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~~July 26, 2020



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

For the transition period from to

Commission File Number 001-06395

____________________________________

SEMTECH ~~CORPORATION~~CORPORATION

(Exact name of registrant as specified in its charter)

____________________________________



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

200 Flynn Road,, Camarillo,, California,, 93012-8790

(Address of principal executive offices, Zip Code)

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock par value $0.01 per share

SMTC

The Nasdaq Global Select Market

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

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

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

Large accelerated filer

Accelerated filer

☐

~~Large accelerated~~Non-accelerated filer

☐

~~Accelerated filer~~

Smaller reporting company

☐

~~Non-accelerated filer~~

☐

~~Smaller reporting company~~

☐

Emerging growth company

☐

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

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

Number of shares of common stock, $0.01 par value per share, outstanding at ~~May 22,~~August 21, 2020: ~~65,150,813~~

65,162,169

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

Special Note Regarding Forward-Looking and Cautionary Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on our current expectations, estimates and projections about our operations, industry, financial condition, performance, results of operations, and liquidity. Forward-looking statements are statements other than historical information or statements of current condition and relate to matters such as future financial performance, future operational performance, the anticipated impact of specific items on future earnings, and our plans, objectives and expectations. Statements containing words such as "may," "believe," "anticipate," "expect," "intend," "plan," "project," "estimate," "should," "will," "designed to," "projections," or "business outlook," or other similar expressions constitute forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that could cause actual results and events to differ materially from those projected. Potential factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: the uncertainty surrounding the impact and duration of the ~~novel coronavirus (“COVID-19”)~~COVID-19 pandemic on global economic conditions and on the Company’s business and results of operations; export restrictions and laws affecting the Company’s trade and investments including with respect to Huawei and certain of its affiliates, and tariffs or the occurrence of trade wars; competitive changes in the marketplace including, but not limited to, the pace of growth or adoption rates of applicable products or technologies; downturns in the business cycle; decreased average selling prices of the Company’s products; the Company’s reliance on a limited number of suppliers and subcontractors for components and materials; changes in projected or anticipated end-user markets; ~~and~~ the Company’s ability to forecast its effective tax rates due to changing income in higher or lower tax jurisdictions and other factors that contribute to the volatility of the Company’s effective tax rates and impact anticipated tax ~~benefits.~~benefits; and the Company's ability to forecast and achieve anticipated net sales and earnings estimates in light of periodic economic uncertainty, to include impacts arising from Asian, European, and global economic dynamics. Additionally, forward-looking statements should be considered in conjunction with the cautionary statements contained in this Quarterly Report on Form 10-Q, including, without limitation, information under the captions "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" and additional factors that accompany the related forward-looking statements in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the fiscal year ended January 26, 2020 including, without limitation, information under the caption "Risk Factors," in our other filings with the U.S. Securities and Exchange Commission (“SEC”), and in material incorporated herein and therein by reference. In light of the significant risks and uncertainties inherent in the forward-looking information included herein that may cause actual performance and results to differ materially from those predicted, any such forward-looking information should not be regarded as representations or guarantees by the Company of future performance or results, or that its objectives or plans will be achieved, or that any of its operating expectations or financial forecasts will be realized. Reported results should not be considered an indication of future performance. Investors are cautioned not to place undue reliance on any forward-looking information contained herein, which reflect management’s analysis only as of the date hereof. Except as required by law, the Company assumes no obligation to publicly release the results of any update or revision to any forward-looking statement that may be made to reflect new information, events or circumstances after the date hereof or to reflect the occurrence of unanticipated or future events, or otherwise.

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

PART I - FINANCIAL INFORMATION


~~ITEM 1.~~	~~Financial Statements~~

ITEM 1.Financial Statements

SEMTECH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)


	Three Months Ended							Three Months Ended						Six Months Ended
	April 26, 2020			April 28, 2019				July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019
Net sales	$	132,702		$	131,354		Net sales	$	143,660	$	137,146	$	276,362	$	268,500
Cost of sales	51,941			50,079			Cost of sales	55,409		52,262		107,350		102,341
Gross profit	80,761			81,275			Gross profit	88,251		84,884		169,012		166,159
Operating costs and expenses:							Operating costs and expenses:
Selling, general and administrative	34,600			38,972			Selling, general and administrative	38,255		43,325		72,855		82,297
Product development and engineering	27,586			27,154			Product development and engineering	29,220		25,882		56,806		53,036
Intangible amortization	2,840			5,143			Intangible amortization	2,020		3,908		4,860		9,051

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

Total operating costs and expenses	64,993			69,108			Total operating costs and expenses	69,495		73,115		134,488		142,223
Operating income	15,768			12,167			Operating income	18,756		11,769		34,524		23,936
Interest expense	(1,559		)	(2,467		)	Interest expense	(1,252)		(2,597)		(2,811)		(5,064)
Non-operating income, net	423			1,043
Non-operating (expense) income, net							Non-operating (expense) income, net	(176)		1,213		247		2,256
Investment impairments and credit loss reserves	(3,630		)	—			Investment impairments and credit loss reserves	(1,485)		—		(5,115)		—
Income before taxes and equity in net losses of equity method investments	11,002			10,743
Provision (benefit) for income taxes	1,359			(2,416		)
Net income before equity in net losses of equity method investments	9,643			13,159
Equity in net losses of equity method investments	(11		)	(411		)
Income before taxes and equity in net (losses) gains of equity method investments							Income before taxes and equity in net (losses) gains of equity method investments	15,843		10,385		26,845		21,128
(Benefit) provision for income taxes							(Benefit) provision for income taxes	(416)		8,361		943		5,945
Net income before equity in net (losses) gains of equity method investments							Net income before equity in net (losses) gains of equity method investments	16,259		2,024		25,902		15,183
Equity in net (losses) gains of equity method investments							Equity in net (losses) gains of equity method investments	(137)		168		(148)		(243)
Net income	9,632			12,748			Net income	16,122		2,192		25,754		14,940
Net loss attributable to noncontrolling interest	(3		)	—			Net loss attributable to noncontrolling interest	(3)		—		(6)		—
Net income attributable to common stockholders	$	9,635		$	12,748		Net income attributable to common stockholders	$	16,125	$	2,192	$	25,760	$	14,940
Earnings per share:							Earnings per share:
Basic	$	0.15		$	0.19		Basic	$	0.25	$	0.03	$	0.39	$	0.23
Diluted	$	0.15		$	0.19		Diluted	$	0.24	$	0.03	$	0.39	$	0.22
Weighted-average number of shares used in computing earnings per share:							Weighted-average number of shares used in computing earnings per share:
Basic	65,589			66,105			Basic	65,084		66,519		65,337		66,312
Diluted	66,174			67,976			Diluted	66,004		67,746		66,099		67,814

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

SEMTECH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	Three Months Ended							Three Months Ended						Six Months Ended
	April 26, 2020			April 28, 2019				July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019
Net income	$	9,632		$	12,748		Net income	$	16,122	$	2,192	$	25,754	$	14,940
Other comprehensive loss, net:							Other comprehensive loss, net:
Unrealized loss on foreign currency cash flow hedges, net	(121		)	(51		)
Reclassifications of realized gain on foreign currency cash flow hedges, net to net income	—			(29		)
Unrealized gain (loss) on foreign currency cash flow hedges, net							Unrealized gain (loss) on foreign currency cash flow hedges, net	479		(229)		358		(280)
Reclassifications of realized loss on foreign currency cash flow hedges, net to net income							Reclassifications of realized loss on foreign currency cash flow hedges, net to net income	6		38		6		9
Unrealized loss on interest rate cash flow hedges, net	(1,303		)	—			Unrealized loss on interest rate cash flow hedges, net	(317)		—		(1,620)		—
Reclassifications of realized gain on interest rate cash flow hedges, net to net income	(21		)	—
Reclassifications of realized loss on interest rate cash flow hedges, net to net income							Reclassifications of realized loss on interest rate cash flow hedges, net to net income	94		—		73		—
Unrealized gain on available-for-sale securities	253			—			Unrealized gain on available-for-sale securities	133		—		386		—
Reclassification of realized gain on available-for-sale securities, net to net income							Reclassification of realized gain on available-for-sale securities, net to net income	(757)		—		(757)		—
Change in defined benefit plans, net	186			68			Change in defined benefit plans, net	193		69		379		137

Other comprehensive loss, net	(1,006		)	(12		)	Other comprehensive loss, net	(169)		(122)		(1,175)		(134)
Comprehensive income	8,626			12,736			Comprehensive income	15,953		2,070		$	24,579	$	14,806
Comprehensive loss attributable to noncontrolling interest	(3		)	—			Comprehensive loss attributable to noncontrolling interest	(3)		—		(6)		—
Comprehensive income attributable to common stockholders	$	8,629		$	12,736		Comprehensive income attributable to common stockholders	$	15,956	$	2,070	$	24,585	$	14,806

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

SEMTECH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)


	April 26, 2020			January 26, 2020				July 26, 2020		January 26, 2020
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	268,947		$	293,324		Cash and cash equivalents	$	281,456	$	293,324
Accounts receivable, less allowances of $515 and $633, respectively	49,451			61,927
Accounts receivable, less allowances of $529 and $633, respectively							Accounts receivable, less allowances of $529 and $633, respectively	51,672		61,927
Inventories	76,933			73,010			Inventories	77,548		73,010
Prepaid taxes	13,543			10,718			Prepaid taxes	20,990		10,718
Other current assets	23,430			21,757			Other current assets	22,205		21,757
Total current assets	432,304			460,736			Total current assets	453,871		460,736
Non-current assets:							Non-current assets:
Property, plant and equipment, net of accumulated depreciation of $220,398 and $214,787, respectively	125,731			124,418
Property, plant and equipment, net of accumulated depreciation of $225,807 and $214,787, respectively							Property, plant and equipment, net of accumulated depreciation of $225,807 and $214,787, respectively	125,542		124,418
Deferred tax assets	20,754			20,094			Deferred tax assets	26,929		20,094
Goodwill	351,141			351,141			Goodwill	351,141		351,141
Other intangible assets, net	17,172			20,012			Other intangible assets, net	15,152		20,012
Other assets	76,248			76,032			Other assets	81,396		76,032
TOTAL ASSETS	$	1,023,350		$	1,052,433		TOTAL ASSETS	$	1,054,031	$	1,052,433
Liabilities and Equity							Liabilities and Equity
Current liabilities:							Current liabilities:
Accounts payable	$	43,337		$	48,009		Accounts payable	$	39,319	$	48,009
Accrued liabilities	48,289			50,632			Accrued liabilities	62,753		50,632
Total current liabilities	91,626			98,641			Total current liabilities	102,072		98,641
Non-current liabilities:							Non-current liabilities:
Deferred tax liabilities	3,600			3,600			Deferred tax liabilities	3,735		3,600
Long term debt	190,840			194,743			Long term debt	186,955		194,743
Other long-term liabilities	75,567			78,249			Other long-term liabilities	83,536		78,249

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

Stockholders’ equity:							Stockholders’ equity:
Common stock, $0.01 par value, 250,000,000 shares authorized, 78,136,144 issued and 65,132,030 outstanding and 78,136,144 issued and 65,758,115 outstanding, respectively	785			785
Treasury stock, at cost, 13,004,114 shares and 12,378,029 shares, respectively	(414,028		)	(387,851		)
Common stock, $0.01 par value, 250,000,000 shares authorized, 78,136,144 issued and 65,019,501 outstanding and 78,136,144 issued and 65,758,115 outstanding, respectively							Common stock, $0.01 par value, 250,000,000 shares authorized, 78,136,144 issued and 65,019,501 outstanding and 78,136,144 issued and 65,758,115 outstanding, respectively	785		785
Treasury stock, at cost, 13,116,643 shares and 12,378,029 shares, respectively							Treasury stock, at cost, 13,116,643 shares and 12,378,029 shares, respectively	(424,095)		(387,851)
Additional paid-in capital	460,961			458,579			Additional paid-in capital	471,091		458,579
Retained earnings	620,928			611,607			Retained earnings	637,053		611,607
Accumulated other comprehensive loss	(7,172		)	(6,166		)	Accumulated other comprehensive loss	(7,341)		(6,166)
Total stockholders’ equity	661,474			676,954			Total stockholders’ equity	677,493		676,954

Noncontrolling interest	243			246			Noncontrolling interest	240		246
Total equity	661,717			677,200			Total equity	677,733		677,200
TOTAL LIABILITIES AND EQUITY	$	1,023,350		$	1,052,433		TOTAL LIABILITIES AND EQUITY	$	1,054,031	$	1,052,433

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

SEMTECH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)


	Three Months Ended July 26, 2020
	Common Stock											Accumulated Other Comprehensive Loss
	Number of Shares Outstanding	Amount		Treasury Stock, at Cost		Additional Paid-in Capital		Retained Earnings						Stockholders’ Equity			Noncontrolling Interest			Total Equity
Balance at April 26, 2020	65,132,030	$	785	$	(414,028)	$	460,961	$	620,928	$	(7,172)	$	661,474		$	243		$	661,717

Net income	—	—		—		—		16,125		—		16,125			(3)			16,122
Other comprehensive loss	—	—		—		—		—		(169)		(169)			—			(169)
Share-based compensation	—	—		—		11,343		—		—		11,343			—			11,343
Repurchase of common stock	(232,871)	—		(12,387)		—		—		—		(12,387)			—			(12,387)
Treasury stock reissued	120,342	—		2,320		(1,213)		—		—		1,107			—			1,107
Balance at July 26, 2020	65,019,501	$	785	$	(424,095)	$	471,091	$	637,053	$	(7,341)	$	677,493		$	240		$	677,733

Three Months Ended April 26, 2020
Common Stock Accumulated Other Comprehensive Loss
Number of Shares Outstanding Amount Treasury Stock Additional Paid-in Capital Retained Earnings Stockholders’ Equity Noncontrolling Interest Total Equity
Balance at January 26, 2020 65,758,115
$ 785
$ (387,851 ) $ 458,579
$ 611,607
$ (6,166 ) $ 676,954
$ 246
$ 677,200
Cumulative-effect adjustment to beginning balance from adoption of ASU 2016-13 —
—
—
—
(314 ) —
(314 ) —
(314 )
Net income —
—
—
—
9,635
—
9,635
(3 ) 9,632
Other comprehensive loss —
—
—
—
—
(1,006 ) (1,006 ) —
(1,006 )
Share-based compensation —
—
—
11,081
—
—
11,081
—
11,081
Repurchase of common stock (855,042 ) —
(30,000 ) —
—
—
(30,000 ) —
(30,000 )
Treasury stock reissued 228,957
—
3,823
(8,699 ) —
—
(4,876 ) —
(4,876 )
Balance at April 26, 2020 65,132,030
$ 785
$ (414,028 ) $ 460,961
$ 620,928
$ (7,172 ) $ 661,474
$ 243
$ 661,717


																													Six Months Ended July 26, 2020
	Three Months Ended April 28, 2019																												Common Stock
	Common Stock												Accumulated Other Comprehensive Loss																Number of Shares Outstanding	Amount		Treasury Stock, at Cost		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Stockholders’ Equity		Noncontrolling Interest		Total Equity
	Number of Shares Outstanding		Amount		Treasury Stock			Additional Paid-in Capital			Retained Earnings					Stockholders’ Equity				Noncontrolling Interest				Total Equity
Balance at January 27, 2019	65,238,255		$	785	$	(346,218	)	$	451,884		$	579,736		$	(3,607	)		$	682,580			$	—			$	682,580
Balance at January 26, 2020																												Balance at January 26, 2020	65,758,115	$	785	$	(387,851)	$	458,579	$	611,607	$	(6,166)	$	676,954	$	246	$	677,200
Cumulative-effect adjustment to beginning balance from adoption of ASU 2016-13																												Cumulative-effect adjustment to beginning balance from adoption of ASU 2016-13	—	—		—		—		(314)		—		(314)		—		(314)
Net income	—		—		—			—			12,748		—				12,748				—				12,748			Net income	—	—		—		—		25,760		—		25,760		(6)		25,754
Other comprehensive loss	—		—		—			—			—		(12		)		(12		)		—				(12		)	Other comprehensive loss	—	—		—		—		—		(1,175)		(1,175)		—		(1,175)

Share-based compensation	—		—		—			11,014			—		—				11,014				—				11,014			Share-based compensation	—	—		—		22,424		—		—		22,424		—		22,424
Repurchase of common stock	(2,211	)	—		(110		)	—			—		—				(110		)		—				(110		)	Repurchase of common stock	(1,087,913)	—		(42,387)		—		—		—		(42,387)		—		(42,387)
Treasury stock reissued	1,408,877		—		18,886			(29,877		)	—		—				(10,991		)		—				(10,991		)	Treasury stock reissued	349,299	—		6,143		(9,912)		—		—		(3,769)		—		(3,769)
Balance at April 28, 2019	66,644,921		$	785	$	(327,442	)	$	433,021		$	592,484	$	(3,619	)		$	695,229			$	—			$	695,229
Balance at July 26, 2020																												Balance at July 26, 2020	65,019,501	$	785	$	(424,095)	$	471,091	$	637,053	$	(7,341)	$	677,493	$	240	$	677,733

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

SEMTECH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(in thousands, except share data)

(unaudited)


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

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


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

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

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

SEMTECH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three Months Ended							Six Months Ended
	April 26, 2020			April 28, 2019				July 26, 2020		July 28, 2019
Cash flows from operating activities:							Cash flows from operating activities:
Net income	$	9,632		$	12,748		Net income	$	25,754	$	14,940
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,541			10,824			Depreciation and amortization	16,281		20,543
Investment impairments and credit loss reserves	3,630			—			Investment impairments and credit loss reserves	5,115		—
Accretion of deferred financing costs and debt discount	121			125			Accretion of deferred financing costs and debt discount	242		247

Deferred income taxes	(184		)	122			Deferred income taxes	(6,209)		2,544
Share-based compensation	9,379			11,978			Share-based compensation	22,565		24,403
Gain on disposition of assets	—			(106		)
(Gain) loss on disposition of assets							(Gain) loss on disposition of assets	(20)		426
Changes in the fair value of contingent earn-out obligations	(33		)	(2,161		)	Changes in the fair value of contingent earn-out obligations	(33)		(2,161)
Equity in net losses of equity method investments	11			411			Equity in net losses of equity method investments	148		243

Corporate owned life insurance, net	(175		)	1,025			Corporate owned life insurance, net	2,030		756
Changes in assets and liabilities:							Changes in assets and liabilities:
Accounts receivable, net	12,476			12,764			Accounts receivable, net	10,255		20,580
Inventories	(3,923		)	(9,801		)	Inventories	(4,538)		(11,381)
Other assets	(3,207		)	598			Other assets	(3,798)		(6,950)
Accounts payable	(2,860		)	(1,639		)	Accounts payable	(5,820)		(2,256)
Accrued liabilities	(5,466		)	(26,671		)	Accrued liabilities	543		(18,041)
Income taxes payable	—			(2,105		)	Income taxes payable	—		(2,105)
Other liabilities	(1,859		)	(1,371		)	Other liabilities	784		(1,695)
Net cash provided by operating activities	26,083			6,741			Net cash provided by operating activities	63,299		40,093
Cash flows from investing activities:							Cash flows from investing activities:

Proceeds from sales of property, plant and equipment	—			113			Proceeds from sales of property, plant and equipment	20		143
Purchase of property, plant and equipment	(7,672		)	(15,258		)	Purchase of property, plant and equipment	(14,640)		(16,893)
Purchase of investments	(3,888		)	(625		)	Purchase of investments	(6,688)		(7,692)

Proceeds from sale of investments							Proceeds from sale of investments	327		—
Net cash used in investing activities	(11,560		)	(15,770		)	Net cash used in investing activities	(20,981)		(24,442)
Cash flows from financing activities:							Cash flows from financing activities:

Payments of term loans	—			(4,688		)	Payments of term loans	—		(9,375)

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

Payment for employee share-based compensation payroll taxes	(5,764		)	(12,372		)	Payment for employee share-based compensation payroll taxes	(6,750)		(13,401)
Proceeds from exercise of stock options	888			1,381			Proceeds from exercise of stock options	2,981		2,954
Repurchase of common stock	(30,000		)	(110		)	Repurchase of common stock	(42,387)		(20,110)

Net cash used in financing activities	(38,900		)	(15,789		)	Net cash used in financing activities	(54,186)		(39,932)
Net decrease in cash and cash equivalents	(24,377		)	(24,818		)	Net decrease in cash and cash equivalents	(11,868)		(24,281)
Cash and cash equivalents at beginning of period	293,324			312,120			Cash and cash equivalents at beginning of period	293,324		312,120
Cash and cash equivalents at end of period	$	268,947		$	287,302		Cash and cash equivalents at end of period	$	281,456	$	287,839
Supplemental disclosure of cash flow information
Supplemental disclosure of cash flow information:							Supplemental disclosure of cash flow information:
Interest paid	$	1,570		$	2,212		Interest paid	$	2,664	$	4,348
Income taxes paid	$	3,866		$	1,730		Income taxes paid	$	4,632	$	7,580
Non-cash investing and financing activities:							Non-cash investing and financing activities:
Accounts payable related to capital expenditures	$	2,435		$	1,193		Accounts payable related to capital expenditures	$	1,377	$	2,024

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

SEMTECH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Organization and Basis of Presentation

Nature of Business

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

Fiscal Year

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

Principles of Consolidation

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

Use of Estimates

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

Correction of Immaterial Errors

Recently Adopted Accounting Guidance

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

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

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

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

Note 2: Earnings per Share

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

Three Months Ended
(in thousands, except per share data) April 26, 2020 April 28, 2019
Net income attributable to common stockholders $ 9,635
$ 12,748

Weighted-average common shares outstanding–basic 65,589
66,105
Dilutive effect of share-based compensation 585
1,871
Weighted-average common shares outstanding–diluted 66,174
67,976

Basic earnings per common share $ 0.15
$ 0.19
Diluted earnings per common share $ 0.15
$ 0.19

Anti-dilutive shares not included in the above calculations 405
500


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

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

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

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

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

Note 3: Share-Based Compensation

Financial Statement Effects and Presentation

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

Three Months Ended
(in thousands) April 26, 2020 April 28, 2019
Cost of sales $ 530
$ 427
Selling, general and administrative 5,959
8,939
Product development and engineering 2,890
2,612
Total share-based compensation $ 9,379
$ 11,978


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

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

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

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

Restricted Stock Units, Employees

The Company grants restricted stock units to certain employees, which are expected to be settled with shares of the Company's common stock. The grant date for these awards is equal to the measurement date. These awards are valued as of the measurement date, based on the fair value of the Company's common stock at the grant date, and recognized as share-based compensation expense over the requisite vesting period (typically 4 years). In the ~~first quarter of fiscal year 2021,~~six months ended July 26, 2020, the Company granted ~~180,788~~255,370 restricted stock units to employees.

Restricted Stock Units, Non-Employee Directors

The Company maintains a compensation program pursuant to which restricted stock units are granted to the Company’s directors that are not employed by the Company or any of its subsidiaries. Under the Company's director compensation program, a portion of the restricted stock units granted under the program will be settled in cash and a portion will be settled in shares of the Company's common stock. Restricted stock units awarded under the program are scheduled to vest on the earlier of (i) one year after the grant date or (ii) the day immediately preceding the annual meeting of stockholders in the year following the grant. The portion of a restricted stock unit award under the program that is to be settled in cash will, subject to vesting, be settled when the director who received the award separates from the board of directors. The portion of a restricted stock unit award under the program that is to be settled in shares of the Company's common stock will, subject to vesting, be settled promptly following vesting. In the six months ended July 26, 2020, the Company granted 12,536 restricted stock units that settle in cash and 10,968 restricted stock units that settle in shares.

Note 4: Available-for-sale securities

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

April 26, 2020 January 26, 2020
(in thousands) Fair Value
Amortized
Cost

Gross
Unrealized Gain/(Loss)
Fair Value
Amortized
Cost
Gross
Unrealized Gain/(Loss)
Convertible debt $ 9,481
$ 9,519
$ (38 ) $ 10,700
$ 8,715
$ 1,985
Total available-for-sale securities $ 9,481
$ 9,519
$ (38 ) $ 10,700
$ 8,715
$ 1,985


	July 26, 2020										January 26, 2020
(in thousands)	Fair Value		Amortized Cost		Gross Unrealized Gain/(Loss)		Fair Value		Amortized Cost		Gross Unrealized Gain/(Loss)
Convertible debt	$	10,638	$	11,042	$	(404)	$	10,700	$	8,715	$	1,985
Total available-for-sale securities	$	10,638	$	11,042	$	(404)	$	10,700	$	8,715	$	1,985

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

April 26, 2020 January 26, 2020
(in thousands) Fair Value Amortized Cost Fair Value Amortized Cost
Within 1 year $ 9,016
$ 8,760
$ 10,200
$ 8,215
After 1 year through 5 years 465
759
500
500
Total available-for-sale securities $ 9,481
$ 9,519
$ 10,700
$ 8,715


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

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

Note 5: Fair Value Measurements

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

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

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

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

Instruments Measured at Fair Value on a Recurring Basis

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

Fair Value as of April 26, 2020 Fair Value as of January 26, 2020
(in thousands) Total (Level 1) (Level 2) (Level 3) Total (Level 1) (Level 2) (Level 3)
Financial assets:
Convertible debt $ 9,481
$ —
$ —
$ 9,481
$ 10,700
$ —
$ —
$ 10,700
Total financial assets $ 9,481
$ —
$ —
$ 9,481
$ 10,700
$ —
$ —
$ 10,700

Financial liabilities:
Cycleo Earn-out $ 1,958
$ —
$ —
$ 1,958
$ 2,108
$ —
$ —
$ 2,108
Foreign currency forward contracts 148
—
148
—
—
—
—
—
Interest rate swap agreement 1,687
—
1,687
—
—
—
—
—
Total financial liabilities $ 3,793
$ —
$ 1,835
$ 1,958
$ 2,108
$ —
$ —
$ 2,108


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

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

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

Interest rate swap agreement	1,971		—		1,971		—		—		—		—		—
Total financial liabilities	$	3,929	$	—	$	1,971	$	1,958	$	2,108	$	—	$	—	$	2,108

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

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

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

(in thousands)
Balance at January 26, 2020 $ 10,700
Additions 550
Increase in credit loss reserve (2,022 )
Interest accrued 253
Balance at April 26, 2020 $ 9,481


(in thousands)
Balance at January 26, 2020	$	10,700
Additions	1,850

Increase in credit loss reserve	(2,389)
Interest accrued	477
Balance at July 26, 2020	$	10,638

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

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

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

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

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

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

(in thousands)
Balance at January 26, 2020 $ 2,108
Changes in the fair value of contingent earn-out obligations (33 )
Changes in the fair value of non-contingent earn-out obligations (117 )
Balance at April 26, 2020 $ 1,958


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

Balance at July 26, 2020	$	1,958

Instruments Not Recorded at Fair Value on a Recurring Basis

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

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

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

Investment Impairments and Credit Loss Reserves

Upon the adoption of ASU 2016-13, the Company recorded expected credit loss reserves of $0.4 million related to its held-to-maturity debt securities. During the ~~first quarter of fiscal year 2021,~~three and six months ended July 26, 2020, the Company increased its expected credit loss reserves by ~~$2.0~~zero and $2.4 million, ~~and $0.4 million~~respectively, for ~~its available-for-sale debt securities and~~ its held-to-maturity debt securities ~~respectively.~~and available-for-sale debt securities. These increases were, in-part, due to the impact of the COVID-19 pandemic on early-stage development companies. The total credit loss reserve for the Company's available-for-sale debt securities and held-to-maturity debt securities was ~~$2.8~~$2.9 million as of ~~April~~July 26, 2020. In addition, during the ~~first quarter of fiscal year 2021,~~three and six months ended July 26, 2020, the Company recorded ~~$1.2~~$1.7 million and $2.9 million, respectively, of impairments on its non-marketable equity ~~securities.~~securities as the Company determined that these investments were other than temporarily impaired. During the ~~first quarter of fiscal year 2020,~~three and six months ended July 28, 2019, there were no impairments on the Company's non-marketable equity securities, held-to-maturity debt investments, or available-for-sale debt securities.

Note 6: Inventories

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


(in thousands)	July 26, 2020		January 26, 2020
Raw materials	$	2,957	$	2,223
Work in progress	50,714		50,640
Finished goods	23,877		20,147
Inventories	$	77,548	$	73,010

(in thousands) April 26, 2020 January 26, 2020
Raw materials $ 2,260
$ 2,223
Work in progress 53,692
50,640
Finished goods 20,981
20,147
Inventories $ 76,933
$ 73,010

Note 7: Goodwill and Intangible Assets

Goodwill

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

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


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

Balance at July 26, 2020	$	274,085	$	72,128	$	4,928	$	351,141

Goodwill is not amortized, but is tested for impairment at the reporting unit level using either a qualitative or quantitative assessment on an annual basis during the fourth quarter of each fiscal year, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair market value of the reporting unit. As of ~~April~~July 26, 2020, there was no indication of impairment of the Company's goodwill balances.

Purchased Intangibles

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


		July 26, 2020										January 26, 2020
(in thousands, except estimated useful life)	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Core technologies	3-8 years	$	43,300	$	(28,148)	$	15,152	$	82,857	$	(63,434)	$	19,423
Customer relationships		—		—		—		6,000		(5,411)		589


Total finite-lived intangible assets		$	43,300	$	(28,148)	$	15,152	$	88,857	$	(68,845)	$	20,012

April 26, 2020 January 26, 2020
(in thousands)
Estimated
Useful Life

Gross
Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount
Core technologies 3-8 years $ 43,300
$ (26,350 ) $ 16,950
$ 82,857
$ (63,434 ) $ 19,423
Customer relationships 3 years 4,000
(3,778 ) 222
6,000
(5,411 ) 589
Total finite-lived intangible assets $ 47,300
$ (30,128 ) $ 17,172
$ 88,857
$ (68,845 ) $ 20,012

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


	Three Months Ended					Three Months Ended						Six Months Ended
(in thousands)	April 26, 2020		April 28, 2019		(in thousands)	July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019
Core technologies	$	2,473	$	4,160	Core technologies	$	1,798	$	3,475	$	4,271	$	7,634
Customer relationships	367		983		Customer relationships	222		433		589		1,417
Total amortization expense	$	2,840	$	5,143	Total amortization expense	$	2,020	$	3,908	$	4,860	$	9,051

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


(in thousands)
Fiscal Year Ending:
Fiscal year 2021 (remaining six months)	$	3,406
Fiscal year 2022	4,942
Fiscal year 2023	4,002
Fiscal year 2024	1,676
Fiscal year 2025	287
Thereafter	839
Total expected amortization expense	$	15,152

(in thousands)
Fiscal Year Ending: Core Technologies Customer Relationships Total
Fiscal year 2021 (remaining nine months) $ 5,204
$ 222
$ 5,426
Fiscal year 2022 4,942
—
4,942
Fiscal year 2023 4,002
—
4,002
Fiscal year 2024 1,676
—
1,676
Fiscal year 2025 287
—
287
Thereafter 839
—
839
Total expected amortization expense $ 16,950
$ 222
$ 17,172

Note 8: Long-Term Debt

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

Balance as of
(in thousands) April 26, 2020 January 26, 2020
Revolving loans $ 193,000
$ 197,000
Total long-term debt 193,000
197,000
Debt issuance costs (2,160 ) (2,257 )
Total long-term debt, net of debt issuance costs $ 190,840
$ 194,743
Effective interest rate ¹
2.00 % 2.95 %


	Balance as of
(in thousands, except percentages)	July 26, 2020			January 26, 2020
Revolving loans	$	189,000		$	197,000



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

⁽¹⁾As of ~~April~~July 26, 2020, the effective interest rate is a weighted-average rate that represents interest on the first $150.0 million of the debt outstanding at a fixed LIBOR rate of 0.7275% plus a margin of 1.25% (total fixed rate of 1.9775%), and the remainder of the debt outstanding at a variable rate based on the one-month LIBOR rate, which was ~~0.83%~~0.19% as of ~~April~~July 26, 2020, plus a margin of 1.25% (total variable rate of ~~2.08%~~1.44%). As of January 26, 2020, the interest rate was a variable rate based on the one-month LIBOR rate, which was 1.7% as of January 26, 2020, plus a margin of 1.25% (total variable rate of 2.95%).

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

As of ~~April~~July 26, 2020, the Company had $189.0 million outstanding under its Credit Facility, which had $411.0 million of undrawn borrowing capacity, and the Company was in compliance with the financial covenants required under the Credit Facility.

As of April 26, 2020, the Company had $193.0 million outstanding under its Credit Facility, which had $407.0 million of undrawn borrowing capacity. The outstanding borrowings are due at maturity on November 7, 2024.

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

Three Months Ended
(in thousands) April 26, 2020 April 28, 2019
Contractual interest $ 1,438
$ 2,342
Amortization of debt discount and issuance costs 121
125
Total interest expense $ 1,559
$ 2,467


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

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

Note 9: Income Taxes

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

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

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

(in thousands)
Balance at January 26, 2020 $ 25,466
Additions/(decreases) based on tax positions related to the current fiscal year (77 )
Balance at April 26, 2020 $ 25,389


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

Balance at July 26, 2020	$	26,994

Included in the balance of gross unrecognized tax benefits at ~~April~~July 26, 2020 and January 26, 2020 are ~~$8.4~~$9.5 million and $8.6 million, respectively, of net tax benefits (after the federal impact of state items), that, if recognized, would impact the effective tax rate, prior to consideration of any required valuation allowance.

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

(in thousands) April 26, 2020 January 26, 2020
Deferred tax assets - non-current $ 15,626
$ 15,575
Other long-term liabilities 8,424
8,555
Total accrued taxes $ 24,050
$ 24,130


(in thousands)	July 26, 2020		January 26, 2020
Deferred tax assets - non-current	$	16,113	$	15,575
Other long-term liabilities	9,539		8,555
Total accrued taxes	$	25,652	$	24,130

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

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

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


	Three Months Ended							Three Months Ended						Six Months Ended
(in thousands)	April 26, 2020			April 28, 2019			(in thousands)	July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019
Domestic	$	(6,978	)	$	(9,077	)	Domestic	$	(10,125)	$	(9,902)	$	(17,012)	$	(19,062)
Foreign	17,980			19,820			Foreign	25,968		20,287		43,857		40,190
Total	$	11,002		$	10,743		Total	$	15,843	$	10,385	$	26,845	$	21,128

Note 10: Leases

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

The components of lease expense were as follows:


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

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

Three Months Ended
(in thousands) April 26, 2020 April 28, 2019
Operating lease cost $ 1,177
$ 1,214
Short-term lease cost —
78
Sublease income (33 ) (33 )
Total lease cost $ 1,144
$ 1,259

Supplemental cash flow information related to leases was as follows:


						Six Months Ended
	Three Months Ended
(in thousands)	April 26, 2020		April 28, 2019
(in thousands, except percentage)					(in thousands, except percentage)	July 26, 2020		July 28, 2019
Cash paid for amounts included in the measurement of lease liabilities	$	1,144	$	1,250	Cash paid for amounts included in the measurement of lease liabilities	$	2,283	$	2,560
Right-of-use assets obtained in exchange for new operating lease liabilities	$	6,073	$	—	Right-of-use assets obtained in exchange for new operating lease liabilities	$	8,298	$	25



Weighted-average remaining lease term–operating leases	~~5.5~~5.93 years
Weighted-average discount rate–operating leases	6.8	%

Supplemental balance sheet information related to leases was as follows:

Balance as of
(in thousands) April 26, 2020 January 26, 2020
Operating lease right-of-use assets in "Other assets" $ 15,957
$ 10,958

Operating lease liabilities in "Accrued liabilities" $ 3,894
$ 3,273
Operating lease liabilities in "Other long-term liabilities" 12,703
8,185
Total operating lease liabilities $ 16,597
$ 11,458


	Balance as of
(in thousands)	July 26, 2020		January 26, 2020
Operating lease right-of-use assets in "Other assets"	$	17,206	$	10,958

Operating lease liabilities in "Accrued liabilities"	$	3,870	$	3,273
Operating lease liabilities in "Other long-term liabilities"	14,020		8,185
Total operating lease liabilities	$	17,890	$	11,458

Maturities of lease liabilities as of ~~April~~July 26, 2020 are as follows:


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

(in thousands)
Fiscal Year Ending:
2021 (remaining nine months) $ 3,509
2022 4,062
2023 2,746
2024 2,488
2025 2,365
Thereafter 4,998
Total lease payments 20,168
Less: imputed interest (3,571 )
Total $ 16,597

Note 11: Commitments and Contingencies

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

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

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

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

~~Settlements~~Settlement

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

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

Environmental Matters

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

The Company has accrued liabilities where it is probable that a loss will be incurred and the cost or amount of loss can be reasonably estimated. Based on the latest determinations by the RWQCB and the most recent actions taken pursuant to the remedial action plan, the Company estimates the range of probable loss between ~~$5.9~~$6.4 million and ~~$7.5~~$8.0 million. To date, the Company has made ~~$4.7~~$5.1 million in payments towards the remedial action plan and, as of ~~April~~July 26, 2020, has a remaining accrual of ~~$1.2~~$1.3 million related to this matter. Given the uncertainties associated with environmental assessment and the remediation activities, the Company is unable to determine a best estimate within the range of loss. Therefore, the Company has recorded the minimum amount of probable loss. These estimates could change as a result of changes in planned remedial actions, further actions from the regulatory agency, remediation technology, and other factors.

Indemnification

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

Product Warranties

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

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

Deferred Compensation

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

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

(in thousands) April 26, 2020 January 26, 2020
Accrued liabilities $ 3,522
$ 1,365
Other long-term liabilities 29,858
35,243
Total deferred compensation liabilities under this plan $ 33,380
$ 36,608


(in thousands)	July 26, 2020		January 26, 2020
Accrued liabilities	$	5,054	$	1,365
Other long-term liabilities	32,819		35,243
Total deferred compensation liabilities under this plan	$	37,873	$	36,608

The Company has purchased whole life insurance on the lives of certain current deferred compensation plan participants. This Company-owned life insurance is held in a grantor trust and is intended to cover a majority of the Company's costs of the deferred compensation plan. The cash surrender value of the Company-owned life insurance was ~~$21.5~~$24.1 million and $24.3 million as of ~~April~~July 26, 2020 and January 26, 2020, respectively, and is included in "Other assets" in the Balance Sheets.

Earn-out Liability

Pursuant to the terms of an amended earn-out arrangement ("Cycleo Earn-out") with the former shareholders of Cycleo SAS ("Cycleo Earn-out Beneficiaries"), which the Company acquired in March 2012, the Company must make payments based on the achievement of a combination of certain sales and operating income milestones over the period of April 27, 2015 to April 26, 2020. The Cycleo Earn-out liability as of ~~April~~July 26, 2020 represents management's best estimate of the final payment. For certain of the Cycleo Earn-out Beneficiaries, payment of the earn-out liability is contingent upon continued employment and is accounted for as post-acquisition compensation expense over the service period. The portion of the earn-out liability that is not dependent on continued employment is not considered as compensation expense.

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

(in thousands) April 26, 2020 January 26, 2020
Compensation expense $ 1,713
$ 1,830
Not conditional upon continued employment 245
278
Total liability $ 1,958
$ 2,108

Amount expected to be settled within twelve months $ 1,958

~~On July 1, 2017,~~


(in thousands)	July 26, 2020		January 26, 2020
Compensation expense	$	1,713	$	1,830
Not conditional upon continued employment	245		278

Total liability	$	1,958	$	2,108

Amount expected to be settled within twelve months	$	1,958

Restructuring

From time to time, the Company ~~acquired AptoVision Technologies, Inc. ("Aptovision") for an upfront cash payment of $17.6 million at closing, net of acquired cash,~~takes steps to realign the business to focus on high-growth areas, provide customer value and make the Company more efficient. As a commitment to pay an additional contingent consideration of up to a maximum of $47.0 million over three years if certain goals are achieved in each of the earn-out periods (the "AptoVision Earn-out"). These goals are based on the achievement of a combination of certain net sales, adjusted earnings and product development targets measured from the acquisition date through July 26, 2020. To date,result, the Company has ~~made $9.4~~re-aligned resources and infrastructure predominantly related to its wireless charging business, which resulted in restructuring expense of $2.0 million and $2.1 million in ~~payments related to~~ the ~~AptoVision Earn-out~~three and ~~based on~~six months ended July 28, 2019, respectively, which were included in SG&A expenses in the ~~Company's assessment~~Statements of ~~performance, it does~~Income. The Company did not ~~expect to make~~have any ~~future AptoVision Earn-out payments.~~

restructuring expense during the three and six months ended July 26, 2020.

Note 12: Concentration of Risk

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


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

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

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

Balance as of
(percentage of net receivables) April 26, 2020 January 26, 2020
CEAC International Limited 15 % 11 %
Trend-tek Technology Ltd. (and affiliates) 12 % 13 %
Frontek Technology Corporation (and affiliates) 8 % 11 %


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

Outside Subcontractors and Suppliers

The Company relies on a limited number of third-party subcontractors and suppliers for the production of silicon wafers, packaging and certain other tasks. Disruption or termination of supply sources or subcontractors, including due to the COVID-19 pandemic or natural disasters such as an earthquake or other causes, could delay shipments and could have a material adverse effect on the Company. Although there are generally alternate sources for these materials and services, qualification of the alternate sources could cause delays sufficient to have a material adverse effect on the Company. Several of the Company’s third-party subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located in foreign countries, including China, Israel and South Korea. A significant amount of the Company’s assembly and test operations are conducted by third-party contractors in China, Malaysia, Taiwan, Thailand, South Korea and the Philippines. During the three months ended ~~April~~July 26, 2020 and ~~April~~July 28, 2019, approximately ~~21%~~18% and ~~15%~~23%, respectively, of the Company’s silicon in terms of cost of wafers was supplied by a third-party foundry in China, and approximately 8%10% and ~~12%~~14%, respectively, of the Company’s silicon in terms of cost of wafers was supplied by a third-party foundry in Israel. During the six months ended July 26, 2020 and July 28, 2019, approximately 20% and 20%, respectively, of the Company’s silicon in terms of cost of wafers was supplied by a third-party foundry in China, and approximately 9% and 13%, respectively, of the Company’s silicon in terms of cost of wafers was supplied by a third-party foundry in Israel. These percentages could be higher in future periods.

For the three months ended April 26, 2020, authorized distributors accounted for approximately 78% of the Company’s net sales, compared to approximately 62% for the three months ended April 28, 2019. Generally, the Company does not have long-term contracts with its distributors and most can terminate th~~eir agreement with little or no notice. For the first quarter of fiscal year 2021, the Company's largest distributors were based in Asia.~~

Note 13: Segment Information

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

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

Net sales by segment were as follows:

Three Months Ended
(in thousands) April 26, 2020 April 28, 2019
Semiconductor Products Group $ 132,702
$ 131,354
Total $ 132,702
$ 131,354


	Three Months Ended						Six Months Ended
(in thousands)	July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019
Semiconductor Products Group	$	143,660	$	137,146	$	276,362	$	268,500

Total	$	143,660	$	137,146	$	276,362	$	268,500

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

Three Months Ended
(in thousands) April 26, 2020 April 28, 2019
Semiconductor Products Group $ 28,098
$ 28,628
Operating income by segment 28,098
28,628
Items to reconcile segment operating income to consolidated income before taxes:
Share-based compensation 9,379
11,978
Intangible amortization 2,840
5,143
Investment impairments and credit loss reserves 3,630
—
Changes in the fair value of contingent earn-out obligations (33 ) (2,161 )
Restructuring and other reserves —
140
Litigation cost, net of recoveries 146
(74 )
Transaction and integration related (2 ) 1,435
Interest expense 1,559
2,467
Non-operating income, net (423 ) (1,043 )
Income before taxes and equity in net losses of equity method investments $ 11,002
$ 10,743


	Three Months Ended						Six Months Ended
(in thousands)	July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019
Semiconductor Products Group	$	34,818	$	31,505	$	62,916	$	60,133

Operating income by segment	34,818		31,505		62,916		60,133
Items to reconcile segment operating income to consolidated income before taxes:
Share-based compensation	13,186		12,425		22,565		24,403
Intangible amortization	2,020		3,908		4,860		9,051
Investment impairments and credit loss reserves	1,485		—		5,115		—
Changes in the fair value of contingent earn-out obligations	—		—		(33)		(2,161)
Restructuring and other reserves	502		2,571		502		2,711
Litigation cost, net of recoveries	105		799		251		725
Transaction and integration related	249		33		247		1,468
Interest expense	1,252		2,597		2,811		5,064
Non-operating expense (income), net	176		(1,213)		(247)		(2,256)
Income before taxes and equity in net (losses) gains of equity method investments	$	15,843	$	10,385	$	26,845	$	21,128

Information by Product Line

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

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


	Three Months Ended									Three Months Ended														Six Months Ended
(in thousands, except percentages)	April 26, 2020				April 28, 2019				(in thousands, except percentages)	July 26, 2020						July 28, 2019						July 26, 2020				July 28, 2019
Signal Integrity	$	59,929	45	%	$	50,257	38	%	Signal Integrity	$	71,645	50	%	$	55,094	40	%	$	131,574	48	%	$	105,350	39	%
Wireless and Sensing	32,958		25	%	42,207		32	%	Wireless and Sensing	38,830		27	%	41,696		30	%	71,788		26	%	83,903		31	%
Protection	39,815		30	%	38,890		30	%	Protection	33,185		23	%	40,356		30	%	73,000		26	%	79,247		30	%
Total net sales	$	132,702	100	%	$	131,354	100	%	Total net sales	$	143,660	100	%	$	137,146	100	%	$	276,362	100	%	$	268,500	100	%

Information by Sales Channel

Three Months Ended
(in thousands) April 26, 2020 April 28, 2019
Distributor $ 103,948
$ 81,147
Direct 28,754
50,207
Total net sales $ 132,702
$ 131,354


(in thousands, except percentages)	Three Months Ended														Six Months Ended
	July 26, 2020						July 28, 2019						July 26, 2020				July 28, 2019
Distributor	$	116,545	81	%	$	99,138	72	%	$	220,493	80	%	$	180,280	67	%
Direct	27,115		19	%	38,008		28	%	55,869		20	%	88,220		33	%
Total net sales	$	143,660	100	%	$	137,146	100	%	$	276,362	100	%	$	268,500	100	%

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

Geographic Information

Net sales activity by geographic region was as follows:

Three Months Ended
April 26, 2020 April 28, 2019
Asia-Pacific 80 % 78 %
North America 12 % 12 %
Europe 8 % 10 %
100 % 100 %


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

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

Three Months Ended
(percentage of total sales) April 26, 2020 April 28, 2019
China (including Hong Kong) 57 % 53 %
United States 9 % 10 %


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

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

Note 14: Stock Repurchase Program

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


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

Three Months Ended
April 26, 2020 April 28, 2019
(in thousands, except number of shares) Shares Amount Paid Shares Amount Paid
Shares repurchased under the stock repurchase program 855,042
$ 30,000
2,211
$ 110

On May 24, 2018, the Company's Board of Directors authorized the expansion of the stock repurchase program by $250.0 million. As of ~~April~~July 26, 2020, the Company had repurchased ~~$367.8~~$380.2 million in shares of its common stock under the program since inception and the remaining authorization under the program was ~~$80.6~~$68.2 million. Under the program, the Company may repurchase its common stock at any time or from time to time, without prior notice, subject to market conditions and other considerations. The Company’s repurchases may be made through Rule 10b5-1 and/or Rule 10b-18 or other trading plans, open market purchases, privately negotiated transactions, block purchases or other transactions. The Company intends to fund repurchases under the program from cash on hand. The Company has no obligation to repurchase any shares under the program and may suspend or discontinue it at any time.

Note 15: Derivatives and Hedging Activities

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

The Company’s accounting treatment for these instruments is based on whether or not the instruments are designated as a hedging instrument. The Company is currently applying hedge accounting to all foreign currency derivatives and has designated these hedges as cash flow hedges.

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

Balance as of
(in thousands) April 26, 2020 January 26, 2020
Foreign Exchange Contracts Number of Instruments Sell Notional Value Buy Notional Value Number of Instruments Sell Notional Value Buy Notional Value
Sell USD/Buy CAD Forward Contract 9 $ 12,851
C$ 18,000
— —
—
Sell USD/Buy GBP Forward Contract 9 $ 6,760
£ 5,400
— —
—
Total 18 —


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

Total	12					—

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

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

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


	Balance as of
(in thousands)	July 26, 2020		January 26, 2020
Foreign currency forward contracts	$	473	$	—
Total other current assets	$	473	$	—



Interest rate swap agreement	$	795	$	—
Total accrued liabilities	$	795	$	—


Interest rate swap agreement	$	1,176	$	—
Total other long-term liabilities	$	1,176	$	—

Balance as of
(in thousands) April 26, 2020 January 26, 2020
Foreign currency forward contracts $ 148
$ —
Interest rate swap agreement 693
—
Total accrued liabilities $ 841
$ —

Interest rate swap agreement $ 994
$ —
Total other long-term liabilities $ 994
$ —

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

During the fourth quarter of fiscal year 2020, management identified certain immaterial errors related to share-based compensation expense of ~~market-based~~market-condition awards granted during fiscal years 2018, 2019 and 2020. At the inception of these grants, the Company appropriately determined that the awards contained a market condition and that the effect of the market condition should be reflected in the grant date fair value of the awards, with the resulting compensation expense fixed at inception and recognized ratably over the requisite service period, regardless of when, if ever, the market condition is satisfied. The actual awards, however, were incorrectly accounted for as performance-based awards, whereby the number of shares expected to vest and corresponding compensation expense was adjusted on a quarterly basis. The Company assessed the materiality of the errors from a qualitative and quantitative perspective, and concluded that the impact of the errors is not material. Therefore, the correction of the errors did not require the amendment of the Company's previously filed Annual Reports on Form 10-K or its Quarterly Reports on Form 10-Q for the impacted periods. The Company has corrected its consolidated financial statements for these errors for the impacted prior periods presented in this Quarterly Report on Form 10-Q.

The impact of the corrections on the Company's Statements of Income and Statements of Comprehensive Income for the three and six months ended ~~April~~July 28, 2019, are presented in the table below:

Three Months Ended
April 28, 2019
(in thousands) As Reported As Corrected
Selling, general and administrative $ 38,377
$ 38,972
Product development and engineering $ 27,099
$ 27,154
Total operating costs and expenses $ 68,458
$ 69,108
Operating income $ 12,817
$ 12,167
Income before taxes and equity in net losses of equity method investments $ 11,393
$ 10,743
Benefit for income taxes $ (2,312 ) $ (2,416 )
Net income before equity in net losses of equity method investments $ 13,705
$ 13,159
Net income $ 13,294
$ 12,748
Earnings per share:
Basic $ 0.20
$ 0.19
Diluted $ 0.20
$ 0.19

Comprehensive income $ 13,282
$ 12,736


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

Comprehensive income	$	5,244	$	2,070	$	18,526	$	14,806

There was no impact to the Company's Balance Sheets or to total operating cash flows in the Statements of Cash Flows for any periods presented in this Quarterly Report on Form 10-Q.

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

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

Overview

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

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

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

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

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

Our net sales by product line were as follows:


	Three Months Ended					Three Months Ended						Six Months Ended
(in thousands)	April 26, 2020		April 28, 2019		(in thousands)	July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019
Signal Integrity	$	59,929	$	50,257	Signal Integrity	$	71,645	$	55,094	$	131,574	$	105,350
Wireless and Sensing	32,958		42,207		Wireless and Sensing	38,830		41,696		71,788		83,903
Protection	39,815		38,890		Protection	33,185		40,356		73,000		79,247
Total	$	132,702	$	131,354	Total	$	143,660	$	137,146	$	276,362	$	268,500

~~The Company designs, develops~~We design, develop and ~~markets~~market a wide range of products for commercial applications, the majority of which are sold into the infrastructure, high-end consumer and industrial end markets. During the first quarter of fiscal year 2021, ~~the Company~~we reviewed the process for mapping ~~its~~our net sales to ~~its~~our end markets. This process can be challenging for the semiconductor industry due to the large number of products that can be used across multiple customer platforms and in different end markets. As a result, effective as of the beginning of the first quarter of fiscal year 2021, ~~the Company has~~we combined ~~its~~our Enterprise Computing and Communications end markets, which were historically presented separately, into ~~the~~our Infrastructure end market, which we believe better reflects actual end-market consumption.

Accordingly, we now categorize our net sales into the following three end markets:

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

High-End Consumer: smartphones, tablets, wearables, desktops, notebooks, and other handheld products, wireless charging, set-top boxes, digital televisions, monitors and displays, digital video recorders and other consumer equipment.

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

Impact of COVID-19

The ~~novel coronavirus (“COVID-19”)~~COVID-19 pandemic has significantly affected health and economic conditions throughout the United States and the rest of the world including Asia, where a significant percentage of our customers, suppliers, third party foundries and subcontractors are located. As a result of the pandemic, ~~the operations at our facility in Reynosa, Mexico, one~~certain of our ~~production~~facilities and ~~development facilities in Colorado, and certain of~~ the third-party foundries and assembly and test contractors which we outsource our manufacturing functions to, have had to periodically reduce or suspend operations. The disruption experienced during such closures has resulted in reduced production of our products, delays for delivery of our products to our customers, and reduced ability to receive supplies, which have had and may continue to have an adverse effect on our results. Our customers have also experienced and may continue to or again experience, reductions or closures of their manufacturing facilities or inability to obtain other components, either of which could negatively impact demand for our products, which are incorporated into our customers' devices and solutions. We cannot assure you that such facilities will not have to reduce or suspend operations again, and such reductions or closures could extend for a longer term than the prior shutdown of such facilities, thereby causing a disruption to the manufacturing and shipping of our products.

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

We believe our liquidity position will allow us to withstand some of the uncertainties in the current environment. As of ~~April~~July 26, 2020, we had ~~$268.9~~$281.5 million of cash and cash equivalents and ~~$407.0~~$411.0 million of undrawn capacity on our credit facility. Our business is structured in a manner that is not capital intensive, which enhances our ability to preserve our overall liquidity even if conditions were to ~~deteriorate.~~deteriorate further.

~~We expect~~Although some of the government measures implemented to reduce the spread of the virus have been lifted or scaled back, a recent resurgence of COVID-19 in the United States and some other countries has resulted in the reinstatement of restrictions and may lead to other restrictions being reinstated in a response to efforts to reduce the spread of the virus. The COVID-19 pandemic ~~will~~has negatively ~~impact~~impacted our financial results by decreasing sales in the high-end consumer and industrial end markets and increasing impairments for the first half of fiscal year 2021. We expect it to continue to have an adverse impact on our financial results for the remainder of fiscal year 2021, including having a potentially larger impact on our results of operations than that which has been reflected in our results for our first ~~quarter~~six months of fiscal year 2021. ~~However, we~~We believe, however, that our strong liquidity position, continued strong bookings, and a predominantly fabless business model will help us to navigate through these uncertain times.

Factors Affecting Our Performance

Most of our sales to customers are made on the basis of individual customer purchase orders. Many customers include cancellation provisions in their purchase orders. Trends within the industry toward shorter lead-times and "just-in-time" deliveries have resulted in our reduced ability to predict future shipments. As a result, we rely on orders received and shipped within the same quarter for a significant portion of our sales. Orders received and shipped in the ~~first~~second quarters of fiscal years 2021 and 2020 represented ~~34%~~24% and ~~47%~~41% of net sales, respectively. Sales made directly to customers during the ~~first~~second quarters of fiscal years 2021 and 2020 were ~~22%~~19% and ~~38%~~28% of net sales, respectively. The remaining sales were made through independent distributors. Our business relies on foreign-based entities. Most of our outside subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located in foreign countries, including China, Taiwan and Israel. For the ~~first~~second quarters of fiscal years 2021 and 2020, approximately ~~21%~~18% and ~~15%~~23%, respectively, of the Company’s silicon in

terms of cost of wafers was supplied by a third-party foundry in China, and approximately 8%10% and ~~12%~~14%, respectively, of the Company’s silicon in terms of cost of wafers was supplied by a third-party foundry in Israel. These percentages could be higher in future periods. Foreign sales constituted approximately 91% ~~and 90%~~ of our net sales during the ~~first~~second quarters for each of fiscal years 2021 and ~~2020, respectively.~~2020. Approximately 80% and ~~78%~~74% of ~~foreign~~ sales during the ~~first~~second quarters of fiscal years 2021 and 2020, respectively, were to customers located in the Asia-Pacific region. The remaining foreign sales were primarily to customers in Europe, Canada, and Mexico.

We use several metrics as indicators of future potential growth. The indicators that we believe best correlate to potential future sales growth are design wins and new product releases. There are many factors that may cause a design win or new product release not to result in sales, including a customer's decision not to go to system production, a change in a customer’s perspective regarding a product’s value or a customer’s product failing in the end market. As a result, although a design win or

new product introduction is an important step towards generating future sales, it does not inevitably result in us being awarded business or receiving a purchase commitment.

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

Results of Operations

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


	Three Months Ended					Three Months Ended						Six Months Ended
	April 26, 2020		April 28, 2019			July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019
Net sales	100.0	%	100.0	%	Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	39.1	%	38.1	%	Cost of sales	38.6	%	38.1	%	38.8	%	38.1	%
Gross profit	60.9	%	61.9	%	Gross profit	61.4	%	61.9	%	61.2	%	61.9	%
Operating costs and expenses:					Operating costs and expenses:
Selling, general and administrative	26.1	%	29.7	%	Selling, general and administrative	26.6	%	31.6	%	26.4	%	30.7	%
Product development and engineering	20.8	%	20.7	%	Product development and engineering	20.3	%	18.9	%	20.6	%	19.8	%
Intangible amortization	2.1	%	3.9	%	Intangible amortization	1.4	%	2.8	%	1.8	%	3.4	%

Changes in the fair value of contingent earn-out obligations	—	%	(1.6	)%	Changes in the fair value of contingent earn-out obligations	—	%	—	%	—	%	(0.8)	%

Total operating costs and expenses	49.0	%	52.6	%	Total operating costs and expenses	48.4	%	53.3	%	48.7	%	53.0	%
Operating income	11.9	%	9.3	%	Operating income	13.1	%	8.6	%	12.5	%	8.9	%
Interest expense	(1.2	)%	(1.9	)%	Interest expense	(0.9)	%	(1.9)	%	(1.0)	%	(1.9)	%
Non-operating income, net	0.3	%	0.8	%
Non-operating (expense) income, net					Non-operating (expense) income, net	(0.1)	%	0.9	%	0.1	%	0.8	%
Investment impairments and credit loss reserves	(2.7	)%	—	%	Investment impairments and credit loss reserves	(1.0)	%	—	%	(1.9)	%	—	%
Income before taxes and equity in net losses of equity method investments	8.3	%	8.2	%
Provision (benefit) for income taxes	1.0	%	(1.8	)%
Net income before equity in net losses of equity method investments	7.3	%	10.0	%
Equity in net losses of equity method investments	—	%	(0.3	)%
Income before taxes and equity in net (losses) gains of equity method investments					Income before taxes and equity in net (losses) gains of equity method investments	11.0	%	7.6	%	9.7	%	7.9	%
(Benefit) provision for income taxes					(Benefit) provision for income taxes	(0.3)	%	6.1	%	0.3	%	2.2	%
Net income before equity in net (losses) gains of equity method investments					Net income before equity in net (losses) gains of equity method investments	11.3	%	1.5	%	9.4	%	5.7	%
Equity in net (losses) gains of equity method investments					Equity in net (losses) gains of equity method investments	(0.1)	%	0.1	%	(0.1)	%	(0.1)	%
Net income	7.3	%	9.7	%	Net income	11.2	%	1.6	%	9.3	%	5.6	%
Net loss attributable to noncontrolling interest	—	%	—	%	Net loss attributable to noncontrolling interest	—	%	—	%	—	%	—	%
Net income attributable to common stockholders	7.3	%	9.7	%	Net income attributable to common stockholders	11.2	%	1.6	%	9.3	%	5.6	%
Percentages may not add precisely due to rounding.					Percentages may not add precisely due to rounding.

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


	Three Months Ended							Three Months Ended						Six Months Ended
(in thousands)	April 26, 2020			April 28, 2019			(in thousands)	July 26, 2020		July 28, 2019		July 26, 2020		July 28, 2019
Domestic	$	(6,978	)	$	(9,077	)	Domestic	$	(10,125)	$	(9,902)	$	(17,012)	$	(19,062)
Foreign	17,980			19,820			Foreign	25,968		20,287		43,857		40,190
Total	$	11,002		$	10,743		Total	$	15,843	$	10,385	$	26,845	$	21,128

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

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

~~Reclassifications~~As noted above in "Overview", we revised the end market categories for our net sales at the beginning of the first quarter of fiscal year 2021. All net sale amounts shown below for our end markets, including periods prior to the first quarter of fiscal year 2021, have been ~~made to prior period amounts~~reclassified to conform to ~~the~~our current classification ~~and all periods presented in the~~of end markets. The following ~~summary of~~table summarizes our net sales by major end market reflect our current classification methodology (see the Overview earlier in this Management's Discussion and Analysis of Financial Condition and Results of Operations for a description of each end market category):market:

Three Months Ended Three Months Ended
(in thousands, except percentages) April 26, 2020 April 28, 2019
Infrastructure $ 58,038
43 % $ 47,586
36 %
High-End Consumer 35,480
27 % 44,660
34 %
Industrial 39,184
30 % 39,108
30 %
Total $ 132,702
100 % $ 131,354
100 %


	Three Months Ended
(in thousands)	July 26, 2020						July 28, 2019
Infrastructure	$	68,129	47	%	$	49,979	36	%
High-End Consumer	31,706		22	%	38,401		28	%
Industrial	43,825		31	%	48,766		36	%
Total	$	143,660	100	%	$	137,146	100	%

Net Sales

Net sales for the ~~first~~second quarter of fiscal year 2021 were ~~$132.7~~$143.7 million, an increase of ~~1.0%~~4.7% compared to ~~$131.4~~$137.1 million for the ~~first~~second quarter of fiscal year 2020. During the ~~first~~second quarter of fiscal year 2021, we experienced strong demand in our infrastructure end market, primarily driven by data center demand by cloud and hyperscale providers, increased wireless infrastructure and ~~increased~~ 10G PON sales. These increases were partially offset by a decline in our high-end consumer end market due in part to COVID-19 related disruptions. In addition, the decline in our industrial end market was driven by lower broadcast application sales, which was partially due to lower ~~proximity sensing products sales. In~~demand as COVID-19 has adversely impacted the ~~same quarter a year ago, we experienced an increase in these sales as Huawei increased their inventories in anticipation~~volume of ~~future export restrictions.~~large venue events.

Despite the ongoing COVID-19 pandemic, our bookings remained strong during the first ~~quarter~~half of fiscal year 2021. However, certain shipments of our products were delayed during the first quarter of fiscal year 2021 due to COVID-19 related shutdowns of our plant in Reynosa, Mexico, as well as certain subcontractors in Malaysia. We expect that the delay in shipments will benefit our second fiscal quarter results as we recognize sales related to these delayed shipments. Based on booking trends and our backlog entering the quarter, we estimate net sales for the ~~second~~third quarter of fiscal year 2021 to be between ~~$138.0~~$145.0 million and ~~$146.0~~$155.0 million. The range of guidance reflects continued uncertainty regarding macro-related events and those associated with the COVID-19 pandemic discussed above.

Gross Profit

For the ~~first~~second quarter of fiscal year 2021, gross profit ~~decreased~~increased to ~~$80.8~~$88.3 million from ~~$81.3~~$84.9 million for the ~~first~~second quarter of fiscal year 2020. Gross margins were ~~60.9%~~61.4% for the ~~first~~second quarter of fiscal year 2021 compared to 61.9% for the ~~first~~second quarter of fiscal year 2020. This decrease was primarily due to changes in product mix. For the ~~first~~second quarter of fiscal year 2021, our gross margins remained within our target range. For the ~~second~~third quarter of fiscal year 2021, we expect our gross margins to be in the range of ~~60.8%~~60.5% to ~~61.6%~~61.5%.

Operating Costs and Expenses


	Three Months Ended										Change			Three Months Ended											Change
(in thousands, except percentages)	April 26, 2020					April 28, 2019							(in thousands, except percentages)	July 26, 2020						July 28, 2019				Change
Selling, general and administrative	$	34,600		54	%	$	38,972		57	%	(11	)%	Selling, general and administrative	$	38,255	55	%	$	43,325	60	%	(12)	%
Product development and engineering	27,586			42	%	27,154			39	%	2	%	Product development and engineering	29,220		42	%	25,882		35	%	13	%
Intangible amortization	2,840			4	%	5,143			7	%	(45	)%	Intangible amortization	2,020		3	%	3,908		5	%	(48)	%
Changes in the fair value of contingent earn-out obligations	(33		)	—	%	(2,161		)	(3	)%	(98	)%

Total operating costs and expenses	$	64,993		100	%	$	69,108		100	%	(6	)%	Total operating costs and expenses	$	69,495	100	%	$	73,115	100	%	(5)	%

Selling, General and Administrative Expenses

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

Product Development and Engineering Expenses

Product development and engineering expenses increased for the ~~first~~second quarter of fiscal year 2021 compared to the ~~first~~second quarter of fiscal year 2020 as a result of fluctuations in the timing of development activities. The levels of product development and engineering expenses reported in a fiscal period can be significantly impacted, and therefore experience period-over-period volatility, by the number of new product tape-outs and by the timing of recoveries from non-recurring engineering services, which are typically recorded as a reduction to product development and engineering expense.

Intangible Amortization

Intangible amortization was ~~$2.8~~$2.0 million and ~~$5.1~~$3.9 million for the ~~first~~second quarters of fiscal years 2021 and 2020, respectively. This decrease was primarily due to certain finite-lived intangible assets associated with the acquisitions of Gennum Corporation, ~~and~~ Triune Systems, L.L.C. and AptoVision Technologies, Inc. that had become fully amortized during fiscal years 2020 and 2021.

Interest Expense

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

Investment Impairments and Credit Loss Reserves

During the second quarter of fiscal year 2021, investment impairments and credit loss reserves totaled a loss of $1.5 million and primarily reflected an other-than-temporary impairment of a cost method equity investment. We had no investment impairments or changes in credit loss reserves during the second quarter of fiscal year 2020.

(Benefit) Provision for Income Taxes

The effective tax rates for the second quarters of fiscal years 2021 and 2020 were a benefit rate of 2.6% and a provision rate of 79.2%, respectively. In the second quarter of fiscal year 2021, we recorded an income tax benefit of $0.4 million, compared to income tax expense of $8.4 million in the second quarter of fiscal year 2020. The effective tax rate in the second quarter of fiscal year 2021 differs from the statutory federal income tax rate of 21% primarily due to a regional mix of income, return-to-provision adjustments, withholding taxes on certain foreign earnings and research and development tax credits. The effective tax rate in the second quarter of fiscal year 2020 differs from the statutory federal income tax rate of 21% primarily due to regional mix of income and ~~during~~the impact of final regulations on the U.S. transition tax.

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

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

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


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

NetSales

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

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

Gross Profit

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

Operating Costs and Expenses


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

Selling, General and Administrative Expenses

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

Product Development and Engineering Expenses

Product development and engineering expenses increased in the first six months of fiscal year 2021 compared to the first six months of fiscal year 2020 as a result of fluctuations in the timing of development activities and higher supplemental compensation. The levels of product development and engineering expenses reported in a fiscal period can be significantly impacted, and therefore experience period over period volatility, by the number of new product tape-outs and by the timing of recoveries from non-recurring engineering services, which are typically recorded as a reduction to product development and engineering expense.

Intangible Amortization

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

Changes in the Fair Value of Contingent Earn-out Obligations

The ~~$2.1 million~~ change in the fair value of contingent earn-out obligations for the first ~~quarter~~six months of fiscal year 2021 compared to the first ~~quarter~~six months of fiscal year 2020 reflects the impact of changes in the estimated probability of achievement of earn-out targets for AptoVision Technologies, Inc. and Cycleo SAS. We measure contingent earn-out liabilities at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy. The significant unobservable inputs used in the fair value measurements are revenue projections over the earn-out period, and the probability outcome percentages assigned to each scenario. Significant increases or decreases to either of these inputs in isolation would result in a significantly higher or lower liability, with a higher liability capped by the contractual maximum of the contingent earn-out obligation. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings.

Interest Expense

Interest expense, including amortization of debt discounts and issuance costs, was ~~$1.6~~$2.8 million and ~~$2.5~~$5.1 million for the first ~~quarters~~six months of fiscal years 2021 and 2020, respectively. This decrease was primarily due to lower interest rates and lower overall debt levels. During the first quarter of fiscal year 2021, we entered into an interest rate swap agreement with a three-year term to hedge the variability of interest payments on the first $150.0 million of our debt outstanding. Interest payments on $150.0 million of our debt, or approximately 79% of our debt outstanding, are effectively locked in at aan all-in fixed rate of 1.9775%, based on our current leverage ratio. Interest payments on debt outstanding in excess of $150.0 million remain variable and are tied to the one-month LIBOR rate, which was 0.83% at April 26, 2020, plus a margin of 1.25%, based on our current leverage ratio.

Investment Impairments and Credit Loss Reserves

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

indicated that ~~two~~three of our investments were other than temporarily impaired by an aggregate amount of ~~$1.2 million, representing the entire carrying value of these investments.~~$2.9 million. We had no investment impairments or changes in credit loss reserves during the first ~~quarter~~six months of fiscal year 2020.

(Benefit) Provision ~~(Benefit)~~ for Income Taxes

The effective tax rates for the first ~~quarters~~six months of fiscal years 2021 and 2020 were a provision rate of ~~12.4%~~3.5% and ~~an income tax benefit~~a provision rate of ~~23.4%~~28.5%, respectively. In the first ~~quarter~~six months of fiscal year 2021, we recorded a provision of ~~$1.4~~$0.9 million, compared to ~~an income tax benefit~~a provision of ~~$2.4~~$5.9 million in the first ~~quarter~~six months of fiscal year 2020. The effective tax rate in the first ~~quarter~~six months of fiscal year 2021 was lower than the effective tax rate in the first six months of fiscal year 2020 primarily due to the impact of the final regulations of the U.S. transition tax that went into effect during fiscal year 2020.The effective tax rate in the first six months of fiscal year 2021 differs from the statutory federal income tax rate of 21% primarily due to a regional mix of income, return-to-provision adjustments, withholding taxes on certain foreign earnings and research and development tax credits. The effective tax rate in the first ~~quarter~~six months of fiscal year 2020 differs from the statutory federal income tax rate of 21% primarily due to regional mix of income and ~~excess tax benefits from share-based compensation.~~the impact of the final regulations on the U.S. transition tax.

Liquidity and Capital Resources

Our capital requirements depend on a variety of factors including, but not limited to, the rate of increase or decrease in our existing business base; the success, timing and amount of investment required to bring new products to market; sales growth or decline; potential acquisitions: the general economic environment in which we operate and our ability to generate cash flow from operations, which are more uncertain as a result of the COVID-19 pandemic and its impact on the general economy. Our liquidity needs during this uncertain time will depend on multiple factors, including our ability to continue operations and production of our products, the COVID-19 pandemic's effects on our customers, the availability of sufficient amounts of financing, and our operating performance. We believe that we have the financial resources necessary to meet business requirements for the next 12 months, including funds needed for working capital requirements.

As of ~~April~~July 26, 2020, our total stockholders’ equity was ~~$661.5~~$677.5 million. At that date, we also had ~~$268.9~~$281.5 million in cash and cash equivalents and ~~$193.0~~$411.0 million of ~~outstanding borrowings~~undrawn capacity on our Credit Facility ~~which had $407.0 million of undrawn capacity.~~(as defined below).

We incur significant expenditures in order to fund the development, design, and manufacture of new products. We intend to continue to focus on those areas that have shown potential for viable and profitable market opportunities, which may require

additional investment in equipment and the hiring of additional design and application engineers aimed at developing new products. Certain of these expenditures, particularly the addition of design engineers, do not generate significant payback in the short-term. We plan to finance these expenditures with cash generated by our operations and our existing cash balances.

A meaningful portion of our capital resources, and the liquidity they represent, are held by our foreign subsidiaries. As of ~~April~~July 26, 2020, our foreign subsidiaries held approximately ~~$219.8~~$166.4 million of cash and cash equivalents, compared to $261.9 million at January 26, 2020. In connection with the enactment of the Tax Cuts and Jobs Act, all historic and current foreign earnings are taxed in the U.S. and are subject to a 5% withholding tax, if repatriated. ~~We have~~In fiscal year 2018, we determined that we ~~will~~would repatriate back to the U.S. approximately $240.0 million of foreign ~~earnings~~earnings. As of ~~which $156.1 million~~the second quarter of fiscal year 2021, the full amount has been ~~repatriated since~~repatriated. In the second quarter of fiscal year ~~2019.~~2021, we determined an additional $50 million of current earnings will not be permanently reinvested. As of ~~April~~July 26, 2020, our foreign subsidiaries had ~~$560.6~~$547.9 million of unremitted earnings for which no taxes have been provided. Those historical earnings have been and are expected to continue to be permanently reinvested.

Cash Flows

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

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


	Three Months Ended							Six Months Ended
(in thousands)	April 26, 2020			April 28, 2019			(in thousands)	July 26, 2020		July 28, 2019
Net cash provided by operating activities	$	26,083		$	6,741		Net cash provided by operating activities	$	63,299	$	40,093
Net cash used in investing activities	(11,560		)	(15,770		)	Net cash used in investing activities	(20,981)		(24,442)
Net cash used in financing activities	(38,900		)	(15,789		)	Net cash used in financing activities	(54,186)		(39,932)
Net decrease in cash and cash equivalents	$	(24,377	)	$	(24,818	)	Net decrease in cash and cash equivalents	$	(11,868)	$	(24,281)

Operating Activities

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

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

Investing Activities

Net cash used in investing activities iswas primarily attributable to capital expenditures and purchases of investments, net of proceeds from sales of property, plant and equipment and proceeds from sales of investments. ~~Investing activities are also impacted by acquisitions, net of any cash received.~~

Capital expenditures were ~~$7.7~~$14.6 million for the first ~~three~~six months of fiscal year 2021, compared to ~~$15.3~~$16.9 million for the first ~~three~~six months of fiscal year 2020. In the first ~~three~~six months of fiscal year 2020, we made significant investments to update and expand our production capabilities including the $4.0 million purchase of a facility in Colorado.

In the first ~~three~~six months of fiscal year 2021, we paid ~~$3.9~~$6.7 million for strategic investments, including investments in companies that are enabling the ~~LoRa®-~~LoRa and LoRaWAN®-based ecosystem, compared to ~~$0.6~~$7.7 million of investments in the first ~~three~~six months of fiscal year 2020.

Financing Activities

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

In the first ~~three~~six months of fiscal year 2021, we paid ~~$5.8~~$6.8 million for employee share-based compensation payroll taxes and received ~~$0.9~~$3.0 million in proceeds from the exercise of stock options, compared to payments of ~~$12.4~~$13.4 million for employee share-based compensation payroll taxes and proceeds of ~~$1.4~~$3.0 million from the exercise of stock options in the first ~~three~~six months of fiscal year 2020. We do not directly control the timing of the exercise of stock options. Such exercises are independent decisions made by grantees and are influenced most directly by the stock price and the expiration dates of stock option awards. Such proceeds are difficult to forecast, resulting from several factors that are outside our control. We believe that such proceeds will remain a nominal source of cash in the future.

Stock Repurchase Program

We currently have in effect a stock repurchase program that was initially approved by our Board of Directors in March 2008. On May 24, 2018, our Board of Directors increased the authorization by $250.0 million. This program represents one of our principal efforts to return value to our stockholders. We repurchased ~~855,042~~1,087,913 shares under this program in the first ~~three~~six months of fiscal year 2021 for ~~$30.0~~$42.4 million. In the first ~~three~~six months of fiscal year 2020, we repurchased ~~2,211~~448,481 shares under this program for ~~$0.1~~$20.1 million. As of ~~April~~July 26, 2020, the remaining authorization under this program was ~~$80.6~~$68.2 million.

Credit Facility

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

In the first ~~three~~six months of fiscal year 2021, we made payments that totaled ~~$4.0~~$8.0 million on our Credit Facility, compared to payments on our previous term loans that totaled ~~$4.7~~$9.4 million in the first ~~three~~six months of fiscal year 2020. As of ~~April~~July 26, 2020, we had ~~$193.0~~$189.0 million of outstanding borrowings on our Credit Facility, which had ~~$407.0~~$411.0 million of undrawn capacity.

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

No amortization is required with respect to the revolving loans and we may voluntarily prepay borrowings at any time and from time to time, without premium or penalty, other than customary "breakage costs" and fees for LIBOR-based loans.

The Credit Agreement contains customary covenants, including limitations on our ability to, among other things, incur indebtedness, create liens on assets, engage in certain fundamental corporate changes, make investments, repurchase stock, pay dividends or make similar distributions, engage in certain affiliate transactions, or enter into agreements that restrict our ability to create liens, pay dividends or make loan repayments. In addition, we must comply with financial covenants, including maintaining a maximum consolidated leverage ratio, determined as of the last day of each fiscal quarter, of 3.50 to 1.00 or less, provided that, such maximum consolidated leverage ratio may be increased to 4.00 to 1.00 for the four consecutive fiscal quarters ending on or after the date of consummation of a permitted acquisition that constitutes a "Material Acquisition" under

the Credit Agreement, subject to the satisfaction of certain conditions. As of ~~April~~July 26, 2020, we were in compliance with the financial covenants in our Credit Agreement.

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

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as those arrangements are defined by the ~~SEC,~~U.S. Securities and Exchange Commission ("SEC"), that are reasonably likely to have a material effect on our financial condition, revenues or expenses, operating results, liquidity, capital expenditures or capital resources.

We do not have any unconsolidated subsidiaries or affiliated entities. We have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity or market or credit risk support. We do not engage in leasing, hedging, research and development services, or other relationships that expose us to liability that is not reflected on the face of the condensed consolidated financial statements.

Contractual Obligations

There were no material changes in our contractual obligations during the first ~~three~~six months of fiscal year 2021 from those disclosed in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 of our Annual Report on Form 10-K for the fiscal year ended January 26, 2020 filed with the SEC on March 20, 2020 (our "Annual Report").

Critical Accounting Policies and Estimates

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

Available Information

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

We make available free of charge, either by direct access on our website or by a link to the SEC website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. Our reports filed with, or furnished to, the SEC are also available directly at the SEC’s website at www.sec.gov.


~~ITEM 3.~~	~~Quantitative and Qualitative Disclosures About Market Risk~~

ITEM 3.Quantitative and Qualitative Disclosures About Market Risk

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

We considered the historical trends in foreign currency exchange rates and determined that it is reasonably possible that adverse changes in foreign exchange rates of 10% for all currencies could be experienced in the near-term. These reasonably possible adverse changes were applied to our total monetary assets and liabilities denominated in currencies other than our functional currency as of the ~~first~~second quarter of fiscal year 2021. The adverse impact these changes would have had (after taking into account balance sheet hedges only) on our income before taxes is ~~$1.2~~$1.3 million.

We are subject to interest rate risk in connection with the outstanding debt under our Credit Facility, which bears interest at variable rates as of ~~April~~July 26, 2020. In the first quarter of fiscal year 2021, we entered into an interest rate swap agreement with a three-year term to hedge the variability of interest payments on the first $150.0 million of debt outstanding under our Credit Facility. Interest payments on $150.0 million of our debt are now fixed at a rate of 1.9775% based on our current leverage ratio. As of ~~April~~July 26, 2020, a one percentage point increase in LIBOR would not have a material impact on our interest expense as only ~~$43.0~~$39.0 million of our outstanding debt balance remains subject to a floating rate.

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

LIBOR after 2021. That announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. Moreover, it is possible that LIBOR will be discontinued or modified prior to 2021. Our Credit Facility provides that, if it is publicly announced that the administrator of LIBOR has ceased or will cease to provide LIBOR, if it is publicly announced by the applicable regulatory supervisor that LIBOR is no longer representative, or if either the administrative agent or lenders holding 50% of the aggregate principal amount of our revolving commitments and term loans elect, we and the administrative agent may amend our Credit Agreement to replace LIBOR with an alternate benchmark rate. This alternative benchmark rate may include a forward-looking term rate that is based on the secured overnight financing rate, also known as SOFR, published by the Federal Reserve Bank of New York.

Interest rates also affect our return on excess cash and investments. As of ~~April~~July 26, 2020, we had ~~$268.9~~$281.5 million of cash and cash equivalents. A majority of our cash and cash equivalents generate interest income based on prevailing interest rates. Investments and cash and cash equivalents generated interest income of ~~$0.4~~$0.2 million in the ~~first~~second quarter of fiscal year 2021. A significant change in interest rates would impact the amount of interest income generated from our cash and investments. It would also impact the market value of our investments.

Our investments are primarily subject to credit risk. Our investments are managed by a limited number of outside professional managers following investment guidelines set by us. Such guidelines prescribe credit quality, permissible investments, diversification, and duration restrictions. These restrictions are intended to limit risk by restricting our investments to high quality debt instruments with relatively short-term durations. Our investment strategy limits investment of new funds and maturing securities to U.S. Treasury, Federal agency securities, high quality money market funds and time deposits with our principal commercial banks.


~~ITEM 4.~~	~~Controls and Procedures~~

ITEM 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls

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

PART II – OTHER INFORMATION


~~ITEM 1.~~	~~Legal Proceedings~~

ITEM 1.Legal Proceedings

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


~~ITEM 1A.~~	~~Risk Factors~~

ITEM 1A.Risk Factors

Please carefully consider and evaluate all of the information in this Quarterly Report and the risk factors set forth in our Annual Report. If any of these risks actually occur, our business could be materially harmed. If our business is harmed, the trading price of our common stock could decline.

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

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

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

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

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

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

These actions by the U.S. Department of Commerce or future regulatory activity may materially interfere with our ability to make sales to ZTE, Huawei or other foreign customers. ZTE, Huawei and other foreign customers affected by future U.S.

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

The ~~novel coronavirus (“COVID-19”)~~COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our operations, and those of our customers, distributors, suppliers, third-party foundries and subcontractors thereby adversely affecting our business, financial condition and results of operations.

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

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

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

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

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

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

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

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

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

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

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

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

Any or all of these items may occur, which individually or in the aggregate, may have a material adverse effect on our business, financial condition and results of operations. These risks could accelerate or intensify depending on the severity and length of the pandemic. In addition, ifother countries as well as the United States are currently experiencing a resurgence of the COVID-19 virus ~~occurs after~~and if the ~~initial outbreak subsides,~~rate of infections continues to rise, these factors ~~may arise again, continue for a prolonged period of time, and/or~~will be exacerbated.

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

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

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

As of ~~April~~July 26, 2020, we had ~~$268.9~~$281.5 million of cash and cash equivalents and ~~$407.0~~$411.0 million of undrawn capacity on our Credit Facility. Our cash position will depend on multiple factors, including our ability to continue operations and production of our products, the COVID-19 pandemic’s effects on our customers, the availability of sufficient amounts of financing, and our operating performance.

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

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

As a result of the COVID-19 pandemic, we continue to evaluate the impact on long-lived assets, such as goodwill and intangible assets for possible impairment. We did not record a goodwill impairment charge during the first ~~quarter~~six months of fiscal year 2021. However, depending on future events, we may be required to record future impairment charges related to our goodwill, intangible assets or other long-lived assets. In addition, depending on the ongoing impact of the pandemic, we may also be required to reserve for incremental expected credit losses on our minority investments. For example, we recorded ~~$3.6~~a loss of $1.5 million and $5.1 million in investment impairments and ~~increases in~~ credit loss reserves during the ~~first quarter of fiscal year 2021,~~three and six months ended July 26, 2020, respectively, some of which were, in part, due to the impact of the COVID-19 pandemic on our investees. Any material increase in our impairments or allowances for credit losses would have a corresponding effect on our results of operations and related cash flows.

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


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

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

Recent Sales of Unregistered Securities

None.

Issuer Purchase of Equity Securities

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


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

(1)The Company maintains an active stock repurchase program that was initially approved by our Board of Directors in March 2008. The stock repurchase program does not have an expiration date and our Board of Directors has authorized expansion of the program over the years. As of July 26, 2020, we have repurchased $380.2 million in shares of our common stock under the program since inception and the current remaining authorization under our stock repurchase program is $68.2 million. Under our stock repurchase program, we may repurchase our common stock at any time or from time to time, without prior notice, subject to market conditions and other considerations. Our repurchases may be made through Rule 10b5-1 and/or Rule10b-18 or other trading plans, open market purchases, privately negotiated transactions, block purchases or other transactions. We intend to fund repurchases under the program from cash on hand. We have no obligation to repurchase any shares under the stock repurchase program and may suspend or discontinue it at any time.

Fiscal Month/Year
Total Number of
Shares Purchased

Average Price Paid
per Share

Total Number of Shares
Purchased as Part of
Publicly Announced Program

Approximate Dollar Value
of Shares That May Yet
Be Purchased Under
The Program (1)
February 2020 (01/27/20-02/23/20) —
$ —
—
$ 110.6 million
March 2020 (02/24/20-03/22/20) 345,500
32.03
345,500
$ 99.5 million
April 2020 (03/23/20-04/26/20) 509,542
37.16
509,542
$ 80.6 million
Total activity 855,042
$ 35.09
855,042

~~(1)~~

The Company maintains an active stock repurchase program that was initially approved by our Board of Directors in March 2008. The stock repurchase program does not have an expiration date and our Board of Directors has authorized expansion of the program over the years. As of April 26, 2020, we have repurchased $367.8 million in shares of our common stock under the program since inception and the current remaining authorization under our stock repurchase program is $80.6 million. Under our stock repurchase program, we may repurchase our common stock at any time or from time to time, without prior notice, subject to market conditions and other considerations. Our repurchases may be made through Rule 10b5-1 and/or Rule10b-18 or other tradin~~g plans, open market purchases, privately negotiated transactions, block purchases or other transactions. We intend to fund repurchases under the program from cash on hand. We have no obligation to repurchase any shares under the stock repurchase program and may suspend or discontinue it at any time.~~


~~ITEM 3.~~	~~Defaults Upon Senior Securities~~

ITEM 3.Defaults Upon Senior Securities

None.


~~ITEM 4.~~	~~Mine Safety Disclosures~~

ITEM 4.Mine Safety Disclosures

Not applicable.


~~ITEM 5.~~	~~Other Information~~

ITEM 5.Other Information

None.


~~ITEM 6.~~	~~Exhibits~~

ITEM 6.Exhibits

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

Exhibit No.

Description

Location

~~Exhibit No.~~

~~Description~~

~~Location~~

3.1

Restated Certificate of Incorporation of Semtech Corporation

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

3.2

Bylaws of Semtech Corporation

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

4.1

Description of Common Stock

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

~~10.1~~31.1

~~Transition Agreement dated as of March 3, 2020 by and between the Company and James J. Kim~~

~~Exhibit 10.1 to the Company's Current Report on Form 8-K filed March 6, 2020~~

~~31.1~~

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

Filed herewith

31.2

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

Filed herewith

32.1

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

Furnished herewith

32.2

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

Furnished herewith

~~Exhibit No.~~

~~Description~~

~~Location~~


~~101~~





















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

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

SIGNATURES

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



			SEMTECH CORPORATION
			~~SEMTECH CORPORATION~~Registrant
			~~Registrant~~
Date:		August 26, 2020
~~Date:~~	~~May 27, 2020~~	/s/ Mohan R. Maheswaran
			Mohan R. Maheswaran
			President and Chief Executive Officer

Date:		~~May 27,~~August 26, 2020	/s/ Emeka N. Chukwu
			Emeka N. Chukwu
			Executive Vice President and
			Chief Financial Officer


PART I - FINANCIAL INFORMATION		3

~~PART I - FINANCIAL INFORMATION~~		3

ITEM 1. Financial Statements	4

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2730

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		3438

ITEM 4. Controls and Procedures		3539

PART II – OTHER INFORMATION		3640

ITEM 1. Legal Proceedings		3640

ITEM 1A. Risk Factors		3640

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		3943

ITEM 3. Defaults Upon Senior Securities		3943

ITEM 4. Mine Safety Disclosures		3943

ITEM 5. Other Information		3943

ITEM 6. Exhibits		3943



	Three Months Ended April 26, 2020
	Common Stock													Accumulated Other Comprehensive Loss
	Number of Shares Outstanding		Amount		Treasury Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Stockholders’ Equity			Noncontrolling Interest			Total Equity
Balance at January 26, 2020	65,758,115		$	785	$	(387,851	)	$	458,579		$	611,607		$	(6,166	)	$	676,954		$	246		$	677,200
Cumulative-effect adjustment to beginning balance from adoption of ASU 2016-13	—		—		—			—			(314		)	—			(314		)	—			(314		)
Net income	—		—		—			—			9,635			—			9,635			(3		)	9,632
Other comprehensive loss	—		—		—			—			—			(1,006		)	(1,006		)	—			(1,006		)
Share-based compensation	—		—		—			11,081			—			—			11,081			—			11,081
Repurchase of common stock	(855,042	)	—		(30,000		)	—			—			—			(30,000		)	—			(30,000		)
Treasury stock reissued	228,957		—		3,823			(8,699		)	—			—			(4,876		)	—			(4,876		)
Balance at April 26, 2020	65,132,030		$	785	$	(414,028	)	$	460,961		$	620,928		$	(7,172	)	$	661,474		$	243		$	661,717



	Fair Value as of April 26, 2020								Fair Value as of January 26, 2020
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Convertible debt	$	9,481	$	—	$	—	$	9,481	$	10,700	$	—	$	—	$	10,700
Total financial assets	$	9,481	$	—	$	—	$	9,481	$	10,700	$	—	$	—	$	10,700

Financial liabilities:
Cycleo Earn-out	$	1,958	$	—	$	—	$	1,958	$	2,108	$	—	$	—	$	2,108
Foreign currency forward contracts	148		—		148		—		—		—		—		—
Interest rate swap agreement	1,687		—		1,687		—		—		—		—		—
Total financial liabilities	$	3,793	$	—	$	1,835	$	1,958	$	2,108	$	—	$	—	$	2,108



(in thousands)
Fiscal Year Ending:
2021 (remaining nine months)	$	3,509
2022	4,062
2023	2,746
2024	2,488
2025	2,365
Thereafter	4,998
Total lease payments	20,168
Less: imputed interest	(3,571		)
Total	$	16,597



	Three Months Ended
(percentage of total sales)	April 26, 2020		April 28, 2019
China (including Hong Kong)	57	%	53	%
United States	9	%	10	%