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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 October 3, 2020

or

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: 000-29823

SILICON LABORATORIES INC.

(Exact name of registrant as specified in its charter)

Delaware

    

74-2793174

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

400 West Cesar Chavez, Austin, Texas

    

78701

(Address of principal executive offices)

(Zip Code)

(512) 416-8500

(Registrant’s telephone number, including area code)

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

Title of each class

    

Trading Symbol(s)

    

Name of each exchange
on which registered

Common Stock, $0.0001 par value

SLAB

The NASDAQ Stock Market LLC

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

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

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

Large accelerated filer þ    Accelerated filer      Non-accelerated filer     Smaller reporting company     Emerging growth company

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

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

As of October 20, 2020, 43,827,430 shares of common stock of Silicon Laboratories Inc. were outstanding.

Table of Contents

Part I. Financial Information

Page
Number

Item 1.

Financial Statements (Unaudited):

Condensed Consolidated Balance Sheets at October 3, 2020 and December 28, 2019

3

Condensed Consolidated Statements of Income for the three and nine months ended October 3, 2020 and September 28, 2019

4

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 3, 2020 and September 28, 2019

5

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended October 3, 2020 and September 28, 2019

6

Condensed Consolidated Statements of Cash Flows for the nine months ended October 3, 2020 and September 28, 2019

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

30

Part II. Other Information

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

46

Item 3.

Defaults Upon Senior Securities

46

Item 4.

Mine Safety Disclosures

46

Item 5.

Other Information

46

Item 6.

Exhibits

47

Cautionary Statement

Except for the historical financial information contained herein, the matters discussed in this report on Form 10-Q (as well as documents incorporated herein by reference) may be considered “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include declarations regarding the intent, belief or current expectations of Silicon Laboratories Inc. and its management and may be signified by the words “believe,” “estimate,” “expect,” “intend,” “anticipate,” “plan,” “project,” “will” or similar language. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. Actual results could differ materially from those indicated by such forward-looking statements. Factors that could cause or contribute to such differences include those discussed under “Risk Factors” and elsewhere in this report. Silicon Laboratories disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

2

Part I. Financial Information

Item 1. Financial Statements

Silicon Laboratories Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

October 3,

December 28,

    

2020

    

2019

Assets

Current assets:

Cash and cash equivalents

$

230,358

$

227,146

Short-term investments

 

491,428

 

498,825

Accounts receivable, net

 

80,460

 

75,639

Inventories

 

66,159

 

73,057

Prepaid expenses and other current assets

 

69,244

 

69,192

Total current assets

 

937,649

 

943,859

Property and equipment, net

 

139,673

 

135,939

Goodwill

 

631,932

 

398,402

Other intangible assets, net

 

178,076

 

134,279

Other assets, net

 

55,745

 

62,374

Total assets

$

1,943,075

$

1,674,853

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

46,228

$

38,899

Deferred revenue and returns liability

22,323

19,251

Other current liabilities

 

82,595

 

79,551

Total current liabilities

 

151,146

 

137,701

Convertible debt

561,678

368,257

Other non-current liabilities

 

60,200

 

53,844

Total liabilities

 

773,024

 

559,802

Commitments and contingencies

Stockholders' equity:

Preferred stock – $0.0001 par value; 10,000 shares authorized; no shares issued

 

 

Common stock – $0.0001 par value; 250,000 shares authorized; 43,827 and 43,496 shares issued and outstanding at October 3, 2020 and December 28, 2019, respectively

 

4

 

4

Additional paid-in capital

 

183,471

 

133,793

Retained earnings

 

984,716

 

980,608

Accumulated other comprehensive income

 

1,860

 

646

Total stockholders' equity

 

1,170,051

 

1,115,051

Total liabilities and stockholders' equity

$

1,943,075

$

1,674,853

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3

Silicon Laboratories Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

Three Months Ended

Nine Months Ended

    

October 3,

    

September 28,

    

October 3,

    

September 28,

2020

2019

2020

2019

Revenues

$

221,350

$

223,294

$

643,760

$

618,116

Cost of revenues

91,276

 

89,204

258,209

 

241,103

Gross profit

130,074

 

134,090

385,551

 

377,013

Operating expenses:

Research and development

71,969

 

62,552

214,030

 

187,974

Selling, general and administrative

48,483

 

47,718

150,883

 

145,571

Operating expenses

120,452

 

110,270

364,913

 

333,545

Operating income

9,622

23,820

20,638

 

43,468

Other income (expense):

Interest income and other, net

2,044

3,172

8,562

 

9,691

Interest expense

(8,604)

(5,126)

(25,923)

 

(15,128)

Income before income taxes

3,062

21,866

3,277

 

38,031

Provision (benefit) for income taxes

(100)

 

1,685

(306)

 

28,481

Net income

$

3,162

$

20,181

$

3,583

$

9,550

Earnings per share:

Basic

$

0.07

$

0.47

$

0.08

$

0.22

Diluted

$

0.07

$

0.45

$

0.08

$

0.22

Weighted-average common shares outstanding:

Basic

43,815

 

43,358

43,737

43,311

Diluted

44,328

 

44,634

44,254

44,120

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

4

Silicon Laboratories Inc.

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

Three Months Ended

Nine Months Ended

October 3,

    

September 28,

    

October 3,

    

September 28,

    

2020

2019

2020

2019

Net income

$

3,162

$

20,181

$

3,583

$

9,550

Other comprehensive income (loss), before tax

Net changes to available-for-sale securities

Unrealized gains (losses) arising during the period

(760)

 

106

1,839

 

2,738

Reclassification for gains included in net income

(253)

(188)

(475)

(188)

Net changes to cash flow hedges

Unrealized losses arising during the period

(451)

(652)

(395)

Reclassification for losses included in net income

62

174

825

 

605

Other comprehensive income (loss), before tax

(951)

(359)

1,537

 

2,760

Provision (benefit) for income taxes

(200)

 

(75)

323

 

580

Other comprehensive income (loss)

(751)

 

(284)

1,214

 

2,180

Comprehensive income

$

2,411

$

19,897

$

4,797

$

11,730

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5

Silicon Laboratories Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(In thousands)

(Unaudited)

    

    

    

Additional

    

    

Accumulated Other

    

Total

Common

Paid-In

Retained

Comprehensive

Stockholders’

Three Months Ended October 3, 2020

Shares

Stock

Capital

Earnings

Income (Loss)

Equity

Balance as of July 4, 2020

43,796

$

4

$

173,477

$

981,554

$

2,611

$

1,157,646

Net income

 

 

 

3,162

3,162

Other comprehensive loss

 

 

 

 

(751)

 

(751)

Stock issuances, net of shares withheld for taxes

31

 

 

(408)

 

 

 

(408)

Stock-based compensation

 

 

14,538

 

 

 

14,538

Convertible debt activity

(4,136)

(4,136)

Balance as of October 3, 2020

43,827

$

4

$

183,471

$

984,716

$

1,860

$

1,170,051

    

    

    

Additional

    

    

Accumulated Other

    

Total

Common

Paid-In

Retained

Comprehensive

Stockholders’

Three Months Ended September 28, 2019

Shares

Stock

Capital

Earnings

Income (Loss)

Equity

Balance as of June 29, 2019

43,344

$

4

$

99,665

$

950,712

$

890

$

1,051,271

Net income

 

 

 

20,181

 

 

20,181

Other comprehensive loss

 

 

 

 

(284)

 

(284)

Stock issuances, net of shares withheld for taxes

29

 

 

(1,185)

 

 

 

(1,185)

Repurchases of common stock

 

 

 

 

 

Stock-based compensation

 

 

13,771

 

 

 

13,771

Balance as of September 28, 2019

43,373

$

4

$

112,251

$

970,893

$

606

$

1,083,754

    

    

    

Additional

    

    

Accumulated Other 

    

Total

Common

Paid-In

Retained

Comprehensive 

Stockholders’

Nine Months Ended October 3, 2020

Shares

Stock

Capital

Earnings

Income (Loss)

Equity

Balance as of December 28, 2019

 

43,496

$

4

$

133,793

$

980,608

$

646

$

1,115,051

Cumulative effect of adoption of accounting standard

525

525

Net income

 

 

 

 

3,583

 

 

3,583

Other comprehensive income

 

 

 

 

 

1,214

 

1,214

Stock issuances, net of shares withheld for taxes

 

541

 

 

(9,407)

 

 

 

(9,407)

Repurchases of common stock

 

(210)

 

 

(16,287)

 

 

 

(16,287)

Stock-based compensation

 

 

 

44,337

 

 

 

44,337

Convertible debt activity

31,035

31,035

Balance as of October 3, 2020

 

43,827

$

4

$

183,471

$

984,716

$

1,860

$

1,170,051

    

    

    

Additional

    

    

Accumulated Other

    

Total

Common

Paid-In

Retained

Comprehensive 

Stockholders’

Nine Months Ended September 28, 2019

Shares

Stock

Capital

Earnings

Income (Loss)

Equity

Balance as of December 29, 2018

 

43,088

$

4

$

107,517

$

961,343

$

(1,574)

$

1,067,290

Net income

 

 

 

 

9,550

 

 

9,550

Other comprehensive income

 

 

 

 

 

2,180

 

2,180

Stock issuances, net of shares withheld for taxes

 

586

 

 

(8,585)

 

 

 

(8,585)

Repurchases of common stock

 

(301)

 

 

(26,716)

 

 

 

(26,716)

Stock-based compensation

 

 

 

40,035

 

 

 

40,035

Balance as of September 28, 2019

 

43,373

$

4

$

112,251

$

970,893

$

606

$

1,083,754

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6

Silicon Laboratories Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Nine Months Ended

October 3,

September 28,

    

2020

    

2019

Operating Activities

Net income

$

3,583

$

9,550

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation of property and equipment

12,896

 

12,675

Amortization of other intangible assets and other assets

32,741

 

29,891

Amortization of debt discount and debt issuance costs

14,946

10,031

Loss on extinguishment of convertible debt

3,977

Stock-based compensation expense

44,329

 

40,042

Deferred income taxes

(7,382)

 

24,531

Changes in operating assets and liabilities:

Accounts receivable

(2,902)

 

(2,975)

Inventories

11,283

 

3,512

Prepaid expenses and other assets

(6,162)

 

23,401

Accounts payable

6,103

 

6,419

Other current liabilities and income taxes

3,648

 

(15,602)

Deferred revenue and returns liability

2,643

 

(667)

Other non-current liabilities

7,260

(5,957)

Net cash provided by operating activities

126,963

 

134,851

Investing Activities

Purchases of available-for-sale investments

(418,227)

 

(306,645)

Sales and maturities of available-for-sale investments

427,235

 

268,140

Purchases of property and equipment

(15,247)

 

(12,773)

Purchases of other assets

(1,280)

(7,132)

Acquisition of business, net of cash acquired

(316,809)

Net cash used in investing activities

(324,328)

 

(58,410)

Financing Activities

Proceeds from issuance of debt

845,000

Payments on debt

(618,729)

(1,127)

Repurchases of common stock

(16,287)

(26,716)

Payment of taxes withheld for vested stock awards

(17,562)

(15,693)

Proceeds from the issuance of common stock

8,155

7,108

Net cash provided by (used in) financing activities

200,577

 

(36,428)

Increase in cash and cash equivalents

3,212

 

40,013

Cash and cash equivalents at beginning of period

227,146

 

197,043

Cash and cash equivalents at end of period

$

230,358

$

237,056

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

7

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The Condensed Consolidated Financial Statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments which, in the opinion of management, are necessary to present fairly the condensed consolidated financial position of Silicon Laboratories Inc. and its subsidiaries (collectively, the “Company”) at October 3, 2020 and December 28, 2019, the condensed consolidated results of its operations for the three and nine months ended October 3, 2020 and September 28, 2019, the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 3, 2020 and September 28, 2019, the Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended October 3, 2020 and September 28, 2019, and the Condensed Consolidated Statements of Cash Flows for the nine months ended October 3, 2020 and September 28, 2019. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated results of operations for the three and nine months ended October 3, 2020 are not necessarily indicative of the results to be expected for the full year.

The accompanying unaudited Condensed Consolidated Financial Statements do not include certain footnotes and financial presentations normally required under U.S. generally accepted accounting principles (GAAP). Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended December 28, 2019, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on January 29, 2020.

The Company prepares financial statements on a 52- or 53-week fiscal year that ends on the Saturday closest to December 31. Fiscal 2020 will have 53 weeks with the extra week occurring in the first quarter of the year. Fiscal 2019 had 52 weeks. In a 52-week year, each fiscal quarter consists of 13 weeks.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Among the significant estimates affecting the financial statements are those related to inventories, goodwill, acquired intangible assets, other long-lived assets, revenue recognition, stock-based compensation and income taxes. Actual results could differ from those estimates, and such differences could be material to the financial statements.

Adoption of New Accounting Standard

The Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, on December 29, 2019, the first day of its fiscal year ending January 2, 2021. The adoption did not have a material impact on its financial statements.

Revenue Recognition

Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Substantially all of the Company’s contracts with customers contain a single performance obligation, the sale of mixed-signal integrated circuit (IC) products. This performance obligation is satisfied when control of the product is transferred to the customer, which typically occurs upon delivery. Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. The Company has opted to not disclose the amount of unsatisfied performance obligations as these contracts have original expected durations of less than one year.

8

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The transaction price reflects the Company’s expectations about the consideration it will be entitled to receive from the customer and may include fixed or variable amounts. Variable consideration primarily includes sales made to distributors under agreements allowing certain rights of return, referred to as stock rotation, and credits issued to the distributor due to price protection. The Company estimates variable consideration at the most likely amount to which it expects to be entitled. The estimate is based on information available to the Company, including recent sales activity and pricing data. The Company applies a constraint to its variable consideration estimate which considers both the likelihood of a return and the amount of a potential price concession. Variable consideration that does not meet revenue recognition criteria is deferred. The Company records a right of return asset in prepaid expenses and other current assets for the costs of distributor inventory not meeting revenue recognition criteria. A corresponding deferred revenue and returns liability amount is recorded for unrecognized revenue associated with such costs. The Company’s products carry a one-year replacement warranty. Payments are typically due within 30 days of invoicing and do not include a significant financing component.

Recent Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU simplifies the accounting for certain convertible instruments, amends the guidance on derivative scope exceptions for contracts in an entity’s own equity and requires the use of the if-converted method for calculating diluted earnings per share. The ASU removes separation models for convertible debt with a cash conversion feature. Such convertible instruments will be accounted for as a single liability measured at amortized cost, as long as no other features require bifurcation and recognition as derivatives. This ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, using one of two retrospective methods. Early adoption is permitted for fiscal periods beginning after December 15, 2020. The Company expects the primary impacts of this new standard will be to potentially increase the carrying value of its convertible debt and reduce its reported interest expense. In addition, should the Company be required to use the if-converted method for calculating diluted earnings per share, the number of shares used in such calculation could potentially increase. The Company will continue to evaluate the effect that the adoption of this ASU will have on its financial statements.

2. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

Three Months Ended

Nine Months Ended

    

October 3,

    

September 28,

    

October 3,

    

September 28,

2020

2019

2020

2019

Net income

$

3,162

$

20,181

$

3,583

$

9,550

Shares used in computing basic earnings per share

43,815

 

43,358

43,737

 

43,311

Effect of dilutive securities:

Stock-based awards and convertible debt

513

 

1,276

517

 

809

Shares used in computing diluted earnings per share

44,328

 

44,634

44,254

 

44,120

Earnings per share:

Basic

$

0.07

$

0.47

$

0.08

$

0.22

Diluted

$

0.07

$

0.45

$

0.08

$

0.22

9

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The Company intends to settle the principal amount of its convertible senior notes in cash and any excess value in shares in the event of a conversion. Accordingly, shares issuable upon conversion of the principal amount have been excluded from the calculation of diluted earnings per share. If the market value of the notes under certain prescribed conditions exceeds the conversion amount, the excess is included in the denominator for the computation of diluted earnings per share using the treasury stock method. For the three months ended October 3, 2020 and September 28, 2019 and the nine months ended October 3, 2020 and September 28, 2019, approximately 0.1 million, 0.6 million, 0.2 million and 0.3 million shares, respectively, were included in the denominator for the calculation of diluted earnings per share. See Note 7, Debt, to the Condensed Consolidated Financial Statements for additional information.

3. Fair Value of Financial Instruments

The fair values of the Company’s financial instruments are recorded using a hierarchical disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The three levels are described below:

Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 – Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 – Inputs are unobservable for the asset or liability and are developed based on the best information available in the circumstances, which might include the Company’s own data.

The following summarizes the valuation of the Company’s financial instruments (in thousands). The tables do not include either cash on hand or assets and liabilities that are measured at historical cost or any basis other than fair value.

Fair Value Measurements

at October 3, 2020 Using

Quoted Prices in

Significant Other

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Description

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Total

Assets:

    

    

    

    

Cash equivalents:

Money market funds

$

115,033

$

$

$

115,033

Corporate debt securities

2,350

2,350

Government debt securities

4,335

4,335

Total cash equivalents

$

119,368

$

2,350

$

$

121,718

Short-term investments:

Government debt securities

$

47,252

$

90,733

$

$

137,985

Corporate debt securities

353,443

353,443

Total short-term investments

$

47,252

$

444,176

$

$

491,428

Other assets, net:

Auction rate securities

$

$

$

5,400

$

5,400

Total

$

$

$

5,400

$

5,400

Total

$

166,620

$

446,526

$

5,400

$

618,546

10

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Fair Value Measurements

at December 28, 2019 Using

Quoted Prices in

Significant Other

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Description

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Total

Assets:

    

    

    

    

Cash equivalents:

Money market funds

$

92,379

$

$

$

92,379

Corporate debt securities

 

1,325

 

 

1,325

Total cash equivalents

$

92,379

$

1,325

$

$

93,704

Short-term investments:

Government debt securities

$

85,189

$

86,682

$

$

171,871

Corporate debt securities

326,954

326,954

Total short-term investments

$

85,189

$

413,636

$

$

498,825

Other assets, net:

Auction rate securities

$

$

$

5,647

$

5,647

Total

$

$

$

5,647

$

5,647