UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 29, 2017July 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: 001-35451
MACOM Technology Solutions Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
27-0306875
Delaware
27-0306875
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
100 Chelmsford Street
Lowell, MA 01851
(Address of principal executive offices and zip code)
(978) 656-2500
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of exchange on which registered
Common Stock, par value $0.001 per shareMTSINasdaq 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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerx
Accelerated filer¨
Non-accelerated filer¨(Do not check if a smaller reporting company)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
As of February 2, 2018,July 27, 2020, there were 64,405,67366,885,282 shares of the registrant’s common stock outstanding.


1


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
FORM 10-Q
TABLE OF CONTENTS
Page No.
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1.1A.
Item1A.Item 2.
Item 2.
Item 6.

2



PART I—FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(InUnaudited, in thousands)
(Unaudited)
December 29,
2017
 September 29,
2017
July 3,
2020
September 27,
2019
ASSETS   ASSETS
Current assets:   Current assets:
Cash and cash equivalents$152,085
 $130,104
Cash and cash equivalents$131,870  $75,519  
Short term investments44,585
 84,121
Accounts receivable (less allowances of $8,924 and $9,410, respectively)97,123
 136,096
Short-term investmentsShort-term investments133,248  101,226  
Accounts receivable (less allowances of $3,425 and $5,047, respectively)Accounts receivable (less allowances of $3,425 and $5,047, respectively)60,504  69,790  
Inventories143,136
 136,074
Inventories95,576  107,880  
Income tax receivable18,933
 18,493
Income tax receivable18,904  16,661  
Assets held for sale
 35,571
Prepaid and other current assets25,363
 22,438
Prepaid and other current assets10,166  27,506  
Total current assets$481,225
 $562,897
Total current assets450,268  398,582  
Property and equipment, net132,010
 131,019
Property and equipment, net122,000  132,647  
Goodwill316,239
 313,765
Goodwill314,779  314,727  
Intangible assets, net601,920
 621,092
Intangible assets, net143,317  181,228  
Deferred income taxes948
 948
Deferred income taxes41,648  43,812  
Other investments41,500
 
Other investments9,975  23,613  
Other long-term assets7,418
 7,402
Other long-term assets39,140  10,965  
TOTAL ASSETS$1,581,260
 $1,637,123
TOTAL ASSETS$1,121,127  $1,105,574  
LIABILITIES AND STOCKHOLDERS' EQUITY   LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:   Current liabilities:
Current portion of lease payable$796
 $815
Current portion of finance lease obligations and otherCurrent portion of finance lease obligations and other$1,506  $1,084  
Current portion of long-term debt6,885
 6,885
Current portion of long-term debt6,885  6,885  
Accounts payable25,807
 47,038
Accounts payable25,599  24,822  
Accrued liabilities50,981
 60,237
Accrued liabilities53,539  39,908  
Liabilities held for sale
 2,144
Deferred revenueDeferred revenue7,488  2,137  
Total current liabilities$84,469

$117,119
Total current liabilities95,017  74,836  
Lease payable, less current portion19,163
 17,275
Finance lease obligations and other, less current portionFinance lease obligations and other, less current portion29,351  29,506  
Long-term debt, less current portion660,696
 661,471
Long-term debt, less current portion652,947  655,272  
Warrant liability26,167
 40,775
Warrant liability27,315  12,364  
Deferred income taxes15,555
 15,172
Deferred income taxes2,085  632  
Other long-term liabilities7,409
 7,937
Other long-term liabilities41,108  19,068  
Total liabilities$813,459

$859,749
Total liabilities847,823  791,678  
Stockholders’ equity:   Stockholders’ equity:
Common stock64
 64
Common stock67  66  
Treasury stock, at cost(330) (330)Treasury stock, at cost(330) (330) 
Accumulated other comprehensive income2,999
 2,977
Accumulated other comprehensive income4,281  4,358  
Additional paid-in capital1,055,636
 1,041,644
Additional paid-in capital1,126,505  1,101,576  
Accumulated deficit(290,568) (266,981)Accumulated deficit(857,219) (791,774) 
Total stockholders’ equity$767,801

$777,374
Total stockholders’ equity273,304  313,896  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$1,581,260
 $1,637,123
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$1,121,127  $1,105,574  
See notes to condensed consolidated financial statements.

1



MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(InUnaudited, in thousands, except per share data)
(Unaudited)
 
 Three Months Ended
 December 29,
2017
 December 30,
2016
Revenue$130,925
 $151,752
Cost of revenue69,971
 73,257
Gross profit60,954
 78,495
Operating expenses:   
Research and development41,651
 30,174
Selling, general and administrative37,634
 36,496
Restructuring charges4,662
 1,287
Total operating expenses83,947
 67,957
(Loss) income from operations(22,993) 10,538
Other (expense) income   
Warrant liability gain (expense)14,608
 (4,823)
Interest expense, net(7,239) (7,350)
Other income (expense)7
 (4)
Total other income (expense), net7,376
 (12,177)
Loss before income taxes(15,617) (1,639)
Income tax expense1,353
 532
Loss from continuing operations(16,970) (2,171)
(Loss) income from discontinued operations(5,599) 1,206
Net loss$(22,569) $(965)
    
Net (loss) income per share:   
Basic (loss) income per share:   
Loss from continuing operations$(0.26) $(0.04)
(Loss) income from discontinued operations(0.09) 0.02
Loss per share - basic$(0.35) $(0.02)
Diluted (loss) income per share:   
Loss from continuing operations$(0.49) $(0.04)
(Loss) income from discontinued operations(0.09) 0.02
Loss per share - diluted$(0.57) $(0.02)
Shares used:   
Basic64,325
 53,737
Diluted65,109
 53,737
 Three Months EndedNine Months Ended
 July 3,
2020
June 28,
2019
July 3,
2020
June 28,
2019
Revenue$137,267  $108,306  $382,788  $387,460  
Cost of revenue66,391  74,478  190,338  219,678  
Gross profit70,876  33,828  192,450  167,782  
Operating expenses:
Research and development34,948  42,708  105,936  128,593  
Selling, general and administrative29,982  41,920  94,317  126,437  
Impairment charges—  264,086  —  264,086  
Restructuring (benefit) charges(554) 8,887  1,494  17,047  
Total operating expenses64,376  357,601  201,747  536,163  
Income (loss) from operations6,500  (323,773) (9,297) (368,381) 
Other expense:
Warrant liability (expense) gain(19,511) 1,927  (14,951) 5,788  
Interest expense, net(5,849) (8,967) (22,142) (27,142) 
Other (expense) income, net(4,372) 4,777  (12,464) (4,233) 
Total other expense, net(29,732) (2,263) (49,557) (25,587) 
Loss before income taxes(23,232) (326,036) (58,854) (393,968) 
Income tax expense (benefit)1,750  (1,322) 4,716  346  
Net loss$(24,982) $(324,714) $(63,570) $(394,314) 
Net loss per share:
Loss per share - Basic$(0.37) $(4.93) $(0.96) $(6.01) 
Loss per share - Diluted$(0.37) $(4.95) $(0.96) $(6.09) 
 Weighted average shares used:
Basic66,796  65,858  66,512  65,555  
Diluted66,796  65,945  66,512  65,722  
See notes to condensed consolidated financial statements.




2


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(InUnaudited, in thousands)
(Unaudited)
 
Three Months Ended Three Months EndedNine Months Ended
December 29,
2017
 December 30,
2016
July 3,
2020
June 28,
2019
July 3,
2020
June 28,
2019
Net loss$(22,569) $(965)Net loss$(24,982) $(324,714) $(63,570) $(394,314) 
Unrealized loss on short term investments, net of tax(267) (46)
Unrealized gain on short term investments, net of taxUnrealized gain on short term investments, net of tax1,697  105  400  455  
Foreign currency translation gain (loss), net of tax289
 (9,597)Foreign currency translation gain (loss), net of tax458  996  (477) 2,256  
Other comprehensive income (loss), net of tax22
 (9,643)Other comprehensive income (loss), net of tax2,155  1,101  (77) 2,711  
Total comprehensive loss$(22,547) $(10,608)Total comprehensive loss$(22,827) $(323,613) $(63,647) $(391,603) 
See notes to condensed consolidated financial statements.




3


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY
(InUnaudited, in thousands)
(Unaudited)
Three Months Ended
   Accumulated
Other
Comprehensive Income
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
 Common StockTreasury Stock
 SharesAmountSharesAmount
Balance at April 3, 202066,718  $67  (23) $(330) $2,126  $1,116,105  $(832,237) $285,731  
Stock options exercises23  —  —  —  —  46  —  46  
Vesting of restricted common stock and units72  —  —  —  —  —  —  —  
Issuance of common stock pursuant to employee stock purchase plan112  —  —  —  —  2,467  —  2,467  
Shares repurchased for tax withholdings on equity awards(22) —  —  —  —  (608) —  (608) 
Share-based compensation—  —  —  —  —  8,495  —  8,495  
Other comprehensive income, net of tax—  —  —  —  2,155  —  —  2,155  
Net loss—  —  —  —  —  —  (24,982) (24,982) 
Balance at July 3, 202066,903  $67  (23) $(330) $4,281  $1,126,505  $(857,219) $273,304  

Nine Months Ended
    
Accumulated
Other
Comprehensive Income
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Total
Stockholders’
Equity
  Accumulated
Other
Comprehensive Income
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
Common Stock Treasury Stock Common StockTreasury Stock
Shares Amount Shares Amount SharesAmountSharesAmount
Balance at September 29, 201764,279
 $64
 (23) $(330) $2,977
 $1,041,644
 $(266,981) $777,374
Cumulative effect of ASU 2016-09
 
 
 
 
 1,018
 (1,018) 
Balance at September 27, 2019Balance at September 27, 201966,177  $66  (23) $(330) $4,358  $1,101,576  $(791,774) $313,896  
Cumulative effect of ASU 2016-02Cumulative effect of ASU 2016-02—  —  —  —  —  —  (1,875) (1,875) 
Stock options exercises14
 
 
 
 
 46
 
 46
Stock options exercises41  —  —  —  —  168  —  168  
Vesting of restricted common stock and units24
 
 
 
 
 
 
 
Vesting of restricted common stock and units636   —  —  —  —  —   
Issuance of common stock pursuant to employee stock purchase plan114
 
 
 
 
 3,195
 
 3,195
Issuance of common stock pursuant to employee stock purchase plan272  —  —  —  —  4,397  —  4,397  
Shares repurchased for stock withholdings on restricted stock awards(9) 
 
 
 
 (259) 
 (259)
Shares repurchased for tax withholdings on equity awardsShares repurchased for tax withholdings on equity awards(223) —  —  —  —  (6,557) —  (6,557) 
Share-based compensation
 
 
 
 
 9,992
 
 9,992
Share-based compensation—  —  —  —  —  26,921  —  26,921  
Other comprehensive loss, net of tax
 
 
 
 22
 
 
 22
Other comprehensive loss, net of tax—  —  —  —  (77) —  —  (77) 
Net loss
 
 
 
 
 
 (22,569) (22,569)Net loss—  —  —  —  —  —  (63,570) (63,570) 
Balance at December 29, 201764,422
 $64
 (23) $(330) $2,999
 $1,055,636
 $(290,568) $767,801
Balance at July 3, 2020Balance at July 3, 202066,903  $67  (23) $(330) $4,281  $1,126,505  $(857,219) $273,304  
See notes to condensed consolidated financial statements.







4


Three Months Ended
   Accumulated
Other
Comprehensive Income
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
 Common StockTreasury Stock
 SharesAmountSharesAmount
Balance at March 29, 201965,723  $66  (23) $(330) $3,798  $1,091,067  $(477,576) $617,025  
Stock options exercises11  —  —  —  —  22  —  22  
Vesting of restricted common stock and units87  —  —  —  —  —  —  —  
Issuance of common stock pursuant to employee stock purchase plan265  —  —  —  —  3,193  —  3,193  
Shares repurchased for tax withholdings on equity awards(31) —  —  —  —  (446) —  (446) 
Share-based compensation—  —  —  —  —  2,814  —  2,814  
Other comprehensive income, net of tax—  —  —  —  1,101  —  —  1,101  
Net loss—  —  —  —  —  —  (324,714) (324,714) 
Balance at June 28, 201966,055  $66  (23) $(330) $4,899  $1,096,650  $(802,290) $298,995  
Nine Months Ended
   Accumulated
Other
Comprehensive Income
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
 Common StockTreasury Stock
 SharesAmountSharesAmount
Balance at September 28, 201865,202  $65  (23) $(330) $2,188  $1,074,728  $(407,976) $668,675  
Stock option exercises23  —  —  —  —  46  —  46  
Vesting of restricted common stock and units632   —  —  —  —  —   
Issuance of common stock pursuant to employee stock purchase plan421  —  —  —  —  5,585  —  5,585  
Shares repurchased for tax withholdings on equity awards(223) —  —  —  —  (3,872) —  (3,872) 
Share-based compensation—  —  —  —  —  20,163  —  20,163  
Other comprehensive income, net of tax—  —  —  —  2,711  —  —  2,711  
Net loss—  —  —  —  —  —  (394,314) (394,314) 
Balance at June 28, 201966,055  $66  (23) $(330) $4,899  $1,096,650  $(802,290) $298,995  
See notes to condensed consolidated financial statements.
5


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(InUnaudited, in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
December 29, 2017 December 30, 2016 July 3, 2020June 28, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:   CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(22,569) $(965)Net loss$(63,570) $(394,314) 
Adjustments to reconcile net loss to net cash provided by operating activities (net of acquisitions):   
Adjustments to reconcile net loss to net cash provided by operating activities:Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and intangibles amortization26,874
 18,475
Depreciation and intangibles amortization59,751  84,612  
Share-based compensation9,992
 8,183
Share-based compensation26,921  20,163  
Warrant liability (gain) expense(14,608) 4,823
Acquired inventory step-up amortization224
 
Warrant liability loss (gain)Warrant liability loss (gain)14,951  (5,788) 
Deferred financing cost amortization1,029
 702
Deferred financing cost amortization3,046  3,046  
Deferred income taxes403
 (1,054)Deferred income taxes3,581  59  
Changes in assets held for sale from discontinued operations(6,219) 
Impairment and restructuring related chargesImpairment and restructuring related charges—  272,873  
Loss on minority equity investmentLoss on minority equity investment13,637  3,937  
Other adjustments, net966
 582
Other adjustments, net1,193  395  
Change in operating assets and liabilities (net of acquisitions):   
Change in operating assets and liabilities:Change in operating assets and liabilities:
Accounts receivable38,874
 (4,488)Accounts receivable9,286  29,291  
Inventories(8,017) (1,583)Inventories12,304  12,298  
Prepaid expenses and other assets(6,583) (673)Prepaid expenses and other assets15,489  1,350  
Accounts payable(14,445) 931
Accounts payable1,058  (3,888) 
Accrued and other liabilities(2,225) (5,547)Accrued and other liabilities1,242  3,164  
Income taxes(3,162) 1,021
Income taxes(1,895) 1,079  
Net cash provided by operating activities534
 20,407
Net cash provided by operating activities96,994  28,277  
CASH FLOWS FROM INVESTING ACTIVITIES:   CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipmentPurchases of property and equipment(12,658) (31,905) 
Proceeds from sales and maturities of short-term investmentsProceeds from sales and maturities of short-term investments165,798  155,281  
Purchases of short-term investmentsPurchases of short-term investments(196,479) (156,061) 
Proceeds from divested businessProceeds from divested business11,003  —  
Acquisition of businesses, net
 875
Acquisition of businesses, net—  (375) 
Purchases of property and equipment(13,823) (4,942)
Proceeds from sale of assets
 104
Proceeds from sales and maturities of investments57,382
 8,822
Purchases of investments(17,987) (8,902)
Purchases of other investments(5,000) 
Payments associated with discontinued operations(263) 
Net cash provided by (used in) investing activities20,309
 (4,043)
Sale of assetsSale of assets366  —  
Net cash used in investing activitiesNet cash used in investing activities(31,970) (33,060) 
CASH FLOWS FROM FINANCING ACTIVITIES:   CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock option exercises and employee stock purchases3,241
 2,600
Proceeds from stock option exercises and employee stock purchases4,565  5,631  
Payments on notes payable(1,721) (1,513)
Payments of capital leases and assumed debt(216) (288)
Repurchase of common stock(259) 
Proceeds from corporate facility financing obligation
 4,250
Other adjustments
 (38)
Net cash provided by financing activities1,045
 5,011
Payments on long-term debtPayments on long-term debt(5,163) (5,163) 
Payments on finance leases and otherPayments on finance leases and other(1,307) (809) 
Repurchase of common stock - tax withholdings on equity awardsRepurchase of common stock - tax withholdings on equity awards(6,557) (3,872) 
Payments of contingent consideration and otherPayments of contingent consideration and other—  (579) 
Net cash used in financing activitiesNet cash used in financing activities(8,462) (4,792) 
Foreign currency effect on cash93
 (435)Foreign currency effect on cash(211) 164  
NET CHANGE IN CASH AND CASH EQUIVALENTS21,981
 20,940
NET CHANGE IN CASH AND CASH EQUIVALENTS56,351  (9,411) 
CASH AND CASH EQUIVALENTS — Beginning of period$130,104
 $332,977
CASH AND CASH EQUIVALENTS — Beginning of period75,519  94,676  
CASH AND CASH EQUIVALENTS — End of period$152,085
 $353,917
CASH AND CASH EQUIVALENTS — End of period$131,870  $85,265  
See notes to condensed consolidated financial statements.

6



MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Information—The accompanying unaudited, condensed consolidated financial statements have been prepared according to the rules and regulations of the United States (the “U.S.”) Securities and Exchange Commission (“SEC”(the “SEC”) and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the condensed consolidated balance sheets, condensed consolidated statements of operations, condensed consolidated statement of comprehensive income, condensed consolidated statements ofloss, stockholders' equity and condensed consolidated statements of cash flows of MACOM Technology Solutions Holdings, Inc. (“MACOM”, the “Company”, “us”, “we” or “our”) for the periods presented. We prepare our interim financial information using the same accounting principles we use for our annual audited consolidated financial statements. Certain information and note disclosures normally included in the annual audited consolidated financial statements have been condensed or omitted in accordance with prescribed SEC rules. We believe that the disclosures made in our condensed consolidated financial statements and the accompanying notes are adequate to make the information presented not misleading.
The condensed consolidated balance sheet atas of September 29, 201727, 2019 is as reported in our audited consolidated financial statements as of that date. Our accounting policies are described in the notes to our September 29, 201727, 2019 consolidated financial statements, which were included in our Annual Report on Form 10-K for our fiscal year ended September 29, 201727, 2019 filed with the SEC on November 15, 2017.26, 2019 (the “2019 Annual Report on Form 10-K”). We recommend that the financial statements included in this Quarterly Report on Form 10-Q be read in conjunction with the consolidated financial statements and notes included in our 2019 Annual Report on Form 10-K for our fiscal year ended September 29, 2017.10-K.
Principles of Consolidation—We have one reportable segment, semiconductors and modules. The accompanying condensed consolidated financial statements include our accounts and the accounts of our majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
We have a 5252- or 53-week fiscal year ending on the Friday closest to the last day of September. TheFiscal year 2020 includes 53 weeks and fiscal years 2018 and 2017 includeyear 2019 includes 52 weeks. To offset the effect of holidays, for fiscal years in which there are 53 weeks, we typically include the extra week arising in oursuch fiscal years in the first quarter. Our first fiscal quarter ended January 3, 2020 included 14 weeks.
Use of Estimates—The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles generally accepted in the U.S.(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities during the reporting periods, the reported amounts of revenue and expenses during the reporting periods, and the disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, we base estimates and assumptions on historical experience, currently available information and various other factors that management believes to be reasonable under the circumstances. Actual results may differ materially from these estimates and assumptions.
Recent Accounting Pronouncements—Our Recent Accounting Pronouncements are described in the notes to our September 29, 2017 consolidated financial statements, which were included in our2019 Annual Report on Form 10-K for10-K.
Pronouncements Adopted in Fiscal Year 2020
On the first day of our fiscal year 2020, we adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASC 842”), which requires lease arrangements be presented on the lessee’s balance sheet by recording a right-of-use (“ROU”) asset and a lease liability equal to the present value of related future minimum lease payments. We adopted the new lease guidance using the modified retrospective approach and the transition method available in accordance with ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides the option to use the effective date as the date of initial application of the guidance. As a result, the comparative information for prior periods has not been adjusted and continues to be reported in accordance with the accounting standards in effect for those periods under the previously applicable guidance. We elected the “practical expedients package of three” permitted under the transition guidance within ASC 842, which permitted us to carry forward our historical assessments of whether contracts contain leases, lease classification, and initial direct costs, for leases in existence prior to September 28, 2019. We evaluated our identified leases and applied the new lease guidance as discussed in Note 8 - Leases.
At the effective date, the adoption of ASC 842 resulted in an increase to our total assets of approximately $37.1 million, an increase to our total liabilities of approximately $39.0 million and a decrease to our retained earnings of approximately $1.9 million primarily due to derecognition of financing obligations and associated assets established under ASC 840, Leases.
7


We have operating leases for certain facilities as well as manufacturing and office equipment. Based on the present value of lease payments for the remaining lease term of our existing leases, we recognized $37.7 million and $43.6 million of both operating ROU assets and operating lease liabilities, respectively, on our condensed consolidated balance sheet upon adoption of ASC 842 on September 28, 2019. The difference between the ROU asset and liability represents deferred rent and lease incentives of approximately $5.9 million, recorded as a reduction to our gross ROU assets.
We have finance leases for our corporate headquarters, including our fabrication facility, and to a lesser extent, various manufacturing equipment. Upon the adoption of ASC 842 on September 28, 2019, we derecognized the previous financed assets, recorded financing obligations for our corporate headquarters, and recorded finance lease assets and financing obligations for various manufacturing equipment. On September 28, 2019 we recognized a finance lease ROU asset and finance lease liability of $35.7 million and $31.8 million, respectively, on our condensed consolidated balance sheet. The difference between the ROU asset and liability represents net prepaid rent for our corporate headquarters, which is recorded as part of the finance lease ROU asset and is being amortized on a straight-line basis over the remaining lease term.
The adoption of the new lease guidance did not have a material impact to the condensed consolidated statement of operations or cash flows, or earnings per share for the three and nine months ended September 29, 2017.July 3, 2020.
Pronouncements for Adoption in Subsequent Periods
In May 2014,June 2016, the Financial Accounting Standards Board ("FASB"(“FASB”) issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, which supersedes all existing revenue recognition requirements, including most industry-specific guidance. TheASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU introduces a new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date ("Topic 606"accounting model known as Credit Expected Credit Losses (“CECL”), which delayedrequires earlier recognition of credit losses. The CECL model utilizes a lifetime expected credit loss measurement objective for the effective daterecognition of credit losses for receivables at the newtime the financial asset is originated or acquired, replacing the current incurred loss methodology that delays recognition of credit losses until a probable loss has been incurred. There are other provisions within the standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities to chooseaffecting how impairments of other financial assets may be recorded and presented, as well as expanded disclosures. We plan to adopt this standard on the standard asfirst day of the original effective date. The standard permits the use of either the retrospective or cumulative effect transition method, and weour fiscal year 2021, October 3, 2020. We are currently evaluating the method of adoption. We are currently in the process of completing our analysis on the impact of this new accounting standards update. Westandard, although we do not expectbelieve the adoption of ASU 2015-14 will have a material impact on our consolidated financial positionstatements.
2. REVENUE
Disaggregation of Revenue
We disaggregate revenue from contracts with customers by markets and resultsgeography, as we believe it best depicts how the nature, amount, timing and uncertainty of operations.revenue and cash flows are affected by economic factors.
In March 2016,The following tables present our revenue disaggregated by markets and geography (in thousands):
Three Months EndedNine Months Ended
July 3, 2020June 28, 2019July 3, 2020June 28, 2019
Revenue by Market:
Telecommunications$56,800  $43,883  $154,049  $141,379  
Industrial & Defense48,035  46,809  146,586  154,563  
Data Center32,432  17,614  82,153  91,518  
Total$137,267  $108,306  $382,788  $387,460  

Three Months EndedNine Months Ended
July 3, 2020June 28, 2019July 3, 2020June 28, 2019
Revenue by Geographic Region:
United States$53,633  $52,340  $163,964  $185,172  
China55,886  27,451  133,659  104,491  
Asia Pacific, excluding China (1)
19,688  16,371  58,552  60,384  
Other Countries (2)
8,060  12,144  26,613  37,413  
Total$137,267  $108,306  $382,788  $387,460  
8


(1)Asia Pacific represents Taiwan, Japan, Singapore, India, Thailand, South Korea, Australia, Malaysia, New Zealand and the FASB issued ASU 2016-09, Compensation - Stock Compensation ("Topic 718"), whichsimplifies several aspectsPhilippines.
(2)No country or region represented greater than 10% of the accounting for employee share-based payment transactions for both public and nonpublic entities. We adopted this ASU as of September 30, 2017. Prior to ASU 2016-09, the accounting for share-based compensation required forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. ASU 2016-09 allows an entity to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. ASU 2016-09 requires an entity that elects to account for forfeitures when they occur to apply the accounting change on a modified retrospective basis as a cumulative-effect adjustment to retained


earningsour total revenue as of the datedates presented, other than the United States, China and Asia Pacific region as presented above.
Contract Balances
We record contract assets or contract liabilities depending on the timing of adoption. We elected to account for forfeitures when they occur,revenue recognition, billings and recorded a $1.0 million cumulative-effect adjustment to beginning retained earnings as of September 30, 2017. We did not record any adjustments to retained earnings for the tax effect of the adoption of ASU 2016-09 as we are in a full valuation allowance position against our U.S deferred tax asset. ASU 2016-09 requires all excess tax benefits and tax deficiencies to be recorded in the consolidated income statementcash collections on a prospective basis when the awards vest or are settled. Duecontract-by-contract basis. Our contract liabilities primarily relate to our full U.S. valuation allowance, ASU 2016-09 had no impact to our tax expensedeferred revenue, including advanced consideration received from customers for the three months ended December 29, 2017.
2. ACQUISITIONS
Acquisition of Applied Micro Circuits Corporation— On January 26, 2017, we completed the acquisition of Applied Micro Circuits Corporation (“AppliedMicro”), a global provider of silicon solutions for next-generation cloud infrastructure and Cloud Data Centers, as well as connectivity products for edge, metro and long-haul communications equipment (the “AppliedMicro Acquisition”). We acquired AppliedMicro in order to expand our business in enterprise and Cloud Data Center applications. In connection with the AppliedMicro Acquisition, we acquired all of the outstanding common stock of AppliedMicro for total consideration of $695.4 million, which included cash paid of $287.1 million, less $56.8 million of cash acquired, and equity issued at a fair value of $465.1 million. In conjunction with the equity issued, we granted vested out-of-money stock options and unvested restricted stock units to replace outstanding vested out-of-money stock options and unvested restricted stock units of AppliedMicro. The total fair value of granted vested out-of-money stock options and unvested restricted stock units was $14.5 million, of which $9.3 million was attributable to pre-combination service and was included in the total consideration transferred. We funded the AppliedMicro Acquisition with cash on hand and short term investments. We recorded transaction costs relatedcontracts prior to the acquisition in selling, general and administrative expense. For the three months ended December 29, 2017, we recorded no transaction costs. For the three months ended December 30, 2016, we recorded transaction coststransfer of $3.5 million. The AppliedMicro Acquisition was accounted for as a stock purchase and the operations of AppliedMicro have been included in our consolidated financial statements since the date of acquisition.
We recognized the AppliedMicro assets acquired and liabilities assumed based upon the fair value of such assets and liabilities measured as of the date of acquisition. The aggregate purchase price for AppliedMicro has been allocatedcontrol to the tangiblecustomer, and identifiable intangible assets acquiredtherefore revenue is subsequently recognized upon delivery of products and liabilities assumed based on their estimated fair value at the date of acquisition. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which will be tax deductible.
In connection with the acquisition of AppliedMicro, we entered into a plan to divest a portion of AppliedMicro's business specifically related to its compute business (the "Compute business"). The divestiture of the Compute business was completed on October 27, 2017. See Note 3 - Discontinued Operations for further details of the divestiture.services.
The following table summarizespresents the total estimated acquisition consideration (in thousands):
Cash consideration paid to AppliedMicro common stockholders$287,060
Common stock issued (9,544,125 shares of our common stock at $47.53 per share)453,632
Equity consideration for vested "in the money" stock options and unvested restricted stock units2,143
Fair value of the replacement equity awards attributable to pre-acquisition service9,307
Total consideration paid, excluding cash acquired$752,142


We finalized the purchase accountingchanges in contract liabilities during the fiscal quarternine months ended December 29, 2017.July 3, 2020 (in thousands, except percentage):
July 3, 2020September 27, 2019$ Change% Change
 Contract liabilities$11,003  $10,653  $350  %

As of July 3, 2020 and September 27, 2019, approximately $3.5 million and $8.5 million of our contract liabilities, respectively, were recorded as other long-term liabilities on our balance sheet with the remainder recorded as deferred revenue. The final purchase price allocation isincrease in contract liabilities during the nine months ended July 3, 2020, as follows (in thousands):
 Preliminary Allocation as of Allocation Adjustments Adjusted Allocation
 September 29, 2017  December 29, 2017
      
Current assets$70,434
 $(553) $69,881
Intangible assets412,848
 
 412,848
Assets held for sale40,944
 
 40,944
Other assets9,800
 
 9,800
Total assets acquired534,026
 (553) 533,473
Liabilities assumed:     
Liabilities held for sale4,444
 
 4,444
Other liabilities17,627
 651
 18,278
Total liabilities assumed22,071
 651
 22,722
Net assets acquired511,955
 (1,204) 510,751
Consideration:     
Cash paid upon closing230,298
 
 230,298
Common stock issued455,775
 
 455,775
Equity instruments issued9,307
 
 9,307
Total consideration$695,380
 $
 $695,380
Goodwill$183,425
 $1,204
 $184,629
The componentsshown in the table above, was primarily from the deferral of revenue for funds received prior to when certain of our customers obtained control of the acquired intangible assets were as follows (in thousands):product or services.
 Included In Assets Held For Sale Included in Retained Business Useful Lives (Years)
Developed technology$9,600
 $78,448
 7 years
Customer relationships
 334,400
 14 years
Total acquired intangible assets$9,600
 $412,848
  
The overall weighted-average life of the identified intangible assets acquired in the AppliedMicro Acquisition is estimated to be 12.7 years and the assets are being amortized over their estimated useful lives based upon the pattern over which we expect to receive the economic benefit from these assets.
The following is a summary of AppliedMicro revenue and earnings included in our accompanying condensed consolidated statements of operations for the three months ended December 29, 2017 (in thousands):
 Three Months Ended
 December 29, 2017
Revenue$22,624
Loss from continuing operations(5,441)
Loss from discontinued operations(5,599)


The pro forma statements of operations data for the three months ended December 30, 2016, below, give effect to the AppliedMicro Acquisition, described above, as if it had occurred at October 2, 2015. These amounts have been calculated after applying our accounting policies and adjusting the results of AppliedMicro to reflect transaction costs, retention compensation expense, the impact of the step-up to the value of acquired inventory, as well as the additional intangible amortization that would have been charged assuming the fair value adjustments had been applied and incurred since October 2, 2015. This pro forma data is presented for informational purposes only and does not purport to be indicative of our future results of operations.
 December 30, 2016
Revenue$194,469
Income from continuing operations9,019
Loss from discontinued operations(17,923)
Acquisition of Assets of Picometrix LLC— On August 9, 2017, we completed the acquisition of certain assets of Picometrix LLC ("Picometrix"), a supplier of optical-to-electrical converters for Cloud Data Center infrastructure (the "Picometrix Acquisition"). We acquired Picometrix in order to expand our business in enterprise and Cloud Data Center applications. The purchase consideration was $33.5 million, comprised of an upfront cash payment of $29.5 million, and $4.0 million placed in escrow for potential satisfaction of certain indemnification obligations that may arise from the closing date through December 15, 2018. For the three months ended December 29, 2017, we recorded no transaction costs. The Picometrix Acquisition was accounted for as an asset purchase, and the operations of Picometrix have been included in our consolidated financial statements since the date of acquisition.
We recognized the Picometrix assets acquired based upon the fair value of such assets measured as of the date of acquisition. The aggregate purchase price for the Picometrix assets has been allocated to the tangible and identifiable intangible assets acquired based on their estimated fair value at the date of acquisition. The excess of the purchase price over the fair value of the acquired assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, all of which will be tax deductible.
The purchase accounting is preliminary and subject to completion including certain fair value measurements, particularly the finalization of the valuation assessment of the acquired tangible and intangible assets. The adjustments arising from the completion of the outstanding matters may materially affect the preliminary purchase accounting.
The preliminary allocation of purchase price as of December 29, 2017 is as follows (in thousands):
 Preliminary Allocation as of Allocation Adjustments Adjusted Allocation
 September 29, 2017  December 29, 2017
      
Current assets$7,375
 $(1,131) $6,244
Intangible assets19,000
 
 19,000
Other assets3,301
 
 3,301
Total assets acquired29,676
 (1,131) 28,545
      
Current liabilities2,169
 242
 2,411
Other liabilities190
 (77) 113
Total liabilities assumed2,359
 165
 2,524
Net assets acquired27,317
 (1,296) 26,021
Consideration:     
Cash paid upon closing, net of cash acquired
33,500
 
 33,500
Goodwill$6,183
 $1,296
 $7,479
The pro forma financial information for fiscal years 2018 and 2017, including revenue and net income, is immaterial, and has not been separately presented.


3. DISCONTINUED OPERATIONS
On October 27, 2017, we entered into a Purchase Agreement with Ampere Computing Holdings LLC (formerly known as Project Denver Holdings LLC) ("Ampere"), to sell the Compute business. In consideration for the transfer and sale of the Compute business, we received an equity interest in Ampere valued at approximately $36.5 million, and representing less than 20% of Ampere's total outstanding equity. The operations of the Compute business were accounted for as discontinued operations through the date of divestiture.
In August 2015, we sold our automotive business (the "Automotive business") to Autoliv ASP Inc. (“Autoliv”), as the Automotive business was not consistent with our long-term strategic vision from both a growth and profitability perspective. Additionally, we entered into a consulting agreement pursuant to which we were to provide Autoliv with certain non-design advisory services for a period of two years following the closing of the transaction for up to $15.0 million (the "Consulting Agreement"). During the three and nine months ended December 30, 2016,July 3, 2020, we recognized $1.9net sales of $0.2 million and $0.4 million, respectively, that were included in the contract liabilities balance at the beginning of income from the consulting agreement with Autoliv. No income was recognized during the three months ended December 29, 2017.period.
The accompanying consolidated statements of operations includes the following operating results related to these discontinued operations (in thousands):
  Three Months Ended
  December 29, 2017 December 30, 2016
Revenue (1) $(2) $
Cost of revenue (1) (540) 
Gross profit 538
 
Operating expenses:    
Research and development (1) 4,710
 
Selling, general and administrative (1) 1,427
 
Total operating expenses 6,137
 
Loss from operations (5,599) 
Other income (2) 
 1,875
(Loss) income before income taxes (5,599) 1,875
Income tax provision 
 669
(Loss) income from discontinued operations $(5,599) $1,206
     
Cash flow from operating activities (10,309) 
(1) Amounts are associated with the Compute business.
(2) Amounts are associated with the Automotive business.
4.3. INVESTMENTS
Our short termshort-terminvestments are invested ininclude corporate bonds restricted money market funds,and commercial paper and agency bonds, and are classified as available-for-sale. The amortized cost, gross unrealized holding gains or losses,available-for-sale and fair value of our investments by major investment type as of December 29, 2017 and September 29, 2017 are summarized in the tables below (in thousands):
 July 3, 2020
 Amortized
Cost
 Gross
Unrealized
Holding Gains
  Gross
Unrealized
Holding Losses
 Aggregate Fair
Value
Corporate bonds$30,097    $354  $(179) $30,272  
Commercial paper102,749  247  (20) 102,976  
Total short-term investments$132,846    $601  $(199) $133,248  
December 29, 2017September 27, 2019
Amortized
Cost
 
Gross
Unrealized
Holding Gains
  
Gross
Unrealized
Holding Losses
 
Aggregate Fair
Value
Amortized
Cost
 Gross
Unrealized
Holding Gains
Gross
Unrealized
Holding Losses
 Aggregate Fair
Value
Corporate bonds$26,458
  $
 $(409) $26,049
Corporate bonds$29,578    $112  $(93) $29,597  
Commercial paper18,544
 3
 (11) 18,536
Commercial paper71,646   (18) 71,629  
Total short term investments$45,002
  $3
 $(420) $44,585
Total short-term investmentsTotal short-term investments$101,224  $113  $(111) $101,226  


 September 29, 2017
 
Amortized
Cost
 
Gross
Unrealized
Holding Gains
 
Gross
Unrealized
Holding Losses
 
Aggregate Fair
Value
Corporate bonds$26,366
  $10
 $(166) $26,210
Commercial paper57,943
 4
 (36) 57,911
Total short term investments$84,309
 $14
 $(202) $84,121

The contractual maturities of available-for-sale investments were as follows (in thousands):
December 29, 2017 September 29, 2017 July 3, 2020 September 27, 2019
Less than 1 year$19,561
 $60,433
Less than 1 year$109,156  $75,233  
Over 1 year25,024
 23,688
Over 1 year24,092  25,993  
Total short term investments$44,585
 $84,121
Total short-term investmentsTotal short-term investments$133,248  $101,226  
Available-for-sale investments are reported at fair value and as such, their associated unrealized gains and losses are reported as a separate component of stockholders’ equity within accumulated other comprehensive income.
9


Other InvestmentsWe recordAs of July 3, 2020, we held two non-marketable equity investments at cost, which approximates fair value at the date of purchase, if we do not have the ability to exercise significant influence or control over the investment. We determine the appropriate classification of our investments at the time of acquisition and evaluate these investments for impairment at each balance sheet date. As of December 29, 2017, we had minority non-marketable equity investments of less than 20.0% of the outstanding equity in two privately held companies which were classified as other long-term investments. One of these investments, is a minority equity ownershipwhich includes an investment in Ampere, a technology company, for approximately $36.5 million. This investment was acquired in conjunction with the divestiture of the Compute business during the fiscal quarter ended December 29, 2017. The other investment is a Series B preferred stock ownership of a privately held manufacturing companycorporation with preferred liquidation rights over other equity shares. As the equity securities do not have a readily determinable fair value and do not qualify for the practical expedient under ASC 820, Fair Value Measurement, we have elected to account for this investment at cost less any impairment. As of July 3, 2020, the cost of this investment was $5.0 million. We evaluate this investment for impairment at each balance sheet date, and through July 3, 2020, 0 impairment has been recorded for this investment.
Also included in long-term investments, is a minority investment of less than 20% in the outstanding equity of a private company (“Compute”) that was acquired in conjunction with our divestiture of the Compute business during our fiscal year 2018. This investment had a fair value is updated quarterly based on our proportionate share of the losses or earnings, as well as any changes in Compute's equity, utilizing the equity method. During the three and nine months ended July 3, 2020, we recorded losses of $4.6 million and $13.6 million, respectively, associated with this investment as other expense in our condensed consolidated statements of operations. During the three and nine months ended June 28, 2019, we recorded income of $5.0 million atand losses of $3.9 million, respectively, associated with this investment. As of July 3, 2020 and September 27, 2019, the datecarrying value of purchase.this investment was $5.0 million and $18.6 million, respectively.
5.4. FAIR VALUE
We group our financial assets and liabilities measured at fair value on a recurring basis in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-driven valuations in which all significant inputs are observable or can be derived principally from, or corroborated with, observable market data.
Level 3 - Fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including assumptions and judgments made by us.
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
We measure certain assets and liabilities at fair value on a recurring basis such as our financial instruments and derivatives. There have been no transfers between Level 1, 2 or 3 assets or liabilities during the three and nine months ended December 29, 2017.


July 3, 2020.
Assets and liabilities measured at fair value on a recurring basis consist of the following (in thousands):
July 3, 2020
Fair ValueActive Markets for Identical Assets (Level 1)Observable Inputs (Level 2)Unobservable Inputs (Level 3)
Assets
Money market funds$10,375  $10,375  $—  $—  
Commercial paper102,976  —  102,976  —  
Corporate bonds30,272  —  30,272  —  
Total assets measured at fair value$143,623  $10,375  $133,248  $—  
Liabilities
Common stock warrant liability$27,315  $—  $—  $27,315  
Total liabilities measured at fair value$27,315  $—  $—  $27,315  
10


 December 29, 2017
 Fair Value Active Markets for Identical Assets (Level 1) Observable Inputs (Level 2) Unobservable Inputs (Level 3)
Assets       
Money market funds$268
 $268
 $
 $
Commercial paper57,924
 
 57,924
 
Corporate bonds26,049
 
 26,049
 
Total assets measured at fair value$84,241
 $268
 $83,973
 $
Liabilities       
Contingent consideration$1,106
 $
 $
 $1,106
Common stock warrant liability26,167
 
 
 26,167
Total liabilities measured at fair value$27,273
 $
 $
 $27,273
September 29, 2017September 27, 2019
Fair Value Active Markets for Identical Assets (Level 1) Observable Inputs (Level 2) Unobservable Inputs (Level 3)Fair ValueActive Markets for Identical Assets (Level 1)Observable Inputs (Level 2)Unobservable Inputs (Level 3)
Assets       Assets
Money market funds$36
 $36
 $
 $
Money market funds$261  $261  $—  $—  
Commercial paper57,911
 
 57,911
 
Commercial paper71,629  —  71,629  —  
Corporate bonds26,210
 
 26,210
 
Corporate bonds29,597  —  29,597  —  
Total assets measured at fair value$84,157
 $36
 $84,121
 $
Total assets measured at fair value$101,487  $261  $101,226  $—  
Liabilities       Liabilities
Contingent consideration$1,679
 $
 $
 $1,679
Common stock warrant liability40,775
 
 
 40,775
Common stock warrant liability$12,364  $—  $—  $12,364  
Total liabilities measured at fair value$42,454
 $
 $
 $42,454
Total liabilities measured at fair value$12,364  $—  $—  $12,364  
As of December 29, 2017July 3, 2020 and September 29, 2017,27, 2019, the fair value of the common stock warrants has beenwas estimated using a Black-Scholes option pricing model.
The quantitative information utilized in the fair value calculation of our Level 3 liabilities is as follows:
     Inputs
LiabilitiesValuation Technique Unobservable Input December 29, 2017 September 29, 2017
Contingent considerationDiscounted cash flow Discount rate 9.2% 9.2%
   Probability of achievement 80% - 90% 70% - 100%
   Timing of cash flows 5 months 2 - 8 months
        
Warrant liabilityBlack-Scholes model Volatility 47.7% 44.9%
   Discount rate 1.98% 1.62%
   Expected life 3.0 years 3.2 years
   Exercise price $14.05 $14.05
   Stock price $32.54 $44.61
   Dividend rate —% —%
The fair values of the contingent consideration liabilities were estimated based upon a risk-adjusted present value of the probability-weighted expected payments by us. Specifically, we considered base, upside and downside scenarios for the operating metrics upon which the contingent payments are to be based. Probabilities were assigned to each scenario and the probability weighted payments were discounted to present value using risk-adjusted discount rates.


Inputs
LiabilitiesValuation TechniqueUnobservable InputJuly 3, 2020September 27, 2019
Warrant liabilityBlack-Scholes modelVolatility79.8%61.4%
Discount rate0.14%1.71%
Expected life0.5 years1.2 years
Exercise price$14.05$14.05
Stock price$35.13$21.68
Dividend rate—%—%
The changes in liabilities with inputs classified within Level 3 of the fair value hierarchy consist of the following (in thousands):
September 27,
2019
Net Realized/Unrealized Losses Included in EarningsPurchases
and
Issuances
Sales and
Settlements
July 3,
2020
Common stock warrant liability$12,364  $14,951  $—  $—  $27,315  
September 28,
2018
Net Realized/Unrealized Losses (Gains) Included in EarningsPurchases
and
Issuances
Sales and
Settlements
June 28,
2019
Contingent consideration$585  $65  $—  $(650) $—  
Common stock warrant liability$13,129  $(5,788) $—  $—  $7,341  
 September 29,
2017
 Net Realized/Unrealized Losses Included in Earnings 
Purchases
and
Issuances
 
Sales and
Settlements
 December 29,
2017
Contingent consideration$1,679
 $(573) $
 $
 $1,106
Common stock warrant liability$40,775
 $(14,608) $
 $
 $26,167
 September 30,
2016
 Net Realized/Unrealized Losses Included in Earnings 
Purchases
and
Issuances
 
Sales and
Settlements
 December 30,
2016
Contingent consideration$848
 $18
 $
 $
 $866
Common stock warrant liability$38,253
 $4,823
 $
 $
 $43,076
6.5. INVENTORIES
Inventories consist of the following (in thousands):
July 3,
2020
September 27,
2019
Raw materials$53,936  $59,184  
Work-in-process11,427  13,799  
Finished goods30,213  34,897  
Total inventory, net$95,576  $107,880  
11
 December 29,
2017
 September 29,
2017
Raw materials$81,734
 $78,999
Work-in-process13,131
 13,962
Finished goods48,271
 43,113
Total$143,136
 $136,074


7.6. PROPERTY PLANT AND EQUIPMENT
Property plant and equipment consists of the following (in thousands):
July 3,
2020
September 27,
2019
December 29,
2017
 September 29,
2017
Construction in process28,811
 22,195
Construction in process$14,643  $24,848  
Machinery and equipment160,936
 160,955
Machinery and equipment192,835  175,696  
Leasehold improvements12,931
 13,809
Leasehold improvements18,715  12,962  
Furniture and fixtures2,399
 2,078
Furniture and fixtures3,199  3,716  
Computer equipment and software16,927
 16,539
Computer equipment and software18,421  18,116  
Capital lease assets20,407
 20,410
Capital lease and financed assetsCapital lease and financed assets—  46,496  
Finance lease assetsFinance lease assets36,112  —  
Total property and equipment$242,411
 $235,986
Total property and equipment283,925  281,834  
Less accumulated depreciation and amortization(110,401) (104,967)Less accumulated depreciation and amortization(161,925) (149,187) 
Property and equipment, net$132,010
 $131,019
Property and equipment, net$122,000  $132,647  
Depreciation and amortization expense related to property plant and equipment for the three and nine months ended December 29, 2017July 3, 2020 was $7.7 million.$7.1 million and $21.8 million, respectively. Depreciation and amortization expense related to property plant and equipment for the three and nine months ended December 30, 2016June 28, 2019 was $6.0$7.3 million and $22.4 million, respectively. Accumulated amortization on finance lease assets as of July 3, 2020 was $2.2 million. Accumulated depreciation on capital leases as of September 27, 2019 was $5.3 million.
8.7. DEBT
As of December 29, 2017,July 3, 2020, we are party to a credit agreement dated as of May 8, 2014 with a syndicate of lenders and Goldman Sachs Bank USA (“Goldman Sachs”), as administrative agent (as amended on February 13, 2015, August 31, 2016, March 10, 2017, and May 19, 2017, May 2, 2018 and May 9, 2018, the “Credit Agreement”).
As of December 29, 2017,July 3, 2020, the Credit Agreement consisted of term loans with an initial aggregate principal amount of $700.0 million (“Term(the “Term Loans”) and a revolving credit facility with an aggregate borrowing capacity of $160.0 million (“Revolving(the “Revolving Facility”). The Revolving Facility will mature in MayNovember 2021 and the Term Loans will mature in May 2024 and bear interest at: (i) for LIBOR loans for any interest period, a rate per annum equal to the LIBOR rate as determined by the administrative agent, plus an applicable margin of 2.25%; and (ii) for base rate loans, a rate per annum equal to the greater of (a) the prime rate quoted in the print edition of the Wall Street Journal, Money Rates Section, (b) the federal funds rate plus one-half of 1.00% and (c) the LIBOR rate applicable to a one-month interest period plus 1.00% (but, in each case, not less than 1.00%), plus an applicable margin of 1.25%.


All principal amounts outstanding and interest rate information as of December 29, 2017,July 3, 2020, for the Credit Agreement were as follows (in millions,thousands, except rate data):
 Principal OutstandingBase RateMarginEffective Interest Rate
Term loans$685.01.55%2.25%3.80%
Principal OutstandingLIBOR RateMarginEffective Interest Rate
Term loans$667,8080.18%2.25%2.43%
As of December 29, 2017,July 3, 2020, approximately $13.0$5.9 million of deferred financing costs remain unamortized, of which $11.9$5.5 million is related to the Term Loans and is recorded as a direct reduction of the recognized debt liabilities in our accompanying condensed consolidated balance sheet, and $1.1$0.4 million is related to the Revolving Facility and is recorded in other long-term assets in our accompanying condensed consolidated balance sheet.
The Term Loans and Revolving Facility are secured by a first priority lien on substantially all of our assets and provide that we must comply with certain financial and non-financial covenants.
AsThe Term Loans are payable in quarterly principal installments of December 29, 2017,approximately $1.7 million on the last business day of each calendar quarter, with the remainder due on the maturity date. In the event that we had $685.0 milliondivest a business, the net cash proceeds of the divestment are generally required, subject to certain exceptions, to be applied to repayment of outstanding Term Loan borrowings underLoans except to the Credit Agreementextent we reinvest such proceeds in assets useful for our business within 18 months of receiving the proceeds. If we enter into a binding agreement to reinvest such proceeds within 18 months of receiving them, we have until the later of 18 months following our receipt of the proceeds and six months following the date of such agreement to complete the reinvestment.
12


As of July 3, 2020, we had $160.0 million of borrowing capacity under our Revolving Facility.Facility, of which we may borrow up to $50 million without being subject to certain financial covenants.
As of December 29, 2017,July 3, 2020, the following remained outstanding on the Term Loans (in thousands):
Principal balance$685,019
Unamortized discount(5,532)
Unamortized deferred financing costs(11,906)
Total term loans$667,581
Current portion6,885
Long-term, less current portion$660,696
July 3, 2020
Principal balance$667,808 
Unamortized discount(2,507)
Unamortized deferred financing costs(5,469)
Total term loans659,832 
Current portion6,885 
Long-term, less current portion$652,947 
As of December 29, 2017,July 3, 2020, the minimum principal payments under the Term Loans in future fiscal years were as follows (in thousands):
2018 (rest of fiscal year)$5,163
20196,885
20206,885
20216,885
20226,885
Thereafter652,316
Total$685,019
Amount
2020 (remainder of fiscal year)$1,721  
20216,885  
20226,885  
20236,885  
2024645,432  
Total$667,808  
The fair value of the Term Loans was estimated to be approximately $694.4$617.7 million as of December 29, 2017July 3, 2020, and was determined using Level 2 inputs, including a quoted rate from a bank.financial institution.
9. CAPITAL LEASE AND FINANCING OBLIGATIONS8. LEASES
Corporate Facility Financing Obligation
On May 26, 2016, we entered into a PurchaseWe have operating leases for certain facilities, as well as manufacturing and Sale Agreement (“Purchase and Sale Agreement”) with Calare Properties, Inc., a Delaware corporation (together with its affiliates, the “Buyer”),office equipment. We have financing leases for the sale and subsequent leaseback of our corporate headquarters, locatedincluding our fabrication facility, and to a lesser extent, various manufacturing equipment. These leases expire at 100 Chelmsford Street, Lowell, Massachusetts. The transactions contemplated by the Purchasevarious dates through 2038, and Sale Agreement closed on December 28, 2016, at which time we also entered into three lease agreementscertain of these leases have renewal options with the Buyer including: (1)longest ranging up to 2 ten-year periods.
We determine that a 20 year leasebackcontract contains a lease at lease inception if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. In evaluating whether the right to control an identified asset exists, we assess whether we have the right to direct the use of the facility located at 100 Chelmsford Street (the “100 Chelmsford Lease”), (2)identified asset and obtain substantially all of the economic benefit from the use of the identified asset. Leases with a 20term greater than one year build-to-suitare recognized on the balance sheet as right-of-use assets and lease arrangement for the construction and subsequent lease back ofliabilities. For leases with a new facility to be located at 144 Chelmsford Street (the “144 Chelmsford Lease”), and (3) a 14 year building lease renewal of an adjacent facility at 121 Hale Street (the “121 Hale Lease”, and together with the 100 Chelmsford Lease and the 144 Chelmsford Lease, the “Leases”).
Because the transactions contemplated by the Purchase and Sale Agreement and the related Leases were negotiated and consummated at the same time and in contemplationterm of one another to achieve the same commercial objective, the transactions are accounted for by usyear or less, categorized as a single unit of accounting. In addition, the Leases were determined to represent a failed sale-leaseback due to our continuing involvement in the properties in the form of non-recourse financing. As a result, the Leases are accounted for under the financing method andshort-term leases, we will be deemed the accounting owner under the arrangement, including the assets to be constructed under the 144 Chelmsford Lease. We will continueelected not to recognize the existing buildinglease liability for these arrangements and improvements sold under


the Purchase and Sale Agreement, capitalizelease payments are recognized in the 121 Hale Street building as well as the assets constructed under the Leases, and depreciate the assetscondensed consolidated statement of operations on a straight-line basis over the shorter of their estimated useful lives orlease term. ROU assets and lease liabilities are recognized at the lease terms. The sale proceeds from the Purchase and Sale Agreement of $8.2 million (which includes $4.2 million in cash and $4.0 million in construction allowances) and the fairpresent value of the 121 Hale Street building of $4.0 million were recognized as a financing obligation on our consolidated balance sheet and are being amortized over the 20 year lease term based on the minimum lease payments required under the Leases and our incremental borrowing rate. Future construction costs funded by the Buyer under the 144 Chelmsford Lease will be recognized as additional financing obligations on our consolidated balance sheet as incurred, and will be amortized over the 20 year lease term based on the minimum lease payments required under the Leases and our incremental borrowing rate.
As a result of the failed sale-leaseback accounting, we calculated a financing obligation as of the December 28, 2016 inception of the lease based on the future minimum lease payments discounted at 8.5%. The discount rate represents the estimated incremental borrowing rate over the lease term on the commencement date. ROU assets are initially measured as the amount of 20 years. The minimumthe initial lease liability, adjusted for initial direct costs, lease payments made at or before the commencement date, and reduced by lease incentives received. We include options to renew or terminate when determining the lease term when it is reasonably certain that the option will be exercised. Our lease agreements do not contain any material residual value guarantees or restrictive covenants.
Our leases may contain lease and non-lease components. We elected to account for lease and non-lease components in a contract as part of a single lease component. Fixed payments are recorded as interest expenseconsidered part of the single lease component and in part as a payment of principal reducing the financing obligation. The real property assetsincluded in the transaction remainROU assets and lease liabilities. Additionally, lease contracts typically include variable payments and other costs that do not transfer a separate good or service, such as reimbursement for real estate taxes and insurance, which are expensed as incurred.
Our leases generally do not provide an implicit interest rate. As a result, we utilize our incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment.
Included in our condensed consolidated balance sheets were the following amounts related to operating and continue to be depreciated over thefinance lease assets and liabilities (in thousands):
13


July 3, 2020September 27, 2019Consolidated Balance Sheet Classification
Assets:
Operating lease ROU assets$32,157  $—  Other long-term assets
Finance lease assets33,919  —  Property and equipment, net
Capital lease and financed assets—  40,442  Property and equipment, net
Total lease assets$66,076  $40,442  
Liabilities:
Current:
Operating lease liabilities$7,498  $—  Accrued liabilities
Finance lease liabilities1,506  —  Current portion of finance lease obligations and other
Capital lease and financing obligations—  1,084  Current portion of finance lease obligations and other
Long-term:
Operating lease liabilities30,438  —  Other long-term liabilities
Finance lease liabilities29,351  —  Finance lease obligations and other, less current portion
Capital lease and financing obligations—  29,506  Finance lease obligations and other, less current portion
Total lease liabilities$68,793  $30,590  
The weighted-average remaining useful lives. As of December 29, 2017, approximately $17.9 million of the financing obligation was outstanding associated with the Leases, of which $5.7 million was associated with the 144 Chelmsford Lease that has not yet been placed in service.
Additionally, we have certain capital equipment lease obligations, of which approximately $2.0 million was outstandingterms and weighted-average discount rates for operating and finance leases as of December 29, 2017.July 3, 2020 were as follows:
As
July 3, 2020
Weighted-average remaining lease term (in years):
Operating leases6.57
Finance leases17.07
Weighted-average discount rate:
Operating leases6.36 %
Finance leases6.71 %
The components of December 29, 2017, future minimum payments under capital lease obligations and financing obligations related to the Leasesexpense were as follows (in thousands):
Three Months EndedNine Months Ended
July 3, 2020
Finance lease cost:
Amortization of lease assets$747  $2,193  
Interest on lease liabilities525  1,641  
Total finance lease cost$1,272  $3,834  
Operating lease cost$2,451  $7,393  
Variable lease cost$749  $1,937  
Short-term lease cost$69  $339  
Sublease income$(117) $(442) 
Cash paid for amounts included in the measurement of lease liabilities were as follows (in thousands):
14


Fiscal year ending: Amount
2018 (rest of fiscal year) $1,405
2019 1,790
2020 1,618
2021 1,485
2022 1,276
Thereafter 19,264
Total minimum capital lease payments 26,838
Less amount representing interest (14,425)
Present value of net minimum capital lease payments (1) $12,413
Nine Months Ended
July 3, 2020
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases$7,027 
Operating cash flows from finance leases$1,641 
Financing cash flows from finance leases$1,307 
Non-cash activities:
Operating lease right-of-use assets obtained in exchange for new lease liabilities$242 
Financing lease assets obtained in exchange for new lease liabilities$586 
(1) Excludes $5.7 million associatedAs of July 3, 2020, maturities of lease liabilities by fiscal year were as follows (in thousands):
Fiscal year ending:Operating LeasesFinance Leases
2020 (remainder of fiscal year)$2,527  $963  
20219,250  3,394  
20227,479  2,836  
20236,012  2,820  
20245,588  2,856  
20253,650  2,783  
Thereafter12,284  37,150  
Total lease payments46,790  52,802  
Less: interest8,854  21,945  
Present value of lease liabilities$37,936  $30,857  

As of September 27, 2019, future minimum lease payments for our operating and capital leases were as follows as determined in accordance with the 144 Chelmsford Leaseprevious guidance under ASC 840, Leases and as previously disclosed in our 2019 Annual Report on Form 10-K (in thousands):
Fiscal year ending:Operating LeasesCapital Leases
2020$9,987  $3,299  
20219,233  3,343  
20227,447  2,884  
20236,061  2,816  
20245,564  2,853  
Thereafter16,437  39,927  
Total future minimum lease payments$54,729  55,122  
Less amount representing interest(26,241) 
Present value of net minimum capital lease payments$28,881  
15


9. IMPAIRMENTS
During the fiscal quarter ended June 28, 2019, we initiated the 2019 Plan (as defined in Note 14 - Restructurings) designed to strategically realign, streamline and improve our operations, including reducing our workforce and exiting certain product offerings and research and development facilities. We also committed to reducing certain development activities for one of our product lines. See Note 14 - Restructurings for additional information about the 2019 Plan. As a result of implementing the 2019 Plan, we reassessed our previous estimates for expected future revenue growth. We performed impairment analyses to determine whether our goodwill and long-lived assets, comprised of definite-lived intangible assets and property and equipment, were recoverable. Based on the estimated undiscounted cash flow assessment for long-lived assets, we determined that hasfor an asset group, the cash flows were not yet beensufficient to recover the carrying value of the long-lived assets over their remaining useful lives. Accordingly, we recorded impairment charges of $217.5 million and $33.2 million to our customer relationship intangible assets and acquired technology intangible assets, respectively, in the fiscal quarter ended June 28, 2019, based on the difference between the fair value and the carrying value of the long-lived assets. We will continue to monitor for events or changes in business circumstances that may indicate that the remaining carrying value of the asset group may not be recoverable. We used the income approach to determine the fair value of the definite-lived intangible assets and the cost approach to determine the fair value of its property and equipment.
Additionally, in connection with the 2019 Plan, we determined that certain intangible assets would be abandoned and would not have a future benefit. Accordingly, we recorded impairment charges of $2.4 million and $3.9 million to our customer relationship intangible assets and acquired technology intangible assets, respectively, during the fiscal quarter ended June 28, 2019.
During the fiscal quarter ended June 28, 2019, we also determined that an asset recorded as construction in process would not be able to be placed in service.service as a productive asset, and therefore had no fair value. Accordingly, we recorded an impairment charge of $7.1 million for this asset during the fiscal quarter ended June 28, 2019.
See Note 14 - Restructurings for information related to property and equipment impaired as part of our restructuring actions.
10. INTANGIBLE ASSETS
Amortization expense related to intangible assets is as follows (in thousands):
Three Months Ended Three Months EndedNine Months Ended
December 29,
2017
 December 30,
2016
July 3,
2020
June 28,
2019
July 3,
2020
June 28,
2019
Cost of revenue$8,147
 $6,001
Cost of revenue$4,348  $8,139  $13,115  $24,074  
Selling, general and administrative10,993
 6,467
Selling, general and administrative8,071  13,723  24,797  38,115  
Total$19,140
 $12,468
Total$12,419  $21,862  $37,912  $62,189  
        
Intangible assets consist of the following (in thousands):
July 3,
2020
September 27,
2019
Acquired technology$179,434  $179,682  
Customer relationships245,870  245,870  
Trade name (indefinite-lived)3,400  3,400  
Total428,704  428,952  
Less accumulated amortization(285,387) (247,724) 
Intangible assets — net$143,317  $181,228  
 December 29,
2017
 September 29,
2017
Acquired technology$251,650
 $251,655
Customer relationships556,620
 556,648
Trade name3,400
 3,400
Total$811,670
 $811,703
Less accumulated amortization(209,750) (190,611)
Intangible assets — net$601,920
 $621,092


Our trade name is an indefinite-lived intangible asset. A summary of the activity in gross intangible assets and goodwill is as follows (in thousands):
Intangible Assets
Total Intangible AssetsAcquired
Technology
Customer
Relationships
Trade NameGoodwill
Balance at September 27, 2019$428,952  $179,682  $245,870  $3,400  $314,727  
Disposal of a fully amortized intangible asset(248) (248) —  —  —  
Currency translation adjustment—  —  —  —  52  
Balance at July 3, 2020$428,704  $179,434  $245,870  $3,400  $314,779  
16

 Intangible Assets  
 Total Intangible Assets 
Acquired
Technology
 Customer
Relationships
 Trade Name Goodwill
Balance at September 29, 2017$811,703
 $251,655
 $556,648
 $3,400
 $313,765
Fair value adjustment
 
 
 
 2,500
Currency translation adjustment(33) (5) (28) 
 (26)
Balance at December 29, 2017$811,670
 $251,650
 $556,620
 $3,400
 $316,239

As of December 29, 2017,July 3, 2020, our estimated amortization of our intangible assets in future fiscal years was as follows (in thousands):
 2018 Remaining2019202020212022ThereafterTotal
Amortization expense$63,659
90,420
88,023
79,156
65,463
211,799
$598,520
2020 Remaining2021202220232024ThereafterTotal
Amortization expense$12,418  46,213  33,433  26,048  15,410  6,395  $139,917  
Accumulated amortization for acquired technology and customer relationships were $114.8$147.7 million and $94.9$137.7 million, respectively, as of December 29, 2017,July 3, 2020, and $106.8$134.8 million and $83.9$112.9 million, respectively, as of September 29, 2017.27, 2019.
11. STOCKHOLDERS' EQUITY
We have authorized 10 million shares of $0.001 par value preferred stock and 300 million shares of $0.001 par value common stock as of December 29, 2017 and September 29, 2017.July 3, 2020.
Common Stock Warrants—In March 2012, we issued warrants to purchase 1,281,358 shares of common stock for $14.05 per share. The warrants expire on December 21, 2020, or earlier as per the terms of the agreement, including immediately following consummation of a sale of all or substantially all assets or capital stock or other equity securities, including by merger, consolidation, recapitalization or similar transactions. We do not currently have sufficient registered and available shares to immediately satisfy a request for registration, if such a request were made. As of December 29, 2017,July 3, 2020, no exercise of the warrants had occurred, and no request had been made to register the warrants or any underlying securities for resale by the holders.
We are recordingrecord the estimated fair values of the warrants as a long-term liability in the accompanying condensed consolidated financial statements with changes in the estimated fair value being recorded in the accompanying statements of operations. See Note 54 - Fair Value for additional information related to the fair value of our warrant liability.

See Note 12 - Earnings (Loss) Per Share for impact of the common stock warrants on loss per share.

12. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation for basic and diluted net loss per share of common stock (in thousands, except per share data):
 Three Months Ended
 December 29, 2017 December 30, 2016
Numerator:   
Loss from continuing operations$(16,970) $(2,171)
(Loss) income from discontinued operations(5,599) 1,206
Net loss$(22,569) $(965)
Warrant liability gain(14,608) 
Net loss attributable to common stockholders$(37,177) $(965)
Denominator:   
Weighted average common shares outstanding-basic64,325
 53,737
Dilutive effect of warrants784
 
Weighted average common shares outstanding-diluted65,109
 $53,737
(Loss) earnings per share-basic:   
Continuing operations$(0.26) $(0.04)
Discontinued operations(0.09) 0.02
Net loss to common stock holders per share-basic$(0.35) $(0.02)
(Loss) earnings per share-diluted:   
Continuing operations$(0.49) $(0.04)
Discontinued operations(0.09) 0.02
Net loss to common stock holders per share-diluted$(0.57) $(0.02)
Three Months EndedNine Months Ended
July 3, 2020June 28, 2019July 3, 2020June 28, 2019
Numerator:
Net loss$(24,982) $(324,714) $(63,570) $(394,314) 
Warrant liability gain—  (1,927) —  (5,788) 
Net loss attributable to common stockholders$(24,982) $(326,641) $(63,570) $(400,102) 
Denominator:
Weighted average common shares outstanding-basic66,796  65,858  66,512  65,555  
Dilutive effect of warrants—  87  —  166  
Weighted average common shares outstanding-diluted66,796  65,945  66,512  65,722  
Net loss to common stockholders per share-Basic:$(0.37) $(4.93) $(0.96) $(6.01) 
Net loss to common stockholders per share-Diluted:$(0.37) $(4.95) $(0.96) $(6.09) 
As of December 29, 2017,July 3, 2020, we had warrants outstanding which were reported as a liability on the condensed consolidated balance sheet. During the three and nine months ended December 29, 2017June 28, 2019, we recorded a $14.6warrant liability gains of $1.9 million gain,and $5.8 million, respectively, associated with adjusting the fair value of the warrants in the condensed consolidated income statementstatements of operations primarily as a result of changes in our stock price. When calculating earnings per share, we are required to adjust for any changesthe dilutive effect of outstanding common stock equivalents, including adjustment to the numerator for the dilutive effect of contracts that must be settled in income or loss to showstock. During the maximum dilution possiblethree and therefore during the quarter,nine months ended June 28, 2019, we adjusted the numerator by the warrant gaingains of $14.6$1.9 million and $5.8 million, respectively, and the denominator by the incremental shares of 783,50886,746 and 166,318, respectively, under the treasury stock method. The table above excludes the effects of 499,8311,766,561 and 1,875,3261,543,686 shares for the three and nine months ended December 29, 2017July 3, 2020, respectively, and December 30, 2016,80,046 and 129,599 shares for the three and nine months ended June 28, 2019, respectively, of potential shares of common stock issuable upon exercise of stock options, warrants, restricted stock and restricted stock units, as applicable, as the inclusion would be antidilutive.
17


13. COMMITMENTS AND CONTINGENCIES
From time to time, we may be subject to commercial disputes, employment issues, claims by other companies in the industry that we have infringed their intellectual property rights and other similar claims and litigations.litigation. Any such claims may lead to future litigation and material damages and defense costs. Other than as set forth below, weWe were not involved in any material pending legal proceedings during the fiscal quarter ended December 29, 2017.July 3, 2020.
GaN Lawsuit Against Infineon. On April 26, 2016, we and our wholly-owned subsidiary Nitronex, LLC brought suit against Infineon Technologies Americas Corporation ("Infineon Americas") and Infineon Technologies AG ("Infineon AG" and collectively, with Infineon Americas, "Infineon") in the Federal District Court for the Central District of California, seeking injunctive relief, monetary damages, and specific performance of certain contractual obligations. On July 19, 2016, we filed a first amended complaint, and, on November 21, 2016, we filed a second amended complaint. After motions to dismiss certain claims from MACOM’s second amended complaint were denied on February 28, 2017, Infineon AG answered on March 24, 2017, asserting no counterclaims. Infineon Americas also answered and counterclaimed on March 24, 2017 and then submitted amended counterclaims on April 14, 2017. The district court dismissed one of the counterclaims on June 5, 2017, and Infineon filed further amended counterclaims on June 19, 2017. MACOM answered the counterclaims on August 16, 2017.
The suit arises out of agreements relating to GaN-on-Silicon ("GaN") patents that were executed in 2010 by Nitronex Corporation (acquired by us in 2014) and International Rectifier Corporation ("International Rectifier") (acquired by Infineon AG in 2015). We assert claims for breach of contract, breach of the covenant of good faith and fair dealing, declaratory judgment of contractual rights, declaratory judgment of non-infringement of patents, and, against Infineon AG only, intentional interference with contract. If successful, the relief sought in our second amended complaint would, among other remedies, require Infineon to assign back to us certain GaN-related Nitronex patents that were previously assigned to International Rectifier and enjoin Infineon


from proceeding with its marketing and sales of certain types of GaN products. In an order dated October 31, 2016, the district court granted us a preliminary injunction against Infineon, which then issued on December 7, 2016 and was modified on March 6, 2017. The preliminary injunction declared, among other things, that a licensing agreement between us and Infineon that Infineon had purported to terminate is still in effect. On January 29, 2018, the Federal Circuit affirmed the district court’s decision to enter a preliminary injunction declaring the license agreement to still be in effect, although it reversed other aspects of the district court’s decision. Meanwhile, the district court case has been proceeding, with a claim construction hearing set for March 26, 2018 and trial set to begin on February 26, 2019.
With respect to the above legal proceeding, we are not able to reasonably estimate the amount or range of any possible loss, and accordingly have not accrued or disclosed any related amounts of possible loss in the accompanying consolidated financial statements.
14. RESTRUCTURINGS
We have periodically implemented restructuring actions in connection with broader plans to reduce staffing, reduce our internal manufacturing footprint and generally reduce operating costs. The restructuring expenses are primarily comprised of direct and incremental costs related to headcount reductions including severance and outplacement fees for the terminated employees, as well as facility closure costs.
During the fiscal quarter ended December 29, 2017, we initiated plans to restructure our facility in Long Beach, California and to close our facilities in Belfast, United Kingdom and Sydney, Australia. The operations from the Long Beach facility will be consolidated into our other California locations in order to achieve operational synergies. The Belfast and Sydney facilities will be closed as we discontinue certain product development activities that were performed in those locations. The following is a summary of the restructuring charges incurred under the plans noted below (in thousands):
Three Months EndedNine Months Ended
July 3,
2020
June 28,
2019
July 3,
2020
June 28,
2019
Employee related expenses and adjustments$(761) $5,135  $787  $6,742  
Facility related expenses207  3,752  707  10,305  
Total restructuring (benefit) charges$(554) $8,887  $1,494  $17,047  
The following is a rollforward of the accrued restructuring liabilities for the nine months ended July 3, 2020 (in thousands):
Employee-Related Expense (1)
Facility-Related Expense (2)
Total
Balance at September 27, 2019$1,549  $978  $2,527  
       Charges and adjustments787  707  1,494  
       Charges paid/settled/other(1,460) (1,492) (2,952) 
Balance at July 3, 2020$876  $193  $1,069  
        (1) Primarily includes severance charges associated with the reduction of our workforce in certain facilities.
(2) Primarily includes activities associated with the closure of certain facilities, including any associated asset impairments and contract termination costs.
Ithaca Plan
During the fiscal quarter ended December 28, 2018, we commenced a plan to exit certain production and product lines, primarily related to certain production facilities located in Ithaca, New York (the “Ithaca Plan”). We incurred restructuring charges for the Ithaca Plan of $0.2 million in the three months ended June 28, 2019, including $0.1 million of employee-related costs, and $5.5 million in the nine months ended June 28, 2019, including $1.5 million of employee-related costs and $4.0 million of facility-related costs. This action was completed in fiscal year 2019 and no further costs will be incurred. The remaining charges were paid during the three months ended January 3, 2020.
Details of the Ithaca Plan activities during the nine months ended July 3, 2020 are as follows (in thousands):
Employee-Related ExpenseFacility-Related ExpenseTotal
Balance at September 27, 2019$13  $70  $83  
       Charges and adjustments—  (40) (40) 
       Charges paid/settled(13) (30) (43) 
Balance at July 3, 2020$—  $—  $—  
Design Facilities Plan
During the fiscal quarter ended March 29, 2019, we committed to a plan to exit certain design facilities and activities (the “Design Facilities Plan”). We recorded a net benefit of $0.3 million in the three months ended June 28, 2019, including $0.1 million of employee-related costs and $0.4 million of facility-related reimbursements. We incurred restructuring charges of $2.5 million for the nine months ended June 28, 2019, including $0.3 million of employee-related costs and $2.2 million primarily related to impairment of equipment. This action was completed in fiscal year 2019 and no further costs will be incurred. The remaining charges were paid during the three months ended July 3, 2020.
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Details of the Design Facilities Plan activities during the nine months ended July 3, 2020 are as follows (in thousands):
Facility-Related Expense
Balance at September 27, 2019$451 
       Charges and adjustments(18)
       Charges paid/settled(433)
Balance at July 3, 2020$— 
2019 Plan
During the fiscal quarter ended June 28, 2019, we committed to a plan designed to strategically realign, streamline and improve certain of our business and operations, including reducing our workforce by approximately 250 employees, exiting 6 development facilities in France, Japan, the Netherlands, Florida, Massachusetts and Rhode Island, reducing certain development activities for one of our product lines and no longer investing in the design and development of optical modules and subsystems for Data Center applications (the “2019 Plan”). We incurred a restructuring benefit of $0.6 million in the three months ended July 3, 2020 under the 2019 Plan, including a benefit of $0.8 million for employee-related costs and $0.2 million of other costs, and charges of $1.6 million in the nine months ended July 3, 2020, including $0.8 million of employee-related costs and $0.8 million of other costs. The restructuring net benefit for the three months ended December 29, 2017 under theseJuly 3, 2020 includes an adjustment to accrued employee-related costs resulting from a decision during the fiscal third quarter to retain certain employees. We incurred restructuring plans:
 Three Months Ended
 December 29,
2017
 December 30,
2016
Employee related expenses$2,571
 $1,287
Facility related expenses2,091
 
Total restructuring charges$4,662
 $1,287
The following is a summarycharges of the costs incurred and remaining balances included$9.0 million in accrued expenses for the three months ended December 29, 2017 (in thousands):
Balance as of September 29, 2017$627
       Current period expense4,662
       Charges paid/settled, net(1,365)
Balance as of December 29, 2017$3,924
Our remaining accrued restructuring expenses are expected toJune 28, 2019 under the 2019 Plan, including $4.9 million of employee-related costs, $4.0 million of impairment expense for fixed assets that will be paid through the remainderdisposed of fiscal year 2018.and $0.1 million of other costs. We expect to incur additional restructuring costs of approximately $0.7up to $0.2 million to $1.5 million during the remainder ofthrough fiscal year 20182020 as we complete thesethis restructuring actions.action.
Details of the 2019 Plan activities during the nine months ended July 3, 2020 are as follows (in thousands):
Employee-Related ExpenseFacility-Related ExpenseTotal
Balance at September 27, 2019$1,536  $457  $1,993  
       Charges and adjustments787  765  1,552  
       Charges paid/settled/other(1,447) (1,029) (2,476) 
Balance at July 3, 2020$876  $193  $1,069  
15. SHARE-BASED COMPENSATION
Stock Plans
As of December 29, 2017,July 3, 2020, we had 14.317.0 million shares available for future issuance under our 2012 Omnibus Incentive Plan (as Amended and Restated) (the “2012 Plan”), and 3.43.6 million shares available for issuance under our Employee Stock Purchase Plan (“ESPP”).Plan. Under the 2012 Plan, we have the ability to issue incentive stock options (“ISOs”), non-statutory stock options (“NSOs”), performance based non-statutory stock options, stock appreciation rights, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance-based restricted stock units (“PRSUs”), performance shares and other equity-based awards to employees, directors and outside consultants. The ISOs and NSOs must be granted at a price per share not less than the fair value of our common stock on the date of grant. Options granted to date primarily vest based on certain market-based and performance-based criteria as described below.criteria. Options granted generally have a term of sevenfour years to tenseven years. Certain of the share-based awards granted and outstanding as of December 29, 2017July 3, 2020 are subject to accelerated vesting upon a change in control. There were no modifications to share-based awards duringcontrol of the periods presented. As of December 29, 2017, total unrecognized compensation cost related to the employee stock purchase plan was $1.2 million.


Company.
Share-Based Compensation
The following table shows a summary of share-based compensation expense included in the Condensed Consolidated Statementscondensed consolidated statements of Operations for the three months ended December 29, 2017 and December 30, 2016operations (in thousands):
Three Months Ended Three Months EndedNine Months Ended
December 29,
2017
 December 30,
2016
July 3,
2020
June 28,
2019
July 3,
2020
June 28,
2019
Cost of revenue$945
 $720
Cost of revenue$814  $651  $2,771  $2,165  
Research and development3,662
 1,945
Research and development2,921  2,517  9,939  6,540  
Selling, general and administrative5,385
 5,518
Selling, general and administrative4,760  (353) 14,211  11,458  
Total share-based compensation expense$9,992
 $8,183
Total share-based compensation expense$8,495  $2,815  $26,921  $20,163  
As of December 29, 2017,July 3, 2020, the total unrecognized compensation costs related to outstanding stock options, restricted stock awardsISOs, RSAs and unitsRSUs, including awards with time-based and performance basedperformance-based vesting was $75.6$53.2 million, which we expect to recognize over a weighted-average period of 2.5
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2.2 years. As of July 3, 2020, total unrecognized compensation cost related to our Employee Stock Purchase Plan was $0.8 million.

Stock Options
We had 1.6 millionA summary of stock options outstandingoption activity for the nine months ended July 3, 2020 is as of December 29, 2017, with a weighted-average exercise pricefollows (in thousands, except per share of $33.17amounts and weighted-average remaining contractual term of 5.4 years. The aggregateterm):
Number of SharesWeighted-Average Exercise Price per ShareWeighted-Average Remaining Contractual Term (in Years)Aggregate Intrinsic Value
Options outstanding as of September 27, 2019376  $13.58  
Exercised(41) 4.12  
Forfeited, canceled or expired—  19.45  
Options outstanding as of July 3, 2020335  $14.73  7.03$6,834  
Options vested & expected to vest as of July 3, 2020335  14.73  7.036,834  
Options exercisable as of July 3, 202050  $14.40  3.07$1,037  
Aggregate intrinsic value ofrepresents the stock options outstanding as of December 29, 2017 was $5.2 million which representsdifference between our closing stock price value on July 3, 2020 and the last trading day of the period in excess of the weighted-average exercise price multiplied by the number of options outstanding.
We had 0.4 million stock options exercisable as of December 29, 2017, with a weighted-average exercise price per share of $24.52 and weighted-average remaining contractual term of 4.0 years. The aggregate intrinsic value of the stock options exercisable as of December 29, 2017 was $5.1 million which represents our closing stock price value on the last trading day of the period in excess of the weighted-average exercise price multiplied by the number of options exercisable.
During November 2017, we granted 325,000 non-qualified stock options with a grant date fair value of $5.0 million that are subject to vesting only upon the market price of our underlying public stock closing above a certain price target within seven years of the date of grant. These non-qualified stock options with market related vesting conditions are valued using a Monte Carlo simulation model, using a volatility rate of 45.8%, a risk-free rate of 2.26%, a weighted-average strike price of $36.58 and a term of seven years. Share-based compensation expense is recognized regardless of the number of awards that are earned based on the market condition and is recognized on a straight-line basis over the estimated service period of approximately three years. If the required service period is not met for these options then the share-based compensation expense would be reversed. In the event that our common stock achieves the target price of $98.99 per share based on a 30 days trailing average prior to the end of the estimated service period, any remaining unamortized compensation cost will be recognized.
During November 2017, we also granted 10,924 incentive stock options and 69,076 non-qualified stock options with a total grant date fair value of $1.4 million. These stock options are valued using a Black Scholes model, using a volatility rate of 45.7%, a risk-free rate of 2.21%, a strike price of $36.61 and an expected term of 6.5 years. Share-based compensation expense is recognized on a straight-line basis over the service period of approximately 4.5 years. If the required service period is not met for these options then the share-based compensation expense would be reversed.
outstanding, in-the-money options. The total intrinsic value of options exercised was $0.5$0.7 million and $1.0 million for the three and nine months ended December 29, 2017,July 3, 2020, respectively, and was $1.5$0.1 million and $0.3 million for the three and nine months ended December 30, 2016.June 28, 2019, respectively.

Restricted Stock, Restricted Stock Units and Performance-Based Restricted Stock Units
A summary of restricted stock, restricted stock unitRSAs, RSUs and performance-based restricted stock unitPRSUs activity for the threenine months ended December 29, 2017,July 3, 2020 is as follows (in thousands, except per share data):
follows:
Number of RSAs, RSUs and PRSUs
(in thousands)
Weighted-
Average
Grate Date Fair Value
Aggregate
Intrinsic
Value
(in thousands)
Number of RSUs 
Weighted-
Average
Grate Date Fair Value
 
Aggregate
Intrinsic
Value
(in thousands)
Balance at September 29, 20171,907
 $39.20
 $72,165
Balance as of September 27, 2019 Balance as of September 27, 20192,613  $21.81  $56,649  
Granted291
 35.55
  Granted1,203  21.96  
Vested and released(24) 30.04
  Vested and released(636) 26.05  
Forfeited, canceled or expired(75) 29.37
  Forfeited, canceled or expired(364) 22.19  
Balance at December 29, 20172,099
 $39.16
 $68,285
Balance as of July 3, 2020Balance as of July 3, 20202,816  $20.86  $98,909  


Restricted stock, restricted stock unitsRSAs, RSUs and performance-based restricted stock unitsPRSUs that vested during the threenine months ended December 29, 2017July 3, 2020 and December 30, 2016June 28, 2019 had combined fair valuevalues of $0.7$18.7 million and $0.9$10.9 million, respectively, as of the vesting date, respectively.date.
16. INCOME TAXES
We are subject to income tax in the U.S. as well as other tax jurisdictions in which we conduct business. Earnings from non-U.S. activities are subject to local country income tax and may also be subject to current U.S. income tax. For interim periods, we record a tax provision or benefit based upon the estimated effective tax rate expected for the full fiscal year, adjusted for material discrete taxation matters arising during the interim periods. Our quarterly tax provision or benefit, and its quarterly estimate of the annual effective tax rate, are subject to significant variation due to several factors. These factors include variability in accurately predicting pre-tax income/loss, the mix of jurisdictions in which we operate, intercompany transactions, changes in how we do business, tax law developments, and relative changes in permanent tax benefits or expenses.
The provision (benefit) for income taxes and effective income tax rate for the three and nine months ended July 3, 2020 and June 28, 2019 are as follows (in thousands, except percentages):
Three Months EndedNine Months Ended
July 3,
2020
June 28,
2019
July 3,
2020
June 28,
2019
Income tax expense (benefit)$1,750  $(1,322) $4,716  $346  
Effective income tax rate(7.5)%0.4 %(8.0)%(0.1)%
The difference between the U.S. federal statutory income tax rate of 35%21% and our effective income tax raterates for the three and nine months ended December 30, 2016, was primarily impacted by changes in fair values of the common stock warrant liability which is neither deductible nor taxable for tax purposes, income taxed in foreign jurisdictions at generally lower tax rates, non-deductible compensation, researchJuly 3, 2020 and development tax credits and non-deductible merger expenses, offset by U.S. state income taxes. The difference between the U.S. federal statutory income tax rate of 35% and our effective income tax rate for the three months ended December 29, 2017June 28, 2019 was primarily driven by the continuation of a full valuation allowance against any
20


benefit associated with U.S. losses and income taxed in foreign jurisdictions at generally lower tax rates.rates and where we are not in a valuation allowance since it is expected that we will be in a taxable income position.
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making this determination, we consider available evidence, both positive and negative evidence andnegative. We look at factors that may impact the valuation of our deferred tax asset including results of recent operations, future reversals of existing taxable temporary differences, projected future taxable income, and tax-planning strategies. A significant piece of objective negative evidence evaluated was the cumulative U.S. loss incurred over the three-year period ended March 31, 2017 which we believe limited our ability to consider other subjective evidence, such as our projections for future growth. Certain transaction and integration related expenses incurred in the U.S. primarily associated with the AppliedMicro Acquisition during the three months ended March 31, 2017 resulted for the first time inWe have significant negative objective evidence in the form of adjusted cumulative losses in the U.S. over the past three-year period. This resulted in our determination during the fiscal quarter ended March 31, 2017 that there was not sufficient objectively verifiable positive evidence to offset this negative objective evidence and we concluded that a full valuation allowance was required for our U.S. deferred tax assets. Significant negative objective evidence in the form of adjusted cumulative losses in the U.S. over the past three-year period ended December 29, 2017July 3, 2020 that resulted in our continued determination that there was not sufficient objectively verifiable positive evidence to offset this negative objective evidence and we concluded that a full valuation allowance was still appropriate for our U.S. deferred tax assets.
Our deferred income tax asset balance as of July 3, 2020 and September 27, 2019 is primarily attributable to an initial $39.8 million deferred asset generated from an intra-entity transfer of a license for intellectual property during the fiscal quarter ended September 27, 2019. We expect this deferred tax asset to amortize over the life of the intellectual property.
The balance of the unrecognized tax benefitbenefits remained at $0.3 million as of December 29, 2017 andJuly 3, 2020 when compared to the balance as of September 29, 2017 did not change and remained at $1.7 million. The unrecognized tax benefits primarily relate to positions taken by us in our 2014 U.S. tax filings. The entire balance of unrecognized tax benefits, if recognized, will reduce income tax expense.27, 2019. It is our policy to recognize any interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the fiscal quartersquarter ended December 29, 2017 and September 29, 2017,July 3, 2020, we did not make any accrual or payment of interest and penalties due to our net operating loss carryforward position within the U.S. Net Operating Loss ("NOL") carryover position., which would offset any adjustment.
On December 22, 2017, the U.S. governmentCongress enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complexenacted a wide range of changes to the U.S. tax code, including, but not limited to,
reducing the highest marginal U.S. federal corporate income tax ratesystem, many of which differ significantly from 35% in the period ending December 29, 2017provisions of the previous U.S. tax law. The Tax Act also transitions international taxation from a worldwide system with deferral to 21%, effective January 1, 2018;
requiring companies to become liable for a one-time deemed repatriation transition tax (“Transition Tax”) basedmodified territorial system and includes base erosion prevention measures on previously untaxed accumulated and currentnon-U.S. earnings, and profits (“E&P”)which has the effect of subjecting certain earnings of our foreign subsidiaries forto U.S. taxation as global intangible low-taxed income. These changes became effective in our year ending September 28, 2018;
generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries that would apply to ourfiscal year beginning September 29, 2018;2018.
requiringOn March 27, 2020, the inclusion of certain income such as Global Intangible Low Taxed Income (“GILTI”) earned by controlled foreign corporations (“CFCs”) in our U.S. federal taxable income that would apply to our year beginning September 29, 2018;
eliminatingCongress enacted the corporate alternative minimum tax (“AMT”)Coronavirus Aid, Relief and changing how existing AMT credits can be realized that would apply to our year beginning September 29, 2018;
repealing the performance-based compensation exceptionEconomic Security Act (the “CARES Act”). The CARES Act made a technical correction to the section 162(m) $1.0 million deduction limitation and revising the definition of a covered employee forTax Act impacting our year beginning September 29, 2018;
creating the base erosion anti-abuse tax, a new minimum tax that would apply to our year beginning September 29, 2018;


creating a new limitation on deductible interest expense that would apply to our year beginning September 29, 2018;
limiting the degree to which net operating losses can be utilized against taxable income that would apply to losses created beginning with our year beginning September 29, 2018;
changing rules related to the ability to apply net operating losses against later or earlier tax years that would apply to losses created beginning with our year beginning September 30, 2017; and
an increase in the allowable deductionloss carryforward for costs to acquire qualified property placed into service after September 27, 2017.
Based on preliminary calculations, we currently estimate that our financial results for the year ending September 28, 2018 will include a non-cash reduction in income tax expense of approximately $3.7 million resulting primarily from the re-measurement of our U.S. deferred tax liabilities to reflect the new 21% U.S. federal tax rate. For the fiscal year endingended September 28,29, 2018 by limiting it to a 20-year carryforward period, rather than having an indefinite life carryforward without the 80% limitation. As a result of this technical correction, we increased our blended U.S. federal incomeindefinite lived deferred tax rate is expected to be 24.5%.
To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of E&P of the relevant subsidiaries as well as the amount of non-U.S. income taxes paid on such earnings. We were able to make a reasonable estimate of the Transition Tax and have determined that we expect to have sufficient net operating losses to reduce any cash tax payments associated with the one-time repatriation of E&P down to the alternative minimum tax, which we estimate to be less than $1.0 million. On a preliminary basis we have estimated the one-time repatriation of E&P would result in a release of the valuation allowance corresponding with utilization of our NOLs, resulting in no impact to our tax expense forliability by $1.4 million during the fiscal quarter ended December 29, 2017. We are continuingApril 3, 2020, with an offsetting adjustment to analyze additional information to more precisely compute the amount of the Transition Tax.
The Tax Act creates a new requirement that certain income such as GILTI earned by CFCs must be included in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder's net CFC tested income over the net deemed tangible income return, which is currently defined as the excess of (1) 10 percent of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income.
The Company must assess whether its valuation allowance analyses are affected by various aspects of the Tax Act (e.g., the Transition Tax, GILTI inclusions and new categories of foreign tax credits). The changes included in the Tax Act are broad and complex. Although we are not able to finalize our evaluation of the impact of the Tax Act at this time due to uncertainties related to any future legislative or regulatory actions related to the Tax Act and availability of information needed to perform the final calculations, we do believe that a full valuation allowance continues to be required. However, we will continue to evaluate the impact the Tax Act may have on our financial statements including the impact on our full valuation allowance against our U.S. deferred tax assets and any impact this would have on our tax expense.
The Securities Exchange Commission has issued Staff Accounting Bulletin No. 118 that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the application of Accounting Standards Codification Topic 740, Income Taxes. We currently anticipate finalizing and recording any resulting adjustments by the end of our current fiscal year ending September 28, 2018.
17. RELATED PARTY TRANSACTIONS
Cadence Design Systems, Inc. ("Cadence") provides us with certain engineering licenses on an ongoing basis. Geoffrey Ribar, who joined our board of directors on March 22, 2017, served as an officer of Cadence through September 30, 2017 and now serves as a Senior Advisor of Cadence. During the three months ended December 29, 2017, we made payments of $1.8 million to Cadence.
18. SUPPLEMENTAL CASH FLOW INFORMATION
As of December 29, 2017July 3, 2020 and December 30, 2016,June 28, 2019, we had $1.2$0.5 million and $1.4$6.2 million, respectively, in unpaid amounts related to purchases of property and equipment included in accounts payable and accrued liabilities during each period, respectively.period. These amounts have been excluded from the payments for purchases of property and equipment in the accompanying condensed consolidated statements of cash flows until paid.
During the threenine months ended December 29, 2017,June 28, 2019, we capitalized $2.1$1.5 million of net construction costs, relating to the 144 Chelmsford Street facility. Thisof which $0.3 million was accounted for as a non-cash transaction as the costs were paid by the developer.
During the three months ended December 29, 2017, we divested the Compute business with net assets valued at approximately $36.5 million in exchange for an equity interest in Ampere.


The following is supplemental cash flow information regarding non-cash investing and financing activities (in thousands):
Nine Months Ended
July 3,
2020
June 28,
2019
Cash paid for interest$20,035  $25,675  
Cash paid (refunded) for income taxes$309  $(1,713) 
 Three Months Ended
 December 29,
2017
 December 30,
2016
Cash paid for interest$6,938
 $5,426
Cash paid (refunded) for income taxes$4,155
 $(712)
19.18. GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION
We have one1 reportable operating segment that designs, develops, manufactures and markets semiconductors and modules. The determination of the number of reportable operating segments is based on the chief operating decision maker’s use of financial information for the purposes of assessing performance and making operating decisions. In evaluating financial performance and making operating decisions, the chief operating decision maker primarily uses consolidated revenue, gross profitmetrics. We evaluate this assessment on an ongoing basis as facts and operating income (loss).circumstances change and as of July 3, 2020 there were no changes to our conclusion.
Information
21


For information about our operationsrevenue in different geographic regions, based upon customer locations, see Note 2 - Revenue. Information about net property and equipment in different geographic regions is presented below (in thousands):
July 3,
2020
September 27,
2019
United States$103,389  $116,037  
Other Countries (1)
18,611  16,610  
Total$122,000  $132,647  
 Three Months Ended
Revenue by Geographic RegionDecember 29,
2017
 December 30,
2016
United States$55,356
 $43,961
China37,688
 60,301
Asia Pacific, excluding China (1)22,886
 36,929
Other Countries (2)14,995
 10,561
Total$130,925
 $151,752
(1)Other than the United States, no country or region represented greater than 10% of the total net property and equipment as of the dates presented.

(1)Asia Pacific represents Taiwan, Japan, Singapore, India, Thailand, South Korea, Australia, Malaysia, New Zealand, the Philippines and Vietnam.
(2)No international country or region represented greater than 10% of the total revenue as of the dates presented, other than China and the Asia Pacific region as presented above.
  As of
Long-Lived Assets by Geographic Region December 29,
2017
 September 29,
2017
United States $100,404
 $101,044
Asia Pacific (1) 26,641
 24,945
Other Countries (2) 4,965
 5,030
Total $132,010
 $131,019

(1)Asia Pacific represents Taiwan, Japan, India, Thailand, South Korea, Australia, Malaysia, New Zealand, the Philippines, Vietnam and China.
(2)No international country or region represented greater than 10% of the total net long-lived assets as of the dates presented, other than the Asia Pacific region as presented above.
The following is a summary of customer concentrations as a percentage of revenue and accounts receivable as of and for the periods presented:
 Three Months EndedNine Months Ended
RevenueJuly 3,
2020
June 28,
2019
July 3,
2020
June 28,
2019
Customer A13 %17 %14%15 %
Customer B14 %—  11%—  
Customer C14 %—  10%—  
 Three Months Ended
RevenueDecember 29,
2017

December 30,
2016
Customer A10%
12%
Customer B9%
22%
Accounts ReceivableJuly 3,
2020
September 27,
2019
Customer A18 %24 %
Customer C12 %%
Customer D11 %10 %


Accounts ReceivableDecember 29,
2017
 September 29,
2017
Customer A13% 13%
Customer C10% 14%
Customers B and C did not represent more than 10% of revenue in the three and nine months ended June 28, 2019. No other customer represented more than 10% of revenue or accounts receivable in the periods presented in the accompanying condensed consolidated financial statements. For the three and nine months ended December 29, 2017,July 3, 2020 our top ten customers represented 51%66% and 61%, respectively, of total revenue, and for the three and nine months ended December 30, 2016,June 28, 2019, our top ten customers represented 63%54% and 54%, respectively, of total revenue.




19. RELATED-PARTY TRANSACTIONS
During the nine months ended July 3, 2020, we sold $0.2 million of commercial products to Mission Microwave Technologies, LLC ("Mission"), a MACOM customer and an affiliate of directors John and Susan Ocampo. Together, Mr. and Mrs. Ocampo are MACOM's largest stockholders. Stephen G. Daly, MACOM's President and Chief Executive Officer, has an equity interest of less than 1% in Mission.

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended September 29, 201727, 2019 filed with the SECUnited States Securities and Exchange Commission (“SEC”) on November 15, 2017.26, 2019 (the “2019 Annual Report on Form 10-K”).
In this document, the words “Company,” “we,” “our,” “us,” and similar terms refer only to MACOM Technology Solutions Holdings, Inc. and its consolidated subsidiaries, and not any other person or entity.
“MACOM,” “M/A-COM,” “M/A-COM Technology Solutions,” “M/A-COM Tech,” “Partners in RF & Microwave” and related logos are trademarks of MACOM Technology Solutions Holdings, Inc. All other brands and names listed are trademarks of their respective owners.
Cautionary Note Regarding Forward-Looking Statements
This Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and other sections of this Quarterly Report on Form 10-Q contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we may make other written and oral communications from time to time that contain such statements. Forward-looking statements include statements as to our strategic plans and priorities, anticipated drivers of future revenue growth, industry trends, andthe potential impacts of COVID-19 on our future expectationsoperations and results, our plans for use of our cash and cash equivalents, short-term investments and revolving credit facility, our ability to meet working capital
22


requirements and other matters that do not relate strictly to historical facts. These statements are often identified by the use of words such as “anticipates,” “believes,” “could,” “continue,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “targets,” “will,” “would” and similar expressions or variations. These statements are based on management's beliefs and assumptions as of the date of this Quarterly Report on Form 10-Q, based on information currently available to us. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, among others, the risks described in the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q, our quarterly report on Form 10-Q for the fiscal quarter ended April 3, 2020 filed with the SEC on April 30, 2020, our quarterly report on Form 10-Q for the fiscal quarter ended January 3, 2020 filed with the SEC on January 29, 2020 and our Annual Report on Form 10-K for the fiscal year ended September 29, 201727, 2019 filed with the SEC on November 15, 2017.26, 2019. We caution the reader to carefully consider such factors. Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. WeExcept as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Overview
We are a leading providerdesign and manufacture semiconductor products for Telecommunications (“Telecom”), Industrial and Defense (“I&D”) and Data Center applications. Headquartered in Lowell, Massachusetts, we have more than 65 years of high-performance analog semiconductor solutions that enable next-generation Internet applications, the cloud connected apps economyapplication expertise, with silicon, gallium arsenide and the modern, networked battlefield across the radio frequency ("RF"), microwave, millimeterwaveindium phosphide fabrication, manufacturing, assembly and lightwave spectrum. Our technology enables next-generation radars for air traffic controltest, and weather forecasting, as well as mission success on the modern networked battlefield.operational facilities throughout North America, Europe and Asia. We help our customers, including some of the world’s leading communications infrastructure and aerospace and defense companies, solve complex challenges in areas including network capacity, signal coverage, energy efficiency and field reliability, utilizing our best-in-class team and broad portfolio of analog RF, microwave, millimeterwave and photonic semiconductor solutions.
We design, develop and manufacture differentiated, high-value products for customers who demand high performance, quality and reliability. We offer a broad portfolio of over 5,000thousands of standard and custom devices, which include integrated circuits ("IC"(“IC”), multi-chip modules ("MCM"(“MCM”), power pallets and transistors, diodes, amplifiers, switches and switch limiters, passive and active components and complete subsystems, across more than 60dozens of product lines serving over 6,500 end customers6,000 end-customers in three primary markets. Our semiconductor products are electronic components that our customers incorporate into their larger electronic systems, such as, point-to-point wireless backhaul radios,basestations, high densitycapacity optical networks, active antenna arrays, radar, magnetic resonance imagingmedical systems ("MRI") and unmanned aerial vehicles ("UAVs").test and measurement. Our primary markets are: (1) Telecom, which includes carrier infrastructure wired broadbandsuch as long-haul/metro, 5G and cellular backhaul, and cellular infrastructure; Datacenter which includes optical and photonic components and solutions for Cloud service provider and enterprise applications; and Industrial and Defense ("FTTx/PON, among others; (2) I&D"),&D, which includes military and commercial radar, RF jammers, electronic countermeasures, and communication data links;links, satellite communications and multi-market components spanningapplications, which include industrial, medical, test and measurement and scientific applications.applications; and (3) Data Center, enabled by our broad portfolio of analog ICs and photonic components for high speed optical module customers.
COVID-19 Impact
COVID-19, the disease caused by the most recently discovered coronavirus, has spread throughout areas of the world where we operate and resulted in authorities implementing numerous measures to try to contain the virus. As a result of these measures and the spread of COVID-19, we have modified our business practices and may further modify our practices as required, or as we determine appropriate. While these measures, as well as other disruptions, have impacted our operations, the operations of our customers and those of our respective vendors and suppliers, such impacts did not, as of the nine months ended July 3, 2020, have a material impact on our consolidated operating results.
Given the significant continued economic uncertainty and volatility created by the pandemic, it is difficult to predict the nature and extent of impacts on the demand for our products. The continued spread of COVID-19 could cause an overall economic slowdown or recession and could result in adverse impacts such as increased credit and collectability risks, adverse impacts on our suppliers, asset impairments, declines in the value of our financial instruments and adverse impacts on our capital resources. The degree to which the COVID-19 pandemic impacts our future business, financial condition, results of operations, liquidity and cash flows will depend on future developments, which are highly uncertain and cannot be accurately predicted, including the duration and spread of the outbreak, its severity, actions taken to contain the virus or treat its impact, how quickly and to what extent normal operating conditions can resume, and the economic impact on local, regional, national and international markets.
For additional information on risk factors that could impact our future results, please refer to “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.





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Description of Our Revenue
Revenue. Substantially all of our Our revenue is derived from sales of high-performance RF, microwave, millimeterwavemillimeter wave, optical and lightwavephotonic semiconductor solutions.products. We design, integrate, manufacture and package differentiated, product solutionssemiconductor-based products that we sell to customers through our direct sales organization, our network of independent sales representatives and our distributors.


We believe the primary drivers of our future revenue growth will include:
engaging early withcontinued growth in the demand for high-performance analog, digital and optical semiconductors in our lead customers to developthree primary markets;
introducing new products using advanced technologies, added features, higher levels of integration and improved performance;
increasing content of our semiconductor solutions that can be driven across multiple growth markets;in customers’ systems through cross-selling our product lines;
leveraging our core strength and leadership position in standard, catalog products that service all of our end applications; and
increasing content ofengaging early with our semiconductor solutions in our customers’ systems through cross-selling of our more than 60 product lines;
introducing new products through internal developmentlead customers to develop custom and acquisitions with market reception that command higher prices based on the application of advanced technologies such as GaN, added features, higher levels of integration and improved performance; and
continued growth in the market for high-performance analog and optical semiconductors in our three primary markets in particular.standard products.
Our core strategy is to develop and innovate high-performance products that address our customers’ most difficult technical challenges in our primary markets: Telecom, DatacenterI&D and I&D. While sales in any or all of our primary markets may slow or decline from period to period, over the long-term we generally expect to benefit from strength in these markets.Data Center.
We expect our revenue in the Telecom market to be primarily driven by 5G deployments, with continued upgrades and expansion of communications equipment, to support the proliferation of mobile computing devices such as smartphones and tablets, increasing adoption of bandwidth rich services such as video on demand and cloud computing. We expect our Datacenter market to be driven by the rapid adoption of cloud-based services and the migration to an application centric architecture, which we expect will drive adoption of higher speed, 100G and higher speedhigh-performance RF, millimeter wave, optical and photonic wireless links.components.
We expect our revenue in the I&D market to be driven by the upgrading ofexpanding product portfolio that we offer which services applications such as test and measurement, satellite communications, civil and military radar, systemsindustrial, scientific and modern battlefield communications equipment and networks designed to improve situational awareness. Growth in this market is subject to changes in governmental programs and budget funding, which is difficult to predict. We expect revenue in this market to bemedical applications, further supported by growth in applications for our multi-purposemulti-market catalog products.
We expect our revenue in the Data Center market to be driven by the adoption of cloud-based services and the upgrade of data center architectures, to 100G, 200G, 400G and 800G interconnects, which we expect will drive adoption of higher speed optical and photonic components.
Critical Accounting Policies and EstimatesEstimates
Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements. The preparation of financial statements, in conformity with generally accepted accounting principles in the U.S. (“GAAP”),GAAP, requires management to make estimates and judgments 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 revenue and expenses during the reporting period. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and could be material if our actual or expected experience were to change unexpectedly. On an ongoing basis, we re-evaluate our estimates and judgments.
Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of the date of filing of this Quarterly Report on Form 10-Q with the SEC. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
We base our estimates and judgments on our historical experience and on other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates and material effects on our operating results and financial position may result. The accounting policies which our management believes involve the most significant application of judgment or involve complex estimation, are inventories and associated reserves; goodwill and intangiblelong-lived asset valuations and associated impairment assessments; revenue reserves; restructuring reserves; deferred tax valuation allowances; contingent consideration valuations and share-based compensation valuations.
Significant management judgment is required in our valuation of long-lived asset groups when assessing for potential impairment. These analyses are based on the creation of forecasts of future operating results that are used in the valuation, including estimation of (i) future cash flows, (ii) the long-term rate of growth for our business, (iii) the useful life over which cash flows will occur, (iv) terminal values, if applicable and (v) the determination of our weighted average cost of capital, which is used to determine the discount rate. It is possible that these forecasts may change and our projections included in our forecasts of future results may prove to be inaccurate. If our actual results, or the forecasts and estimates used in future impairment analyses, are lower than the original estimates used to assess the recoverability of these assets, we could incur impairment charges. Our forecasts could be adversely affected by, but not limited to, a change in strategy, the outcome of development activities or slowdown in our primary markets. The value of our long-lived asset groups could also be impacted by
24


future adverse changes such as a decline in the valuation of technology company stocks, including the valuation of our common stock, or a significant slowdown in the worldwide economy or in the semiconductor industry.
For additional information related to these and other accounting policies refer to Note 2 - Summary of Significant Accounting Policies to our Consolidated Financial Statements included in Item 8 of Part II, “Financial Statements and Supplementary Data,” of our 2017the 2019 Annual Report on Form 10-K for the fiscal year ended September 29, 2017.

and Note 1 - Basis of Presentation and Summary of Significant Accounting Policies to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Results of Operations
The following table sets forth, for the periods indicated, our statements of operations data (in thousands):
 Three Months EndedNine Months Ended
 July 3,
2020
June 28,
2019
July 3,
2020
June 28,
2019
Revenue$137,267  $108,306  $382,788  $387,460  
Cost of revenue (1)
66,391  74,478  190,338  219,678  
Gross profit70,876  33,828  192,450  167,782  
Operating expenses:
Research and development (1)
34,948  42,708  105,936  128,593  
Selling, general and administrative (1)
29,982  41,920  94,317  126,437  
Impairment charges (2)
—  264,086  —  264,086  
Restructuring (benefit) charges (3)
(554) 8,887  1,494  17,047  
Total operating expenses64,376  357,601  201,747  536,163  
Income (loss) from operations6,500  (323,773) (9,297) (368,381) 
Other expense:
Warrant liability (expense) gain (4)
(19,511) 1,927  (14,951) 5,788  
Interest expense(5,849) (8,967) (22,142) (27,142) 
Other (expense) income (5)
(4,372) 4,777  (12,464) (4,233) 
Total other expense, net(29,732) (2,263) (49,557) (25,587) 
Loss before income taxes(23,232) (326,036) (58,854) (393,968) 
Income tax expense (benefit)1,750  (1,322) 4,716  346  
Net loss$(24,982) $(324,714) $(63,570) $(394,314) 
(1)  Includes (a) Amortization expense related to intangible assets arising from acquisitions and (b) Share-based compensation expense included in our condensed consolidated statements of operations as set forth below (in thousands):
 Three Months Ended
 December 29,
2017
 December 30,
2016
Revenue$130,925
 $151,752
Cost of revenue (1) (4)69,971
 73,257
Gross profit$60,954
 $78,495
Operating expenses:   
Research and development (1)41,651
 30,174
Selling, general and administrative (1) (2) (5)37,634
 36,496
Restructuring charges4,662
 1,287
Total operating expenses$83,947
 $67,957
(Loss) income from operations$(22,993) $10,538
Other (expense) income   
Warrant liability gain (expense) (3)14,608
 (4,823)
Interest expense(7,239) (7,350)
Other income (expense)7
 (4)
Total other income (expense), net$7,376
 $(12,177)
Loss before income taxes(15,617) (1,639)
Income tax expense1,353
 532
Loss from continuing operations$(16,970) $(2,171)
(Loss) income from discontinued operations (6)(5,599) 1,206
Net loss$(22,569) $(965)
(1)Includes (a) Amortization expense related to intangible assets arising from acquisitions and (b) Share-based compensation expense included in our consolidated statements of operations as set forth below (in thousands):
Three Months Ended Three Months EndedNine Months Ended
December 29,
2017
 December 30,
2016
July 3,
2020
June 28,
2019
July 3,
2020
June 28,
2019
(a) Intangible amortization expense:   (a) Intangible amortization expense:
Cost of revenue$8,147
 $6,001
Cost of revenue$4,348  $8,139  $13,115  $24,074  
Selling, general and administrative10,993
 6,467
Selling, general and administrative8,071  13,723  24,797  38,115  
(b) Share-based compensation expense:   (b) Share-based compensation expense:
Cost of revenue$945
 $720
Cost of revenue$814  $651  $2,771  $2,165  
Research and development3,662
 1,945
Research and development2,921  2,517  9,939  6,540  
Selling, general and administrative5,385
 5,518
Selling, general and administrative4,760  (353) 14,211  11,458  
(2) Includes acquisitionThe three and transaction related costs of $3.5 million associated with the AppliedMicro Acquisition during the threenine months ended December 30, 2016.June 28, 2019 include impairment charges of $264.1 million for impairment of customer
relationship and acquired technology intangible assets as well as equipment.
(3) See Note 14 - Restructurings to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
(4) Represents changes in the fair value of common stock warrants recorded as liabilities and adjusted each reporting period to fair value.
(4) Includes acquisition fair market value inventory step-up related expenses of $0.2 million for the three months ended December 29, 2017, associated with the Picometrix Acquisition.
(5) Includes specific litigation costs of $0.8 million and $0.3 million incurred in the three months ended December 29, 2017 and December 30, 2016, respectively, primarily related to the GaN lawsuit. See Note 1311 - Commitments and ContingenciesStockholders’ Equity to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information.
(6) For additional information related to this item refer to (5) Includes $4.6 million and $13.6 million of losses for the three and nine months ended July 3, 2020, respectively, and $5.0 million of income and $3.9 million of losses for the three and nine months ended June 28, 2019, respectively, associated with our equity method
25


investment. See Note 3 - Discontinued OperationsInvestments to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.10-Q for additional information.





The following table sets forth, for the periods indicated, our statements of operations data expressed as a percentage of our revenue:
 Three Months EndedNine Months Ended
 July 3,
2020
June 28,
2019
July 3,
2020
June 28,
2019
Revenue100.0 %100.0 %100.0 %100.0 %
Cost of revenue48.4  68.8  49.7  56.7  
Gross profit51.6  31.2  50.3  43.3  
Operating expenses:
Research and development25.5  39.4  27.7  33.2  
Selling, general and administrative21.8  38.7  24.6  32.6  
Impairment charges—  243.8  —  68.2  
Restructuring (benefit) charges(0.4) 8.2  0.4  4.4  
Total operating expenses46.9  330.2  52.7  138.4  
Income (loss) from operations4.7  (298.9) (2.4) (95.1) 
Other expense:
Warrant liability (expense) gain(14.2) 1.8  (3.9) 1.5  
Interest expense(4.3) (8.3) (5.8) (7.0) 
Other (expense) income, net(3.2) 4.4  (3.3) (1.1) 
Total other expense, net(21.7) (2.1) (12.9) (6.6) 
Loss before income taxes(16.9) (301.0) (15.4) (101.7) 
Income tax expense (benefit)1.3  (1.2) 1.2  0.1  
Net loss(18.2)%(299.8)%(16.6)%(101.8)%
 Three Months Ended
 December 29,
2017
 December 30,
2016
Revenue100.0 % 100.0 %
Cost of revenue53.4
 48.3
Gross profit46.6
 51.7
Operating expenses:   
Research and development31.8
 19.9
Selling, general and administrative28.7
 24.0
Restructuring charges3.6
 0.8
Total operating expenses64.1
 44.8
(Loss) income from operations(17.6) 6.9
Other (expense) income   
Warrant liability gain (expense)11.2
 (3.2)
Interest expense(5.5) (4.8)
Other income (expense)
 
Total other income (expense), net5.6
 (8.0)
Loss before income taxes(11.9) (1.1)
Income tax expense1.0
 0.4
Loss from continuing operations(13.0) (1.4)
(Loss) income from discontinued operations(4.3) 0.8
Net loss(17.2)% (0.6)%
Comparison of the Three and Nine Months Ended December 29, 2017July 3, 2020 to the Three and Nine Months Ended December 30, 2016June 28, 2019
Revenue. Our revenue decreasedincreased by $20.8$29.0 million, or 13.7%26.7%, to $130.9$137.3 million for the three months ended December 29, 2017,July 3, 2020, from $151.8$108.3 million for the three months ended December 30, 2016. The decrease inJune 28, 2019, and our revenue indecreased by $4.7 million, or 1.2%, for the threenine months ended December 29, 2017 is further described by end market inJuly 3, 2020, from $387.5 million for the following paragraphs.
We have historically reported our revenue by reference to three primary markets: Networks, Aerospace and Defense ("A&D") and Multi-market. Given the recent increase in the size of the Networks market relative to other markets, and our increasing focus on Cloud Data Center applications, beginning in our fiscal year 2018 we are reporting our revenue by reference to the following three primary markets: I&D (roughly corresponding to the former A&D and Multi-market combined), Datacenter and Telecom.nine months ended June 28, 2019.
Revenue from our primary markets, the percentage of change between the periods presented, and revenue by primary markets expressed as a percentage of total revenue in the periods presented were (in thousands, except percentages):
 Three Months Ended Nine Months Ended 
 July 3,
2020
June 28,
2019
%
Change
July 3,
2020
June 28,
2019
%
Change
Telecom$56,800$43,88329.4 %$154,049$141,3799.0 %
Industrial & Defense48,03546,8092.6 %146,586154,563(5.2)%
Data Center32,43217,61484.1 %82,15391,518(10.2)%
Total$137,267$108,30626.7 %$382,788$387,460(1.2)%
Telecom41.4 %40.5 %40.2 %36.5 %
Industrial & Defense35.0 %43.2 %38.3 %39.9 %
Data Center23.6 %16.3 %21.5 %23.6 %
Total100.0 %100.0 %100.0 %100.0 %
In the three and nine months ended July 3, 2020, our Telecom market revenue increased by $12.9 million, or 29.4%, and $12.7 million, or 9.0%, respectively, compared to the three and nine months ended June 28, 2019. The increase for the three and nine months ended July 3, 2020 was primarily driven by increased sales of carrier-based optical semiconductor products including those targeted for 5G applications offset by lower sales of legacy products.
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  Three Months Ended  
  December 29,
2017
  December 30,
2016
 
%
Change
Telecom$55,450 $91,550 (39.4)%
Datacenter 34,761  16,804 106.9 %
Industrial & Defense 40,714  43,398 (6.2)%
Total$130,925 $151,752 (13.7)%
        
Telecom 42.4%  60.3%  
Datacenter 26.6%  11.1%  
Industrial & Defense 31.1%  28.6%  
Total 100.0%  100.0%  



In the three months ended December 29, 2017,July 3, 2020, our I&D market revenue decreasedincreased by $2.7$1.2 million, or 6.2%2.6%, compared to the three months ended December 30, 2016.June 28, 2019. In the nine months ended July 3, 2020, our I&D market revenue decreased $8.0 million, or 5.2%, compared to the nine months ended June 28, 2019. The decrease in the nine months ended July 3, 2020 was primarily related to the decline in certain defense-related programs and lower revenue from sales of certain legacy defense products, partially offset by increases in revenue from sales of products acquired in recent acquisitions.product lines.
In the three months ended December 29, 2017,July 3, 2020, our DatacenterData Center market revenue increased by $18.0$14.8 million, or 106.9%84.1%, compared to the three months ended December 30, 2016.June 28, 2019. The increase was primarily due to incrementalin revenue from the sales of products acquired in the AppliedMicro Acquisition, partially offset by decreased revenue from lower sales of legacy component products.
In the three months ended December 29, 2017, our Telecom revenues decreased by $36.1 million, or 39.4%, compared to the three months ended December 30, 2016. The decrease was primarily due to lower sales of carrier-based optical products to our Asia customer base and lower sales of products targeting fiber to the home applications.
Gross profit. Gross margin was 46.6% for the three months ended DecemberJuly 3, 2020 was primarily due to increased sales of our high-performance analog Data Center products. In the nine months ended July 3, 2020, our Data Center market revenue decreased by $9.4 million, or 10.2%, compared to the nine months ended June 28, 2019. The decrease in revenue for the nine months ended July 3, 2020 was primarily due to $7.0 million of licensing revenue recognized in the three months ended March 29, 2017,2019.
Gross profit. Gross margin was 51.6% and 51.7%31.2% for the three months ended December 30, 2016.July 3, 2020 and June 28, 2019, respectively, and 50.3% and 43.3% for the nine months ended July 3, 2020 and June 28, 2019, respectively. Gross profit duringwas $70.9 million and $33.8 million for the three months ended December 29, 2017, was negatively impacted by an unfavorable sales mix, higherJuly 3, 2020 and June 28, 2019, respectively, and $192.5 million and $167.8 million for the nine months ended July 3, 2020 and June 28, 2019, respectively. Gross profit increased for the three and nine months ended July 3, 2020 as compared to the three and nine months ended June 28, 2019 primarily as a result of the strategic realignment of our business under the 2019 Plan (as defined below), lower compensation-related costs and lower intangible amortization of intangibles and depreciation associated with the AppliedMicro Acquisition, partially offset by lower compensation costs.inventory reserve expenses.
Research and development. Research and development expense increaseddecreased by $11.5$7.8 million, or 38.0%18.2%, to $41.7$34.9 million, or 31.8%25.5% of our revenue, for the three months ended December 29, 2017,July 3, 2020, compared with $30.2$42.7 million, or 19.9%39.4% of our revenue, for the three months ended December 30, 2016.June 28, 2019. Research and development expense decreased by $22.7 million, or 17.6%, to $105.9 million, or 27.7% of our revenue, for the nine months ended July 3, 2020, compared with $128.6 million, or 33.2% of our revenue, for the nine months ended June 28, 2019. Research and development expense has increaseddecreased in the fiscal 2018 periodthree and nine months ended July 3, 2020 primarily as a result of higher acquisitionthe strategic realignment of our business and operations under the 2019 Plan, resulting in lower compensation costs and research and development related compensation, share-based compensation and depreciation expense.activity.
Selling, general and administrative. Selling, general and administrative expense increaseddecreased by $1.1$11.9 million, or 3.1%28.5%, to $37.6$30.0 million, or 28.7%21.8% of our revenue, for the three months ended December 29, 2017,July 3, 2020, compared with $36.5$41.9 million, or 24.0%38.7% of our revenue, for the three months ended December 30, 2016.June 28, 2019. Selling, general and administrative expenses increasedexpense decreased by $32.1 million, or 25.4%, to $94.3 million, or 24.6% of our revenue, for the nine months ended July 3, 2020, compared with $126.4 million, or 32.6% of our revenue, for the nine months ended June 28, 2019. Selling, general and administrative expense decreased in the fiscal 2018 periodsthree and nine months ended July 3, 2020 primarily due to higherlower intangible amortization expense, lower compensation-related costs associated with the 2019 Plan and acquisition related compensation, partiallydecreased spending on external services offset by lower acquisition related transaction expenses.an increase in employee-related share-based compensation expense.
RestructuringImpairment charges. Restructuring Impairment charges totaled $4.7$264.1 million in the three and nine months ended June 28, 2019. These charges included the $257.0 million impairment of intangible assets, as well as the impairment of $7.1 million of equipment from construction in process that was not placed in service. See Note 9 - Impairments for additional information.
Restructuring (benefit) charges. Restructuring totaled a benefit of $0.6 million and $1.3charges of $8.9 million for the three months ended December 29, 2017July 3, 2020 and December 30, 2016,June 28, 2019, respectively, and charges of $1.5 million and $17.0 million for the nine months ended July 3, 2020 and June 28, 2019, respectively. The increaseDuring the fiscal quarter ended June 28, 2019, we committed to a plan designed to strategically realign, streamline and improve certain of our business and operations, including reducing our workforce by approximately 250 employees, or 20%, exiting six development facilities, reducing certain development activities for one of our product lines and no longer investing in restructuringthe design and development of optical modules and subsystems for Data Center applications (the “2019 Plan”). Restructuring (benefit) charges duringfor the first three and nine months of fiscal year 2018 wasended July 3, 2020 are primarily related to our planned exitthe 2019 Plan.
Under the 2019 Plan we incurred a restructuring benefit of facilities$0.6 million in Long Beach, California, Belfast, United Kingdomthe three months ended July 3, 2020, including a benefit of $0.8 million of employee-related costs and Sydney, Australia.$0.2 million of other costs, and charges of $1.6 million in the nine months ended July 3, 2020, including $0.8 million of employee-related costs and $0.8 million of other costs. The restructuring net benefit for the three months ended July 3, 2020 includes an adjustment to accrued employee-related costs resulting from a decision during the fiscal third quarter to retain certain employees. We incurred restructuring charges of $9.0 million in the three months ended June 28, 2019 under this plan, including $4.9 million of employee-related costs, $4.0 million of impairment expense for fixed assets that will be disposed of and $0.1 million of other costs. We expect to incur additional restructuring costs of approximately $0.7up to $0.2 million to $1.5 million during the remainder of calendarthrough fiscal year 20182020 as we complete thesethis restructuring actions.action. We expect annual expense savings of approximately $50 million dollars once the 2019 Plan is fully implemented.
Restructuring expense for the three and nine months ended June 28, 2019 primarily related to the 2019 Plan. Restructuring expense for the three and nine months ended June 28, 2019 also included charges related to the Ithaca Plan and Design Facilities Plan actions which were completed in fiscal year 2019 and no further costs will be incurred.
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For additional information refer to Note 14 - Restructurings to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Warrant liability. Our warrant liability resulted in a gainan expense of $14.6$19.5 million and $15.0 million for the three and nine months ended December 29, 2017,July 3, 2020, respectively, compared to an expensea gain of $4.8$1.9 million and $5.8 million for the three and nine months ended December 30, 2016.June 28, 2019, respectively. The differencesdifference between periods were primarilywas driven by changesa change in the estimated fair value of common stock warrants we issued in December 2010, primarily driven by the change in the underlying price of our common stock, which we carryis recorded as a liability at fair value. The warrants expire on December 21, 2020, or earlier as per the terms of the agreement, including immediately following consummation of a sale of all or substantially all assets or capital stock or other equity securities, including by merger, consolidation, recapitalization or similar transactions.
Provision for income taxes. Income tax expense was $1.4 million for the three months ended December 29, 2017, compared to an expense of $0.5 million for the three months ended December 30, 2016. The Our income tax expense (benefit) and effective income tax rates for the three months ended December 29, 2017 resulted primarily from income subject toperiods indicated were (in thousands, except percentages):
Three Months EndedNine Months Ended
July 3,
2020
June 28,
2019
July 3,
2020
June 28,
2019
Income tax expense (benefit)1,750  (1,322) 4,716  346  
Effective income tax rate(7.5)%0.4 %(8.0)%(0.1)%
Our estimated annual effective tax in foreign jurisdictions and discrete adjustments to our U.S. deferred tax liability.  The income tax expenserate for the three monthsyear ended December 30, 2016 results from current period taxable income after adjustingOctober 2, 2020 is expected to be (13.0)%, adjusted for a non-taxable discrete loss of $4.8 million for changes in fair value oftaxation matters arising during the stock warrant liability.interim periods.
The difference between the U.S. federal statutory income tax rate of 35%21% and our effective income tax rate for the three and nine months ended December 30, 2016, was primarily impacted by changes in fair value of the common stock warrant liability which is neither deductible nor taxable for tax purposes, income taxed in foreign jurisdictions at generally lower tax rates, non-deductible compensation, researchJuly 3, 2020 and development tax credits and non-deductible merger expenses, partially offset by U.S. state income taxes. The difference between the U.S. federal statutory income tax rate of 35% and our effective income tax rate for the three and nine months ended December 29, 2017June 28, 2019 was primarily driven by the continuation of a full valuation allowance against any benefit associated with U.S. losses and income taxed in foreign jurisdictions at generally lower tax rates.rates, where we are not in a valuation allowance because it is expected that we will be in a taxable income position. For additional information refer to Note 16 - Income Taxes to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.


Liquidity and Capital Resources
The following table summarizes our cash flow activities for the three months ended December 29, 2017 and December 30, 2016, respectively (in thousands):
Nine Months Ended
 December 29, 2017 December 30, 2016July 3, 2020June 28, 2019
Cash and cash equivalents, beginning of period $130,104
 $332,977
Cash and cash equivalents, beginning of period$75,519  $94,676  
Net cash provided by operating activities 534
 20,407
Net cash provided by operating activities96,994  28,277  
Net cash provided by (used in) investing activities 20,309
 (4,043)
Net cash provided by financing activities 1,045
 5,011
Net cash used in investing activitiesNet cash used in investing activities(31,970) (33,060) 
Net cash used in financing activitiesNet cash used in financing activities(8,462) (4,792) 
Foreign currency effect on cash 93
 (435)Foreign currency effect on cash(211) 164  
Cash and cash equivalents, end of period $152,085
 $353,917
Cash and cash equivalents, end of period$131,870  $85,265  
Cash Flow from Operating Activities:Activities
Our cash flow from operating activities for the threenine months ended December 29, 2017July 3, 2020 of $0.5$97.0 million consisted of a net loss of $22.6$63.6 million, plus cash provided by operating assets and liabilities of $37.5 million, plus adjustments to reconcile our net loss to cash provided by operating activities of $18.7 million and changes in operating assets and liabilities of $4.4$123.1 million. Adjustments to reconcile our net loss to cash provided by operating activities of $18.7 million primarily included depreciation and intangible amortization expense of $26.9$59.8 million and share-based compensation expense of $10.0$26.9 million, partially offset by a warrant liability gainloss of $14.6$15.0 million and a change in the net valueloss on minority equity investment of assets and liabilities held for sale of $6.2$13.6 million. In addition, cash provided by operating assets and liabilities was $4.4$37.5 million for the threenine months ended December 29, 2017,July 3, 2020, primarily driven by a decrease in accounts receivable of $38.9 million, partially offset by decreases in accounts payable of $14.4 million, increases in inventory of $8.0 million, increases in prepaid expenses and other assets of $6.6$15.5 million, a decrease in inventories of $12.3 million and decreasesa decrease in accrued and other liabilitiesaccounts receivable of $2.2 million.$9.3 million, primarily due to increased revenue in the three months ended July 3, 2020 as compared to the three months ended June 28, 2019.
Our cash flow from operating activities for the threenine months ended December 30, 2016June 28, 2019 of $20.4$28.3 million consisted of a net loss of $1.0$394.3 million, plus cash provided by operating assets and liabilities of $43.3 million, plus adjustments to reconcile our net loss to cash provided by operating activities of $31.7 million less changes in operating assets and liabilities of $10.3$379.3 million. Adjustments to reconcile our net loss to cash provided by operating activities of $31.7 million primarily included restructuring and impairment-related charges of $272.9 million, depreciation and intangible amortization expense of $18.5$84.6 million and share-based incentive compensation expense of $8.2$20.2 million, andpartially offset by a warrant liability expensegain of $4.8$5.8 million. In addition, cash usedprovided by operating assets and liabilities was $10.3$43.3 million for the threenine months
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ended December 30, 2016,June 28, 2019, primarily driven by an increasea decrease in accounts receivable of $4.5$29.3 million, an increase in inventory of $1.6 million and decreases in accrued and other liabilities of $5.5$3.2 million and a decrease in inventories of $12.3 million, partially offset by a decrease in accounts payable of $3.9 million.
Cash Flow from Investing Activities:Activities
Our cash flow fromused in investing activities for the threenine months ended December 29, 2017July 3, 2020 consisted primarily of purchases of $196.5 million of short-term investments, capital expenditures of $12.7 million, offset by proceeds of $57.4$165.8 million related to the sale and maturity of short term investments, partially offset by capital expenditures of $13.8 million, purchases of $18.0 million of short termshort-term investments and a $5.0proceeds of $11.0 million investmentassociated with our divestment in a privately held company.May 2018 of certain capital equipment, inventory and other assets associated with our long-range optical subassembly product line in Japan.
Our cash flow used byin used in investing activities for the threenine months ended December 30, 2016June 28, 2019 consisted primarily of purchases of $8.9 million of short term investments and capital expenditures of $4.9$31.9 million, partiallyand purchases of $156.1 million of short-term investments, offset by received proceeds of $8.8$155.3 million related to the sale and maturity of short term investments and $0.9 million related to recovery of a portion of the Aeroflex/Metelics, Inc. acquisition purchase price related to a working capital adjustment.short-term investments.
Cash Flow from Financing Activities:Activities
During the threenine months ended December 29, 2017,July 3, 2020, our cash provided byused in financing activities of $1.0$8.5 million was primarily related to $3.2$6.6 million of repurchases of stock associated with employee tax withholdings on vested equity awards, $5.2 million of payments on long-term debt, and $1.3 million of payments on financing leases, offset by $4.6 million of proceeds from stock option exercises and employee stock purchases, partially offset by $1.7 million of payments on notes payable.purchases.
During the threenine months ended December 30, 2016,June 28, 2019, our cash provided fromused in financing activities of $5.0$4.8 million was primarily related to $4.3$5.2 million of proceeds from the salepayments on long-term debt and $3.9 million in purchases of our corporate headquarters facility and $2.6stock associated with employee tax withholdings, partially offset by $5.6 million of proceeds from stock option exercises and employee stock purchases, partially offset by $1.5 million of payments on notes payable.


purchases.
Liquidity
As of December 29, 2017,July 3, 2020, we held $152.1$131.9 million of cash and cash equivalents, primarily deposited with financial institutions. TheOther than the undistributed earnings of our M/A-COM Technology Solutions International Limited and M/A-COM Technology Solutions (UK) Limited subsidiaries, the undistributed earnings of our other foreign subsidiaries are indefinitely reinvested and we do not intend to repatriate such earnings. We believe the decision to reinvest these earnings will not have a significant impact on our liquidity. As of December 29, 2017,July 3, 2020, cash held by our indefinitely reinvested foreign subsidiaries was $35.9$36.5 million, which, along with cash generated from foreign operations, is expected to be used in the support of international growth and working capital requirements as well as the repayment of certain intercompany loans. As of December 29, 2017,July 3, 2020, we also held $44.6$133.2 million of liquid short termshort-term investments and had $160.0 million in borrowing capacity under our revolving credit facility.the Revolving Facility, of which we may borrow up to $50 million without being subject to certain financial covenants.
We plan to use our remaining available cash and cash equivalents, short termshort-term investments, and as deemed appropriate our borrowing capacity under our revolving credit facilityRevolving Facility for general corporate purposes, including working capital, or for the acquisition of or investment in complementary technologies, design teams, products and businesses. We believe that our cash and cash equivalents, short termshort-term investments, cash generated from operations and borrowing availability under our revolving credit facilitythe Revolving Facility will be sufficient to meet our working capital requirements for at least the next 12 months. We may need to raise additional capital from time to time through the issuance and sale of equity or debt securities, and there is no assurance that we will be able do so on favorable terms or at all.
For additional information related to our Liquidity and Debt,Capital Resources, see Note 87 - Debt to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
See Note 1 - Basis of Presentation and Summary of Significant Accounting Policies to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for information about recent accounting pronouncements.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 29, 2017.July 3, 2020.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk in the ordinary course of business, which consists primarily of interest rate risk associated with our cash and cash equivalents, short termshort-term investments and our variable rate debt, as well as foreign exchange rate risk. In addition, the value of our warrant liability is based on the underlying price of our common stock and changes in its value could significantly impact our warrant liability expense.
29


Interest rate risk. The primary objectives of our investment activity are to preserve principal, provide liquidity and invest excess cash for an average rate of return. To minimize market risk, we maintain our portfolio in cash and diversified investments, which may consist of corporate and agency bonds, bank deposits, money market funds and commercial paper. Certain interest rates are variable and fluctuate with current market conditions. The risk associated with fluctuating interest rates is limited to this investment portfolio. We believe that a 10% change in interest rates would not have a material impact on our financial position or results of operations. We do not enter into financial instruments for trading or speculative purposes.
Our exposure to interest rate risk also relates to the increase or decrease in the amount of interest expense we must pay on the outstanding debt under the Credit Agreement. The interest rates on our term loans and revolving credit facility are variable interest rates based on our lender’s prime rate or a LIBOR rate, in each case plus an applicable margin, which exposes us to market interest rate risk when we have outstanding borrowings under the Credit Agreement. As of December 29, 2017,July 3, 2020, we had $685.0$667.8 million of outstanding borrowings under the Credit Agreement. Assuming our outstanding debt remains constant under the Credit Agreement for an entire year and the applicable annual interest rate increases or decreases by 1%, our annual interest expense would increase or decrease by $6.9$6.7 million.
Foreign currency risk. To date, our international customer agreements have been denominated primarily in U.S. dollars. Accordingly, we have limited exposure to foreign currency exchange rates. The foreign operations of one of our subsidiaries located in Japan have transactions which are predominately denominated in Japanese Yen. The functional currency of a majority of our foreign operations continues to be in U.S. dollars with the remaining operations being local currency. Increases in the value of the U.S. dollar relative to other currencies could make our products more expensive, which could negatively impact demand in certain regions. Conversely, decreases in the value of the U.S. dollar relative to other currencies could result in our products being more expensive to certain customers and could reduce or delay orders, or otherwise negatively affect how they do business with us. The effects of exchange rate fluctuations on the net assets of the majority of our operations are accounted for as transaction gains or losses. We believe that a change of 10% in such foreign currency exchange rates would not have a material impact on


our financial position or results of operations. In the future, we may enter into foreign currency exchange hedging contracts to reduce our exposure to changes in exchange rates.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of December 29, 2017.July 3, 2020.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Qour most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving the desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

30



PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 13 - Commitments and Contingencies to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for information about our legal proceedings.
ITEM 1A. RISK FACTORS
Our business involves a high degree of risk.  In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2019 Annual Report on Form 10-K, for the fiscal year ended September 29, 2017, which could materially affect our business, financial condition or future results. As of the date of this Quarterly Report on Form 10-Q, there have been no material changes in any of the risk factors described in our 2019 Annual Report on Form 10-K, except as discussed in Part II, "Item 1A. Risk Factors" in our Quarterly Report on Form 10-Qs for the fiscal yearquarters ended SeptemberJanuary 3, 2020, as filed with the SEC on January 29, 2017, except2020 and April 3, 2020, as noted below.filed with the SEC on April 30, 2020.
Our term loan and revolving credit facility could result in outstanding debt with a claim to our assets that is senior to that of our stockholders and may have other adverse effects on our results of operations.
As of December 29, 2017, we had a term loan outstanding of $685.0 million and a revolving credit facility with $160.0 million of available borrowing capacity. The facility is secured by a first priority lien on our assets and those of our domestic subsidiaries. The amount of our indebtedness could have important consequences, including the following:
we may be unable or limited in our ability to obtain additional financing on favorable terms in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes;
we may be limited in our ability to make distributions to our stockholders in a sale or liquidation until our debt is repaid in full;
we may be more vulnerable to economic downturns, less able to withstand competitive pressures and less flexible in responding to changing business and economic conditions;
our cash flow from operations will be allocated to the payment of the principal of and interest on, any outstanding indebtedness; and,
we cannot assure you that our business will generate sufficient cash flow from operations or other sources to enable us to meet our payment obligations under the facility and to fund other liquidity needs.
Our credit facility also contains certain restrictive covenants that may limit or eliminate our ability to, among other things, incur additional debt, sell, lease or transfer our assets, pay dividends, make investments and loans, make acquisitions, guarantee debt or obligations, create liens, enter into transactions with our affiliates, enter into new lines of business and enter into certain merger, consolidation or other reorganizations transactions. These restrictions could limit our ability to withstand downturns in our business or the economy in general or to take advantage of business opportunities that may arise, any of which could place us at a competitive disadvantage relative to our competitors that are not subject to such restrictions. If we breach a loan covenant, the lenders could either refuse to lend funds to us or accelerate the repayment of any outstanding borrowings under the credit facility. We might not have sufficient assets to repay such indebtedness upon a default. If we are unable to repay the indebtedness, the lenders could initiate a bankruptcy proceeding against us or collection proceedings with respect to our subsidiaries securing the facility, which could materially decrease the value of our common stock.
Our financial results may be adversely affected by increased tax rates, changes in applicable tax laws and regulations, and exposure to additional tax liabilities.
Our effective tax rate is highly dependent upon the geographic composition of our worldwide earnings and tax regulations governing each region, each of which can change from period to period. We are subject to income taxes in both the U.S. and various foreign jurisdictions and significant judgment is required to determine our worldwide tax liabilities. Our effective tax rate as well as the actual tax ultimately payable could be adversely affected by changes in the amount of our earnings attributable to countries with differing statutory tax rates, changes in the valuation of our deferred tax assets, changes in tax laws (or the interpretation of those laws by regulators) or tax rates (particularly in the U.S. or Ireland), increases in non-deductible expenses, the availability of tax credits, material audit assessments or repatriation of non-U.S. earnings, each of which could materially affect our profitability. For example, as of September 29, 2017, we had $1,084.8 million of gross federal net operating loss (NOL) carryforwards, which will expire at various dates through 2036. However, our ability to use these federal NOL carryforwards and other deferred tax assets may be limited and, as a result of our conclusion that recovery of our U.S. deferred tax assets, including those assumed in the AppliedMicro Acquisition, is not considered more likely than not, we established a full valuation allowance against our U.S. deferred tax assets as of September 29, 2017. Any significant increase in our effective tax rates could materially reduce our net income in future periods and decrease the value of your investment in our common stock. In addition, certain


intercompany loans could be re-characterized as equity for tax purposes resulting in additional tax on the repatriation of the loan to the U.S.
Changes in tax laws are introduced from time to time to reform taxation in the U.S., Ireland and other countries in which we have operations, including to implement or clarify the Tax Act. Depending on the final form of legislation enacted, if any, these consequences may be significant for us due to the large scale of our international business activities. If any of these proposals are enacted into legislation, they could have material adverse consequences on the amount of tax we pay and, thereby, on our financial position and results of operations. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act. The changes included in the Tax Act are broad and complex, and we are not able to finalize our evaluation of the impact of the Tax Act at this time due to uncertainties related to final interpretation of the law, any future legislative or regulatory actions related to the Tax Act and availability of information needed to perform the final calculations. However, the Tax Act may impact our financial position.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table presents information with respect to purchases of common stock we made during the fiscal quarter ended July 3, 2020. 
Period
Total Number of Shares (or Units) Purchased (1)
Average Price Paid per Share (or Unit)Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
April 4, 2020-May 1, 2020—  $—  —  —  
May 2, 2020-May 29, 202021,566  28.18  —  —  
May 30, 2020-July 3, 2020—  —  —  —  
Total21,566  $28.18  —  —  
(1) We employ “withhold to cover” as a tax payment method for vesting of restricted stock awards for our employees, pursuant to which, we withheld from employees the shares noted in the table above to cover tax withholding related to the vesting of their awards. The average prices listed in the above table are averages of the fair market prices at which we valued shares withheld for purposes of calculating the number of shares to be withheld.
31
PeriodTotal Number of Shares (or Units) Purchased (1) Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
September 30, 2017 - October 27, 2017
 $
 
 
October 28, 2017 - November 24, 20178,638
 30.02
 
 
November 25, 2017 - December 29, 2017
 
 
 
 8,638
 $30.02
 
 
(1)We employ “withhold to cover” as a tax payment method for vesting of restricted stock awards for our employees, pursuant to which, we withheld from employees the shares noted in the table above to cover tax withholding related to the vesting of their awards. The average prices listed in the above table are averages of the fair market prices at which we valued shares withheld for purposes of calculating the number of shares to be withheld.




ITEM 6. EXHIBITS
Exhibit
Number
Description
2.13.1
3.1
3.2
31.1
31.2
32.1
101.INS101XBRL Instance DocumentThe following material from the Quarterly Report on Form 10-Q of MACOM Technology Solutions Holdings, Inc. for the fiscal quarter ended July 3, 2020, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements and (vii) document and entity information, tagged as blocks of text and including detailed tags.
101.SCH104The cover page for the Quarterly Report on Form 10-Q of MACOM Technology Solutions Holdings, Inc. for the fiscal quarter ended July 3, 2020, formatted in Inline XBRL Taxonomy Schema Documentand included as Exhibit 101
101.CALXBRL Taxonomy Calculation Linkbase Document
101.DEFXBRL Taxonomy Definition Linkbase Document
101.LABXBRL Taxonomy Label Linkbase Document
101.PREXBRL Taxonomy Presentation Linkbase Document





32




SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
Dated: July 30, 2020MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.By:/s/ Stephen G. Daly
Stephen G. Daly
Dated: February 7, 2018By:/s/ John Croteau
John Croteau
President and Chief Executive Officer

(Principal Executive Officer)
Dated: February 7, 2018July 30, 2020By:/s/ Robert J. McMullanJohn F. Kober
Robert J. McMullanJohn F. Kober
Senior Vice President and Chief Financial Officer

(Principal Accounting and Principal Financial Officer)