Marvell Technology, Inc. - Quarter Report: 2022 April (Form 10-Q)

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 April 30, 2022


☐			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: 001-40357

MARVELL TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)


Delaware						85-3971597
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1000 N. West Street, Suite 1200
Wilmington, Delaware 19801

(302) 295-4840

(Address of principal executive offices, zip code and registrant’s telephone number, including area code)

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 $0.002 per share

MRVL

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 ☐ 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 ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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. (Check one):


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

The number of shares of common stock of the registrant outstanding as of May 20, 2022 was 849.9 million.

Table of Contents

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Unaudited Condensed Consolidated Balance Sheets as of April 30, 202 2 and January 29 , 202 2	2
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended April 30, 202 2 and May 1, 202 1	3

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended April 30, 202 2 and May 1, 202 1	4
	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended April 30, 202 2 and May 1, 202 1	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 6.	Exhibits	64
	Signatures	68

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PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

MARVELL TECHNOLOGY, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except par value per share)


	April 30, 2022		January 29, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	465.0	$	613.5

Accounts receivable, net	1,191.1		1,048.6
Inventories	835.5		720.3
Prepaid expenses and other current assets	107.3		111.0

Total current assets	2,598.9		2,493.4
Property and equipment, net	502.2		462.8
Goodwill	11,539.0		11,511.1
Acquired intangible assets, net	5,888.1		6,153.4
Deferred tax assets	331.8		493.5
Other non-current assets	1,178.7		994.4
Total assets	$	22,038.7	$	22,108.6

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	553.1	$	461.5
Accrued liabilities	735.0		622.6
Accrued employee compensation	191.9		241.3



Short-term debt	74.1		63.2
Total current liabilities	1,554.1		1,388.6

Long-term debt	4,465.3		4,484.8


Other non-current liabilities	554.3		533.1
Total liabilities	6,573.7		6,406.5
Commitments and contingencies (Note 5)
Stockholders’ equity:
Common stock, $0.002 par value	1.7		1.7
Additional paid-in capital	14,188.5		14,209.0

Retained earnings	1,274.8		1,491.4
Total stockholders’ equity	15,465.0		15,702.1
Total liabilities and stockholders’ equity	$	22,038.7	$	22,108.6

See accompanying notes to unaudited condensed consolidated financial statements

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MARVELL TECHNOLOGY, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In millions, except per share amounts)


	Three Months Ended
	April 30, 2022		May 1, 2021
Net revenue	$	1,446.9	$	832.3
Cost of goods sold	696.0		414.1
Gross profit	750.9		418.2
Operating expenses:
Research and development	444.1		286.1
Selling, general and administrative	235.7		201.5

Restructuring related charges	1.3		12.9
Total operating expenses	681.1		500.5
Operating income (loss)	69.8		(82.3)
Interest income	0.5		0.2
Interest expense	(36.3)		(35.1)
Other income, net	5.2		1.2
Interest and other income (loss), net	(30.6)		(33.7)
Income (loss) before income taxes	39.2		(116.0)
Provision (benefit) for income taxes	204.9		(27.8)
Net loss	$	(165.7)	$	(88.2)

Comprehensive loss, net of tax	$	(165.7)	$	(88.2)



Net loss per share - basic	$	(0.20)	$	(0.13)

Net loss per share - diluted	$	(0.20)	$	(0.13)

Weighted-average shares:
Basic	848.0		693.4
Diluted	848.0		693.4

See accompanying notes to unaudited condensed consolidated financial statements

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MARVELL TECHNOLOGY, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except per share amounts)



	Common Stock			Additional Paid-in Capital
	Shares	Amount				Retained Earnings			Total
Balance at January 29, 2022	846.7	$	1.7	$	14,209.0		$	1,491.4		$	15,702.1
Issuance of common stock in connection with equity incentive plans	4.1	—		2.4			—			2.4
Tax withholdings related to net share settlement of restricted stock units	—	—		(137.6)			—			(137.6)
Stock-based compensation	—	—		129.7			—			129.7










Repurchase of common stock	(0.3)	—		(15.0)			—			(15.0)
Cash dividends declared and paid ($0.06 per share)	—	—		—			(50.9)			(50.9)
Net loss	—	—		—			(165.7)			(165.7)

Balance at April 30, 2022	850.5	$	1.7	$	14,188.5		$	1,274.8		$	15,465.0



	Common Stock			Additional Paid-in Capital
	Shares	Amount				Retained Earnings			Total
Balance at January 30, 2021	675.4	$	1.4	$	6,331.0		$	2,103.4		$	8,435.8

Issuance of common stock in connection with equity incentive plans	2.2	—		0.5			—			0.5
Tax withholdings related to net share settlement of restricted stock units	—	—		(68.3)			—			(68.3)
Stock-based compensation	—	—		92.7			—			92.7

Issuance of common stock in connection with acquisitions	129.2	0.3		5,910.9			—			5,911.2

Equity related issuance cost	—	—		(8.2)			—			(8.2)
Replacement equity awards attributable to pre-acquisition service	—	—		82.3			—			82.3
Conversion feature of convertible notes	—	—		244.2			—			244.2
Impact of repurchases of convertible notes	7.1	—		234.3						234.3
Conversion of convertible notes to common stock	2.5	—		59.7						59.7


Cash dividends declared and paid ($0.06 per share)	—	—		—			(40.6)			(40.6)
Net loss	—	—		—			(88.2)			(88.2)

Balance at May 1, 2021	816.4	$	1.7	$	12,879.1		$	1,974.6		$	14,855.4

See accompanying notes to unaudited condensed consolidated financial statements

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MARVELL TECHNOLOGY, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)


	Three Months Ended
	April 30, 2022		May 1, 2021
Cash flows from operating activities:
Net loss	$	(165.7)	$	(88.2)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	75.7		51.8
Stock-based compensation	131.1		92.7
Amortization of acquired intangible assets	272.5		128.6
Amortization of inventory fair value adjustment associated with acquisitions	9.3		13.7




Other expense, net	6.7		31.4

Deferred income taxes	165.0		(22.6)



Changes in assets and liabilities, net of acquisitions:
Accounts receivable	(139.5)		(58.0)
Prepaid expenses and other assets	(142.9)		4.4
Inventories	(125.8)		(13.2)
Accounts payable	61.4		(51.6)
Accrued employee compensation	(50.0)		(55.7)
Accrued liabilities and other non-current liabilities	97.0		(47.0)


Net cash provided by (used in) operating activities	194.8		(13.7)
Cash flows from investing activities:






Purchases of technology licenses	(1.6)		(3.4)
Purchases of property and equipment	(36.9)		(21.4)

Acquisitions, net of cash acquired	(44.0)		(3,600.2)


Other, net	0.1		0.4
Net cash used in investing activities	(82.4)		(3,624.6)
Cash flows from financing activities:
Repurchases of common stock	(15.0)		—
Proceeds from employee stock plans	2.5		0.5
Tax withholding paid on behalf of employees for net share settlement	(137.6)		(73.2)
Dividend payments to stockholders	(50.9)		(40.6)
Payments on technology license obligations	(49.0)		(44.1)
Proceeds from issuance of debt	—		3,731.1
Principal payments of debt	(10.9)		(200.0)
Payment for repurchases and settlement of convertible notes	—		(71.1)
Proceeds from capped calls	—		111.2
Payment of equity and debt financing costs	—		(1.5)

Net cash provided by (used in) financing activities	(260.9)		3,412.3
Net decrease in cash and cash equivalents	(148.5)		(226.0)
Cash and cash equivalents at beginning of period	613.5		748.5
Cash and cash equivalents at end of period	$	465.0	$	522.5

See accompanying notes to unaudited condensed consolidated financial statements

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The unaudited condensed consolidated financial statements of Marvell Technology, Inc. (“MTI”), a Delaware corporation, and its wholly owned subsidiaries (the “Company”), as of and for the three months ended April 30, 2022, have been prepared as required by the U.S. Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted as permitted by the SEC. These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s fiscal year 2022 audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022. In the opinion of management, the financial statements include all adjustments, including normal recurring adjustments and other adjustments, that are considered necessary for fair presentation of the Company’s financial position and results of operations. All inter-company accounts and transactions have been eliminated. Operating results for the periods presented herein are not necessarily indicative of the results that may be expected for the entire year. Certain prior period amounts have been reclassified to conform to current period presentation. These financial statements should also be read in conjunction with the Company’s critical accounting policies included in the Company’s Annual Report on Form 10-K for the year ended January 29, 2022 and those included in this Form 10-Q below. All dollar amounts in the financial statements and tables in these notes, except per share amounts, are stated in millions of U.S. dollars unless otherwise noted.

The Company’s fiscal year is the 52- or 53-week period ending on the Saturday closest to January 31. Accordingly, every fifth or sixth fiscal year will have a 53-week period. The additional week in a 53-week year is added to the fourth quarter, making such quarter consist of 14 weeks. Fiscal 2022 had a 52-week year. Fiscal 2023 is a 52-week year.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, provisions for sales returns and allowances, inventory excess and obsolescence, goodwill and other intangible assets, assets acquired and liabilities assumed in connection with acquisitions, restructuring, income taxes, litigation and other contingencies. Actual results could differ from these estimates and such differences could affect the results of operations reported in future periods. In the current macroeconomic environment affected by COVID-19, these estimates require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, these estimates may change materially in future periods.

Note 2. Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In October 2021, the FASB issued an accounting standards update that requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The new standard was early adopted by the Company on January 30, 2022 and did not have a material effect on the Company’s condensed consolidated financial statements.

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

Note 3. Revenue

The majority of the Company’s revenue is generated from sales of the Company’s products.

The following table summarizes net revenue disaggregated by end market (in millions, except percentages):


	Three Months Ended
	April 30, 2022		% of Total		May 1, 2021		% of Total
Net revenue by end market:
Data center	$	640.5	44	%	$	277.1	33	%
Carrier infrastructure	252.0		18	%	167.6		20	%
Enterprise networking	286.6		20	%	174.8		21	%
Consumer	178.5		12	%	166.7		20	%
Automotive/industrial	89.3		6	%	46.1		6	%
	$	1,446.9			$	832.3

The following table summarizes net revenue disaggregated by primary geographical market based on destination of shipment (in millions, except percentages):


	Three Months Ended
	April 30, 2022		% of Total		May 1, 2021		% of Total
Net revenue based on destination of shipment:
China	$	644.0	45	%	$	341.1	41	%
United States	149.5		10	%	87.4		11	%
Thailand	99.3		7	%	77.8		9	%
Malaysia	81.2		6	%	58.6		7	%
Japan	67.0		5	%	43.8		5	%
Taiwan	53.6		4	%	28.6		3	%
Philippines	51.9		4	%	47.6		6	%
Singapore	50.1		3	%	51.5		6	%

Other	250.3		16	%	95.9		12	%
	$	1,446.9			$	832.3

These destinations of shipment are not necessarily indicative of the geographic location of the Company’s end customers or the country in which the Company’s end customers sell devices containing the Company’s products. For example, a substantial majority of the shipments made to China relate to sales to non-China based customers that have factories or contract manufacturing operations located within China.

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

The following table summarizes net revenue disaggregated by customer type (in millions, except percentages):


	Three Months Ended
	April 30, 2022		% of Total		May 1, 2021		% of Total
Net revenue by customer type:
Direct customers	$	993.9	69	%	$	570.3	69	%
Distributors	453.0		31	%	262.0		31	%
	$	1,446.9			$	832.3

Contract Liabilities

Contract liabilities consist of the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration or the amount is due from the customer. Contract liability balances are comprised of deferred revenue. The amount of revenue recognized during the three months ended April 30, 2022 that was included in deferred revenue balance at January 29, 2022 was not material.

As of the end of a reporting period, some of the performance obligations associated with contracts will have been unsatisfied or only partially satisfied. In accordance with the practical expedients available in the guidance, the Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.

Sales Commissions

The Company has elected to apply the practical expedient to expense commissions when incurred as the amortization period is typically one year or less. These costs are recorded in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations.

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

Note 4. Debt

Summary of Borrowings and Outstanding Debt

The following table summarizes the Company’s outstanding debt at April 30, 2022 and January 29, 2022 (in millions):


	April 30, 2022		January 29, 2022
Face Value Outstanding:

2020 Term Loan - 3 Year Tranche	$	735.0	$	735.0
2020 Term Loan - 5 Year Tranche	842.2		853.1
Term Loan Total	1,577.2		1,588.1


4.200% MTG/MTI 2023 Senior Notes	500.0		500.0
4.875% MTG/MTI 2028 Senior Notes	499.9		499.9


1.650% 2026 Senior Notes	500.0		500.0
2.450% 2028 Senior Notes	750.0		750.0
2.950% 2031 Senior Notes	750.0		750.0
Senior Notes Total	2,999.9		2,999.9



Total borrowings	$	4,577.1	$	4,588.0
Less: Unamortized debt discount and issuance cost	(37.7)		(40.0)
Net carrying amount of debt	$	4,539.4	$	4,548.0
Less: Current portion (1)	74.1		63.2

Non-current portion	$	4,465.3	$	4,484.8

(1)As of April 30, 2022, the current portion of outstanding debt includes the 2020 Term Loan - 5 Year Tranche, which is due within twelve months. The Company intends to repay the amount with operating cash flow.

On April 20, 2021, the Company completed its acquisition of Inphi. As part of the acquisition, the Company assumed $15.7 million principal amount of Inphi’s 0.75% convertible senior notes due 2021 (the “Inphi 2021 Convertible Notes”) and $506.0 million principal amount of Inphi’s 0.75% convertible senior notes due 2025 (the “Inphi 2025 Convertible Notes”, and together with the 2021 Notes, the “Inphi Convertible Notes”). As of January 29, 2022, the Inphi Convertible Notes have been settled.

In connection with the acquisition, the Company entered into a series of financing arrangements from December 2020 through April 2021 as summarized below. In April 2021, the Company also terminated a $2.5 billion bridge loan commitment. This bridge loan commitment was provided by the underwriting bankers at the time of the Inphi merger agreement execution in October 2020. The bridge loan was never drawn upon. The Company recognized a write-off of $11.4 million in capitalized debt issuance costs related to the termination of the bridge loan commitment during the quarter ended May 1, 2021.

In December 2020, the Company executed a debt agreement to obtain a 3-year $875.0 million term loan and a 5-year $875.0 million term loan. The Company also executed a debt agreement to obtain a 5-year $750.0 million revolving credit facility in December 2020, replacing its previous $500.0 million revolving credit facility. On April 12, 2021, the Company completed a debt offering and issued (i) $500.0 million of Senior Notes with a 5-year term due in 2026, (ii) $750.0 million of Senior Notes with a 7-year term due in 2028, and (iii) $750.0 million of Senior Notes with a 10-year term due in 2031.

On May 4, 2021, in conjunction with the U.S. domiciliation, the Company exchanged certain existing senior notes due in 2023 and 2028 that were previously issued by the Bermuda-domiciled Marvell Technology Group Ltd. (the “MTG Senior Notes”) with like notes that are now issued by the Delaware-domiciled Marvell Technology, Inc. (the “MTI Senior Notes”). Below is further discussion of the terms of the various debt agreements.

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

2020 Term Loan Agreement

On December 7, 2020, the Company entered into a term loan credit agreement with a lending syndicate led by JP Morgan Chase Bank, N.A (the “2020 Term Loan Agreement”) in order to finance the merger with Inphi. The 2020 Term Loan Agreement provides for borrowings of $1.75 billion consisting of: (i) $875.0 million loan with a three-year term from the funding date (the “3-Year Tranche Loan”) and (ii) $875.0 million loan with a five-year term from the funding date (the “5-Year Tranche Loan” and, together with the 3-Year Tranche Loan, the “2020 Term Loans”).

The 3-Year Tranche Loan has a stated floating interest rate which equates to reserve-adjusted LIBOR + 125 bps. The effective interest rate for the 3-Year Tranche Loan was 2.048% as of April 30, 2022. The 5-Year Tranche Loan has a stated floating interest rate which equates to reserve-adjusted LIBOR + 137.5 bps. The effective interest rate for the 5-Year Tranche Loan was 2.178% as of April 30, 2022. The 3-Year Tranche Loan does not require any scheduled principal payments prior to final maturity but does permit the Company to make early principal payments without premium or penalty. The 5-year Tranche Loan requires scheduled principal payments at the end of each fiscal quarter equal to (i) 1.25% of the aggregate principal amount on the term funding date for the first four full fiscal quarters following the term loan funding date, (ii) 2.50% of the aggregate principal amount on the term funding date for the fifth through twelfth full fiscal quarters following the term loan funding date, and (iii) 3.75% of the aggregate principal amount on the term funding date for each fiscal quarter following the twelfth full fiscal quarter following the term loan funding date. During the quarter ended April 30, 2022, the Company repaid $10.9 million of the principal outstanding of the 5-Year Tranche Loan.

The 2020 Term Loan Agreement requires that the Company and its subsidiaries comply with covenants relating to customary matters, including with respect to creating or permitting certain liens, entering into sale and leaseback transactions, and consolidating, merging, liquidating or dissolving. It also prohibits subsidiaries of the Company from incurring additional indebtedness, subject to certain exceptions, and requires that the Company maintain a leverage ratio financial covenant as of the end of any fiscal quarter. As of April 30, 2022, the Company has $1.6 billion Term Loan borrowings outstanding, and is in compliance with its debt covenants.

2020 Revolving Credit Facility

On December 7, 2020, the Company entered into a revolving line of credit agreement (the “2020 Revolving Credit Facility”) with a lending syndicate led by JP Morgan Chase Bank, N.A for borrowings of up to $750.0 million. Borrowings from the 2020 Revolving Credit Facility are intended for general corporate use, which may include among other things, the financing of acquisitions, the refinancing of other indebtedness and the payment of transaction expenses related to the foregoing. The 2020 Revolving Credit Facility has a five-year term and a stated floating interest rate which equates to reserve-adjusted LIBOR plus an applicable margin. The Company may prepay any borrowings at any time without premium or penalty. As of April 30, 2022, the 2020 Revolving Credit Facility is undrawn and will be available for draw down through December 7, 2025. An unused commitment fee is payable quarterly based on unused balances at a rate that is based on the ratings of the Company’s senior unsecured long-term indebtedness. This annual rate was 0.175% at April 30, 2022.

Subsequent to quarter end, on May 3, 2022, the Company drew down $150.0 million on the 2020 Revolving Credit Facility. The Company intends to repay the drawn amount during the second quarter of fiscal 2023.

The 2020 Revolving Credit Facility requires that the Company and its subsidiaries comply with covenants relating to customary matters. The covenants are consistent with the 2020 Term Loan covenants discussed above.

The Company currently carries debt that relies on one-month LIBOR as the benchmark rate. The one-month LIBOR is expected to cease publication after June 30, 2023. To the extent the one-month LIBOR ceases to exist, the 2020 Term Loans and 2020 Revolving Credit Facility agreements contemplate an alternative benchmark rate without the need for any amendment thereto.

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

2026, 2028, and 2031 Senior Unsecured Notes

On April 12, 2021, the Company completed an offering of (i) $500.0 million aggregate principal amount of the Company’s 1.650% Senior Notes due 2026 (the “2026 Senior Notes”), (ii) $750.0 million aggregate principal amount of the Company’s 2.450% Senior Notes due 2028 (the “2028 Senior Notes”) and (iii) $750.0 million aggregate principal amount of the Company’s 2.950% Senior Notes due 2031 (the “2031 Senior Notes”, and, together with the 2026 Senior Notes and the 2028 Senior Notes, the “Senior Notes”). On October 8, 2021, the Senior Notes issued on April 12, 2021 were exchanged for new notes. The terms of the new notes issued in the exchange are substantially identical to the notes issued in April 2021, except that the new notes are registered under the Securities Act of 1933 and the transfer restrictions and registration rights applicable to the Senior Notes issued in April 2021 do not apply to the new notes.

The 2026 Senior Notes mature on April 15, 2026, the 2028 Senior Notes mature on April 15, 2028, and the 2031 Senior Notes mature on April 15, 2031. The stated and effective interest rates for the 2026 Senior Notes are 1.650% and 1.839%, respectively. The stated and effective interest rates for the 2028 Senior Notes are 2.450% and 2.554%, respectively. The stated and effective interest rates for the 2031 Senior Notes are 2.950% and 3.043%, respectively. The Company may redeem the Senior Notes, in whole or in part, at any time prior to their respective maturity at the redemption prices set forth in the indenture governing the Senior Notes. In addition, upon the occurrence of a change of control repurchase event (which involves the occurrence of both a change of control and a ratings event involving the Senior Notes being rated below investment grade), the Company will be required to make an offer to repurchase the Senior Notes at a price equal to 101% of the principal amount of the notes, plus accrued and unpaid interest to, but excluding, the repurchase date. The indenture governing the Senior Notes also contains certain limited covenants restricting the Company’s ability to incur certain liens, enter into certain sale and leaseback transactions and merge or consolidate with any other entity or convey, transfer or lease all or substantially all of the Company’s properties or assets to another person, which, in each case, are subject to certain qualifications and exceptions. As of April 30, 2022, the Company had $2.0 billion Senior Notes borrowings outstanding.

2023 and 2028 Senior Unsecured Notes

On June 22, 2018, the Company’s Bermuda-based parent company Marvell Technology Group, Ltd. (“MTG”) completed a public offering of (i) $500.0 million aggregate principal amount of 4.200% Senior Notes due 2023 (the “MTG 2023 Notes”) and (ii) $500.0 million aggregate principal amount of 4.875% Senior Notes due 2028 (the “MTG 2028 Notes” and, together with the 2023 Notes, the “MTG Senior Notes”).

In April 2021, in conjunction with the Company’s U.S. domiciliation, the Company commenced Exchange Offers on April 19, 2021 for the outstanding $1.0 billion in aggregate principal amount of MTG Senior Notes outstanding in exchange for corresponding senior notes to be issued by the Company’s new U.S. domiciled parent Marvell Technology, Inc. (“MTI”). MTI made an offer to (i) exchange any and all of the outstanding MTG 2023 Notes for up to an aggregate principal amount of $500.0 million of new 4.200% Senior Notes due 2023 issued by MTI (the “MTI 2023 Notes”) and to (ii) exchange any and all of the outstanding MTG 2028 Notes for up to an aggregate principal amount of $500.0 million of new 4.875% Senior Notes due 2028 issued by MTI (the “MTI 2028 Notes” and, together with the MTI 2023 Notes, the “MTI Senior Notes”). Each new series of MTI Senior Notes have the same interest rate, maturity date, redemption terms and interest payment dates and are subject to substantially similar covenants as the corresponding series of the MTG Senior Notes for which they were offered in exchange.

The settlement of the Exchange Offers occurred on May 4, 2021 with $433.9 million aggregate principal amount of the MTG 2023 Notes and $479.5 million aggregate principal amount of the MTG 2028 Notes. The exchange was accounted for as a debt modification in accordance with applicable accounting guidance. On December 16, 2021, the MTI Senior Notes issued on May 4, 2021 were exchanged for new notes. The terms of the new notes issued in the exchange are substantially identical to the notes issued in May 2021, except that the new notes are registered under the Securities Act of 1933 and the transfer restrictions and registration rights applicable to the MTI Senior Notes issued in May 2021 do not apply to the new notes.

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

The MTI 2023 Notes mature on June 22, 2023 and the MTI 2028 Notes mature on June 22, 2028. The stated and effective interest rates for the MTI 2023 Notes are 4.200% and 4.502%, respectively. The stated and effective interest rates for the MTI 2028 Notes are 4.875% and 4.988%, respectively. The Company may redeem the MTI Senior Notes, in whole or in part, at any time prior to their maturity at the redemption prices set forth in MTI Senior Notes. In addition, upon the occurrence of a change of control repurchase event (which involves the occurrence of both a change of control and a ratings event involving the MTI Senior Notes being rated below investment grade), the Company will be required to make an offer to repurchase the MTI Senior Notes at a price equal to 101% of the principal amount of the notes, plus accrued and unpaid interest to, but excluding, the repurchase date. The indenture governing the MTI Senior Notes also contains certain limited covenants restricting the Company’s ability to incur certain liens, enter into certain sale and leaseback transactions and merge or consolidate with any other entity or convey, transfer or lease all or substantially all of the Company’s properties or assets to another person, which, in each case, are subject to certain qualifications and exceptions.

The MTG 2023 Notes mature on June 22, 2023 and the MTG 2028 Notes mature on June 22, 2028. The stated and effective interest rates for the MTG 2023 Notes are 4.200% and 4.360%, respectively. The stated and effective interest rates for the MTG 2028 Notes are 4.875% and 4.940%, respectively. The Company may redeem the MTG Senior Notes, in whole or in part, at any time prior to their maturity at the redemption prices set forth in MTG Senior Notes.

As of April 30, 2022, the Company had $1.0 billion MTG/MTI Senior Notes borrowings outstanding.

Inphi Convertible Notes

As a result of the Inphi acquisition, the Company assumed all of Inphi’s outstanding convertible notes.

Inphi 2021 Convertible Notes

A total of $9.6 million in aggregate principal of the Inphi 2021 Convertible Notes was settled pursuant to the Exchange Agreements (discussed below). Between April 20 and September 1, 2021, $6.1 million in aggregate principal of the Inphi 2021 Convertible Notes was converted into 0.2 million shares of the Company’s common stock and $7.1 million in cash pursuant to the contractual terms of the Inphi 2021 convertible notes indenture.

The Inphi 2021 Convertible Notes matured on September 1, 2021 and the Company settled the remaining outstanding balance.

Inphi 2025 Convertible Notes

A total of $199.5 million in aggregate principal of the Inphi 2025 Convertible Notes was settled pursuant to the Exchange Agreements (discussed below). Between April 20 and May 1, 2021, $114.0 million in aggregate principal of the Inphi 2025 Convertible Notes was converted pursuant to the contractual terms of the Inphi 2025 convertible notes indenture into 2.3 million shares of the Company’s common stock and $64.7 million in cash. Between May 2, 2021 and June 3, 2021, $192.5 million in aggregate principal of the Inphi 2025 Convertible Notes was converted pursuant to the contractual terms of the Inphi 2025 convertible notes indenture into 3.8 million shares of the Company’s common stock and $109.2 million in cash. After these conversions, there was no outstanding balance of Inphi 2025 Convertible Notes.

Inphi Capped Calls

In connection with the issuance of each of the Inphi Convertible Notes, Inphi entered into capped call transactions (the “Inphi 2021 Capped Calls” and the “Inphi 2025 Capped Calls,” collectively, the “Inphi Capped Calls”) in private transactions. In connection with the Inphi acquisition, the Company entered into unwind agreements related to the Inphi Capped Calls. Under the unwind agreements, the Company and the counterparties agreed to settle a portion of Inphi Capped Calls for a fixed payment of $74.1 million, which were settled on April 23, 2021. The remaining Inphi Capped Calls provided for variable cash settlement based on the Company’s stock price. The Company reports cash flows from capped calls in cash flows from financing activities. In connection with the Exchange Agreements (discussed below), a portion of the remaining Inphi Capped Calls were settled for $35.5 million on April 29, 2021. As of April 30, 2022, there was no outstanding balance of Inphi Capped Calls.

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

Exchange Agreements

On April 20, 2021, the Company entered into separate, privately negotiated exchange agreements (the “Exchange Agreements”) with a limited number of holders (“Noteholders”) of the Inphi Convertible Notes. Under the terms of the Exchange Agreements, the Noteholders agreed to exchange approximately $9.6 million in aggregate principal amount of Inphi 2021 Convertible Notes and $199.5 million in aggregate principal amount of Inphi 2025 Convertible Notes for a number of shares of the Company’s common stock that was partially based on a trailing daily volume-weighted average of the Company’s stock price.

The Exchange Agreements were settled on April 29, 2021. In exchange for $9.6 million and $199.5 million in aggregate principal of the Inphi 2021 Convertible Notes and Inphi 2025 Convertible Notes, respectively, the Company issued a total of 7.1 million shares of its common stock to the Noteholders.

Interest Expense and Future Contractual Maturities

During the three months ended April 30, 2022, the Company recognized $32.9 million of interest expense in its unaudited condensed consolidated statements of operations related to interest, amortization of debt issuance costs and accretion of discount associated with the outstanding term loans and senior notes.

During the three months ended May 1, 2021, the Company recognized $22.1 million of interest expense in its unaudited condensed consolidated statements of operations related to interest, amortization of debt issuance costs and accretion of discount associated with the outstanding term loans and senior notes.

As of April 30, 2022, the aggregate future contractual maturities of the Company’s outstanding debt, at face value, were as follows (in millions):


Fiscal Year	Amount
Remainder of 2023	$	54.7
2024	587.5
2025	844.4
2026	131.2
2027	959.4
Thereafter	1,999.9
Total	$	4,577.1

Note 5. Commitments and Contingencies

Warranty Obligations

The Company’s products carry a standard one-year warranty with certain exceptions in which the warranty period can extend to more than one year based on contractual agreements. The Company’s warranty expense has not been material in the periods presented.

Commitments

The Company’s commitments primarily consist of wafer purchase obligations with foundry partners, supply capacity reservation payment commitments with foundries and test & assembly partners, and technology license fee payment obligations.

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

Total future unconditional purchase commitments as of April 30, 2022 are as follows (in millions):


Fiscal Year	Purchase Commitments to Foundries and Test & Assembly Partners		Technology License Fees
Remainder of 2023	$	964.8	$	122.1
2024	433.6		150.0
2025	501.5		108.8
2026	464.1		32.5
2027	301.9		34.5
Thereafter	326.4		193.5
Total unconditional purchase commitments	$	2,992.3	$	641.4

Technology license fees include the liabilities under agreements for technology licenses between the Company and various vendors.

Under the Company’s manufacturing relationships with its foundry partners, cancellation of outstanding purchase orders is allowed but requires payment of all costs and expenses incurred through the date of cancellation.

The Company entered into manufacturing supply capacity reservation agreements with foundries and test & assembly suppliers during the current and prior fiscal year due to the current global supply shortage environment. Under these arrangements, the Company agreed to pay capacity fees or refundable deposits to the suppliers in exchange for reserved manufacturing production capacity over the term of the agreements, which ranges from four to ten years. In addition, the Company committed to certain purchase levels that were in line with the capacity reserved. If the Company does not meet the purchase level commitments, the agreements either require the Company to pay a fee for the difference between the actual purchases and the purchase commitment or lose priority to reserved capacity for a period of time. The Company currently estimates that it has agreed to purchase level commitments of at least $2.2 billion of wafers, substrates, and other manufacturing products for the remainder of fiscal 2023 through fiscal 2032 under the capacity reservation agreements. In addition, total fees and refundable deposits payable under these arrangements are $143.0 million for the remainder of fiscal 2023 through fiscal 2026. Such purchase commitments are summarized in the preceding table.

In September 2021, the Company entered into an IP licensing agreement with a vendor which provides complete access to the vendor’s IP portfolio for 10 years. The arrangement provides access to IP over the term of the contract, including existing IP, as well as IP in development, and to be developed in the future. The contract provides support and maintenance over the term of the contract as well. Aggregate fees of $354.0 million are payable quarterly over the contract term.

Contingencies and Legal Proceedings

The Company currently is, and may from time to time become, a party to claims, lawsuits, governmental inquiries, inspections or investigations and other legal proceedings (collectively, “Legal Matters”) arising in the course of its business. Such Legal Matters, even if not meritorious, could result in the expenditure of significant financial and managerial resources.

The Company is currently unable to predict the final outcome of its pending Legal Matters and therefore cannot determine the likelihood of loss or estimate a range of possible loss, except with respect to amounts where it has determined a loss is both probable and estimable and has made an accrual. The Company evaluates, at least on a quarterly basis, developments in its Legal Matters that could affect the amount of any accrual, as well as any developments that would result in a loss contingency to become both probable and reasonably estimable. In the first quarter of fiscal 2023, the Company reserved $15 million in relation to an on-going contractual and intellectual property disagreement with a customer; this disagreement remains unresolved as of the first quarter ended April 30, 2022. The ultimate outcome of this and other Legal Matters involves judgments, estimates and inherent uncertainties. An unfavorable outcome in a Legal Matter, particularly in a patent dispute, could require the Company to pay damages or could prevent the Company from selling some of its products in certain jurisdictions. While the Company cannot predict with certainty the results of the Legal Matters in which it is currently involved, the Company does not expect that the ultimate costs to resolve these Legal Matters will individually or in the aggregate have a material adverse effect on its financial condition, however, there can be no assurance that the current or any future Legal Matters will be resolved in a manner that is not adverse to the Company’s business, financial condition, results of operations or cash flows.

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

Indemnities, Commitments and Guarantees

During its normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities may include indemnities for general commercial obligations, indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, and indemnities to directors and officers of the Company to the maximum extent permitted under the laws of Delaware. In addition, the Company has contractual commitments to various customers, which could require the Company to incur costs to repair an epidemic defect with respect to its products outside of the normal warranty period if such defect were to occur. The duration of these indemnities, commitments and guarantees varies, and in certain cases, is indefinite. Some of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments that the Company could be obligated to make. In general, the Company does not record any liability for these indemnities, commitments and guarantees in the accompanying unaudited condensed consolidated balance sheets as the amounts cannot be reasonably estimated and are not considered probable. The Company does, however, accrue for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable and estimable.

Intellectual Property Indemnification

In addition to the above indemnities, the Company has agreed to indemnify certain customers for claims made against the Company’s products where such claims allege infringement of third-party intellectual property rights, including, but not limited to, patents, registered trademarks, and/or copyrights. Under the aforementioned indemnification clauses, the Company may be obligated to defend the customer and pay for the damages awarded against the customer as well as the attorneys’ fees and costs under an infringement claim. The Company’s indemnification obligations generally do not expire after termination or expiration of the agreement containing the indemnification obligation. Generally, but not always, there are limits on and exceptions to the Company’s potential liability for indemnification. Historically the Company has not made significant payments under these indemnification obligations and the Company cannot estimate the amount of potential future payments, if any, that it might be required to make as a result of these agreements. The maximum potential amount of any future payments that the Company could be required to make under these indemnification obligations could be significant.

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

Note 6. Business Combinations

Innovium

On October 5, 2021, the Company completed the acquisition of Innovium, Inc. (“Innovium”), a leading provider of networking solutions for cloud and edge data centers, in an all-stock transaction for total purchase consideration of $1.0 billion attributable to stock consideration of $994.2 million and the fair value of a previously held equity interest of $10.0 million. The Innovium acquisition was primarily intended to allow the Company to immediately participate in the fastest growing segment of the switch market with a cloud-optimized solution. In accordance with the terms of the Agreement and Plan of Merger dated August 2, 2021 (the “Innovium merger agreement”), the Company’s common stock was issued in exchange for all outstanding equity of Innovium, including shares of Innovium’s preferred and common stock, employee equity awards and warrants.

The factors contributing to the recognition of goodwill were based upon the Company’s conclusion that there are strategic and synergistic benefits that are expected to be realized from the acquisition. Goodwill recorded for the Innovium acquisition is not expected to be deductible for tax purposes.

The following table summarized the total merger consideration (in millions):


Common stock issued	$	971.0
Stock consideration for replacement equity awards attributable to pre-combination service	33.2
Total merger consideration	$	1,004.2

The merger consideration allocation set forth herein is preliminary and may be revised with adjustment to goodwill as additional information becomes available during the measurement period from the closing date of the acquisition to finalize such preliminary estimates. Any such revisions or changes may be material.

In accordance with U.S. GAAP requirements for business combinations, the Company allocated the fair value of the purchase consideration to the tangible assets, liabilities and intangible assets acquired, including in-process research and development (“IPR&D”), generally based on their estimated fair values. The excess purchase price over those fair values is recorded as goodwill. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When an IPR&D project is completed, the IPR&D is reclassified as an amortizable purchased intangible asset and amortized over the asset’s estimated useful life. The Company’s valuation assumptions of acquired assets and assumed liabilities require significant estimates, especially with respect to intangible assets. Acquisition-related costs are expensed in the periods in which such costs are incurred. See “Note 7 – Goodwill and Acquired Intangible Assets, Net” for additional information.

The purchase price allocation is as follows (in millions):


	Previously Reported January 29, 2022 (Provisional)
Cash and cash equivalents	$	60.4
Inventories	70.0
Goodwill	462.4
Acquired intangible assets, net	433.0
Other, net	(21.6)



Total merger consideration	$	1,004.2

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

The Company incurred total acquisition related costs of $11.9 million which were recorded in selling, general and administrative expense in the unaudited condensed consolidated statements of operations.

Inphi

On April 20, 2021, the Company completed the acquisition of Inphi (the “Inphi acquisition”). Inphi is a global leader in high-speed data movement enabled by optical interconnects. The Inphi acquisition was primarily intended to create an opportunity for the combined company to be uniquely positioned to serve the data-driven world, addressing high growth, attractive end markets such as cloud data center and 5G. In accordance with the terms of the Agreement and Plan of Merger dated as of October 29, 2020, by and among the Company and Inphi (the “Inphi merger agreement”), the Company acquired all outstanding shares of common stock of Inphi for $66 per share in cash and 2.323 shares of the Company’s common stock exchanged for each share of Inphi common stock. The merger consideration paid in cash was funded with a combination of cash on hand and funds from the Company’s debt financing. See “Note 4 – Debt” for additional information.

The factors contributing to the recognition of goodwill were based upon the Company’s conclusion that there are strategic and synergistic benefits that are expected to be realized from the acquisition. Goodwill recorded for the Inphi acquisition is not expected to be deductible for tax purposes.

The following table summarized the total merger consideration (in millions):


Cash consideration	$	3,673.2
Common stock issued	5,917.8
Stock consideration for replacement equity awards attributable to pre-combination service	82.3
Equity component of convertible debt	244.2
Total merger consideration	$	9,917.5

In accordance with U.S. GAAP requirements for business combinations, the Company allocated the fair value of the purchase consideration to the tangible assets, liabilities and intangible assets acquired, including IPR&D, generally based on their estimated fair values. The excess purchase price over those fair values is recorded as goodwill. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When an IPR&D project is completed, the IPR&D is reclassified as an amortizable purchased intangible asset and amortized over the asset’s estimated useful life. The Company’s valuation assumptions of acquired assets and assumed liabilities require significant estimates, especially with respect to intangible assets. Acquisition-related costs are expensed in the periods in which such costs are incurred. See “Note 7 – Goodwill and Acquired Intangible Assets, Net” for additional information.

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

The purchase price allocation is as follows (in millions):



	Previously Reported January 29, 2022 (Provisional)		Measurement Period Adjustment		April 30, 2022
Cash and cash equivalents	$	72.3	$	—	$	72.3

Accounts receivable, net	99.7		—		99.7
Inventories	270.4		—		270.4
Prepaid expenses and other current assets	213.3		—		213.3
Property and equipment, net	98.5		—		98.5
Acquired intangible assets, net	4,420.0		—		4,420.0

Other non-current assets	98.8		(2.2)		96.6
Goodwill	5,686.2		2.2		5,688.4
Accounts payable and accrued liabilities	(189.8)		—		(189.8)


Convertible debt - short-term	(313.7)		—		(313.7)
Convertible debt - long-term	(240.3)		—		(240.3)
Other non-current liabilities	(297.9)		—		(297.9)

Total merger consideration	$	9,917.5	$	—	$	9,917.5

The provisional amounts presented in the table above pertained to the preliminary purchase price allocation reported in the Company’s Form 10-K for the year ended January 29, 2022. The measurement period adjustments were associated with change in deferred tax assets as a result of changes in estimates related to finalizing Inphi’s short period 2021 U.S. tax return. The Company does not believe that the measurement period adjustment had a material impact on its consolidated statements of operations, balance sheets, or cash flows in any periods previously reported.

The Company incurred $50.8 million in acquisition related costs which were recorded in selling, general and administrative expense. The Company also incurred $39.8 million of aggregate debt financing costs. As of April 30, 2022, $2.4 million is included in short-term debt, and $28.4 million is included in long-term debt on the accompanying unaudited condensed consolidated balance sheets. See “Note 4 – Debt” for additional information. Additionally, the Company incurred $8.2 million of equity issuance costs, which were recorded in additional paid-in capital in the unaudited condensed consolidated balance sheets.

Unaudited Supplemental Pro Forma Information

The unaudited supplemental pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisitions had been completed on the date indicated, does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions the Company believes are reasonable under the circumstances.

The following unaudited supplemental pro forma information presents the combined results of operations for each of the periods presented, as if Innovium and Inphi had been acquired as of the beginning of fiscal 2021. The unaudited supplemental pro forma information includes adjustments to amortization and depreciation for acquired intangible assets and property and equipment, adjustments to share-based compensation expense, the purchase accounting effect on inventories acquired, interest expense, and transaction costs. For fiscal 2021, non-recurring pro forma adjustments directly attributable to the Innovium and Inphi acquisitions in the pro forma information presented below included (i) share-based compensation expense of $43.8 million, (ii) the purchase accounting effect of inventories acquired of $13.7 million, (iii) interest expense of $11.4 million, and (iv) transaction costs of $46.3 million. The unaudited supplemental pro forma information presented below is for informational purposes only and is not necessarily indicative of our unaudited condensed consolidated results of operations of the combined business had the Inphi acquisition actually occurred at the beginning of fiscal 2021 or of the results of our future operations of the combined business.

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

The unaudited supplemental pro forma financial information for the periods presented is as follows (in millions):


	Three Months Ended
	May 1, 2021
Pro forma net revenue	$	1,007.4
Pro forma net loss	$	(112.7)

Note 7. Goodwill and Acquired Intangible Assets, Net

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets acquired in a business combination. In March and April 2022, the Company completed the acquisition of two semiconductor design services companies located in India, for purchase consideration of $33.7 million, primarily for the purpose of expanding engineering resources to address customer design opportunities, of which $25.8 million was allocated to goodwill. The carrying value of goodwill as of April 30, 2022 and January 29, 2022 is $11.5 billion. See “Note 6 – Business Combinations” for discussion of acquisitions and changes to the carrying value of goodwill.

Acquired Intangible Assets, Net

As of April 30, 2022 and January 29, 2022, net carrying amounts excluding fully amortized intangible assets are as follows (in millions, except for weighted-average remaining amortization period):


	April 30, 2022
	Gross Carrying Amounts		Accumulated Amortization		Net Carrying Amounts		Weighted-Average Remaining Amortization Period (Years)
Developed technologies	$	4,730.0	$	(1,494.1)	$	3,235.9	4.94
Customer contracts and related relationships	2,179.0		(599.3)		1,579.7		4.96

Trade names	66.0		(22.5)		43.5		3.73
Total acquired amortizable intangible assets	$	6,975.0	$	(2,115.9)	$	4,859.1	4.94
IPR&D	1,029.0		—		1,029.0		n/a
Total acquired intangible assets	$	8,004.0	$	(2,115.9)	$	5,888.1


	January 29, 2022
	Gross Carrying Amounts		Accumulated Amortization		Net Carrying Amounts		Weighted-Average Remaining Amortization Period (Years)
Developed technologies	$	4,744.1	$	(1,333.7)	$	3,410.4	5.17
Customer contracts and related relationships	2,184.0		(519.6)		1,664.4		5.21
Trade names	73.0		(26.2)		46.8		3.95
Order backlog	70.0		(67.2)		2.8		0.03
Total acquired amortizable intangible assets	$	7,071.1	$	(1,946.7)	$	5,124.4	5.17
IPR&D	1,029.0		—		1,029.0		n/a
Total acquired intangible assets	$	8,100.1	$	(1,946.7)	$	6,153.4

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

The intangible assets are amortized on a straight-line basis over the estimated useful lives, except for certain Cavium customer contracts and related relationships, which are amortized using an accelerated method of amortization over the expected customer lives, which more closely align with the pattern of realization of economic benefits expected to be obtained. The IPR&D will be accounted for as an indefinite-lived intangible asset and will not be amortized until the underlying projects reach technological feasibility and commercial production at which point the IPR&D will be amortized over the estimated useful life. Useful lives for these IPR&D projects are expected to range between 3 to 10 years. In the event the IPR&D is abandoned, the related assets will be written off.

Amortization expense for acquired intangible assets for the three months ended April 30, 2022 and May 1, 2021 was $272.5 million and $128.6 million, respectively.

The following table presents the estimated future amortization expense of acquired amortizable intangible assets as of April 30, 2022 (in millions):


Fiscal Year	Amount
Remainder of 2023	$	785.6
2024	1,039.2
2025	987.1
2026	939.0
2027	788.0
Thereafter	320.2
	$	4,859.1

Note 8. Fair Value Measurements

Fair value is an exit price representing the amount that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1—Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

Level 2—Other inputs that are directly or indirectly observable in the marketplace.

Level 3—Unobservable inputs that are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company’s Level 1 assets include marketable equity investments that are classified as other non-current assets and which are valued primarily using quoted market prices. The Company’s Level 2 assets include time deposits, as the market inputs used to value these instruments consist of market yields. In addition, the severance pay fund is classified as a Level 2 asset as the valuation inputs are based on quoted prices and market observable data of similar instruments.

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

The tables below set forth, by level, the Company’s assets and liabilities that are measured at fair value on a recurring basis. The tables do not include assets and liabilities that are measured at historical cost or any basis other than fair value (in millions):


	Fair Value Measurements at April 30, 2022
	Level 1		Level 2		Level 3		Total
Items measured at fair value on a recurring basis:
Assets
Cash equivalents:

Time deposits	$	—	$	197.2	$	—	$	197.2















Other non-current assets:
Marketable equity investments	1.2		—		—		1.2
Severance pay fund	—		0.7		—		0.7
Total assets	$	1.2	$	197.9	$	—	$	199.1

The carrying value of investments in non-marketable equity securities recorded to fair value on a non-recurring basis is adjusted for observable transactions for identical or similar investments of the same issuer or for impairment. These securities relate to equity investments in privately-held companies. These items measured at fair value on a non-recurring basis are classified as Level 3 in the fair value hierarchy because the value is estimated based on valuation methods using the observable transaction price at the transaction date and other unobservable inputs such as volatility, rights and obligations of the securities held. As of April 30, 2022, non-marketable equity investments had a carrying value of $34.9 million and are included in other non-current assets in the Company’s unaudited condensed consolidated balance sheets.


	Fair Value Measurements at January 29, 2022
	Level 1		Level 2		Level 3		Total
Items measured at fair value on a recurring basis:
Assets
Cash equivalents:

Time deposits	$	—	$	177.6	$	—	$	177.6















Other non-current assets:
Marketable equity investments	1.2		—		—		1.2
Severance pay fund	—		0.7		—		0.7
Total assets	$	1.2	$	178.3	$	—	$	179.5

Fair Value of Debt

The Company classified the 2020 Term Loan, the 2023 Notes, the 2026 Notes, 2028 Notes, and 2031 Notes as Level 2 in the fair value measurement hierarchy. The carrying value of the 2020 Term Loan approximates its fair value as the 2020 Term Loan is carried at a market observable interest rate that resets periodically. The estimated aggregate fair value of the unsecured senior notes was $2.8 billion at April 30, 2022 and $3.0 billion at January 29, 2022, and were classified as Level 2 as there are quoted prices from less active markets for the notes.

Note 9. Restructuring

The Company continuously evaluates its existing operations to increase operational efficiency, decrease costs and increase profitability. Restructuring charges are mainly comprised of severance and other one-time termination benefits, facility closures where sites may be redundant within the same region or no longer suitably sized for the local employee base, and other costs. The Company recorded restructuring and other related charges of $1.3 million for the three months ended April 30, 2022. The Company expects to complete these restructuring actions by the end of fiscal 2024.

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

In prior years, the Company initiated restructuring plans in order to realign the organization and enable further investment in key priority areas. Restructuring charges were mainly comprised of severance and other one-time termination benefits, facility closures where sites were redundant within the same region or no longer suitably sized for the local employee base, and other costs. These plans are substantially complete. The Company recorded restructuring related charges of $12.9 million for the three months ended May 1, 2021.

The following table sets forth a reconciliation of the beginning and ending restructuring liability balances by each major type of cost associated with the restructuring charges (in millions):


	Employee Severance		Other		Total
Liability at January 29, 2022	$	2.9	$	2.7	$	5.6
Charges	0.6		0.7		1.3
Cash payments	(1.1)		(0.5)		(1.6)
Non-cash items	—		(0.1)		(0.1)

Liability at April 30, 2022	$	2.4	$	2.8	$	5.2

The current and non-current portions of the restructuring liability at April 30, 2022 of $4.0 million and $1.2 million are included as a component of accrued liabilities and other non-current liabilities respectively in the accompanying unaudited condensed consolidated balance sheets.

Note 10. Income Tax

The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. The Company’s quarterly tax provision, and estimate of its annual effective tax rate, is subject to variation due to several factors, including variability in accurately predicting our pre-tax income or loss and the mix of jurisdictions to which they relate, intercompany transactions, changes in tax laws, the applicability of special tax regimes, changes in how the Company does business, discrete items, and acquisitions, as well as the integration of such acquisitions.

On April 20, 2021, the Company completed its acquisition of Inphi Corporation. Upon closing of this transaction, the parent company was domiciled in the United States and not Bermuda. Therefore, for periods after closing, the income from all foreign subsidiaries is now subject to the U.S. provisions applicable to Global Intangible Low Taxed Income (“GILTI”), which generally requires for GILTI income to be included in the taxable income of U.S. entities, and which may adversely impact future effective tax rates and tax liabilities.

The Company’s estimated effective tax rate for the year differs from the U.S. statutory rate of 21% primarily due to a substantial portion of its earnings, or in some cases, losses being taxed or benefited at rates lower than the U.S. statutory rate, benefits from tax credits, as well as discrete tax benefits for excess deductions on stock-based compensation and discrete effects for remeasurement of the Company’s Singapore deferred taxes upon extension of the Company’s tax incentive in Singapore (see below). The Company’s effective tax rate is the result of an anticipated annual net income tax expense and includes the effects of certain non-U.S. tax jurisdictions with tax rates lower than 21%.

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

The Company operates under tax incentives in certain countries that may be extended and/or renewed if certain additional requirements are satisfied. The tax incentives are conditional upon meeting certain employment and investment thresholds. The benefit of the tax incentives on net income per share was approximately $0.01 per share for the three months ended April 30, 2022. There were no such tax benefits recognized in three months ended May 1, 2021. During the three months ended April 30, 2022, the Singapore Economic Development Board (“EDB”) agreed to extend the Company’s Development and Expansion Incentive (“DEI”) by five years until June 30, 2029. As a result, the Company expects to continue to enjoy a reduced DEI tax rate on its future qualifying income in Singapore. To retain these DEI tax benefits through June 2029 in Singapore, the Company must meet certain operating conditions, headcount and investment requirements, as well as maintain certain activities in Singapore. As a result of the DEI extension during the three months ended April 30, 2022, the Company remeasured its Singapore net deferred tax assets that are scheduled to reverse during these future periods at the new incentive tax rate that the Company expects to apply during these periods, which resulted in a net reduction to our Singapore deferred tax assets of $213.6 million and a corresponding deferred income tax expense in the three months ended April 30, 2022. The Company’s income tax expense of $204.9 million for the three months ended April 30, 2022, was primarily the result of the aforementioned tax expense related to the DEI extension, offset by recognition of tax credits and discrete income tax benefits for stock-based compensation.

It is reasonably possible that the amount of unrecognized tax benefits could increase or decrease significantly due to changes in tax law in various jurisdictions, the effects of income tax audits, and changes in the U.S. dollar as compared to foreign currencies within the next 12 months. Excluding these factors, it is reasonably possible that uncertain tax positions may decrease by as much as $7.2 million during the next 12 months. Government tax authorities from certain non-U.S. jurisdictions are examining the Company’s income tax returns. The Company believes that it has adequately provided for the expected outcomes related to these tax audits and that any settlements with respect to these audits will not have a material effect on its results or financial position at this time.

The Company’s principal source of liquidity as of April 30, 2022 consisted of approximately $465.0 million of cash and cash equivalents, of which approximately $415.6 million was held by subsidiaries outside of the United States. The Company has not recognized a deferred tax liability on $272.2 million of these assets as those amounts are deemed to be indefinitely reinvested. The Company manages its worldwide cash requirements by, among other things, reviewing available funds held by its foreign subsidiaries and the cost effectiveness by which those funds can be accessed in the United States.

Note 11. Net Loss Per Share

The Company reports both basic net loss per share, which is based on the weighted-average number of common stock outstanding during the period, and diluted net loss per share, which is based on the weighted-average number of common stock outstanding and potentially dilutive shares outstanding during the period.

The computations of basic and diluted net loss per share are presented in the following table (in millions, except per share amounts):


	Three Months Ended
	April 30, 2022		May 1, 2021
Numerator:
Net loss	$	(165.7)	$	(88.2)


Denominator:
Weighted-average shares — basic	848.0		693.4
Effect of dilutive securities:
Share-based awards	—		—
Convertible debt	—		—
Weighted-average shares — diluted	848.0		693.4






Net loss per share:
Basic	$	(0.20)	$	(0.13)
Diluted	$	(0.20)	$	(0.13)

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

Potential dilutive securities include dilutive common stock from share-based awards attributable to the assumed exercise of stock options, restricted stock units and employee stock purchase plan shares using the treasury stock method. Potential dilutive securities include dilutive common stock from share-based awards attributable to the shares that could be issued upon conversion of the Company’s convertible debt using the if-converted method. Under the treasury stock method and if-converted method, potential common stock outstanding are not included in the computation of diluted net income per share if their effect is anti-dilutive.

Anti-dilutive potential shares are presented in the following table (in millions):


	Three Months Ended
	April 30, 2022	May 1, 2021
Weighted-average shares outstanding:
Share-based awards	13.9	16.8
Convertible debt	—	1.6

Anti-dilutive potential shares from share-based awards are excluded from the calculation of diluted earnings per share for all periods reported above because either their exercise price exceeded the average market price during the period or the share-based awards were determined to be anti-dilutive based on applying the treasury stock method. Anti-dilutive potential shares from convertible debt are excluded from the calculation of diluted earnings per share for all periods reported above because the shares that would be issued upon conversion of the Company’s convertible debt were determined to be anti-dilutive based on applying the if-converted method. Anti-dilutive potential shares from share-based awards are excluded from the calculation of diluted earnings per share for the three months ended April 30, 2022 and May 1, 2021 due to the net losses reported in those periods.

Note 12. Supplemental Financial Information (in millions)

Consolidated Balance Sheets


	April 30, 2022		January 29, 2022
Inventories:
Work-in-process	$	661.8	$	578.9
Finished goods	173.7		141.4
Inventories	$	835.5	$	720.3

The inventory balance at April 30, 2022 and January 29, 2022 includes $29.4 million and $38.7 million respectively related to the remaining inventory fair value adjustment from the Innovium acquisition.


	April 30, 2022		January 29, 2022
Property and equipment, net:
Machinery and equipment	$	957.8	$	895.4
Land, buildings, and leasehold improvements	292.9		293.6
Computer software	110.3		109.1
Furniture and fixtures	30.5		30.1
	1,391.5		1,328.2
Less: Accumulated depreciation	(889.3)		(865.4)
Property and equipment, net	$	502.2	$	462.8

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)


	April 30, 2022		January 29, 2022
Other non-current assets:
Technology and other licenses	$	524.6	$	490.2
Prepaid ship and debit	305.0		215.9
Operating right-of-use assets	140.5		142.0


Prepayments on supply capacity reservation agreements	116.1		54.6
Non-marketable equity investments	34.9		30.7
Other	57.6		61.0
Other non-current assets	$	1,178.7	$	994.4


	April 30, 2022		January 29, 2022
Accrued liabilities:
Variable consideration estimates (1)	$	349.4	$	258.6
Technology license obligations	116.6		84.2
Deferred non-recurring engineering credits	53.2		71.2
Deferred revenue	38.4		39.0

Accrued income tax payable	37.9		23.3

Lease liabilities - current portion	36.8		38.2
Accrued interest payable	19.7		20.1
Accrued royalty	18.8		17.4


Other	64.2		70.6
Accrued liabilities	$	735.0	$	622.6

(1) Variable consideration estimates consist of estimated customer returns, price discounts, price protection, rebates, and stock rotation programs.


	April 30, 2022		January 29, 2022
Other non-current liabilities

Technology license obligations	$	318.2	$	304.3
Lease liabilities - non current	137.2		140.3
Deferred tax liabilities	39.7		34.5
Non-current income tax payable	37.4		35.0

Other	21.8		19.0
Other non-current liabilities	$	554.3	$	533.1

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MARVELL TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)

Accumulated Other Comprehensive Loss

For the three months ended April 30, 2022 and May 1, 2021, there were no reconciling differences between net loss and comprehensive loss.

Share Repurchase Program

On November 17, 2016, the Company announced that its Board of Directors authorized a $1.0 billion share repurchase plan with no fixed expiration. The newly authorized stock repurchase program replaced in its entirety the prior $3.25 billion stock repurchase program. On October 16, 2018, the Company announced that its Board of Directors authorized a $700.0 million addition to the balance of its existing share repurchase program. As of April 30, 2022, there was $549.5 million remaining available for future share repurchases. The Company intends to effect share repurchases in accordance with the conditions of Rule 10b-18 under the Exchange Act, but may also make repurchases in the open market outside of Rule 10b-18 or in privately negotiated transactions. The share repurchase program will be subject to market conditions and other factors, and does not obligate the Company to repurchase any dollar amount or number of its common stock and the repurchase program may be extended, modified, suspended or discontinued at any time.

The Company resumed its stock repurchase program in the first quarter of fiscal 2023, which had been temporarily suspended in fiscal 2021 to preserve cash during the COVID-19 pandemic. During the three months ended April 30, 2022, the Company repurchased 0.3 million shares of its common stock for $15.0 million. There were no share repurchases during the quarter ended May 1, 2021. The Company records all repurchases, as well as investment purchases and sales, based on their trade date. The repurchased shares are retired immediately after repurchases are completed.

Subsequent to quarter end through May 20, 2022, the Company repurchased an additional 0.9 million shares of its common stock for $50.0 million pursuant to a 10b5-1 trading plan.

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

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results to differ materially from those implied by the forward-looking statements. Words such as “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “seeks,” “estimates,” “forecasts,” “targets,” “may,” “can,” “will,” “would” and similar expressions identify such forward-looking statements.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements. Factors that could cause actual results to differ materially from those predicted include, but are not limited to:

•risks related to the impact of the COVID-19 pandemic or other future pandemics, on the global economy and on our customers, suppliers, employees and business;

•risks related to our ability to scale our business;

•risks related to the extension of lead time due to supply chain disruptions, component shortages that impact the costs and production of our products and our kitting process, and constrained availability from other electronic suppliers impacting our customers' ability to ship their products, which in turn may adversely impact our sales to those customers;

•risks related to changes in general economic conditions, such as economic slowdowns and recessions, inflation and stagflation, or political conditions, such as the tariffs and trade restrictions with China, Russia and other foreign nations, and specific conditions in the end markets we address, including the continuing volatility in the technology sector and semiconductor industry;

•risks related to the ability of our customers, particularly in jurisdictions such as China that may be subject to trade restrictions (including the need to obtain export licenses) to develop their own solutions or acquire fully developed solutions from third-parties;

•risks related to cancellations, rescheduling or deferrals of significant customer orders or shipments, as well as the ability of our customers to manage inventory;

•risks related to our ability to successfully integrate and to realize anticipated synergies, on a timely basis or at all, in connection with our acquisitions, divestitures, significant investments or strategic transactions;

•risks related to our debt obligations;

•risks related to the effects of any future acquisitions, divestitures or significant investments;

•risks related to the highly competitive nature of the end markets we serve, particularly within the semiconductor and infrastructure industries;

•risks related to our dependence on a few customers for a significant portion of our revenue;

•risks related to our ability to execute on changes in strategy and realize the expected benefits from restructuring activities;

•risks related to our ability to maintain a competitive cost structure for our manufacturing and assembly and test processes and our reliance on third parties to produce our products;

•risks related to our ability to attract, retain and motivate a highly skilled workforce, especially engineering, managerial, sales and marketing personnel;

•risks related to any current and future litigation and regulatory investigations that could result in substantial costs and a diversion of management’s attention and resources that are needed to successfully maintain and grow our business;

•risks related to gain or loss of a design win or key customer;

•risks related to seasonality or volatility related to sales into the infrastructure market;

•risks related to failures to qualify our products or our suppliers’ manufacturing lines;

•risks related to our ability to develop and introduce new and enhanced products, in particular in the 5G and Cloud markets, in a timely and effective manner, as well as our ability to anticipate and adapt to changes in technology;

•risks related to failures to protect our intellectual property, particularly outside the United States;

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•risks related to the potential impact of a significant natural disasters, or the effects of climate change (such as drought, flooding, wildfires, increased storm severity and sea level rise), particularly in certain regions in which we operate or own buildings, such as Santa Clara, California, and where our third party suppliers operate, such as Taiwan and elsewhere in the Pacific Rim;

•risks related to our Environmental, Social and Governance (ESG) programs;

•risks related to severe financial hardship or bankruptcy of one or more of our major customers; and

•risks related to failures of our customers to agree to pay for NRE (non-recurring engineering) costs or failure to pay enough to cover the costs we incur in connection with NREs.

Additional factors which could cause actual results to differ materially include those set forth in the following discussion, as well as the risks discussed in Part II, Item 1A, “Risk Factors,” and other sections of this Quarterly Report on Form 10-Q. These forward-looking statements speak only as of the date hereof. We undertake no obligation to update any forward-looking statements.

Overview

We are a leading supplier of infrastructure semiconductor solutions, spanning the data center core to network edge. We are a fabless semiconductor supplier of high-performance standard and semi-custom products with core strengths in developing and scaling complex System-on-a-Chip architectures, integrating analog, mixed-signal and digital signal processing functionality. Leveraging leading intellectual property and deep system-level expertise, as well as highly innovative security firmware, our solutions are empowering the data economy and enabling the data center, carrier infrastructure, enterprise networking, consumer, and automotive/industrial end markets.

Net revenue in the first quarter of fiscal 2023 was $1,446.9 million and was 74% higher than net revenue of $832.3 million in the first quarter of fiscal 2022. This was due to an increase in sales from all our end markets. Revenue increased from the data center end market by 131%, from the carrier infrastructure end market by 50%, from the enterprise networking end market by 64%, from the consumer end market by 7%, and the automotive/industrial end market by 94% compared to the three months ended May 1, 2021. The overall increase in net revenue of 74% was primarily driven by an increase in demand for our products and the year-over-year impact of acquisitions in fiscal 2022, with both factors contributing to higher unit shipments. In addition, our average selling prices increased year-over-year driven by relatively higher sales of products which had higher content and more features.

In response to increased demand from customers for our products, our operations team is continuing to ramp production with our global supply chain partners. However, we are continuing to experience a number of industry-wide supply constraints affecting the type of high complexity products we provide for data infrastructure. These supply challenges are currently limiting our ability to fully satisfy the increase in demand for some of our products. To secure additional capacity, we entered into capacity reservation arrangements with certain foundries and test & assembly partners. See “Note 5 – Commitments and Contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.

Securing capacity for growth remains a high priority for our operations team, even as this supply expansion comes with an increase in input costs. As we have done throughout this period of supply constraints, we are working with our customers to adjust prices to offset the impact of these cost increases, which lets us jointly benefit from sustained growth.

We continue to monitor the impact of COVID-19 on our business. While our offices around the world generally remain open to enable critical on-site business functions in accordance with local government guidelines, in response to the COVID-19 pandemic we modified our workplace practices globally, which resulted in many of our employees working remotely for extended periods of time. As a result, many of our employees have expressed a preference to continue to work from home two to three days a week post-pandemic. In response, we adopted a hybrid work policy where most employees split their time between home and the office. We expect COVID-19 to continue to impact our business, for a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, see Part II, Item 1A, “Risk Factors,” including but not limited to the risk detailed under the caption “We face risks related to the COVID-19 pandemic which currently has, and may continue in the future to, significantly disrupt and adversely impact our manufacturing, research and development, operations, sales and financial results.”

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We expect that the U.S. government’s export restrictions on certain Chinese customers will continue to impact our revenue in fiscal 2023. Moreover, concerns that U.S. companies may not be reliable suppliers as a result of these and other actions has caused, and may in the future cause, some of our customers in China to amass large inventories of our products well in advance of need or cause some of our customers to replace our products in favor of products from other suppliers. Customers in China may also choose to develop indigenous solutions, as replacements for products that are subject to U.S. export controls. In addition, there may be indirect impacts to our business that we can not easily quantify such as the fact that some of our other customers’ products which use our solutions may also be impacted by export restrictions.

Capital Return Program. We remain committed to delivering stockholder value through our stock repurchase and dividend programs. Under the program authorized by our Board of Directors, we may repurchase shares of stock in the open-market or through privately negotiated transactions. The extent to which we repurchase our stock and the timing of such repurchases will depend upon market conditions, legal rules and regulations, and other corporate considerations, as determined by our management team. We resumed our stock repurchase program in the first quarter of fiscal 2023, which had been temporarily suspended in fiscal 2021 to preserve cash during the COVID-19 pandemic. During the three months ended April 30, 2022, we repurchased 0.3 million shares of our common stock for $15.0 million. As of April 30, 2022, there was $549.5 million remaining available for future stock repurchases.

As of April 30, 2022, a total of 308.4 million shares have been repurchased to date under our share repurchase programs for a total $4.3 billion in cash. We returned $65.9 million to stockholders in the three months ended April 30, 2022, including our repurchases of common stock and $50.9 million in cash dividends.

Subsequent to quarter end through May 20, 2022, we repurchased an additional 0.9 million shares of our common stock for $50.0 million pursuant to a 10b5-1 trading plan.

Cash and Short-Term Investments. Our cash and cash equivalents were $465.0 million at April 30, 2022, which was $148.5 million lower than our balance at our fiscal year ended January 29, 2022 of $613.5 million.

Sales and Customer Composition. Our accounts receivable was concentrated with four customers at April 30, 2022, who comprise a total of 52% of gross accounts receivable, compared with five customers at May 1, 2021, who represented 54% of gross accounts receivable, respectively. This presentation is at the customer consolidated level. During the three months ended April 30, 2022 and May 1, 2021, there was no net revenue attributable to a single customer, other than one distributor, whose revenue as a percentage of net revenue was 10% or greater of total net revenue. Net revenue attributable to a distributor whose revenue as a percentage of net revenue was 10% or greater of total net revenue is presented in the following table:


	Three Months Ended
	April 30, 2022		May 1, 2021





Distributor:
Distributor A	19	%	19	%

We continuously monitor the creditworthiness of our customers and distributors and believe these distributors’ sales to diverse end customers and geographies further serve to mitigate our exposure to credit risk.

Most of our sales are made to customers located outside of the United States, primarily in Asia, and majority of our products are manufactured outside the United States. Sales shipped to customers with operations in Asia represented approximately 75% of our net revenue in the three months ended April 30, 2022, and approximately 80% of net revenue in the three months ended May 1, 2021. Because many manufacturers and manufacturing subcontractors of our customers are located in Asia, we expect that most of our net revenue will continue to be represented by sales to our customers in that region. For risks related to our global operations, see Part II, Item 1A, “Risk Factors,” including but not limited to the risk detailed under the caption “We face additional risks due to the extent of our global operations since a majority of our products, and those of our customers, are manufactured and sold outside of the United States. The occurrence of any or a combination of the additional risks described below would significantly and negatively impact our business and results of operations.”

The development process for our products is long, which may cause us to experience a delay between the time we incur expenses and the time revenue is generated from these expenditures. We anticipate that the rate of new orders may vary significantly from quarter to quarter. For risks related to our sales cycle, see Part II, Item 1A, “Risk Factors,” including but not limited to the risk detailed under the caption “We are subject to order and shipment uncertainties. If we are unable to accurately predict customer demand, we may hold excess or obsolete inventory, which would reduce our gross margin. Conversely, we may have insufficient inventory, which would result in lost revenue opportunities and potential loss of market share as well as damaged customer relationships.”

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Critical Accounting Policies and Estimates

There have been no material changes during the three months ended April 30, 2022 to our critical accounting policies and estimates from the information provided in the “Critical Accounting Policies and Estimates” section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022.

In the current macroeconomic environment affected by COVID-19, our estimates could require increased judgment and carry a higher degree of variability and volatility. We continue to monitor and assess our estimates in light of developments, and as events continue to evolve and additional information becomes available, our estimates may change materially in future periods.

Results of Operations

The following table sets forth information derived from our Unaudited Condensed Consolidated Statements of Operations expressed as a percentage of net revenue:


	Three Months Ended
	April 30, 2022		May 1, 2021
Net revenue	100.0	%	100.0	%
Cost of goods sold	48.1		49.8
Gross profit	51.9		50.2
Operating expenses:
Research and development	30.7		34.4
Selling, general and administrative	16.3		24.2
Restructuring related charges	0.1		1.5
Total operating expenses	47.1		60.1
Operating income (loss)	4.8		(9.9)
Interest income	—		—
Interest expense	(2.5)		(4.2)
Other income, net	0.4		0.1
Income (loss) before income taxes	2.7		(14.0)
Provision (benefit) for income taxes	14.2		(3.3)
Net loss	(11.5)	%	(10.7)	%

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Three months ended April 30, 2022 and May 1, 2021

Net Revenue


	Three Months Ended
	April 30, 2022		May 1, 2021		% Change

	(in millions, except percentage)
Net revenue	$	1,446.9	$	832.3	73.8%

Our net revenue for the three months ended April 30, 2022 increased by $614.6 million compared to net revenue for the three months ended May 1, 2021. This was due to an increase in sales from all our end markets. Revenue increased from the data center end market by 131% from the carrier infrastructure end market by 50%, from the enterprise networking end market by 64%, from the consumer end market by 7%, and from the automotive/industrial end market by 94% compared to the three months ended May 1, 2021. The overall increase in net revenue of 74% was primarily driven by an increase in demand for our products and the year-over-year impact of acquisitions in fiscal 2022, with both factors contributing to higher unit shipments. In addition, our average selling prices increased year-over-year driven by relatively higher sales of products which had higher content and more features.

Cost of Goods Sold and Gross Profit


	Three Months Ended
	April 30, 2022			May 1, 2021			% Change

	(in millions, except percentage)
Cost of goods sold	$	696.0		$	414.1		68.1%
% of net revenue	48.1		%	49.8		%
Gross profit	$	750.9		$	418.2		79.6%
% of net revenue	51.9		%	50.2		%

Cost of goods sold as a percentage of net revenue decreased for the three months ended April 30, 2022 compared to the three months ended May 1, 2021, which is primarily due to operational efficiencies with increased sales and lower amortization of inventory fair value adjustment. As a result, gross margin for the three months ended April 30, 2022 increased 1.7% percentage points compared to the three months ended May 1, 2021.

Research and Development


	Three Months Ended
	April 30, 2022			May 1, 2021			% Change

	(in millions, except percentage)
Research and development	$	444.1		$	286.1		55.2%
% of net revenue	30.7		%	34.4		%

Research and development expense increased by $158.0 million in the three months ended April 30, 2022 compared to the three months ended May 1, 2021. The increase was primarily due to additional costs from our acquisitions of Inphi and Innovium in fiscal 2022, including $125.0 million of higher employee personnel-related costs and $32.9 million of higher product development and qualification costs recognized in the current period.

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Selling, general and administrative


	Three Months Ended
	April 30, 2022			May 1, 2021			% Change

	(in millions, except percentage)
Selling, general and administrative	$	235.7		$	201.5		17.0%
% of net revenue	16.3		%	24.2		%

Selling, general and administrative expense increased by $34.2 million in the three months ended April 30, 2022 compared to the three months ended May 1, 2021. The increase was primarily due to additional costs from our acquisitions of Inphi and Innovium in fiscal 2022, including $63.1 million of higher intangibles amortization expense, partially offset by $35.3 million of lower integration costs in the current period.

Restructuring Related Charges


	Three Months Ended
	April 30, 2022			May 1, 2021			% Change

	(in millions, except percentage)
Restructuring related charges	$	1.3		$	12.9		(89.9)%
% of net revenue	0.1		%	1.5		%

We recognized $1.3 million of total restructuring related charges in the three months ended April 30, 2022 as we continue to evaluate our existing operations to increase operational efficiency, decrease costs, and increase profitability. See “Note 9 –Restructuring” in the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Interest Income


	Three Months Ended
	April 30, 2022			May 1, 2021			% Change

	(in millions, except percentage)
Interest income	$	0.5		$	0.2		150.0%
% of net revenue	—		%	—		%

Interest income increased by $0.3 million in the three months ended April 30, 2022 compared to the three months ended May 1, 2021 due to higher interest rates on our invested cash.

Interest Expense


	Three Months Ended
	April 30, 2022			May 1, 2021			% Change

	(in millions, except percentage)
Interest expense	$	(36.3)		$	(35.1)		3.4%
% of net revenue	(2.5)		%	(4.2)		%

Interest expense increased by $1.2 million in the three months ended April 30, 2022 compared to the three months ended May 1, 2021. The increase was primarily due to higher interest expense and amortization of debt issuance costs associated with the 2020 Term Loans and 2026, 2028 and 2031 Senior Notes, partially offset by prior period costs associated with the bridge loan termination.

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Other Income, Net


	Three Months Ended
	April 30, 2022			May 1, 2021			% Change

	(in millions, except percentage)
Other income, net	$	5.2		$	1.2		333.3%
% of net revenue	0.4		%	0.1		%

Other income, net, increased by $4.0 million in the three months ended April 30, 2022 compared to the three months ended May 1, 2021. The increase was primarily due to a gain from an equity investment in a privately-held company.

Provision (benefit) for Income Taxes


	Three Months Ended
	April 30, 2022		May 1, 2021		% Change

	(in millions, except percentage)
Provision (benefit) for income taxes	$	204.9	$	(27.8)	(837.1)%

Our income tax expense for the three months ended April 30, 2022 was $204.9 million compared to a tax benefit of $27.8 million for the three months ended May 1, 2021. Our income tax expense for the three months ended April 30, 2022 differed from the 21% federal income tax rate, primarily because of the remeasurement of our deferred taxes in Singapore upon the five year extension of our DEI status until June 30, 2029 at the new incentive tax rates that are expected to apply during these future periods for existing deferred tax items, resulting in a net reduction to our Singapore deferred tax assets of $213.6 million and a corresponding income tax expense. In addition, our tax rate for the three months ended April 30, 2022 was affected by the recognition of benefits for tax credits, discrete tax benefits from stock-based compensation deductions and the tax rate differential on foreign income. The income tax benefit for the three months ended May 1, 2021 differed from the federal statutory tax rate of 21% primarily because of tax rate differentials on foreign income, tax benefits for stock based compensation and the recognition of tax benefits on the expiration of the statutes of limitations for the assessment of certain foreign taxes.

Our provision for incomes taxes may be affected by changes in the geographic mix of earnings with different applicable tax rates, acquisitions, changes in the realizability of deferred tax assets, accruals related to contingent tax liabilities and period-to-period changes in such accruals, the results of income tax audits, the expiration of statutes of limitations, the implementation of tax planning strategies, tax rulings, court decisions, settlements with tax authorities and changes in tax laws and regulations.

The ultimate realization of deferred tax assets depends upon the generation of future taxable income during the periods in which those assets become deductible or creditable. We evaluate the recoverability of these assets, weighing all positive and negative evidence, and provide or maintain a valuation allowance for these assets if it is more likely than not that some, or all, of the deferred tax assets will not be realized. If negative evidence exists, sufficient positive evidence is necessary to support a conclusion that a valuation allowance is not needed. We consider all available evidence such as our earnings history including the existence of cumulative income or losses, reversals of taxable temporary differences, projected future taxable income, and tax planning strategies. In future periods, it is possible that significant positive or negative evidence could arise that results in a change in our judgment with respect to the need for a valuation allowance, which could result in a tax benefit, or adversely affect our income tax provision, in the period of such change in judgment.

We also continuously evaluate potential changes to our legal structure in response to guidelines and requirements in various international tax jurisdictions where we conduct business. Additionally, please see the information in “Item 1A: Risk Factors” under the caption “Changes in existing taxation benefits, rules or practices may adversely affect our financial results.”

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Liquidity and Capital Resources

Our principal source of liquidity as of April 30, 2022 consisted of approximately $465.0 million of cash and cash equivalents, of which approximately $415.6 million was held by subsidiaries outside of the United States. We manage our worldwide cash requirements by, among other things, reviewing available funds held by our foreign subsidiaries and the cost effectiveness by which those funds can be accessed in the United States. See “Note 10 – Income Taxes” in the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

In December 2020, to fund the Inphi acquisition, we executed a debt agreement to obtain a 3-year term loan of $875.0 million and a 5-year term loan of $875.0 million. For the quarter ended April 30, 2022, the Company repaid $10.9 million of the principal outstanding of the 5-year term loan.

In December 2020, we also executed a debt agreement to obtain a $750.0 million revolving credit facility (“2020 Revolving Credit Facility”). Subsequent to quarter end, on May 3, 2022, the Company drew down $150.0 million on the 2020 Revolving Credit Facility. The Company intends to repay the drawn amount during the second quarter of fiscal 2023.

In April 2021, we completed an offering and issued (i) 5-year $500.0 million senior notes due in 2026, (ii) 7-year $750.0 million senior notes due in 2028, and (iii) 10-year $750.0 million senior notes due in 2031 (collectively, the “Senior Notes”). On October 8, 2021, the Senior Notes issued in April 2021 were exchanged for new notes.

See “Note 4 – Debt” in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.

We believe that our existing cash, cash equivalents, together with cash generated from operations, and funds from our 2020 Revolving Credit Facility will be sufficient to cover our working capital needs, capital expenditures, investment requirements and any declared dividends, repurchase of our common stock and commitments for at least the next twelve months. Our capital requirements will depend on many factors, including our rate of sales growth, market acceptance of our products, costs of securing access to adequate manufacturing capacity, the timing and extent of research and development projects and increases in operating expenses, all of which are subject to uncertainty.

To the extent that our existing cash and cash equivalents, together with cash generated by operations, and funds available under our 2020 Revolving Credit Facility are insufficient to fund our future activities, we may need to raise additional funds through public or private debt or equity financing. We may also acquire additional businesses, purchase assets or enter into other strategic arrangements in the future, which could also require us to seek debt or equity financing. Additional equity financing or convertible debt financing may be dilutive to our current stockholders. If we elect to raise additional funds, we may not be able to obtain such funds on a timely basis or on acceptable terms, if at all. In addition, the equity or debt securities that we issue may have rights, preferences or privileges senior to our common stock.

Future payment of a regular quarterly cash dividend on our common stock and our planned repurchases of common stock will be subject to, among other things, the best interests of the Company and our stockholders, our results of operations, cash balances and future cash requirements, financial condition, developments in ongoing litigation, statutory requirements under Delaware law, U.S. securities laws and regulations, market conditions and other factors that our Board of Directors may deem relevant. Our dividend payments and repurchases of common stock may change from time to time, and we cannot provide assurance that we will continue to declare dividends or repurchase stock at all or in any particular amounts.

Cash Flows from Operating Activities

Net cash flow provided by operating activities for the three months ended April 30, 2022 was $194.8 million. We had a net loss of $165.7 million adjusted for the following non-cash items: amortization of acquired intangible assets of $272.5 million, deferred income tax expense of $165.0 million, stock-based compensation expense of $131.1 million, depreciation and amortization of $75.7 million, amortization of inventory fair value adjustment associated with the Innovium acquisition of $9.3 million, and $6.7 million net loss from other non-cash items. Cash outflow from working capital of $299.8 million for the three months ended April 30, 2022 was primarily driven by increases in accounts receivable, inventory, and prepaid expenses and other assets and decrease in accrued employee compensation, partially offset by increases in accounts payable and accrued liabilities and other non-current liabilities. The increase in accounts receivable was driven primarily by higher revenue and uniform collections. The increase in inventory is to support future customer demand. The increase in prepaid expenses and other assets is primarily due to prepayments on supply capacity reservation agreements. The decrease in accrued employee compensation is due to bonus payout. The increase in accounts payable was mainly due to timing of payments. The increase in accrued liabilities and other non-current liabilities is mainly due to an increase in ship and debit claim reserve due to price increase and stock replenishment.

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Net cash flow used in operating activities for the three months ended May 1, 2021 was $13.7 million. We had a net loss of $88.2 million adjusted for the following non-cash items: amortization of acquired intangible assets of $128.6 million, stock-based compensation expense of $92.7 million, depreciation and amortization of $51.8 million, deferred income tax benefit of $22.6 million, amortization of inventory fair value adjustment associated with the Inphi acquisition of $13.7 million and $31.4 million net loss from other non-cash items. Cash outflow from working capital of $221.1 million for the three months ended May 1, 2021 was primarily driven by a decrease in accrued employee compensation, decrease in accounts payable, a decrease in accrued liabilities and other non-current liabilities as well as an increase in accounts receivable. The decrease in accrued employee compensation is due to our annual bonus payment in the period. The decrease in accounts payable and accrued liabilities and other non-current liabilities is primarily due to payment of banker success fees. The increase in accounts receivable is due to revenue linearity and lower sales reserves.

Cash Flows from Investing Activities

For the three months ended April 30, 2022, net cash used in investing activities of $82.4 million was primarily driven by net cash paid for business acquisitions of $44.0 million, purchases of property and equipment of $36.9 million, and purchases of technology licenses of $1.6 million.

For the three months ended May 1, 2021, net cash used in investing activities of $3.6 billion was primarily driven by the net cash paid to acquire Inphi of $3.6 billion, purchases of property and equipment of $21.4 million and purchases of technology licenses of $3.4 million.

Cash Flows from Financing Activities

For the three months ended April 30, 2022, net cash used in financing activities of $260.9 million was primarily attributable to $137.6 million tax withholding payments on behalf of employees for net share settlements, $50.9 million for payment of our quarterly dividends, $49.0 million payments on technology license obligations, $15.0 million of repurchases of common stock and $10.9 million repayment of debt, partially offset by $2.5 million proceeds from employee stock plans.

For the three months ended May 1, 2021, net cash provided by financing activities of $3.4 billion was primarily attributable to proceeds from issuance of debt of $3.7 billion, proceeds from capped calls of $111.2 million, partially offset by $200.0 million repayment of debt principal, $73.2 million tax withholding payments on behalf of employees for net share settlements, $71.1 million of repurchase and settlement of convertible notes, $44.1 million payments for technology license obligations and $40.6 million for payment of our quarterly dividends.

Capital Resources and Material Cash Requirements

A summary of our capital resources and material cash requirements is presented in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022. Other than as described above, there were no material changes to our capital resources and material cash requirements during the three months ended April 30, 2022.

Indemnification Obligations

See “Note 5 – Commitments and Contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk. With our outstanding debt, we are exposed to various forms of market risk, including the potential losses arising from adverse changes in interest rates on our outstanding 2020 Term Loans. See “Note 4 – Debt” in the Notes to the Unaudited Condensed Consolidated Financial Statements for further information. A hypothetical increase or decrease in the interest rate by 1 percentage point would result in an increase or decrease in annual interest expense by approximately $15.5 million.

We currently carry debt that relies on one-month LIBOR as the benchmark rate. The one-month LIBOR is expected to cease publication after June 30, 2023. To the extent the one-month LIBOR ceases to exist, the 2020 Term Loans and 2020 Revolving Credit Facility agreements contemplate an alternative benchmark rate without the need for any amendment thereto.

We maintain an investment policy that requires minimum credit ratings, diversification of credit risk and limits the long-term interest rate risk by requiring effective maturities of generally less than five years. We invest our excess cash primarily in highly liquid debt instruments of the U.S. government and its agencies, money market mutual funds, corporate debt securities and municipal debt securities that are classified as available-for-sale and time deposits. These investments are recorded on our condensed consolidated balance sheets at fair market value with their related unrealized gain or loss reflected as a component of accumulated other comprehensive income (loss) in the unaudited condensed consolidated statement of stockholders’ equity. Investments in both fixed rate and floating rate interest earning securities carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than predicted if interest rates fall. There were no such investments on hand at April 30, 2022, aside from cash and cash equivalents.

Foreign Currency Exchange Risk. All of our sales and the majority of our expenses are denominated in U.S. dollars. Since we operate in many countries, a percentage of our international operational expenses are denominated in foreign currencies and exchange volatility could positively or negatively impact those operating costs. Increases in the value of the U.S. dollar relative to other currencies could make our products more expensive, which could negatively impact our ability to compete. Conversely, decreases in the value of the U.S. dollar relative to other currencies could result in our suppliers raising their prices to continue doing business with us. Additionally, we may hold certain assets and liabilities, including potential tax liabilities, in local currency on our consolidated balance sheet. These tax liabilities would be settled in local currency. Therefore, foreign exchange gains and losses from remeasuring the tax liabilities are recorded to interest and other income, net. We do not believe that foreign exchange volatility has a material impact on our current business or results of operations. However, fluctuations in currency exchange rates could have a greater effect on our business or results of operations in the future to the extent our expenses increasingly become denominated in foreign currencies.

We may enter into foreign currency forward and option contracts with financial institutions to protect against foreign exchange risks associated with certain existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows and net investments in foreign subsidiaries. However, we may choose not to hedge certain foreign exchange exposures for a variety of reasons, including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures.

To provide an assessment of the foreign currency exchange risk associated with our foreign currency exposures within operating expense, we performed a sensitivity analysis to determine the impact that an adverse change in exchange rates would have on our financial statements. If the U.S. dollar weakened by 10%, our operating expense could increase by approximately 2%.

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Item 4. Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

Management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Disclosure controls and procedures 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 rules and forms of the SEC and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of April 30, 2022.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the three months ended April 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. While our offices around the world generally remain open to enable critical on-site business functions in accordance with local government guidelines, in response to the COVID-19 pandemic we modified our workplace practices globally, which resulted in many of our employees working remotely for extended periods of time. As a result, many of our employees have expressed a preference to continue to work from home two to three days a week post-pandemic. In response, we adopted a hybrid work policy where most employees split their time between home and the office. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness. We believe that our internal controls over financial reporting are being executed effectively and continue to be effective.

Inherent Limitation on Effectiveness of Controls

Our management, including our principal executive officer and our principal financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information under the caption “Contingencies and Legal Proceedings” as set forth in “Note 5 – Commitments and Contingencies” of our Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1, is incorporated herein by reference. For additional discussion of certain risks associated with legal proceedings, see Part II, Item 1A, “Risk Factors,” immediately below.

Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the material risks and uncertainties described below and all information contained in this report before you decide to purchase our common stock. Many of these risks and uncertainties are beyond our control, including business cycles and seasonal trends of the computing, infrastructure, semiconductor and related industries and end markets. A manifestation of any of the following risks and uncertainties could, in circumstances, we may or may not be able to accurately predict, render us unable to conduct our business as currently planned and materially and adversely affect our reputation, business prospects, financial condition, cash flow, liquidity and operating results. In addition, the trading price of our common stock could decline due to the occurrence of any of these risks, and you could lose all or part of your investment. It is not possible to predict or identify all such risks and uncertainties; our operations could also be affected by risks or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations. Therefore, you should not consider the following discussion to be a complete statement of all the potential risks or uncertainties that we face.

SUMMARY OF FACTORS THAT MAY AFFECT OUR FUTURE RESULTS

The following summarizes the principal factors that make an investment in the Company speculative or risky. This summary should be read in conjunction with the remainder of this “Risk Factors” section and should not be relied upon as an exhaustive summary of the material risks facing our business. The occurrence of any of these risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. You should consider all of the risk factors described in our public filings when evaluating our business.

•risks related to the impact of the COVID-19 pandemic or other future pandemics, on the global economy and on our customers, suppliers, employees and business;

•risks related to our ability to scale our business;

•risks related to the extension of lead time due to supply chain disruptions, component shortages that impact the costs and production of our products and kitting process, and constrained availability from other electronic suppliers impacting our customers' ability to ship their products, which in turn may adversely impact our sales to those customers;

•risks related to changes in general economic conditions such as economic slowdowns, inflation, stagflation, and recessions or political conditions, such as the tariffs and trade restrictions with China, Russia and other foreign nations, and specific conditions in the end markets we address, including the continuing volatility in the technology sector and semiconductor industry;