										Equity in net gains (losses) of equity method investments	—	%	—	%
Net income	Net income	11.2	%	1.6	%	9.3	%	5.6	%	Net income	13.8	%	7.3	%
Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	—	%	—	%	—	%	—	%	Net loss attributable to noncontrolling interest	—	%	—	%
Net income attributable to common stockholders	Net income attributable to common stockholders	11.2	%	1.6	%	9.3	%	5.6	%	Net income attributable to common stockholders	13.8	%	7.3	%
Percentages may not add precisely due to rounding.	Percentages may not add precisely due to rounding.									Percentages may not add precisely due to rounding.

Our regional mix of income (loss) from continuing operations before taxes and equity in net gains ~~(losses)~~ of equity method investments was as follows:


		Three Months Ended						Six Months Ended							Three Months Ended
(in thousands)	(in thousands)	July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019		(in thousands)	May 2, 2021		April 26, 2020
Domestic	Domestic	$	(10,125)	$	(9,902)	$	(17,012)	$	(19,062)	Domestic	$	(5,484)	$	(6,978)
Foreign	Foreign	25,968		20,287		43,857		40,190		Foreign	32,102		17,980
Total	Total	$	15,843	$	10,385	$	26,845	$	21,128	Total	$	26,618	$	11,002

Domestic performance from continuing operations includes higher levels of share-based compensation compared to foreign operations.

Comparison of the Three Months Ended ~~July~~May 2, 2021 and April 26, 2020 ~~and July 28, 2019~~

As noted above in "Overview", we revised the end market categories for our net sales at the beginning of the first quarter of fiscal year 2021. All net sale amounts shown below for our end markets, including periods prior to the first quarter of fiscal year 2021, have been reclassified to conform to our current classification of end markets. The following table summarizes our net sales by major end market:


		Three Months Ended															Three Months Ended
(in thousands)		July 26, 2020						July 28, 2019
(in thousands, except percentages)										(in thousands, except percentages)	May 2, 2021				April 26, 2020
Infrastructure	Infrastructure	$	68,129	47	%	$	49,979	36	%	Infrastructure	$	61,350	36	%	$	58,038	43	%
High-End Consumer	High-End Consumer	31,706		22	%	38,401		28	%	High-End Consumer	53,816		32	%	35,480		27	%
Industrial	Industrial	43,825		31	%	48,766		36	%	Industrial	55,206		32	%	39,184		30	%
Total	Total	$	143,660	100	%	$	137,146	100	%	Total	$	170,372	100	%	$	132,702	100	%

Net Sales

Net sales for the ~~second quarter~~first three months of fiscal year ~~2021~~2022 were ~~$143.7~~$170.4 million, an increase of ~~4.7%~~28.4% compared to ~~$137.1~~$132.7 million for the ~~second quarter~~first three months of fiscal year ~~2020.~~2021. During the ~~second quarter~~first three months of fiscal year ~~2021,~~2022, we experienced strong demand across all three of our end markets compared to the prior year when our revenue was adversely impacted by a delay in certain shipments of our products due to COVID-19 related shutdowns of our plant in Reynosa, Mexico, as well as certain

subcontractors in Malaysia. Our industrial end market increased $16.0 million versus the prior year primarily due to an approximately $12 million increase in LoRa-enabled product sales, as we gained traction in the ever expanding range of Internet-of-Things applications. In our high-end consumer end market, net sales increased by $18.3 million primarily driven by an approximately $13 million increase in our proximity sensing products. Our infrastructure end market ~~primarily~~revenue increased by $3.3 million driven by strong 10G PON sales, partially offset by slightly lower data center demand by cloud and hyperscale providers, increased wireless infrastructure and 10G PON sales. These increases were partially offset by a decline in our high-end consumer end market due in part to COVID-19 related disruptions. In addition, the decline in our industrial end market was driven by lower broadcast application sales, which was partially due to lower demand as COVID-19 has adversely impacted the volume of large venue events.providers.

~~Despite the ongoing COVID-19 pandemic, our bookings remained strong during the first half of fiscal year 2021.~~ Based on ~~booking trends~~record bookings and ~~our~~ backlog entering the quarter, we estimate net sales for the ~~third~~second quarter of fiscal year ~~2021~~2022 to be between ~~$145.0~~$177.0 million and ~~$155.0~~$187.0 million. The range of guidance reflects continued uncertainty regarding macro-related events and those associated with the COVID-19 pandemic discussed above.

Gross Profit

For the ~~second quarter~~first three months of fiscal year 2022, gross profit increased to $104.9 million from $80.8 million for the first three months of fiscal year 2021 ~~gross profit increased to $88.3 million from $84.9 million~~as a result of higher sales. Gross margins were 61.5% for the ~~second quarter~~first three months of fiscal year ~~2020. Gross margins were 61.4%~~2022 compared to 60.9% for the ~~second quarter~~first three months of fiscal year 2021, ~~compared to 61.9% for the second quarter of fiscal year 2020. This decrease was primarily due to changes in~~reflecting a more favorable product mix. For the second quarter of fiscal year ~~2021, our gross margins remained within our target range. For the third quarter of fiscal year 2021,~~2022, we expect our gross margins to be in the range of ~~60.5%~~61.3% to ~~61.5%~~62.3%.

Operating Costs and Expenses


		Three Months Ended																	Change		Three Months Ended						Change
(in thousands, except percentages)	(in thousands, except percentages)	July 26, 2020						July 28, 2019									Change			May 2, 2021					April 26, 2020	Change
Selling, general and administrative	Selling, general and administrative	$	38,255	55	%	$	43,325	60	%	(12)	%	Selling, general and administrative	$	38,804	50	%			34,600		54	%	12	%
Product development and engineering	Product development and engineering	29,220		42	%	25,882		35	%	13	%	Product development and engineering	36,790		48	%		27,586			42	%	33	%
Intangible amortization	Intangible amortization	2,020		3	%	3,908		5	%	(48)	%	Intangible amortization	1,298		2	%		2,840			4	%	(54)	%

Changes in the fair value of contingent earn-out obligations												Changes in the fair value of contingent earn-out obligations	—		—	%		(33)			—	%	100	%
Total operating costs and expenses	Total operating costs and expenses	$	69,495	100	%	$	73,115	100	%	(5)	%	Total operating costs and expenses	$	76,892	100	%		$	64,993		100	%	18	%

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses ~~decreased~~increased $4.2 million for the ~~second quarter~~first three months of fiscal year ~~2021~~2022 compared to the ~~same quarter~~first three months of fiscal year ~~2020~~2021 primarily as a result of ~~lower supplemental compensation~~a $4.3 million increase in staffing-related costs, ~~and travel expense, as well as the absence of restructuring expenses~~including higher costs related to ~~our wireless charging business, of which $2.0 million were recorded in the prior year.~~deferred compensation and share based compensation.

Product Development and Engineering Expenses

Product development and engineering expenses increased ~~for~~$9.2 million in the ~~second quarter~~first three months of fiscal year ~~2021~~2022 compared to the ~~second quarter~~first three months of fiscal year ~~2020~~2021 as a result of fluctuations in the timing of development ~~activities.~~activities and a $2.4 million increase in staffing-related costs primarily related to higher headcount. 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.

Intangible Amortization

Intangible amortization was ~~$2.0~~$1.3 million and ~~$3.9~~$2.8 million for the ~~second quarters~~first three months of fiscal years ~~2021~~2022 and ~~2020,~~2021, respectively. This decrease was primarily due to certain finite-lived intangible assets associated with the ~~acquisitions~~acquisition of Gennum Corporation ~~Triune Systems, L.L.C. and AptoVision Technologies, Inc.~~ that had become fully amortized during fiscal ~~years~~year 2021.

Changes in the Fair Value of Contingent Earn-out Obligations

The change in the fair value of contingent earn-out obligations for the first three months of fiscal year 2021 reflects the difference between the final earn-out targets achieved for Cycleo SAS in fiscal year 2021 and the forecast achievement level at the end of fiscal year 2020 ~~and 2021.~~.

Interest Expense

Interest expense, including amortization of debt discounts and issuance costs, was ~~$1.3~~$1.2 million and ~~$2.6~~$1.6 million for the ~~second quarters~~first three months of fiscal years ~~2021~~2022 and ~~2020,~~2021, respectively. This decrease was primarily due to lower interest rates and lower overall debt levels. ~~Interest payments on $150.0 million of our debt, or approximately 79% of our debt outstanding, are effectively locked in at an all-in fixed rate of 1.9775%, based on our current leverage ratio.~~

Investment Impairments and Credit Loss Reserves

During the ~~second quarter~~first three months of fiscal year 2022, investment impairments and credit loss reserves totaled a loss of $0.2 million due to adjustments to our reserve for current expected credit losses. During the first three months of fiscal year 2021, investment impairments and credit loss reserves totaled a loss of ~~$1.5~~$3.6 million ~~and primarily reflected an~~including other-than-temporary ~~impairment~~impairments of a

two cost method ~~equity investment. We had no investment impairments or changes~~investments totaling $1.2 million, as well as $2.4 million of adjustments to our reserve for current expected credit losses, which were, in ~~credit loss reserves during~~part, due to the ~~second quarter~~impact of ~~fiscal year 2020.~~the COVID-19 pandemic on early-stage development companies.

~~(Benefit)~~ Provision for Income Taxes

The effective tax rates for the ~~second quarters~~first three months of fiscal years ~~2021~~2022 and ~~2020~~2021 were a ~~benefit~~provision rate of ~~2.6%~~12.0% and a provision rate of ~~79.2%~~12.4%, respectively. In the ~~second quarter~~first three months of fiscal year ~~2021,~~2022, we recorded an income tax ~~benefit~~expense of ~~$0.4~~$3.2 million, compared to income tax expense of ~~$8.4~~$1.4 million in the ~~second quarter~~first three months of fiscal year ~~2020.~~2021. The effective tax rate in the ~~second quarter~~first three months of fiscal year 2022 was lower than the effective tax rate in the first three months of fiscal year 2021 ~~differs from the statutory federal income tax rate of 21%~~ primarily due to athe impact of regional mix of ~~income, return-to-provision adjustments, withholding taxes on certain foreign earnings and research and development tax credits.~~ income.The effective tax rate in the ~~second quarter~~first three months of fiscal ~~year 2020~~years 2022 and 2021 differs from the statutory federal income tax rate of 21% primarily due to regional mix of income, excess tax benefits from share-based compensation and ~~the impact of final regulations on the U.S. transition tax.~~research and development tax credits.

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.

~~Comparison of the Six Months Ended July 26, 2020 and July 28, 2019~~

Six Months Ended
(in thousands, except percentages) July 26, 2020 July 28, 2019
Infrastructure $ 126,167 46 % $ 97,565 36 %
High-End Consumer 67,186 24 % 83,061 31 %
Industrial 83,009 30 % 87,874 33 %
Total $ 276,362 100 % $ 268,500 100 %

~~NetSales~~

Net sales for the first six months of fiscal year 2021 were $276.4 million, an increase of 2.9% compared to $268.5 million for the first six months of fiscal year 2020. During the first six months of fiscal year 2021, we experienced strong demand in our infrastructure end market, primarily driven by data center demand by cloud and hyperscale providers and increased 10G PON sales. These increases were partially offset by a decline in our high-end consumer end market due to certain COVID-19 disruptions and lower proximity sensing products sales. In the first quarter of fiscal 2020, we experienced an increase in these

~~sales as Huawei increased their inventories in anticipation of future export restrictions.~~

~~Gross Profit~~

For the first six months of fiscal year 2021, gross profit increased to $169.0 million from $166.2 million for the first six months of fiscal year 2020 as a result of higher sales. Gross margins were 61.2% for the first six months of fiscal year 2021 compared to 61.9% for the first six months of fiscal year 2020, reflecting a slightly unfavorable product mix.

~~Operating Costs and Expenses~~

Six Months Ended Change
(in thousands, except percentages) July 26, 2020 July 28, 2019
Selling, general and administrative $ 72,855 54 % 82,297 59 % (11) %
Product development and engineering 56,806 42 % 53,036 37 % 7 %
Intangible amortization 4,860 4 % 9,051 6 % (46) %
Changes in the fair value of contingent earn-out obligations (33) — % (2,161) (2) % 98 %
Total operating costs and expenses $ 134,488 100 % $ 142,223 100 % (5) %

~~Selling, General and Administrative Expenses~~

SG&A expenses decreased for the first six months of fiscal year 2021 compared to the first six months of fiscal year 2020 primarily as a result of lower share-based and supplemental compensation expense, as well as reduced travel expenses due to COVID-19. Additionally, certain restructuring costs of $2.1 million were recorded in the first half of fiscal 2020, which did not repeat in the current year.

~~Product Development and Engineering Expenses~~

Product development and engineering expenses increased in the first six months of fiscal year 2021 compared to the first six months of fiscal year 2020 as a result of fluctuations in the timing of development activities and higher supplemental compensation. 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.

~~Intangible Amortization~~

Intangible amortization was $4.9 million and $9.1 million for the first six months of fiscal years 2021 and 2020, respectively. This decrease was primarily due to certain finite-lived intangible assets associated with the acquisition of Gennum Corporation, Triune Systems, LLC and AptoVision Technologies, Inc. that had become fully amortized during fiscal years 2020 and 2021.

~~Changes in the Fair Value of Contingent Earn-out Obligations~~

The change in the fair value of contingent earn-out obligations for the first six months of fiscal year 2021 compared to the first six months of fiscal year 2020 reflects the impact of changes in the estimated probability of achievement of earn-out targets for AptoVision Technologies, Inc. and Cycleo SAS. We measure contingent earn-out liabilities at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy. The significant unobservable inputs used in the fair value measurements are revenue projections over the earn-out period, and the probability outcome percentages assigned to each scenario. Significant increases or decreases to either of these inputs in isolation would result in a significantly higher or lower liability, with a higher liability capped by the contractual maximum of the contingent earn-out obligation. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings.

~~Interest Expense~~

Interest expense, including amortization of debt discounts and issuance costs, was $2.8 million and $5.1 million for the first six months of fiscal years 2021 and 2020, respectively. This decrease was primarily due to lower interest rates and lower overall debt levels. Interest payments on $150.0 million of our debt, or approximately 79% of our debt outstanding, are effectively locked in at an all-in fixed rate of 1.9775%, based on our current leverage ratio.

~~Investment Impairments and Credit Loss Reserves~~

During the first six months of fiscal year 2021, investment impairments and credit loss reserves totaled a loss of $5.1 million. We increased our current expected credit loss reserve by $2.4 million for our available-for-sale debt securities consisting of our convertible debt investments in privately-held companies, in part, due to the adverse impact of COVID-19 on these early-stage companies. In addition, we tested our equity investments for other-than-temporary impairment and the results of this analysis

indicated that three of our investments were other than temporarily impaired by an aggregate amount of $2.9 million. We had no investment impairments or changes in credit loss reserves during the first six months of fiscal year 2020.

~~(Benefit) Provision for Income Taxes~~

The effective tax rates for the first six months of fiscal years 2021 and 2020 were a provision rate of 3.5% and a provision rate of 28.5%, respectively. In the first six months of fiscal year 2021, we recorded a provision of $0.9 million, compared to a provision of $5.9 million in the first six months of fiscal year 2020. The effective tax rate in the first six months of fiscal year 2021 was lower than the effective tax rate in the first six months of fiscal year 2020 primarily due to the impact of the final regulations of the U.S. transition tax that went into effect during fiscal year 2020.The effective tax rate in the first six months of fiscal year 2021 differs from the statutory federal income tax rate of 21% primarily due to a regional mix of income, return-to-provision adjustments, withholding taxes on certain foreign earnings and research and development tax credits. The effective tax rate in the first six months of fiscal year 2020 differs from the statutory federal income tax rate of 21% primarily due to regional mix of income and the impact of the final regulations on the U.S. transition tax.

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:~~acquisitions; the general economic environment in which we ~~operate~~operate; and our ability to generate cash flow from operations, which are more uncertain as a result of the COVID-19 pandemic and its impact on the general economy. Our liquidity needs during this uncertain time will depend on multiple factors, including our ability to continue operations and production of our products, the COVID-19 pandemic's effects on our customers, the availability of sufficient amounts of financing and our operating performance.

We believe that ~~we have the financial resources necessary~~our cash on hand, cash available from future operations and available borrowing capacity under our Credit Facility are sufficient to meet ~~business~~liquidity requirements for at least the next 12 months, including funds needed for ~~working capital~~our material cash requirements.

As of ~~July 26, 2020, our total stockholders’ equity was $677.5 million. At that date,~~May 2, 2021, we ~~also~~ had ~~$281.5~~$258.2 million in cash and cash equivalents and ~~$411.0~~$423.0 million of undrawn capacity on our Credit Facility (as defined below).

~~We incur significant expenditures in order~~ Over the longer-term, we believe our strong cash-generating business model will continue to provide adequate liquidity to fund our normal operations, which have minimal capital intensity. To the ~~development, design, and manufacture~~extent that we enter into acquisitions or strategic partnerships, we may be required to raise additional capital through debt issuances or equity offerings. In addition, we expect to refinance our Credit Facility ahead of ~~new products. We intend~~its maturity in November 2024. While we have not had issues securing favorable financing historically, there is no assurance that we will be able to ~~continue to focus on those areas that have shown potential for viable and profitable market opportunities, which may require~~refinance or secure additional ~~investment in equipment and the hiring of additional design and application engineers aimed~~capital at ~~developing new products. Certain of these expenditures, particularly the addition of design engineers, do not generate significant payback~~favorable terms, or at all in the ~~short-term. We plan to finance these expenditures with cash generated by our operations and our existing cash balances.~~future.

A meaningful portion of our capital resources, and the liquidity they represent, are held by our foreign subsidiaries. As of ~~July 26, 2020,~~May 2, 2021, our foreign subsidiaries held approximately ~~$166.4~~$206.8 million of cash and cash equivalents, compared to ~~$261.9~~$182.9 million at January 26, 2020. In connection with the enactment of the Tax Cuts and Jobs Act, all historic and current foreign earnings are taxed in the U.S. and are subject to a 5% withholding tax, if repatriated. In fiscal year 2018, we determined that we would repatriate back to the U.S. approximately $240.0 million of foreign earnings. As of the second quarter of fiscal year 2021, the full amount has been repatriated. In the second quarter of fiscal year 2021, we determined an additional $50 million of current earnings31, 2021.

We expect our future cash uses will ~~not~~ be ~~permanently reinvested. As of July 26, 2020, our foreign subsidiaries had $547.9 million of unremitted earnings~~ for ~~which no taxes have been provided. Those historical earnings have been and are expected to continue to be permanently reinvested.~~

~~Cash Flows~~

~~One~~capital expenditures, repurchases of our primary goals is to continually improve the cash flows from our existing operating activities. Additionally, we will continue to seek to maintain and improve our existing business performance with capital expenditures common stock and potentially, acquisitions and other investments that support achievement of our business strategies. ~~Acquisitions may be made for either~~We expect to fund those cash ~~or stock consideration, or a combination of both.~~

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

Six Months Ended
(in thousands) July 26, 2020 July 28, 2019
Net cash provided by operating activities $ 63,299 $ 40,093
Net cash used in investing activities (20,981) (24,442)
Net cash used in financing activities (54,186) (39,932)
Net decrease in cash and cash equivalents $ (11,868) $ (24,281)

~~Operating Activities~~

~~Net cash provided by operating activities is due to net income adjusted for non-cash items~~from operations and ~~fluctuations in operating assets and liabilities.~~

Operating cash flows for the first six months of fiscal year 2021 were favorably impacted by a 2.9% increase in net sales, compared to the first six months of fiscal year 2020. Operating cash flows for the first six months of fiscal year 2020 were adversely impacted by $9.3 million of cash-settled equity payments and favorably impacted by $1.0 million of proceeds received from the settlement of the HiLight lawsuit.

~~Investing Activities~~

Net cash used in investing activities was primarily attributable to capital expenditures and purchases of investments, net of proceeds from sales of property, plant and equipment and proceeds from sales of investments.

Capital expenditures were $14.6 million for the first six months of fiscal year 2021, compared to $16.9 million for the first six months of fiscal year 2020. In the first six months of fiscal year 2020, we made significant investments to update and expandborrowings against our ~~production capabilities including the $4.0 million purchase of a facility in Colorado.~~

In the first six months of fiscal year 2021, we paid $6.7 million for strategic investments, including investments in companies that are enabling the LoRa and LoRaWAN®-based ecosystem, compared to $7.7 million of investments in the first six months of fiscal year 2020.

~~Financing Activities~~

Net cash used in financing activities is primarily attributable to repurchases of outstanding common stock, payments related to employee share-based compensation payroll taxes and principal payments related to our long-term debt, offset by proceeds from stock option exercises.

In the first six months of fiscal year 2021, we paid $6.8 million for employee share-based compensation payroll taxes and received $3.0 million in proceeds from the exercise of stock options, compared to payments of $13.4 million for employee share-based compensation payroll taxes and proceeds of $3.0 million from the exercise of stock options in the first six months of fiscal year 2020. 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 that are outside our control. We believe that such proceeds will remain a nominal source of cash in the future.

~~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 May 24, 2018, our Board of Directors increased the authorization by $250.0 million. This program represents one of our principal efforts to return value to our stockholders. We repurchased 1,087,913 shares under this program in the first six months of fiscal year 2021 for $42.4 million. In the first six months of fiscal year 2020, we repurchased 448,481 shares under this program for $20.1 million. As of July 26, 2020, the remaining authorization under this program was $68.2 million.Credit Facility.

Credit Facility

On November 7, 2019, we, with certain of our domestic subsidiaries as guarantors, entered into an amended and restated credit agreement (the "Credit Agreement") with the lenders party thereto and HSBC Bank USA, National Association, as administrative agent, swing line lender and letter of credit issuer in order to provide a more flexible borrowing structure by expanding the borrowing capacity of the revolving loans under the senior secured first lien credit facility (the "Credit Facility") to $600.0 million, eliminating the term loans under the prior facility and extending the maturity to November 7, 2024.

In the first ~~six~~three months of fiscal ~~year~~years 2022 and 2021, we made payments ~~that totaled $8.0 million~~ on our Credit Facility ~~compared to payments on our previous term loans~~ that totaled ~~$9.4~~$4.0 million ~~in the first six months of fiscal year 2020.~~and $4.0 million, respectively. As of ~~July 26, 2020,~~May 2, 2021, we had ~~$189.0~~$177.0 million of outstanding borrowings on our Credit Facility, which had ~~$411.0~~$423.0 million of undrawn capacity.

The Credit Agreement provides that, subject to certain customary conditions, including obtaining commitments with respect thereto, we may request the establishment of one or more term loan facilities and/or increases to the revolving loans in a principal amount not to exceed (a) $300.0 million, plus (b) an unlimited amount, so long as our consolidated leverage ratio, determined on a pro forma basis, does not exceed 3.00 to 1.00. However, the lenders are not required to provide such increase upon our request.

Interest on loans made under the Credit Facility in U.S. Dollars accrues, at our option, at a rate per annum equal to (1) the Base Rate (as defined below) plus a margin ranging from 0.25% to 1.25% depending upon our consolidated leverage ratio or (2) LIBOR (determined with respect to deposits in U.S. Dollars) for an interest period to be selected by us plus a margin ranging

from 1.25% to 2.25% depending upon our consolidated leverage ratio (such margin, the "Applicable Margin"). The "Base Rate" is equal to a fluctuating rate equal to the highest of (a) the prime rate of the Administrative Agent, (b) 0.50% above the federal funds effective rate published by the Federal Reserve Bank of New York and (c) one-month LIBOR (determined with respect to deposits in U.S. Dollars), plus 1.00%.

In the first quarter of fiscal year 2021, we entered into an interest rate swap agreement with a three-year term to hedge the variability of interest payments on the first $150.0 million of debt outstanding under our Credit Facility. ~~Interest~~Based on our current leverage ratio as of May 2, 2021, interest payments on $150.0 million of our debt are ~~now~~ fixed at 1.9775%~~, based on~~.

All obligations of the Company under the Credit Agreement are unconditionally guaranteed by all of our ~~current leverage ratio.~~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 and we may voluntarily prepay borrowings at any time and from time to time, without premium or penalty, other than customary "breakage costs" and fees for LIBOR-based loans.

The Credit Agreement contains customary covenants, including limitations on our 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 our ability to create liens, pay dividends or make loan repayments. In addition, we must comply with financial covenants, including maintaining a maximum consolidated leverage ratio, determined as of the last day of each fiscal quarter, of 3.50 to 1.00 or less, provided that, such maximum consolidated leverage ratio may be increased to 4.00 to 1.00 for the four 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. As of ~~July 26, 2020,~~May 2, 2021, we were in compliance with the ~~financial~~ covenants in our Credit Agreement.

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.

~~Off-Balance Sheet Arrangements~~ 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 ~~have any off-balance sheet arrangements, as those arrangements are defined~~generate significant payback in the short-term. We plan to finance these expenditures with cash generated by ~~the U.S. Securities~~our operations and ~~Exchange Commission ("SEC"), that are reasonably likely to have a material effect on~~ our ~~financial condition, revenues or expenses, operating results, liquidity, capital expenditures or capital resources.~~existing cash balances.

Purchases under our Stock Repurchase Program

We ~~do not~~currently have ~~any unconsolidated subsidiaries or affiliated entities. We have no special purpose or limited purpose entities~~in effect a stock repurchase program that ~~provide off-balance sheet financing, liquidity or market or credit risk support. We do not engage~~was initially approved by our Board of Directors in ~~leasing, hedging, research and development services, or other relationships that expose us to liability that is not reflected on~~March 2008. On March 11, 2021, the ~~face~~Company's Board of Directors approved the expansion of the ~~condensed consolidated financial statements.~~

~~Contractual Obligations~~

~~There were no material changes~~stock repurchase program by $350.0 million. This program represents one of our principal efforts to return value to our stockholders. We repurchased 360,942 shares under this program in ~~our contractual obligations during~~ the first ~~six~~three months of fiscal year 2022 for $25.0 million. In the first three months of fiscal year 2021, we repurchased 855,042 shares under this program for $30.0 million. As of May 2, 2021, the remaining authorization under this program was $364.2 million.

Working Capital

Working capital, defined as total current assets less total current liabilities, 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. Our working capital, excluding cash and cash equivalents, was $106.6 million and $96.3 million as of May 2, 2021 and January 31, 2021, respectively. Our working capital, including cash and cash equivalents, was $364.9 million and $365.2 million as of May 2, 2021 and January 31, 2021, respectively.

Cash Flows

One of our primary goals is to continually improve the cash flows from ~~those~~our existing operating activities. Additionally, we will continue to seek to maintain and improve our existing business performance with capital expenditures and, potentially,

acquisitions and other investments that support achievement of our business strategies. Acquisitions may be made for either cash or stock consideration, or a combination of both.

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


	Three Months Ended
(in thousands)	May 2, 2021		April 26, 2020
Net cash provided by operating activities	$	32,585	$	26,083
Net cash used in investing activities	(8,655)		(11,560)
Net cash used in financing activities	(34,602)		(38,900)
Net decrease in cash and cash equivalents	$	(10,672)	$	(24,377)

Operating Activities

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

Operating cash flows for the first three months of fiscal year 2022 compared to the first three months of fiscal year 2021 were favorably impacted by a 28.4% increase in net sales, partially offset by a rise in SG&A expenses related to higher staffing-related costs and by an increase in product development and engineering expenses related to higher staffing-related costs and fluctuations in the timing of development activities.

Investing Activities

Capital expenditures were $5.8 million for the first three months of fiscal year 2022, compared to $7.7 million for the first three months of fiscal year 2021. In the first three months of fiscal years 2022 and 2021, we made significant investments to update and expand our production capabilities.

In the first three months of fiscal year 2022, we paid $2.9 million for strategic investments, including investments in companies that are enabling the LoRa and LoRaWAN®-based ecosystem, compared to $3.9 million of investments in the first three months of fiscal year 2021.

Financing Activities

In the first three months of fiscal year 2022, we paid $6.2 million for employee share-based compensation payroll taxes and received $0.6 million in proceeds from the exercise of stock options, compared to payments of $5.8 million for employee share-based compensation payroll taxes and proceeds of $0.9 million from the exercise of stock options in the first three months of fiscal year 2021. 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 that are outside our control. We believe that such proceeds will remain a nominal source of cash in the future.

Critical Accounting Estimates

Our critical accounting estimates are disclosed in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 of our Annual Report on Form ~~10-K for the fiscal year ended January 26, 2020 filed with the SEC on March 20, 2020 (our "Annual Report").~~

~~Critical Accounting Policies and Estimates~~

~~Our critical accounting policies are disclosed in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 of our Annual Report.~~10-K. There have been no significant changes to our policies during the ~~six~~three months ended ~~July 26, 2020.~~May 2, 2021. For a discussion of recent accounting pronouncements, see Note 1 to our interim unaudited condensed consolidated financial statements.

Available Information

General information about us can be found on our website at www.semtech.com. The information on our website is for informational purposes only and should not be relied on for investment purposes. The information on our website is not incorporated by reference into this Quarterly Report and should not be considered part of this or any other report filed with the SEC.

We make available free of charge, either by direct access on our website or by a link to the SEC website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or as soon as

reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. Our reports filed with, or furnished to, the SEC are also available directly at the SEC’s website at www.sec.gov.

ITEM 3.Quantitative and Qualitative Disclosures About Market Risk

We are subject to a variety of market risks, including commodity risk and the risks related to foreign currency, interest rates and market performance that are discussed in Item 7A of our Annual Report. Many of the factors that can have an impact on our market risk are external to us, and so we are unable to fully predict them.

We considered the historical trends in foreign currency exchange rates and determined that it is reasonably possible that adverse changes in foreign exchange rates of 10% for all currencies could be experienced in the near-term. These reasonably possible adverse changes were applied to our total monetary assets and liabilities denominated in currencies other than our functional currency as of the ~~second~~first quarter of fiscal year ~~2021.~~2022. The adverse impact these changes would have had (after taking into account balance sheet hedges only) would not have had a material impact on our income before ~~taxes is $1.3 million.~~taxes.

We are subject to interest rate risk in connection with the portion of the outstanding debt under our Credit Facility ~~which~~that bears interest at a variable ~~rates~~rate as of ~~July 26, 2020. In the first quarter~~May 2, 2021. As of May 2, 2021, we had $177.0 million of outstanding borrowings on our Credit Facility, which had $423.0 million of undrawn capacity.

During fiscal year 2021, we entered into an interest rate swap agreement with a three-year term to hedge the variability of interest payments on the first $150.0 million of debt outstanding under our Credit Facility. ~~Interest~~Based on our current leverage ratio as of May 2, 2021, interest payments on $150.0 million of our debt are ~~now~~ fixed at 1.9775%. Borrowings under our Credit Facility in excess of $150.0 million bear interest at a rate per annum equal to (1) the Base Rate plus a margin ranging from 0.25% to 1.25% depending upon our consolidated leverage ratio or (2) LIBOR (determined with respect to deposits in U.S. Dollars) for an interest period to be selected by us plus a margin ranging from 1.25% to 2.25% depending upon our consolidated leverage ratio (such margin, the "Applicable Margin"). The Base Rate is equal to a fluctuating rate equal to the highest of ~~1.9775% based~~(a) the prime rate of the Administrative Agent, (b) 0.50% above the federal funds effective rate published by the Federal Reserve Bank of New York and (c) one-month LIBOR (determined with respect to deposits in U.S. Dollars), plus 1.00%. Interest on loans made under the Credit Facility in Alternative Currencies accrues at a rate per annum equal to LIBOR (determined with respect to deposits in the applicable Alternative Currency) (other than loans made in Canadian Dollars, for which a special reference rate for Canadian Dollars applies) for an interest period to be selected by us plus the Applicable Margin. Based upon the amount of our ~~current leverage ratio. As~~outstanding indebtedness as of ~~July 26, 2020,~~May 2, 2021, a one percentage point increase in LIBOR would not have a material impact on our interest expense as only ~~$39.0~~$27.0 million of our outstanding debt balance remains subject to a floating rate.

The Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates ~~the London Interbank Offered Rate, or~~ LIBOR, has announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of

LIBOR after 2021. ~~That announcement indicates~~For U.S dollar LIBOR, publication of the one-week and two-month LIBOR settings will cease after December 31, 2021, and publication of the overnight and 12-month LIBOR settings will cease after June 30, 2023. Immediately after June 30, 2023, the one-month, three-month and six-month U.S. dollar LIBOR settings will no longer be representative. Given these changes, the LIBOR administrator has advised that ~~the continuation of~~no new contracts using U.S. dollar LIBOR ~~on the current basis cannot and will not~~should be ~~guaranteed~~entered into after December 31, 2021. ~~Moreover, it~~It is also possible that U.S. LIBOR will be discontinued or modified prior to ~~2021.~~ June 30, 2023.

Our Credit Facility provides that, if it is publicly announced that the administrator of LIBOR has ceased or will cease to provide LIBOR, if it is publicly announced by the applicable regulatory supervisor that LIBOR is no longer representative, or if either the administrative agent or lenders holding 50% of the aggregate principal amount of our revolving commitments and term loans elect, we and the administrative agent may amend our Credit Agreement to replace LIBOR with an alternate benchmark rate. This alternative benchmark rate may include a forward-looking term rate that is based on the secured overnight financing rate, also known as SOFR, published by the Federal Reserve Bank of New York.

Interest rates also affect our return on excess cash and investments. As of ~~July 26, 2020,~~May 2, 2021, we had ~~$281.5~~$258.2 million of cash and cash equivalents. A majority of our cash and cash equivalents generate interest income based on prevailing interest rates. ~~Investments~~Interest income, net of reserves, generated by our investments and cash and cash equivalents ~~generated interest income of $0.2 million~~was not material in the ~~second~~first quarter of fiscal year ~~2021.~~2022. A significant change in interest rates would impact the amount of interest income generated from our cash and investments. It would also impact the market value of our investments.

Our investments are primarily subject to credit risk. Our ~~investments are managed by a limited number of outside professional managers following~~ investment ~~guidelines set by us. Such~~ guidelines prescribe credit quality, permissible investments, diversification, and duration restrictions. These restrictions are intended to limit risk by restricting our investments to high quality debt instruments with relatively short-term durations. Our investment strategy limits investment of new funds and maturing securities to U.S. Treasury, Federal agency securities, high quality money market funds and time deposits with our principal commercial banks. Outside of these investment guidelines, we also invest in a limited amount of debt securities in privately held companies that we view as strategic to our business. For example, many of these investments are in companies that are enabling the LoRa and LoRaWAN®-based ecosystem. We evaluate the credit risk of these investments on a quarterly basis and increased our current credit loss and reserves by $0.2 million in the first quarter of fiscal year 2022, related to the

credit risk on our debt securities investments, resulting in a current expected credit loss reserve balance on our available-for-sale and held-to-maturity debt securities of $3.6 million as of May 2, 2021.

ITEM 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), which are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on that evaluation, our CEO and CFO concluded that, our disclosure controls and procedures were effective as of ~~July 26, 2020.~~May 2, 2021.

Changes in Internal Controls

As of ~~July 26, 2020,~~May 2, 2021, there were no changes to our internal control over financial reporting that occurred during the fiscal quarter then ended that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.Legal Proceedings

Information about legal proceedings is set forth in Note 11 to the interim unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

ITEM 1A.Risk Factors

Please carefully consider and evaluate all of the information in this Quarterly Report and the risk factors set forth in our Annual ~~Report.~~Report on Form 10-K for the fiscal year ended January 31, 2021. If any of these risks actually occur, our business could be materially harmed. If our business is harmed, the trading price of our common stock could decline.

The risk factors associated with our business have not materially changed, as compared to the risk factors disclosed in our Annual Report ~~except~~on Form 10-K for the ~~following updated risk factors below.~~

~~We are subject to export restrictions and laws affecting trade and investments, which may limit our ability to sell to certain customers.~~

As a global company headquartered in the United States, we are subject to U.S. laws and regulations that limit and restrict the export of some of our products and services and may restrict our transactions with certain customers, business partners and other persons, including, in certain cases, dealings with or between our U.S. employees and subsidiaries. In certain circumstances, export control and economic sanctions regulations may prohibit the export of certain products, services and technologies, and in other circumstances we may be required to obtain an export license or other authorization before entering into a transaction or transferring a controlled item. We maintain an economics sanction and export compliance program but there are risks that the compliance controls could be circumvented, exposing us to legal liabilities. We must also comply with export restrictions and laws imposed by other countries affecting trade and investments. These restrictions and laws have significantly restricted our operations in the recent past and may continue to do so in the future.

For example, on March 8, 2016, the U.S. Department of Commerce published a final rule in the Federal Register that amended the Export Administration Regulations ("EAR") by adding ZTE Corporation ("ZTE") and three of its affiliates to the “Entity List” for actions contrary to the national security and foreign policy interests of the U.S. This rule imposed new export licensing requirements on exports, re-exports, and in-country transfers of all U.S.-regulated products, software and technology to the designated ZTE entities, which prevented sales of our U.S. regulated products to ZTE since license requests were subject to a general policy of denial. On March 24, 2016, the U.S. Department of Commerce issued a temporary general license authorizing most exports to ZTE and one of its designated affiliates through June 30, 2016, thereby enabling us to resume sales to ZTE. The temporary license was repeatedly extended until the Bureau of Industry and Security removed ZTE from the Entity List on March 29, 2017, after ZTE entered a guilty plea and agreed to pay a combined penalty of up to $1.19 billion to settle civil and criminal allegations against it. However, part of this plea deal included the imposition of a Denial Order against ZTE and one of its affiliates, which was initially suspended, but later imposed on April 15, 2018, leading to restrictions on export, re-export or transfer of any items subject to U.S. regulations to ZTE and the listed affiliate. This again impacted our ability to sell certain items to ZTE until the Denial Order was terminated on July 13, 2018. ZTE is still subject to the terms of its settlement agreement that includes the potential for re-imposition of the Denial Order.

In addition, on May 16, 2019, the U.S. Department of Commerce amended the EAR by adding Huawei Technologies Co., Ltd. ("Huawei"), which was indicted by the U.S. government for violating U.S. sanctions and bank and wire fraud, among other charges, and 68 of its affiliates to the "Entity List" for actions contrary to the national security and foreign policy interests of the United States. On August 19, 2019, another 46 of Huawei’s non-U.S. affiliates were added to the “Entity List.” As with ZTE, this rule imposes new export licensing requirements on exports, re-exports, and in-country transfers of all U.S.-regulated products, software and technology to the designated Huawei entities. As noted above, license requests are subject to a general policy of denial and, therefore, we will not be able to sell most of our U.S. regulated products to Huawei. Sales of our products to Huawei accounted for less than 10% of our net sales during the second quarter of fiscal year 2021 and fiscal year 2020. Although the U.S. Department of Commerce granted certain temporary exemptions to Huawei on May 20, 2019 in the form of a temporary 90 day general license for specific activities, which was further extended for another 90 days on August 19, 2019 and again on November 18, 2019, on February 13, 2020, on March 10, 2020, and most recently on May 15, 2020, these exemptions expired on August 13, 2020 and were in any event limited in scope and generally did not apply to the sale of our U.S. regulated products to Huawei. In addition, on May 15, 2020, the U.S. Department of Commerce amended the EAR to expand the controls on certain foreign products based on U.S. technology and sold to Huawei and certain other companies on the Entity List and on August 17, 2020, the U.S. Department of Commerce expanded the scope of the foreign product rule as applied to products sold to or for Huawei, which we expect will further impact our ability to ship to Huawei, as well as certain other customers who we believe incorporate our products into their products sold to Huawei. As of the date of this report, we

~~are unable to predict the magnitude of the impact or the duration of the export restrictions imposed on Huawei and the corresponding future effects on our business.~~

These actions by the U.S. Department of Commerce or future regulatory activity may materially interfere with our ability to make sales to ZTE, Huawei or other foreign customers. ZTE, Huawei and other foreign customers affected by future U.S. government export control measures or sanctions or threats of export control measures or sanctions may respond by developing their own solutions to replace our products or by adopting our foreign competitors’ solutions. In addition, our association with customers that are or become subject to U.S. regulatory scrutiny or export restrictions could subject us to actual or perceived reputational harm among current or prospective investors, suppliers or customers, customers of our customers, other parties doing business with us, or the general public. Any such reputational harm could result in the loss of investors, suppliers or customers, which could harm our business, financial condition, operating results or prospects.

The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our operations, and those of our customers, distributors, suppliers, third-party foundries and subcontractors thereby adversely affecting our business, financial condition and results of operations. ended January 31, 2021.

The COVID-19 pandemic has significantly affected health and economic conditions throughout the United States and the rest of the world including Asia, where a significant percentage of our customers, suppliers, third party foundries and subcontractors are located. Consumer fear about becoming ill with the virus and recommendations and/or mandates from authorities to avoid large gatherings of people or self-quarantine have been imposed. Although some of these measures have since been lifted or scaled back, a recent resurgence of COVID-19 in the United States and in some parts of Asia has resulted in the reimposition of certain restrictions and may lead to other restrictions being reimplemented in response to efforts to reduce the spread of COVID-19.

As a result of the pandemic, certain of our facilities and the third-party foundries and assembly and test contractors which we outsource our manufacturing functions to, have had to periodically reduce or suspend operations. The disruption experienced during such closures has resulted in reduced production of our products, delays for delivery of our products to our customers and reduced ability to receive supplies, which have had and may continue to have an adverse effect on our results. For example, in the first quarter of fiscal year 2021, certain shipments of our products were delayed due to COVID-19 related shutdowns of the plant in Reynosa, Mexico, as well as certain subcontractors in Malaysia. Our customers have experienced, and may continue to or again experience, reductions or closures of their manufacturing facilities or inability to obtain other components, either of which could negatively impact demand for our products, which are incorporated into our customers' devices and solutions. We cannot assure you that such facilities will not have to reduce or suspend operations again, and such reductions or closures could extend for a longer term than the prior shutdown of such facilities, thereby causing a disruption to the manufacturing and shipping of our products.

The COVID-19 pandemic has negatively impacted our financial results by decreasing sales in the high-end consumer and industrial end markets and increasing impairments for the first half of fiscal year 2021. We expect it to continue to negatively impact our financial results, including having a potentially larger impact on our results of operations than which has been reflected in our results for our first six months of fiscal year 2021. While we cannot predict the ultimate impact of the COVID-19 virus on our business at this time, the pandemic and related efforts to mitigate the pandemic could impact our business in a number of ways, including but not limited to:

•~~decreasing demand and pricing for our products as a result of the economic impact of the pandemic;~~

•disrupting our manufacturing processes, as has already occurred with the temporary reductions or closures of our facilities, third-party foundries and contractors, and the delay of supplies being received;

•~~disrupting freight infrastructure, thereby delaying shipment from vendors to assembly and test sites and shipments of our final product to customers;~~

•adversely impacting the business of our suppliers, which could result in, among other things, price increases and delays for delivery of raw materials and components needed for the production of our products;

•~~impacting our ability to maintain our workforce during this uncertain time;~~

•~~increasing employee absenteeism due to recommendations and/or mandates from authorities, infection or the fear of infection;~~

•~~possible lawsuits or additional regulatory actions due to COVID-19 spread in the workplace and potential increases in costs to implement health safety measures;~~

•~~suffering from reputational risk if we experience COVID-19 spread in our workplace; and~~

•~~adversely impacting the productivity of management and our employees that are working remotely.~~

Any or all of these items may occur, which individually or in the aggregate, may have a material adverse effect on our business, financial condition and results of operations. These risks could accelerate or intensify depending on the severity and length of the pandemic. In addition, other countries as well as the United States are currently experiencing a resurgence of the COVID-19 virus and if the rate of infections continues to rise, these factors will be exacerbated.

Given that the COVID-19 pandemic has caused a significant economic slowdown, it appears increasingly likely that it could cause a global recession, which could be of an unknown duration, and as a result, we expect sales of our products to be negatively impacted. If general economic conditions deteriorate further, we cannot predict the duration or strength of an economic recovery, either in the United States, Asia, Europe or in the other specific markets where we sell our products. Sales to our customers are generally made on open account, subject to credit limits we may impose, and the receivables are subject to the risk of being uncollectible. If credit conditions worsen in response to the COVID-19 pandemic, customers may ask for extension of payment terms and are more likely to default, thereby increasing the risk of receivables being uncollectible.

Our authorized distributors have also experienced disruptions to their operations, including temporary reductions or closures during which they have diminished ability or are unable to sell our products. Because a significant majority of our net sales is through authorized distributors, the financial health of our distributors is critical to our success. Some of our distributors are small organizations with limited working capital. The ability of our distributors to purchase our products may be materially impacted depending on the length and severity of the pandemic, including the impact on general economic conditions. If our distributors suffer material economic harm during the pandemic, the distributors may no longer be able to continue in business or may continue in a reduced capacity.

Our suppliers have also experienced temporary reductions or closures, thereby impacting our ability and the ability of our subcontractors to receive certain raw materials, including silicon wafers, which are essential to the manufacturing of our products. We may experience delays in production of our products if we or our subcontractors do not receive sufficient supplies of materials or if we are required to replace one or more suppliers, which could cause a decrease in products available for sale or an increase in our cost of sales, either of which would adversely affect our business, financial condition and results of operations.

As of July 26, 2020, we had $281.5 million of cash and cash equivalents and $411.0 million of undrawn capacity on our Credit Facility. Our cash position will depend on multiple factors, including our ability to continue operations and production of our products, the COVID-19 pandemic’s effects on our customers, the availability of sufficient amounts of financing, and our operating performance.

Much of our workforce has been able to work remotely during this time and many may continue to work remotely for an indefinite period of time. Remote working arrangements could impact employees’ productivity. We expect our employees will return to their office and manufacturing locations in a phased approach, and we have continued to implement safety precautions, including enhanced and more frequent cleaning of our facilities, providing face masks to each employee, enforcing social distancing guidelines and screening employees for potential symptoms. These additional safety precautions may also impact the productivity and profitability at our facilities. In addition, we may experience higher levels of absenteeism during the pandemic due to the fear of becoming ill.

Additionally, there is an increased risk that we may experience cybersecurity-related events such as COVID-19 themed phishing attacks and other security challenges as a result of most of our employees and our service providers working remotely from non-corporate managed networks during the ongoing COVID-19 pandemic and potentially continuing working remotely even after the COVID-19 pandemic has subsided.

As a result of the COVID-19 pandemic, we continue to evaluate the impact on long-lived assets, such as goodwill and intangible assets for possible impairment. We did not record a goodwill impairment charge during the first six months of fiscal year 2021. However, depending on future events, we may be required to record future impairment charges related to our goodwill, intangible assets or other long-lived assets. In addition, depending on the ongoing impact of the pandemic, we may also be required to reserve for incremental expected credit losses on our minority investments. For example, we recorded a loss of $1.5 million and $5.1 million in investment impairments and credit loss reserves during the three and six months ended July 26, 2020, respectively, some of which were, in part, due to the impact of the COVID-19 pandemic on our investees. Any material increase in our impairments or allowances for credit losses would have a corresponding effect on our results of operations and related cash flows.

The ultimate magnitude of the COVID-19 pandemic, including the extent of its impact on our financial condition and results of operations, which could be material, will depend on all of the factors noted above, including other factors that we may not be able to forecast at this time. While we expect the impacts of the COVID-19 pandemic to have an adverse effect on our business, financial condition and results of operations, we are unable to predict the extent of these impacts at this time.

ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

None.

Issuer Purchase of Equity Securities

This table provides information with respect to purchases by us of shares of our common stock during the ~~second~~first quarter of fiscal year ~~2021.~~2022.

Fiscal Month/Year Total Number of
Shares Purchased Average Price Paid
per Share Total Number of Shares
Purchased as Part of
Publicly Announced Program Approximate Dollar Value
of Shares That May Yet
Be Purchased Under
The Program (1)
May 2020 (04/27/20-05/24/20) — $ — — $ 80.6 million
June 2020 (05/25/20-06/21/20) 232,871 53.19 232,871 $ 68.2 million
July 2020 (06/22/20-07/26/20) — — — $ 68.2 million
Total activity 232,871 $ 53.19 232,871


Fiscal Month/Year	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares That May Yet Be Purchased Under The Program (1)
February 2021 (02/01/2021-02/28/2021)	—	$	—	—	$	39.2	million
March 2021 (03/1/21-03/28/21)	74,133	67.44		74,133	$	384.2	million
April 2021 (03/29/21-05/02/21)	286,809	69.73		286,809	$	364.2	million
Total activity	360,942	$	69.26	360,942

(1)The Company maintains an active stock repurchase program that was initially approved by our Board of Directors in March 2008. The stock repurchase program does not have an expiration date and our Board of Directors has authorized expansion of the program over the years. As of ~~July 26, 2020,~~May 2, 2021, we have repurchased ~~$380.2~~$434.2 million in shares of our common stock under the program since inception and the current remaining authorization under our stock repurchase program is ~~$68.2~~$364.2 million. Under our stock repurchase program, 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 Rule10b-18 or other trading plans, open market purchases, privately negotiated transactions, block purchases or other transactions. We intend to fund repurchases under the program from cash on hand. We have no obligation to repurchase any shares under the stock repurchase program and may suspend or discontinue it at any time.

ITEM 3.Defaults Upon Senior Securities

None.

ITEM 4.Mine Safety Disclosures

Not applicable.

ITEM 5.Other Information

None.

ITEM 6.Exhibits

Documents that are not physically filed with this report are incorporated herein by reference to the location indicated.

Exhibit No.

Description

Location

3.1

Restated Certificate of Incorporation of Semtech Corporation

Exhibit 3.1 to our Quarterly Report on Form 10-Q for the quarter ended October 26, 2003

3.2

Bylaws of Semtech Corporation

Exhibit 3.2 to our Annual Report on Form 10-K for the fiscal year ended January 27, 2008

4.1

Description of Common Stock

Exhibit 4.1 to our Annual Report on Form 10-K for the fiscal year ended January 26, 2020

31.1

Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended

Filed herewith

31.2

Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended

Filed herewith

32.1

Certification of the Chief Executive Officer Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Exhibit 32.1 is being furnished and shall not be deemed "filed")

Furnished herewith

32.2

Certification of the Chief Financial Officer Pursuant 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Exhibit 32.2 is being furnished and shall not be deemed "filed")

Furnished herewith
























101						The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~July 26, 2020,~~May 2, 2021, formatted in Inline XBRL: (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flow and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

104						The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~July 26, 2020,~~May 2, 2021, formatted in Inline XBRL (included as Exhibit 101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		SEMTECH CORPORATION
		Registrant

Date:	~~August 26, 2020~~June 2, 2021	/s/ Mohan R. Maheswaran
		Mohan R. Maheswaran
		President and Chief Executive Officer

Date:	~~August 26, 2020~~June 2, 2021	/s/ Emeka N. Chukwu
		Emeka N. Chukwu
		Executive Vice President and
		Chief Financial Officer


PART I - FINANCIAL INFORMATION			3

ITEM 1. Financial Statements			4

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3027

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			3834

ITEM 4. Controls and Procedures			3935

PART II – OTHER INFORMATION			4036

ITEM 1. Legal Proceedings			4036

ITEM 1A. Risk Factors			4036

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			4336

ITEM 3. Defaults Upon Senior Securities			4336

ITEM 4. Mine Safety Disclosures			4336

ITEM 5. Other Information			4336

ITEM 6. Exhibits			4337


	Three Months Ended July 28, 2019
	Common Stock													Accumulated Other Comprehensive Loss
	Number of Shares Outstanding	Amount		Treasury Stock, at Cost		Additional Paid-in Capital		Retained Earnings				Stockholders’ Equity				Noncontrolling Interest			Total Equity
Balance at April 28, 2019	66,644,921	$	785	$	(327,442)	$	433,021	$	592,484	$	(3,619)	$	695,229	$	—		$	695,229
Net income	—	—		—		—		2,192		—		2,192		—			2,192
Other comprehensive loss	—	—		—		—		—		(122)		(122)		—			(122)

Share-based compensation	—	—		—		12,305		—		—		12,305		—			12,305
Repurchase of common stock	(446,270)	—		(20,000)		—		—		—		(20,000)		—			(20,000)
Treasury stock reissued	116,282	—		1,633		(1,088)		—		—		545		—			545
Balance at July 28, 2019	66,314,933	$	785	$	(345,809)	$	444,238	$	594,676	$	(3,741)	$	690,149	$	—		$	690,149


	Six Months Ended July 28, 2019
	Common Stock											Accumulated Other Comprehensive Loss
	Number of Shares Outstanding	Amount		Treasury Stock, at Cost		Additional Paid-in Capital		Retained Earnings						Stockholders’ Equity			Noncontrolling Interest			Total Equity
Balance at January 27, 2019	65,238,255	$	785	$	(346,218)	$	451,884	$	579,736	$	(3,607)	$	682,580		$	—		$	682,580
Net income	—	—		—		—		14,940		—		14,940			—			14,940
Other comprehensive loss	—	—		—		—		—		(134)		(134)			—			(134)

Share-based compensation	—	—		—		23,319		—		—		23,319			—			23,319
Repurchase of common stock	(448,481)	—		(20,110)		—		—		—		(20,110)			—			(20,110)
Treasury stock reissued	1,525,159	—		20,519		(30,965)		—		—		(10,446)			—			(10,446)
Balance at July 28, 2019	66,314,933	$	785	$	(345,809)	$	444,238	$	594,676	$	(3,741)	$	690,149		$	—		$	690,149


(in thousands)
Fiscal Year Ending:
2021 (remaining six months)	$	2,489
2022	4,405
2023	3,068
2024	2,806
2025	2,684
Thereafter	6,563
Total lease payments	22,015
Less: imputed interest	(4,125)
Total	$	17,890


	Balance as of
(in thousands, except number of instruments data)	July 26, 2020								January 26, 2020
Foreign Exchange Contracts	Number of Instruments	Sell Notional Value		Buy Notional Value		Number of Instruments	Sell Notional Value		Buy Notional Value
Sell USD/Buy CAD Forward Contract	6	$	8,571	C$	12,000	—	$	—	C$	—
Sell USD/Buy GBP Forward Contract	6	$	4,508	£	3,600	—	$	—	£	—

Total	12					—