MARVELL TECHNOLOGY GROUP LTD 
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are subject to the "safe harbor" created by those sections. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results to differ materially from those implied by the forward-looking statements. Words such as "anticipates," "expects," "intends," "plans," "projects," "believes," "seeks," "estimates," "forecasts," "targets," "may," "can," "will," "would" and similar expressions identify such forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements. Factors that could cause actual results to differ materially from those predicted include, but are not limited to: • the impact of the COVID-19 pandemic or other future pandemics, on the global economy and on our customers, suppliers, employees and business; • our ability to successfully integrate and to realize anticipated synergies, on a timely basis or at all, in connection with the Inphi merger and the acquisition of Innovium; • our ability to define, design and develop products for the Cloud, infrastructure and 5G markets and to market and sell these products to our customers; • extension of lead time due to supply chain disruption, component shortages that impact the production of our products and constrained availability from other electronic suppliers impacting our customers' ability to ship their products, which in turn may adversely impact our sales to those customers; • the impact of international conflict, trade relations between theU.S. and other countries, and continued economic volatility in either domestic or foreign markets; • the impact and costs associated with changes in international financial and regulatory conditions such as the addition of new trade restrictions, tariffs or embargos; • our ability and the ability of our customers to successfully compete in the markets in which we serve; • our ability and our customers' ability to develop new and enhanced products and the adoption of those products in the market; • risks related to our debt obligations; • our ability to scale our operations in response to changes in demand for existing or new products and services; • our reliance on our manufacturing partners for the manufacture, assembly and testing of our products; • the risks associated with manufacturing and selling a majority of our products and our customers' products outside ofthe United States ; • the effects of transitioning to smaller geometry process technologies; • the impact of any change in our application ofthe United States federal income tax laws and the loss of any beneficial tax treatment that we currently enjoy; • our ability to execute on changes in strategy and realize the expected benefits from restructuring activities; • our ability to implement our plans, forecasts and other expectations with respect to our strategic investments, divestitures, mergers, or joint ventures and to fully realize the anticipated synergies and cost savings in the time frame anticipated; • our ability to limit costs related to defective products; • our ability to recruit and retain experienced executive management as well as highly-skilled personnel; • our ability to mitigate risks related to our information technology systems; • our ability to protect our intellectual property, particularly outside of theU.S. ; • our ability to estimate customer demand and future sales accurately; • our reliance on third-party distributors and manufacturers' representatives to sell our products; • our maintenance of an effective system of internal controls; • the impact of the highly cyclical and intensely competitive nature of the markets for our products; • our dependence on a small number of customers; • our ability to accurately categorize our products by end markets; • severe financial hardship or bankruptcy of one or more of our major customers; • risks associated with acquisition and consolidation activity in the semiconductor industry; • decreases in our gross margin and results of operations in the future due to a number of factors; • the impact of natural disasters and other catastrophic events; and • the outcome of pending or future litigation and legal proceedings. Additional factors which could cause actual results to differ materially include those set forth in the following discussion, as well as the risks discussed in Part II, Item 1A, "Risk Factors," and other sections of this Quarterly Report on Form 10-Q. These forward-looking statements speak only as of the date hereof. We undertake no obligation to update any forward-looking statements. 32 -------------------------------------------------------------------------------- Table of Contents Overview We are a leading supplier of infrastructure semiconductor solutions, spanning the data center core to network edge. We are a fabless semiconductor supplier of high-performance standard and semi-custom products with core strengths in developing and scaling complex System-on-a-Chip architectures, integrating analog, mixed-signal and digital signal processing functionality. Leveraging leading intellectual property and deep system-level expertise, as well as highly innovative security firmware, our solutions are empowering the data economy and enabling the data center, carrier infrastructure, enterprise networking, consumer, and automotive/industrial end markets. In the third quarter of fiscal 2022, our net revenue increased year over year by 61% from$750.1 million net revenue in the third quarter of fiscal 2021 compared with$1.2 billion in the third quarter of fiscal 2022. This was due to an increase in sales from all our end markets. Revenue increased from the data center end market by 109%, from the carrier infrastructure end market by 28%, from the enterprise networking end market by 56%, from the consumer end market by 20%, and the automotive/industrial end market by 114% compared to the three months endedOctober 31,2020 . OnApril 20, 2021 , we completed our acquisition of Inphi Corporation ("Inphi"). Inphi is a global leader in high-speed data movement enabled by optical interconnects. The unaudited condensed consolidated financial statements include the operating results of Inphi for the period from the date of acquisition through our third quarter endedOctober 30, 2021 . In conjunction with the acquisition transaction,Marvell Technology Group Ltd. and Inphi became wholly owned subsidiaries of the new parent company,Marvell Technology, Inc. ("MTI") onApril 20, 2021 . The parent company is domiciled in and subject to taxation inthe United States . OnOctober 5, 2021 , we completed our acquisition ofInnovium, Inc. ("Innovium"), a leading provider of networking solutions for cloud and edge data centers, in an all-stock transaction. The unaudited condensed consolidated financial statements include the operating results of Innovium for the period from the date of acquisition through our third quarter endedOctober 30, 2021 . See "Note 3 - Business Combinations", "Note 4 -Goodwill and Acquired Intangible Assets, Net" for more information. In response to growth in demand from customers for our products, our operations team is continuing to ramp production with our global supply chain partners. However, we are experiencing a number of industry-wide supply constraints affecting the type of high complexity products we provide for data infrastructure. These supply challenges are currently limiting our ability to fully satisfy the increase in demand for some of our products. To secure additional capacity, we entered into capacity reservation arrangements with certain foundries and test & assembly partners. See "Note 10 - Commitments and Contingencies" in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information. Securing capacity for growth remains a high priority for our operations team, even as this supply expansion comes with an increase in input costs. As we have done throughout the supply constraints, we are working with our customers to adjust prices to offset the impact of these cost increases, which lets us jointly benefit from sustained growth. We continue to monitor the impact of COVID-19 on our business. While many of our offices around the world remain open to enable critical on-site business functions in accordance with local government guidelines, the majority of our employees continue to work from home. We expect COVID-19 to continue to impact our business and for a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, see Part II, Item 1A, "Risk Factors," including but not limited to the risk detailed under the caption "We face risks related to the COVID-19 pandemic which currently has, and may continue in the future to, significantly disrupt our manufacturing, research and development, operations, sales and financial results." We expect that theU.S. government's export restrictions on certain Chinese customers will continue to impact our revenue in fiscal year 2022. Moreover, concerns thatU.S. companies may not be reliable suppliers as a result of these and other actions has caused, and may in the future cause, some of our customers inChina to amass large inventories of our products well in advance of need or cause some of our customers to replace our products in favor of products from other suppliers. Customers inChina may also choose to develop indigenous solutions, as replacements for products that are subject toU.S. export controls. In addition, there may be indirect impacts to our business that we cannot easily quantify such as the fact that some of our other customers' products which use our solutions may also be impacted by export restrictions. 33 -------------------------------------------------------------------------------- Table of Contents Capital Return Program. We remain committed to delivering stockholder value through our share repurchase and dividend programs. OnOctober 16, 2018 , we announced that our Board of Directors authorized a$700 million addition to the balance of our existing share repurchase program. Under the program authorized by our Board of Directors, we may repurchase shares in the open-market or through privately negotiated transactions. The extent to which we repurchase our shares and the timing of such repurchases will depend upon market conditions and other corporate considerations, as determined by our management team. The share repurchase program was temporarily suspended in lateMarch 2020 to preserve cash during the COVID-19 pandemic. We are focusing on reducing our debt and de-levering our balance sheet. As a result, we did not repurchase any shares during the nine months endedOctober 30, 2021 . We will continue to evaluate business conditions to decide when we can restart the share repurchase program. As ofOctober 30, 2021 , there was$564.5 million remaining available for future share repurchases of the authorization. As ofOctober 30, 2021 , a total of 308.1 million shares have been repurchased to date under our share repurchase programs for a total$4.3 billion in cash. We returned$140.3 million to stockholders in the nine months endedOctober 30, 2021 in cash dividends. Cash and Cash Equivalents. Our cash and cash equivalents were$523.5 million atOctober 30, 2021 , which was$225.0 million lower than our balance at our fiscal year endedJanuary 30, 2021 of$748.5 million . Sales and Customer Composition. During the three and nine months endedOctober 30, 2021 andOctober 31, 2020 , there was no net revenue attributable to a customer, other than one distributor, whose revenues as a percentage of net revenue was 10% or greater of total net revenues. Net revenue attributable to significant distributors whose revenue as a percentage of net revenue was 10% or greater of total net revenue is presented in the following table: Three Months Ended Nine Months Ended October 30, October 31, October 30, October 31, 2021 2020 2021 2020 Distributor: Distributor A 14 % 12 % 16 % 12 % We continuously monitor the creditworthiness of our distributors and believe their sales to diverse end customers and geographies further serve to mitigate our exposure to credit risk. Most of our sales are made to customers located outside ofthe United States , primarily inAsia , and a majority of our products are manufactured outsidethe United States . Sales shipped to customers with operations inAsia represented approximately 79% of our net revenue in the three and nine months endedOctober 30, 2021 , and approximately 81% and 80% of net revenue in the three and nine months endedOctober 31, 2020 , respectively. Because many manufacturers and manufacturing subcontractors of our customers are located inAsia , we expect that most of our net revenue will continue to be represented by sales to our customers in that region. For risks related to our global operations, see Part II, Item 1A, "Risk Factors," including but not limited to the risk detailed under the caption "We face additional risks due to the extent of our global operations since a majority of our products, and those of our customers, are manufactured and sold outside ofthe United States . The occurrence of any or a combination of the additional risks described below would significantly and negatively impact our business and results of operations." The development process for our products is long, which may cause us to experience a delay between the time we incur expenses and the time revenue is generated from these expenditures. We anticipate that the rate of new orders may vary significantly from quarter to quarter. For risks related to our sales cycle, see Part II, Item 1A, "Risk Factors," including but not limited to the risk detailed under the caption "We are subject to order and shipment uncertainties. If we are unable to accurately predict customer demand, we may hold excess or obsolete inventory, which would reduce our gross margin. Conversely, we may have insufficient inventory, which would result in lost revenue opportunities and potential loss of market share as well as damaged customer relationships." 34 -------------------------------------------------------------------------------- Table of Contents Critical Accounting Policies and Estimates There have been no material changes during the three months endedOctober 30, 2021 to our critical accounting policies and estimates from the information provided in the "Critical Accounting Policies and Estimates" section of our Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 . In the current macroeconomic environment affected by COVID-19, our estimates could require increased judgment and carry a higher degree of variability and volatility. We continue to monitor and assess our estimates in light of developments, and as events continue to evolve and additional information becomes available, our estimates may change materially in future periods.
Results of Operations
The following table sets forth information derived from our Unaudited Condensed
Consolidated Statements of Operations expressed as a percentage of net revenue:
Three Months Ended Nine Months Ended
October 30, October 31, October 30, October 31,
2021 2020 2021 2020
Net revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 51.5 49.2 55.8 50.8
Gross profit 48.5 50.8 44.2 49.2
Operating expenses:
Research and development 30.7 34.1 32.9 37.4
Selling, general and administrative 20.1 15.4 22.6 16.1
Restructuring related charges 0.5 2.6 1.0 7.4
Total operating expenses 51.3 52.1 56.5 60.9
Operating loss (2.8) (1.3) (12.3) (11.7)
Interest income - 0.1 - 0.1
Interest expense (2.9) (2.1) (3.3) (2.2)
Other income (loss), net 0.1 - - 0.2
Loss before income taxes (5.6) (3.3) (15.6) (13.6)
Provision for income taxes (0.4) (0.2) (1.9) (0.3)
Net loss (5.2) % (3.1) % (13.7) % (13.3) %
35-------------------------------------------------------------------------------- Table of Contents Three and nine months endedOctober 30, 2021 andOctober 31, 2020 Net Revenue Three Months Ended Nine Months Ended October 30, October 31, % October 30, October 31, % 2021 2020 Change 2021 2020 Change (in thousands, except percentage) Net revenue$ 1,211,245 $ 750,143 61.5%$ 3,119,405 $ 2,171,081 43.7% Our net revenue for the three months endedOctober 30, 2021 increased by$461.1 million compared to net revenue for the three months endedOctober 31, 2020 . This was due to an increase in sales from all our end markets. Revenue increased from the data center end market by 109%, from the carrier infrastructure end market by 28%, from the enterprise networking end market by 56%, from the consumer end market by 20%, and from the automotive/industrial end market by 114% compared to the three months endedOctober 31, 2020 . The increase in revenue from the data center end market was primarily due to the acquisition of Inphi and increase in demand for multiple product lines such as our embedded processors, flash controllers, networking and nearline HDD controllers and preamplifiers. The increase in revenue from the carrier infrastructure end market was primarily due to the acquisition of Inphi and increase in demand from 5G base station related customers for our embedded processors and ethernet products. The increase in revenue from the enterprise networking end market was primarily due to the increase in demand for our ethernet products. The increase in revenue from the consumer end market was primarily due to the increase in demand for our custom SSD controllers. The increase in revenue from the automotive/industrial end market was primarily due to the increase in demand for our automotive ethernet connectivity products which continue to be designed into additional automotive models. Our net revenue for the nine months endedOctober 30, 2021 increased by$948.3 million compared to net revenue for the nine months endedOctober 31, 2020 . This was due to an increase in sales from all our end markets. Revenue increased from the data center end market by 57%, from the carrier infrastructure end market by 34%, from the enterprise networking end market by 36%, from the consumer end market by 26% , and from the automotive/industrial end market by 103% compared to the nine months endedOctober 31, 2020 . The increase in revenue from the data center end market was primarily due to the acquisition of Inphi and increase in demand for multiple product lines such as our embedded processors, flash controllers, networking and nearline HDD controllers and preamplifiers. The increase in revenue from the carrier infrastructure end market was primarily due to the acquisition of Inphi and increase in demand from 5G base station related customers for our embedded processors and ethernet products. The increase in revenue from the enterprise networking end market was primarily due to the increase in demand for our ethernet products. The increase in revenue from the consumer end market was primarily due to the increase in demand for our custom SSD controllers. The increase in revenue from the automotive/industrial end market was primarily due to the increase in demand for our automotive ethernet connectivity products. In the three months endedOctober 30, 2021 , unit shipments were 49% higher and average selling prices increased 13% compared to the three months endedOctober 31, 2020 , for an overall increase in net revenue of 61%. In the nine months endedOctober 30, 2021 , unit shipments were 29% higher and average selling prices increased 15% compared to the nine months endedOctober 31, 2020 . This was primarily driven by our recent portfolio changes, including the acquisition of Inphi.
Cost of Goods Sold and Gross Profit
Three Months Ended Nine Months Ended
October 30, October 31, % October 30, October 31, %
2021 2020 Change 2021 2020 Change
(in thousands, except percentage)
Cost of goods sold
51.5 % 49.2 % 55.8 % 50.8 %
Gross profit
48.5 % 50.8 % 44.2 % 49.2 %
Cost of goods sold as a percentage of net revenue increased for the three and
nine months ended October 30, 2021 compared to the three and nine months ended
October 31, 2020 , which is primarily due to increased costs associated with the
Inphi and Innovium acquisitions including amortization of inventory fair value
adjustment and amortization of acquired intangible assets. As a result, gross
margin for the three and nine months ended October 30, 2021 decreased 2.3% and
5% percentage points compared to the three and nine months ended October 31,
2020 .
36--------------------------------------------------------------------------------
Table of Contents
Research and Development
Three Months Ended Nine Months Ended
October 30, October 31, % October 30, October 31, %
2021 2020 Change 2021 2020 Change
(in thousands, except percentage)
Research and development $ 371,894 $ 255,637 45.5% $ 1,025,037 $ 812,360 26.2%
% of net revenue 30.7 % 34.1 % 32.9 % 37.4 %
Research and development expense increased by $116.3 million in the three months
ended October 30, 2021 compared to the three months ended October 31, 2020 . The
increase was primarily due to additional costs from our acquisition of Inphi and
Innovium, including $82.1 million of higher employee personnel-related costs,
$13.5 million of higher computer-aided design software related costs, and
$8.9 million of higher depreciation and amortization costs.
Research and development expense increased by $212.7 million in the nine months
ended October 30, 2021 compared to the nine months ended October 31, 2020 . The
increase was primarily due to additional costs from our acquisition of Inphi and
Innovium, including $146.0 million of higher employee personnel-related costs,
$26.4 million of higher computer-aided design software related costs,
$22.9 million of higher engineering design and supplies costs, and $11.1 million
of higher depreciation and amortization costs.
Selling, general and administrative
Three Months Ended Nine Months Ended
October 30, October 31, % October 30, October 31, %
2021 2020 Change 2021 2020 Change
(in thousands, except percentage)
Selling, general and
administrative $ 243,406 $ 115,501 110.7% $ 704,033 $ 350,322 101.0%
% of net revenue 20.1 % 15.4 % 22.6 % 16.1 %
Selling, general and administrative expense increased by $127.9 million in the
three months ended October 30, 2021 compared to the three months ended
October 31, 2020 . The increase was primarily due to additional costs from our
acquisition of Inphi and Innovium, including $83.2 million of higher intangibles
amortization expense, $25.7 million of higher employee personnel-related costs
and $18.7 million of higher integration costs.
Selling, general and administrative expense increased by $353.7 million in the
nine months ended October 30, 2021 compared to the nine months ended October 31,
2020 . The increase was primarily due to additional costs from our acquisition of
Inphi and Innovium, including $174.8 million of higher intangibles amortization
expense, $108.8 million of higher employee personnel-related costs and
$85.0 million of higher integration costs.
Restructuring Related Charges
Three Months Ended Nine Months Ended
October 30, October 31, % October 30, October 31, %
2021 2020 Change 2021 2020 Change
(in thousands, except percentage)
Restructuring related
charges $ 5,861 $ 19,312 (69.7)% $ 31,041 $ 161,189 (80.7)%
% of net revenue 0.5 % 2.6 % 1.0 % 7.4 %
We recognized $5.9 million and $31.0 million of total restructuring related
charges in the three and nine months ended October 30, 2021 as we continue to
evaluate our existing operations to increase operational efficiency, decrease
costs, and increase profitability. See "Note 7 - Restructuring" in the Notes to
the Unaudited Condensed Consolidated Financial Statements for further
information.
37
--------------------------------------------------------------------------------
Table of Contents
Interest Income
Three Months Ended Nine Months Ended
October 30, October 31, % October 30, October 31, %
2021 2020 Change 2021 2020 Change
(in thousands, except percentage)
Interest income $ 189 $ 608 (68.9)% $ 561 $ 2,243 (75.0)%
% of net revenue - % 0.1 % - % 0.1 %
Interest income decreased by
Interest Expense
Three Months Ended Nine Months Ended
October 30, October 31, % October 30, October 31, %
2021 2020 Change 2021 2020 Change
(in thousands, except percentage)
Interest expense
(3.3) % (2.2) %
Interest expense increased by$19.4 million in the three months endedOctober 30, 2021 compared to the three months endedOctober 31, 2020 . The increase was primarily due to the interest expense on the 2020 term loans in addition to the new 2026, 2028, and 2031 senior unsecured notes issued in the first quarter of fiscal 2022. Interest expense increased by$55.8 million in the nine months endedOctober 30, 2021 compared to the nine months endedOctober 31, 2020 . The increase was primarily due to the interest expense on the 2020 term loans in addition to the new 2026, 2028, and 2031 senior unsecured notes issued in the first quarter of fiscal 2022, as well as the write-off of issuance costs related to the bridge loan when the loan was terminated in the first quarter of fiscal 2022.
Other Income (loss), Net
Three Months Ended Nine Months Ended
October 30, October 31, % October 30, October 31, %
2021 2020 Change 2021 2020 Change
(in thousands, except percentage)
Other income (loss),
net $ 999 $ 299 234.1% $ 568 $ 3,613 (84.3)%
% of net revenue 0.1 % - % - % 0.2 %
Other income (loss), net, changed by
Other income (loss), net, changed by$3.0 million in the nine months endedOctober 30, 2021 compared to the nine months endedOctober 31, 2020 . The change was primarily due to the impairment recognized on a certain equity investment during the second quarter of fiscal 2022, as well as foreign currency rate fluctuations. 38 -------------------------------------------------------------------------------- Table of Contents Benefit for Income Taxes Three Months Ended Nine Months Ended October 30, October 31, % October 30, October 31, % 2021 2020 Change 2021 2020 Change (in thousands, except percentage) Benefit for income taxes$ (5,044) $ (1,641) 207.4%$ (58,367) $ (5,494) 962.4% Our income tax benefit for the three months endedOctober 30, 2021 was$5.0 million compared to a tax benefit of$1.6 million for the three months endedOctober 31, 2020 . Our income tax benefit for the three months endedOctober 30, 2021 differs from the tax benefit recorded in the same period in the prior year primarily due to the tax impact of discrete tax benefits from stock-based compensation deductions versus prior periods, tax rate differentials on foreign income (losses), as well as the recognition of tax benefits related to the settlement of audits in certain jurisdictions. These items were the primary drivers of the income tax benefits for the three months endedOctober 30, 2021 and the differences between the federal statutory tax rates of 21% and our effective income tax rates for these periods. Our income tax benefit for the nine months endedOctober 30, 2021 was$58.4 million compared to a tax benefit of$5.5 million for the nine months endedOctober 31, 2020 . Our income tax benefit for the nine months endedOctober 30, 2021 differs from the same period in the prior year primarily due to the tax impact of an intra-entity transfer of certain intellectual property to a subsidiary inSingapore , which resulted in a tax benefit of$10.0 million during the period. This amount, combined with discrete tax benefits from stock based compensation deductions versus prior periods, tax rate differentials on foreign income/(losses), as well as the recognition of tax benefits related to settlement of audits and the expirations of the statutes of limitations for the assessment of taxes in certain jurisdictions were the primary drivers of the income tax benefits for the nine months endedOctober 30, 2021 and the differences between the federal statutory tax rates of 21% and our effective income tax rates for these periods. Our provision for income taxes may be affected by changes in the geographic mix of earnings with different applicable tax rates, changes in the realizability of deferred tax assets and liabilities, discrete items, intra-entity transfers of intellectual property, accruals related to contingent tax liabilities and period-to-period changes in such accruals, the results of income tax audits, the expiration of statutes of limitations, the implementation of tax planning strategies, tax rulings, court decisions, settlements with tax authorities and changes in tax laws and regulations. It is also possible that significant negative evidence may become available that causes us to conclude that a valuation allowance is needed on certain of our deferred tax assets, which would adversely affect our income tax provision in the period of such change in judgment.
We also continuously evaluate potential changes to our legal structure in response to guidelines and requirements in various international tax jurisdictions where we conduct business. Additionally, please see the information in "Item 1A: Risk Factors" under the caption "Changes in existing taxation benefits, rules or practices may adversely affect our financial results."
Liquidity and Capital Resources
Our principal source of liquidity as ofOctober 30, 2021 consisted of approximately$523.5 million of cash and cash equivalents, of which approximately$437.0 million was held by subsidiaries outside ofthe United States . We manage our worldwide cash requirements by, among other things, reviewing available funds held by our foreign subsidiaries and the cost effectiveness by which those funds can be accessed inthe United States . See "Note 12 - Income Taxes" in the Notes to the Unaudited Condensed Consolidated Financial Statements for further information. InApril 2021 , we assumed$15.7 million in principal of Inphi's 0.75% convertible senior notes due 2021 and$506 million in principal of Inphi's 0.75% convertible senior notes due 2025 from Inphi. We also acquired capped call assets in relation to the convertible debt. See "Note 5 - Debt" in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information. As ofOctober 30, 2021 , the Inphi convertible notes have been settled. 39
--------------------------------------------------------------------------------
Table of Contents
InDecember 2020 , to fund the Inphi acquisition, we executed a debt agreement to obtain a$875 million 3-year term loan and a$875 million 5-year term loan. During the quarter endedOctober 30, 2021 , the Company repaid$140 million and$10.9 million of the principal outstanding of the 3-year term loan and 5-year term loan, respectively. We also executed a debt agreement to obtain a$750 million revolving credit facility ("2020 Revolving Credit Facility"). InApril 2021 , we completed an offering and issued (i)$500 million of senior notes with a 5 year term due in 2026, (ii)$750 million of senior notes with a 7 year term due in 2028, and (iii)$750 million of senior notes with a 10 year term due in 2031. OnOctober 8, 2021 , the senior notes issued inApril 2021 were exchanged for new notes. The terms of the new notes issued in the exchange are substantially identical to the notes issued inApril 2021 , except that the new notes are registered under the Securities Act of 1933 and the transfer restrictions and registration rights applicable to the Senior Notes issued inApril 2021 do not apply to the new notes. In addition, inMay 2021 , in conjunction with theU.S. domiciliation, we exchanged certain of our existing senior notes due in 2023 ("MTG 2023 Notes") and 2028 ("MTG 2028 Notes") that were previously issued by the formerBermuda -based parent with like notes that are now issued by the new parent domiciled inDelaware . See "Note 5 - Debt" in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.
Subsequent to quarter end, on
We believe that our existing cash, cash equivalents, together with cash generated from operations, and funds from our 2020 Revolving Credit Facility will be sufficient to cover our working capital needs, capital expenditures, investment requirements and any declared dividends, repurchase of our common stock and commitments for at least the next twelve months. Our capital requirements will depend on many factors, including our rate of sales growth, market acceptance of our products, costs of securing access to adequate manufacturing capacity, the timing and extent of research and development projects and increases in operating expenses, all of which are subject to uncertainty. To the extent that our existing cash and cash equivalents, together with cash generated by operations, and funds available under our 2020 Revolving Credit Facility are insufficient to fund our future activities, we may need to raise additional funds through public or private debt or equity financing. We may also acquire additional businesses, purchase assets or enter into other strategic arrangements in the future, which could also require us to seek debt or equity financing. Additional equity financing or convertible debt financing may be dilutive to our current stockholders. If we elect to raise additional funds, we may not be able to obtain such funds on a timely basis or on acceptable terms, if at all. In addition, the equity or debt securities that we issue may have rights, preferences or privileges senior to our common shares. Future payment of a regular quarterly cash dividend on our common shares and our planned repurchases of common stock will be subject to, among other things, the best interests of us and our stockholders, our results of operations, cash balances and future cash requirements, financial condition, developments in ongoing litigation, statutory requirements underDelaware law, market conditions and other factors that our Board of Directors may deem relevant. Our dividend payments and repurchases of common stock may change from time to time, and we cannot provide assurance that we will continue to declare dividends or repurchase shares at all or in any particular amounts. Our share repurchase program was temporarily suspended in lateMarch 2020 to preserve cash during the COVID-19 pandemic. We are focusing on reducing our debt and de-levering our balance sheet. We will continue to evaluate business conditions to decide when we can restart the share repurchase program.
Cash Flows from Operating Activities
Net cash flow provided by operating activities for the nine months endedOctober 30, 2021 was$473.0 million . We had a net loss of$427.2 million adjusted for the following non-cash items: amortization of acquired intangible assets of$684.6 million , share-based compensation expense of$325.9 million , amortization of inventory fair value adjustment associated with the Inphi and Innovium acquisitions of$191.0 million , depreciation and amortization of$189.7 million , deferred income tax benefit of$67.6 million , and$60.1 million net loss from other non-cash items. Cash outflow from working capital of$507.7 million for the nine months endedOctober 30, 2021 was primarily driven by increases in accounts receivable, inventory, and prepaid expenses and other assets, partially offset by increase in accounts payable. The increase in accounts receivable is primarily due to increased sales, as well as the timing of shipments due to ongoing supply chain challenges. The increase in inventory is due to increased procurement to support our future growth. The increase in prepaid expenses and other assets is primarily due to prepayments on supply capacity reservation agreements. The higher accounts payable is due to increase in purchases and timing of payments. 40 -------------------------------------------------------------------------------- Table of Contents Net cash flow provided by operating activities for the nine months endedOctober 31, 2020 was$659.0 million . We had a net loss of$293.8 million adjusted for the following non-cash items: amortization of acquired intangible assets of$333.9 million , share-based compensation expense of$182.1 million , depreciation and amortization of$149.9 million , restructuring related non-cash charges of$123.6 million , amortization of inventory fair value adjustment associated with theAquantia and Avera acquisition of$17.3 million and$19.4 million net loss from other non-cash items. Cash inflow from working capital of$123.0 million for the nine months endedOctober 31, 2020 was primarily driven by an increase in accrued employee compensation, an increase in accounts payable, an increase in accrued liabilities and other non-current liabilities, as well as a decrease in inventories. The increase in accrued employee compensation is due to increase in our bonus accrual and increase in employee contributions to the employee stock purchase plan. The increase in accounts payable is mainly due to timing of payments. The increase in accrued liabilities and other non-current liabilities was due to an increase in ship and debit reserve. The decrease in inventory is due to improved supply chain management.
Cash Flows from Investing Activities
For the nine months endedOctober 30, 2021 , net cash used in investing activities of$3.7 billion was primarily driven by net cash paid to acquire Inphi of$3.6 billion , purchases of property and equipment of$130.5 million , and purchases of technology licenses of$9.4 million , partially offset by cash acquired from Innovium of$60.4 million .
For the nine months ended
Cash Flows from Financing Activities
For the nine months endedOctober 30, 2021 , net cash provided by financing activities of$3.0 billion was primarily attributable to proceeds from issuance of debt of$3.8 billion , proceeds from capped calls of$160.3 million , partially offset by$425.9 million repayment of debt,$181.2 million of repurchases and settlement of convertible notes,$169.0 million tax withholding payments on behalf of employees for net share settlements,$140.3 million for payment of our quarterly dividends and$97.9 million payments on technology license obligations. For the nine months endedOctober 31, 2020 , net cash used in financing activities of$378.1 million was primarily attributable to$120.1 million for payment of our quarterly dividends,$100.0 million repayment of debt,$82.6 million tax withholding payments on behalf of employees for net share settlements,$76.8 million payments for technology license obligations and$25.2 million for repurchases of our common stock and$22.3 million payment of debt financing cost. These outflows were partially offset by$50.5 million proceeds from employee stock plans. 41
-------------------------------------------------------------------------------- Table of Contents Contractual Obligations and Commitments
Under the Company's manufacturing relationships with its foundry partners, cancellation of outstanding purchase orders is allowed but requires payment of all costs and expenses incurred through the date of cancellation.
The following table summarizes our contractual obligation as ofOctober 30, 2021 and the effect that such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):
Contractual Obligations by Fiscal Year
Remainder of
2022 2023 2024 2025 2026 Thereafter Total
Contractual obligations:
Principal payments on debt
$ 4,598,930 Interest obligations on debt 29,208 116,177 103,966 84,527 80,608 216,797
631,283
Facilities operating leases (1) 11,995 40,428 38,923 26,504 22,864 64,858
205,572
Purchase commitments to foundries and test & assembly partners (2) 61,899 1,068,090 498,975 541,868 498,569 539,972
3,209,373
Capital purchase obligations 41,272 - - - - - 41,272 Technology license obligations (3) 41,562 128,292 96,842 74,178 32,533 227,992 601,399 Other contractual commitments 17,981 7,228 1,769 503 350 4,665
32,496
Total contractual obligations
$ 9,320,325 (1)Amounts exclude contractual sublease proceeds of$38.6 million to be received through fiscal 2031. (2)Amounts include outstanding purchase orders with foundries and contractual obligations from supply capacity reservation agreements, see "Note 10 - Commitments and Contingencies" for details. (3)Amounts represent anticipated future cash payments, including anticipated interest payments not recorded in the consolidated balance sheet. In addition to the above commitments and contingencies, as ofOctober 30, 2021 , we have$32.9 million of unrecognized tax benefits as liabilities. We also have a liability for potential interest and penalties of$3.7 million as ofOctober 30, 2021 . It is reasonably possible that the amount of unrecognized tax benefits could increase or decrease significantly due to changes in tax law in various jurisdictions, new tax audits and changes in theU.S. dollar as compared to foreign currencies within the next 12 months. Excluding these factors, uncertain tax positions may decrease by as much as$1.9 million from the lapse of statutes of limitation in various jurisdictions during the next 12 months. Government tax authorities from several non-U.S. jurisdictions are also examining our tax returns. We believe that we have adequately provided for any reasonably foreseeable outcomes related to these tax audits and that any settlement will not have a material effect on our results at this time.
Indemnification Obligations
See "Note 10 - Commitments and Contingencies" in the Notes to the Unaudited Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.
42--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
