UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



ý☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December 29, 2017~~July 3, 2020



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35451

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 class	Trading Symbol(s)	Name of exchange on which registered
Common Stock, par value $0.001 per share	MTSI	Nasdaq Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically ~~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 filer

x☒

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 ~~64,405,673~~66,885,282 shares of the registrant’s common stock outstanding.

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

FORM 10-Q

TABLE OF CONTENTS

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 investments	44,585			84,121
Accounts receivable (less allowances of $8,924 and $9,410, respectively)	97,123			136,096
Short-term investments							Short-term investments	133,248		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
Inventories	143,136			136,074			Inventories	95,576		107,880

Income tax receivable	18,933			18,493			Income tax receivable	18,904		16,661
Assets held for sale	—			35,571

Prepaid and other current assets	25,363			22,438			Prepaid and other current assets	10,166		27,506
Total current assets	$	481,225		$	562,897		Total current assets	450,268		398,582
Property and equipment, net	132,010			131,019			Property and equipment, net	122,000		132,647
Goodwill	316,239			313,765			Goodwill	314,779		314,727
Intangible assets, net	601,920			621,092			Intangible assets, net	143,317		181,228
Deferred income taxes	948			948			Deferred income taxes	41,648		43,812
Other investments	41,500			—			Other investments	9,975		23,613

Other long-term assets	7,418			7,402			Other long-term assets	39,140		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 other							Current portion of finance lease obligations and other	$	1,506	$	1,084
Current portion of long-term debt	6,885			6,885			Current portion of long-term debt	6,885		6,885
Accounts payable	25,807			47,038			Accounts payable	25,599		24,822
Accrued liabilities	50,981			60,237			Accrued liabilities	53,539		39,908
Liabilities held for sale	—			2,144

Deferred revenue							Deferred revenue	7,488		2,137

Total current liabilities	$	84,469		$	117,119		Total current liabilities	95,017		74,836
Lease payable, less current portion	19,163			17,275

Finance lease obligations and other, less current portion							Finance lease obligations and other, less current portion	29,351		29,506
Long-term debt, less current portion	660,696			661,471			Long-term debt, less current portion	652,947		655,272

Warrant liability	26,167			40,775			Warrant liability	27,315		12,364

Deferred income taxes	15,555			15,172			Deferred income taxes	2,085		632
Other long-term liabilities	7,409			7,937			Other long-term liabilities	41,108		19,068
Total liabilities	$	813,459		$	859,749		Total liabilities	847,823		791,678

Stockholders’ equity:							Stockholders’ equity:
Common stock	64			64			Common stock	67		66
Treasury stock, at cost	(330		)	(330		)	Treasury stock, at cost	(330)		(330)
Accumulated other comprehensive income	2,999			2,977			Accumulated other comprehensive income	4,281		4,358
Additional paid-in capital	1,055,636			1,041,644			Additional paid-in capital	1,126,505		1,101,576
Accumulated deficit	(290,568		)	(266,981		)	Accumulated deficit	(857,219)		(791,774)
Total stockholders’ equity	$	767,801		$	777,374		Total stockholders’ equity	273,304		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.

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 revenue 69,971
73,257
Gross profit 60,954
78,495
Operating expenses:
Research and development 41,651
30,174
Selling, general and administrative 37,634
36,496
Restructuring charges 4,662
1,287
Total operating expenses 83,947
67,957
(Loss) income from operations (22,993 ) 10,538
Other (expense) income
Warrant liability gain (expense) 14,608
(4,823 )
Interest expense, net (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 expense 1,353
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:
Basic 64,325
53,737
Diluted 65,109
53,737


	Three Months Ended						Nine 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	66,391		74,478		190,338		219,678
Gross profit	70,876		33,828		192,450		167,782
Operating expenses:
Research and development	34,948		42,708		105,936		128,593
Selling, general and administrative	29,982		41,920		94,317		126,437

Impairment charges	—		264,086		—		264,086
Restructuring (benefit) charges	(554)		8,887		1,494		17,047
Total operating expenses	64,376		357,601		201,747		536,163
Income (loss) from operations	6,500		(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:
Basic	66,796		65,858		66,512		65,555
Diluted	66,796		65,945		66,512		65,722

See notes to condensed consolidated financial statements.

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(InUnaudited, in thousands)

~~(Unaudited)~~


	Three Months Ended							Three Months Ended						Nine 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 tax							Unrealized gain on short term investments, net of tax	1,697		105		400		455
Foreign currency translation gain (loss), net of tax	289			(9,597		)	Foreign currency translation gain (loss), net of tax	458		996		(477)		2,256

Other comprehensive income (loss), net of tax	22			(9,643		)	Other comprehensive income (loss), net of tax	2,155		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.

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF STOCKHOLDERS’ EQUITY

(InUnaudited, in thousands)

~~(Unaudited)~~


	Three Months Ended
											Accumulated Other Comprehensive Income		Additional Paid-in Capital		Accumulated Deficit	Total Stockholders’ Equity
	Common Stock				Treasury Stock
	Shares	Amount		Shares	Amount
Balance at April 3, 2020	66,718	$	67	(23)	$	(330)	$	2,126	$	1,116,105	$	(832,237)	$	285,731

Stock options exercises	23	—		—	—		—		46		—		46
Vesting of restricted common stock and units	72	—		—	—		—		—		—		—
Issuance of common stock pursuant to employee stock purchase plan	112	—		—	—		—		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, 2020	66,903	$	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 Stock				Treasury Stock
	Shares		Amount		Shares		Amount															Shares	Amount		Shares	Amount
Balance at September 29, 2017	64,279		$	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, 2019																					Balance at September 27, 2019	66,177	$	66	(23)	$	(330)	$	4,358	$	1,101,576					$	(791,774)	$	313,896
Cumulative effect of ASU 2016-02																					Cumulative effect of ASU 2016-02	—	—		—	—		—		—						(1,875)		(1,875)
Stock options exercises	14		—		—		—			—		46			—			46			Stock options exercises	41	—		—	—		—		168		—		168
Vesting of restricted common stock and units	24		—		—		—			—		—			—			—			Vesting of restricted common stock and units	636	1		—	—		—		—		—		1
Issuance of common stock pursuant to employee stock purchase plan	114		—		—		—			—		3,195			—			3,195			Issuance of common stock pursuant to employee stock purchase plan	272	—		—	—		—		4,397		—		4,397
Shares repurchased for stock withholdings on restricted stock awards	(9	)	—		—		—			—		(259		)	—			(259		)
Shares repurchased for tax withholdings on equity awards																					Shares 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, 2017	64,422		$	64	(23	)	$	(330	)	$	2,999	$	1,055,636		$	(290,568	)	$	767,801
Balance at July 3, 2020																					Balance at July 3, 2020	66,903	$	67	(23)	$	(330)	$	4,281	$	1,126,505	$	(857,219)	$	273,304

See notes to condensed consolidated financial statements.


	Three Months Ended
											Accumulated Other Comprehensive Income		Additional Paid-in Capital		Accumulated Deficit	Total Stockholders’ Equity
	Common Stock				Treasury Stock
	Shares	Amount		Shares	Amount
Balance at March 29, 2019	65,723	$	66	(23)	$	(330)	$	3,798	$	1,091,067	$	(477,576)	$	617,025
Stock options exercises	11	—		—	—		—		22		—		22
Vesting of restricted common stock and units	87	—		—	—		—		—		—		—
Issuance of common stock pursuant to employee stock purchase plan	265	—		—	—		—		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, 2019	66,055	$	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 Stock				Treasury Stock
	Shares	Amount		Shares	Amount
Balance at September 28, 2018	65,202	$	65	(23)	$	(330)	$	2,188	$	1,074,728	$	(407,976)	$	668,675
Stock option exercises	23	—		—	—		—		46		—		46
Vesting of restricted common stock and units	632	1		—	—		—		—		—		1
Issuance of common stock pursuant to employee stock purchase plan	421	—		—	—		—		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, 2019	66,055	$	66	(23)	$	(330)	$	4,899	$	1,096,650	$	(802,290)	$	298,995

See notes to condensed consolidated financial statements.

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, 2020		June 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 amortization	26,874			18,475			Depreciation and intangibles amortization	59,751		84,612
Share-based compensation	9,992			8,183			Share-based compensation	26,921		20,163
Warrant liability (gain) expense	(14,608		)	4,823
Acquired inventory step-up amortization	224			—
Warrant liability loss (gain)							Warrant liability loss (gain)	14,951		(5,788)

Deferred financing cost amortization	1,029			702			Deferred financing cost amortization	3,046		3,046

Deferred income taxes	403			(1,054		)	Deferred income taxes	3,581		59
Changes in assets held for sale from discontinued operations	(6,219		)	—
Impairment and restructuring related charges							Impairment and restructuring related charges	—		272,873
Loss on minority equity investment							Loss on minority equity investment	13,637		3,937

Other adjustments, net	966			582			Other adjustments, net	1,193		395
Change in operating assets and liabilities (net of acquisitions):

Change in operating assets and liabilities:							Change in operating assets and liabilities:

Accounts receivable	38,874			(4,488		)	Accounts receivable	9,286		29,291
Inventories	(8,017		)	(1,583		)	Inventories	12,304		12,298
Prepaid expenses and other assets	(6,583		)	(673		)	Prepaid expenses and other assets	15,489		1,350
Accounts payable	(14,445		)	931			Accounts payable	1,058		(3,888)
Accrued and other liabilities	(2,225		)	(5,547		)	Accrued and other liabilities	1,242		3,164
Income taxes	(3,162		)	1,021			Income taxes	(1,895)		1,079

Net cash provided by operating activities	534			20,407			Net cash provided by operating activities	96,994		28,277
CASH FLOWS FROM INVESTING ACTIVITIES:							CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment							Purchases of property and equipment	(12,658)		(31,905)
Proceeds from sales and maturities of short-term investments							Proceeds from sales and maturities of short-term investments	165,798		155,281
Purchases of short-term investments							Purchases of short-term investments	(196,479)		(156,061)
Proceeds from divested business							Proceeds from divested business	11,003		—
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 investments	57,382			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 activities	20,309			(4,043		)

Sale of assets							Sale of assets	366		—

Net cash used in investing activities							Net 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 purchases	3,241			2,600			Proceeds from stock option exercises and employee stock purchases	4,565		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 activities	1,045			5,011
Payments on long-term debt							Payments on long-term debt	(5,163)		(5,163)
Payments on finance leases and other							Payments on finance leases and other	(1,307)		(809)

Repurchase of common stock - tax withholdings on equity awards							Repurchase of common stock - tax withholdings on equity awards	(6,557)		(3,872)
Payments of contingent consideration and other							Payments of contingent consideration and other	—		(579)
Net cash used in financing activities							Net cash used in financing activities	(8,462)		(4,792)
Foreign currency effect on cash	93			(435		)	Foreign currency effect on cash	(211)		164
NET CHANGE IN CASH AND CASH EQUIVALENTS	21,981			20,940			NET CHANGE IN CASH AND CASH EQUIVALENTS	56,351		(9,411)
CASH AND CASH EQUIVALENTS — Beginning of period	$	130,104		$	332,977		CASH AND CASH EQUIVALENTS — Beginning of period	75,519		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.

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 of~~loss, 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, 2017~~27, 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, 2017~~27, 2019 consolidated financial statements, which were included in our Annual Report on Form 10-K for our fiscal year ended September ~~29, 2017~~27, 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. ~~The~~Fiscal year 2020 includes 53 weeks and fiscal ~~years 2018 and 2017 include~~year 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 ~~our~~such 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 our~~2019 Annual Report on Form ~~10-K for~~10-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.

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. The~~ASU 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 ~~delayed~~requires earlier recognition of credit losses. The CECL model utilizes a lifetime expected credit loss measurement objective for the ~~effective date~~recognition of credit losses for receivables at the ~~new~~time 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 choose~~affecting 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 as~~first day of ~~the original effective date. The standard permits the use of either the retrospective or cumulative effect transition method, and we~~our 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. We~~standard, although we do not ~~expect~~believe the adoption ~~of ASU 2015-14~~ will have a material impact on our consolidated financial ~~position~~statements.

2. REVENUE

Disaggregation of Revenue

We disaggregate revenue from contracts with customers by markets and ~~results~~geography, 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 Ended						Nine Months Ended
	July 3, 2020		June 28, 2019		July 3, 2020		June 28, 2019
Revenue by Market:
Telecommunications	$	56,800	$	43,883	$	154,049	$	141,379
Industrial & Defense	48,035		46,809		146,586		154,563
Data Center	32,432		17,614		82,153		91,518
Total	$	137,267	$	108,306	$	382,788	$	387,460


	Three Months Ended						Nine Months Ended
	July 3, 2020		June 28, 2019		July 3, 2020		June 28, 2019
Revenue by Geographic Region:
United States	$	53,633	$	52,340	$	163,964	$	185,172
China	55,886		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

(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 aspects~~Philippines.

(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

~~earnings~~our total revenue as of the ~~date~~dates 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. Due~~contract-by-contract basis. Our contract liabilities primarily relate to ~~our full U.S. valuation allowance, ASU 2016-09 had no impact to our tax expense~~deferred 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 ~~tangible~~customer, and ~~identifiable intangible assets acquired~~therefore 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 ~~summarizes~~presents 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 units 2,143
Fair value of the replacement equity awards attributable to pre-acquisition service 9,307
Total consideration paid, excluding cash acquired $ 752,142

~~We finalized the purchase accounting~~changes in contract liabilities during the ~~fiscal quarter~~nine months ended ~~December 29, 2017.~~July 3, 2020 (in thousands, except percentage):


	July 3, 2020		September 27, 2019		$ Change		% Change
Contract liabilities	$	11,003	$	10,653	$	350	3	%

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 is~~increase 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 assets 412,848
—
412,848
Assets held for sale 40,944
—
40,944
Other assets 9,800
—
9,800
Total assets acquired 534,026
(553 ) 533,473
Liabilities assumed:
Liabilities held for sale 4,444
—
4,444
Other liabilities 17,627
651
18,278
Total liabilities assumed 22,071
651
22,722
Net assets acquired 511,955
(1,204 ) 510,751
Consideration:
Cash paid upon closing 230,298
—
230,298
Common stock issued 455,775
—
455,775
Equity instruments issued 9,307
—
9,307
Total consideration $ 695,380
$ —
$ 695,380
Goodwill $ 183,425
$ 1,204
$ 184,629

~~The components~~shown 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 operations 9,019
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 assets 19,000
—
19,000
Other assets 3,301
—
3,301
Total assets acquired 29,676
(1,131 ) 28,545

Current liabilities 2,169
242
2,411
Other liabilities 190
(77 ) 113
Total liabilities assumed 2,359
165
2,524
Net assets acquired 27,317
(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 ~~$1.9~~net 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 term~~short-terminvestments ~~are invested in~~include 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 paper	102,749		247		(20)		102,976
Total short-term investments	$	132,846	$	601	$	(199)	$	133,248


	December 29, 2017										September 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 paper	18,544		3		(11		)	18,536		Commercial paper	71,646		1		(18)		71,629
Total short term investments	$	45,002	$	3	$	(420	)	$	44,585
Total short-term investments										Total 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 paper 57,943
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 year	25,024		23,688		Over 1 year	24,092		25,993
Total short term investments	$	44,585	$	84,121
Total short-term investments					Total 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.

Other Investments— ~~We record~~As 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 ownership~~which 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 ~~company~~corporation 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 ~~date~~carrying 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 Value		Active Markets for Identical Assets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets
Money market funds	$	10,375	$	10,375	$	—	$	—

Commercial paper	102,976		—		102,976		—

Corporate bonds	30,272		—		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

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 paper 57,924
—
57,924
—
Corporate bonds 26,049
—
26,049
—
Total assets measured at fair value $ 84,241
$ 268
$ 83,973
$ —
Liabilities
Contingent consideration $ 1,106
$ —
$ —
$ 1,106
Common stock warrant liability 26,167
—
—
26,167
Total liabilities measured at fair value $ 27,273
$ —
$ —
$ 27,273


	September 29, 2017									September 27, 2019
	Fair Value		Active Markets for Identical Assets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)			Fair Value		Active 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 paper	57,911		—		57,911		—		Commercial paper	71,629		—		71,629		—

Corporate bonds	26,210		—		26,210		—		Corporate bonds	29,597		—		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 liability	40,775		—		—		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, 2017~~July 3, 2020 and September ~~29, 2017,~~27, 2019, the fair value of the common stock warrants ~~has been~~was 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
Liabilities Valuation Technique Unobservable Input December 29, 2017 September 29, 2017
Contingent consideration Discounted 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 liability Black-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

Liabilities

Valuation Technique

Unobservable Input

July 3, 2020

September 27, 2019

Warrant liability

Black-Scholes model

Volatility

79.8%

61.4%

Discount rate

0.14%

1.71%

Expected life

0.5 years

1.2 years

Exercise price

$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 Earnings		Purchases 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 Earnings		Purchases 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-process	11,427		13,799
Finished goods	30,213		34,897
Total inventory, net	$	95,576	$	107,880

December 29,
2017 September 29,
2017
Raw materials $ 81,734
$ 78,999
Work-in-process 13,131
13,962
Finished goods 48,271
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 process	28,811			22,195			Construction in process	$	14,643	$	24,848
Machinery and equipment	160,936			160,955			Machinery and equipment	192,835		175,696
Leasehold improvements	12,931			13,809			Leasehold improvements	18,715		12,962
Furniture and fixtures	2,399			2,078			Furniture and fixtures	3,199		3,716
Computer equipment and software	16,927			16,539			Computer equipment and software	18,421		18,116
Capital lease assets	20,407			20,410
Capital lease and financed assets							Capital lease and financed assets	—		46,496
Finance lease assets							Finance lease assets	36,112		—
Total property and equipment	$	242,411		$	235,986		Total property and equipment	283,925		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, 2017~~July 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, 2016~~June 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 ~~May~~November 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 Outstanding Base Rate Margin Effective Interest Rate
Term loans $685.0 1.55% 2.25% 3.80%


	Principal Outstanding	LIBOR Rate	Margin	Effective Interest Rate
Term loans	$667,808	0.18%	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 million~~divest 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 under~~Loans except to the ~~Credit Agreement~~extent 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.

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 portion 6,885
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 loans	659,832
Current portion	6,885
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
2019 6,885
2020 6,885
2021 6,885
2022 6,885
Thereafter 652,316
Total $ 685,019


	Amount
2020 (remainder of fiscal year)	$	1,721
2021	6,885
2022	6,885
2023	6,885
2024	645,432
Total	$	667,808

The fair value of the Term Loans was estimated to be approximately ~~$694.4~~$617.7 million as of ~~December 29, 2017~~July 3, 2020, and was determined using Level 2 inputs, including a quoted rate from a ~~bank.~~financial institution.

~~9. CAPITAL LEASE AND FINANCING OBLIGATIONS~~8. LEASES

~~Corporate Facility Financing Obligation~~

~~On May 26, 2016, we entered into a Purchase~~We 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, ~~located~~including 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 Purchase~~various dates through 2038, and ~~Sale Agreement closed on December 28, 2016, at which time we also entered into three lease agreements~~certain 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 leaseback~~contract 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-suit~~are recognized on the balance sheet as right-of-use assets and lease ~~arrangement for the construction and subsequent lease back of~~liabilities. 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 contemplation~~term of one ~~another to achieve the same commercial objective, the transactions are accounted for by us~~year 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 continue~~elected not to recognize the ~~existing building~~lease liability for these arrangements and ~~improvements sold under~~

the ~~Purchase and Sale Agreement, capitalize~~lease payments are recognized in the ~~121 Hale Street building as well as the assets constructed under the Leases, and depreciate the assets~~condensed consolidated statement of operations on a straight-line basis over the ~~shorter of their estimated useful lives or~~lease 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 fair~~present 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 minimum~~the 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 expense~~considered part of the single lease component and ~~in part as a payment of principal reducing the financing obligation. The real property assets~~included in the ~~transaction remain~~ROU 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 the~~finance lease assets and liabilities (in thousands):


	July 3, 2020		September 27, 2019		Consolidated Balance Sheet Classification
Assets:
Operating lease ROU assets	$	32,157	$	—	Other long-term assets
Finance lease assets	33,919		—		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 liabilities	1,506		—		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 liabilities	30,438		—		Other long-term liabilities
Finance lease liabilities	29,351		—		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 outstanding~~terms and weighted-average discount rates for operating and finance leases as of ~~December 29, 2017.~~July 3, 2020 were as follows:


	July 3, 2020
Weighted-average remaining lease term (in years):
Operating leases	6.57
Finance leases	17.07
Weighted-average discount rate:
Operating leases	6.36	%
Finance leases	6.71	%

The components of ~~December 29, 2017, future minimum payments under capital~~ lease ~~obligations and financing obligations related to the Leases~~expense were as follows (in thousands):


	Three Months Ended		Nine Months Ended
	July 3, 2020
Finance lease cost:
Amortization of lease assets	$	747	$	2,193
Interest on lease liabilities	525		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):

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 associated~~As of July 3, 2020, maturities of lease liabilities by fiscal year were as follows (in thousands):


Fiscal year ending:	Operating Leases		Finance Leases
2020 (remainder of fiscal year)	$	2,527	$	963
2021	9,250		3,394
2022	7,479		2,836
2023	6,012		2,820
2024	5,588		2,856
2025	3,650		2,783
Thereafter	12,284		37,150
Total lease payments	46,790		52,802
Less: interest	8,854		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 Lease~~previous guidance under ASC 840, Leases and as previously disclosed in our 2019 Annual Report on Form 10-K (in thousands):


Fiscal year ending:	Operating Leases		Capital Leases
2020	$	9,987	$	3,299
2021	9,233		3,343
2022	7,447		2,884
2023	6,061		2,816
2024	5,564		2,853
Thereafter	16,437		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

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 ~~has~~for an asset group, the cash flows were not ~~yet been~~sufficient 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 Ended						Nine 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 administrative	10,993		6,467		Selling, general and administrative	8,071		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 relationships	245,870		245,870

Trade name (indefinite-lived)	3,400		3,400
Total	428,704		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 relationships 556,620
556,648
Trade name 3,400
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 Assets		Acquired Technology		Customer Relationships		Trade Name		Goodwill
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

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 Remaining 2019 2020 2021 2022 Thereafter Total
Amortization expense $ 63,659
90,420
88,023
79,156
65,463
211,799
$ 598,520


	2020 Remaining		2021	2022	2023	2024	Thereafter	Total
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 recording~~record 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-basic 64,325
53,737
Dilutive effect of warrants 784
—
Weighted average common shares outstanding-diluted 65,109
$ 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 Ended						Nine Months Ended
	July 3, 2020		June 28, 2019		July 3, 2020		June 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-basic	66,796		65,858		66,512		65,555
Dilutive effect of warrants	—		87		—		166
Weighted average common shares outstanding-diluted	66,796		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, 2017~~June 28, 2019, we recorded ~~a $14.6~~warrant 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 statement~~statements of operations primarily as a result of changes in our stock price. When calculating earnings per share, we are required to adjust for ~~any changes~~the 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 show~~stock. During the ~~maximum dilution possible~~three and ~~therefore during the quarter,~~nine months ended June 28, 2019, we adjusted the numerator by the warrant ~~gain~~gains of ~~$14.6~~$1.9 million and $5.8 million, respectively, and the denominator by the incremental shares of ~~783,508~~86,746 and 166,318, respectively, under the treasury stock method. The table above excludes the effects of ~~499,831~~1,766,561 and ~~1,875,326~~1,543,686 shares for the three and nine months ended ~~December 29, 2017~~July 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.

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, we~~We 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 Ended						Nine 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 expenses	207		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 adjustments	787		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 Expense		Facility-Related Expense		Total
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.

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 these~~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 ~~plans:~~

Three Months Ended
December 29,
2017 December 30,
2016
Employee related expenses $ 2,571
$ 1,287
Facility related expenses 2,091
—
Total restructuring charges $ 4,662
$ 1,287

~~The following is a summary~~charges 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 expense 4,662
Charges paid/settled, net (1,365 )
Balance as of December 29, 2017 $ 3,924

~~Our remaining accrued restructuring expenses are expected to~~June 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 remainder~~disposed of ~~fiscal year 2018.~~and $0.1 million of other costs. We expect to incur additional restructuring costs ~~of approximately $0.7~~up to $0.2 million ~~to $1.5 million during the remainder of~~through fiscal year ~~2018~~2020 as we complete ~~these~~this restructuring ~~actions.~~action.

Details of the 2019 Plan activities during the nine months ended July 3, 2020 are as follows (in thousands):


	Employee-Related Expense		Facility-Related Expense		Total
Balance at September 27, 2019	$	1,536	$	457	$	1,993
Charges and adjustments	787		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 ~~14.3~~17.0 million shares available for ~~future~~ issuance under our 2012 Omnibus Incentive Plan (as Amended and Restated) (the “2012 Plan”), and ~~3.4~~3.6 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 ~~seven~~four years to ~~ten~~seven years. Certain of the share-based awards granted and outstanding as of ~~December 29, 2017~~July 3, 2020 are subject to accelerated vesting upon a change in ~~control. There were no modifications to share-based awards during~~control 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 Statements~~condensed consolidated statements of ~~Operations for the three months ended December 29, 2017 and December 30, 2016~~operations (in thousands):


	Three Months Ended					Three Months Ended						Nine 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 development	3,662		1,945		Research and development	2,921		2,517		9,939		6,540
Selling, general and administrative	5,385		5,518		Selling, general and administrative	4,760		(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 awards~~ISOs, RSAs and ~~units~~RSUs, including awards with time-based and ~~performance based~~performance-based vesting was ~~$75.6~~$53.2 million, which we expect to recognize over a weighted-average period of ~~2.5~~

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 million~~A summary of stock ~~options outstanding~~option activity for the nine months ended July 3, 2020 is as ~~of December 29, 2017, with a weighted-average exercise price~~follows (in thousands, except per share ~~of $33.17~~amounts and ~~weighted-average remaining~~ contractual ~~term of 5.4 years. The aggregate~~term):


	Number of Shares	Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Options outstanding as of September 27, 2019	376	$	13.58

Exercised	(41)	4.12
Forfeited, canceled or expired	—	19.45
Options outstanding as of July 3, 2020	335	$	14.73	7.03	$	6,834
Options vested & expected to vest as of July 3, 2020	335	14.73		7.03	6,834
Options exercisable as of July 3, 2020	50	$	14.40	3.07	$	1,037

Aggregate intrinsic value ofrepresents the ~~stock options outstanding as of December 29, 2017 was $5.2 million which represents~~difference 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 unit~~RSAs, RSUs and ~~performance-based restricted stock unit~~PRSUs activity for the ~~three~~nine 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, 2017	1,907		$	39.20	$	72,165
Balance as of September 27, 2019							Balance as of September 27, 2019	2,613	$	21.81	$	56,649
Granted	291		35.55				Granted	1,203	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, 2017	2,099		$	39.16	$	68,285
Balance as of July 3, 2020							Balance as of July 3, 2020	2,816	$	20.86	$	98,909

~~Restricted stock, restricted stock units~~RSAs, RSUs and ~~performance-based restricted stock units~~PRSUs that vested during the ~~three~~nine months ended ~~December 29, 2017~~July 3, 2020 and ~~December 30, 2016~~June 28, 2019 had combined fair ~~value~~values 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 Ended									Nine 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 ~~rate~~rates 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

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 and~~negative. 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, 2017~~July 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 ~~benefit~~benefits remained at $0.3 million as of ~~December 29, 2017 and~~July 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 ~~quarters~~quarter 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. ~~government~~Congress enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act ~~makes broad and complex~~enacted 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 ~~rate~~system, many of which differ significantly from ~~35% in~~ the ~~period ending December 29, 2017~~provisions 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”) based~~modified territorial system and includes base erosion prevention measures on ~~previously untaxed accumulated and current~~non-U.S. earnings, ~~and profits (“E&P”)~~which has the effect of subjecting certain earnings of our foreign subsidiaries ~~for~~to 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 our~~fiscal year beginning September 29, ~~2018;~~2018.

~~requiring~~On 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;~~

~~eliminating~~Congress 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 exception~~Economic 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 for~~Tax 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 deduction~~loss 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 ~~ending~~ended 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 income~~indefinite 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 continuing~~April 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, 2017~~July 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 ~~three~~nine 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. This~~of 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 ~~one~~1 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 profit~~metrics. 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~~

For information about our ~~operations~~revenue 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 Region December 29,
2017 December 30,
2016
United States $ 55,356
$ 43,961
China 37,688
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 Ended					Nine Months Ended
Revenue	July 3, 2020		June 28, 2019		July 3, 2020	June 28, 2019
Customer A	13	%	17	%	14%	15	%
Customer B	14	%	—		11%	—
Customer C	14	%	—		10%	—

Three Months Ended
Revenue December 29,
2017
December 30,
2016
Customer A 10 %
12 %
Customer B 9 %
22 %


Accounts Receivable	July 3, 2020		September 27, 2019
Customer A	18	%	24	%

Customer C	12	%	8	%
Customer D	11	%	10	%

Accounts Receivable December 29,
2017 September 29,
2017
Customer A 13 % 13 %
Customer C 10 % 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, 2017~~27, 2019 filed with the ~~SEC~~United 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, ~~and~~the potential impacts of COVID-19 on our future ~~expectations~~operations 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

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, 2017~~27, 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 provider~~design 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 economy~~application expertise, with silicon, gallium arsenide and ~~the modern, networked battlefield across the radio frequency ("RF"), microwave, millimeterwave~~indium phosphide fabrication, manufacturing, assembly and ~~lightwave spectrum. Our technology enables next-generation radars for air traffic control~~test, 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 5,000~~thousands 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 60~~dozens of product lines serving over ~~6,500 end customers~~6,000 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 ~~density~~capacity optical networks, ~~active antenna arrays,~~ radar, ~~magnetic resonance imaging~~medical systems ~~("MRI")~~ and ~~unmanned aerial vehicles ("UAVs").~~test and measurement. Our primary markets are: (1) Telecom, which includes carrier infrastructure ~~wired broadband~~such 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 spanning~~applications, 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.

Description of Our Revenue

Revenue. ~~Substantially all of our~~ Our revenue is derived from sales of high-performance RF, microwave, ~~millimeterwave~~millimeter wave, optical and ~~lightwave~~photonic semiconductor ~~solutions.~~products. We design, integrate, manufacture and package differentiated, ~~product solutions~~semiconductor-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 with~~•continued growth in the demand for high-performance analog, digital and optical semiconductors in our ~~lead customers to develop~~three 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 of~~•engaging early with our ~~semiconductor solutions in our customers’ systems through cross-selling of our more than 60 product lines;~~

~~introducing new products through internal development~~lead 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, ~~Datacenter~~I&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 of~~expanding product portfolio that we offer which services applications such as test and measurement, satellite communications, civil and military radar, ~~systems~~industrial, 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-purpose~~multi-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 ~~Estimates~~Estimates

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 ~~intangible~~long-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

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 2017~~the 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 Ended						Nine 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 profit	70,876		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 expenses	64,376		357,601		201,747		536,163
Income (loss) from operations	6,500		(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 charges 4,662
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 expense 1,353
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 Ended						Nine 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 administrative	10,993		6,467		Selling, general and administrative	8,071		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 development	3,662		1,945		Research and development	2,921		2,517		9,939		6,540
Selling, general and administrative	5,385		5,518		Selling, general and administrative	4,760		(353)		14,211		11,458

(2) ~~Includes acquisition~~The three and ~~transaction related costs of $3.5 million associated with the AppliedMicro Acquisition during the three~~nine 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 Contingencies~~Stockholders’ 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

investment. See Note 3 - ~~Discontinued Operations~~Investments 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 Ended						Nine Months Ended
	July 3, 2020		June 28, 2019		July 3, 2020		June 28, 2019
Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue	48.4		68.8		49.7		56.7
Gross profit	51.6		31.2		50.3		43.3
Operating expenses:
Research and development	25.5		39.4		27.7		33.2
Selling, general and administrative	21.8		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 expenses	46.9		330.2		52.7		138.4
Income (loss) from operations	4.7		(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
Revenue 100.0 % 100.0 %
Cost of revenue 53.4
48.3
Gross profit 46.6
51.7
Operating expenses:
Research and development 31.8
19.9
Selling, general and administrative 28.7
24.0
Restructuring charges 3.6
0.8
Total operating expenses 64.1
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), net 5.6
(8.0 )
Loss before income taxes (11.9 ) (1.1 )
Income tax expense 1.0
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, 2017~~July 3, 2020 to the Three and Nine Months Ended ~~December 30, 2016~~June 28, 2019

Revenue. Our revenue ~~decreased~~increased 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 in~~June 28, 2019, and our revenue indecreased by $4.7 million, or 1.2%, for the ~~three~~nine months ended ~~December 29, 2017 is further described by end market in~~July 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		$	43,883		29.4	%	$	154,049		$	141,379		9.0	%
Industrial & Defense		48,035			46,809		2.6	%		146,586			154,563		(5.2)	%
Data Center		32,432			17,614		84.1	%		82,153			91,518		(10.2)	%
Total	$	137,267		$	108,306		26.7	%	$	382,788		$	387,460		(1.2)	%

Telecom		41.4	%		40.5	%				40.2	%		36.5	%
Industrial & Defense		35.0	%		43.2	%				38.3	%		39.9	%
Data Center		23.6	%		16.3	%				21.5	%		23.6	%
Total		100.0	%		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.

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 ~~decreased~~increased 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 ~~Datacenter~~Data 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 incremental~~in 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 ~~December~~July 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 ~~during~~was $70.9 million and $33.8 million for the three months ended ~~December 29, 2017, was negatively impacted by an unfavorable sales mix, higher~~July 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 ~~increased~~decreased 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 ~~increased~~decreased in the ~~fiscal 2018 period~~three and nine months ended July 3, 2020 primarily as a result of ~~higher acquisition~~the 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 ~~increased~~decreased 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 increased~~expense 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 periods~~three and nine months ended July 3, 2020 primarily due to ~~higher~~lower intangible amortization expense, lower compensation-related costs associated with the 2019 Plan and ~~acquisition related compensation, partially~~decreased spending on external services offset by ~~lower acquisition related transaction expenses.~~an increase in employee-related share-based compensation expense.

~~Restructuring~~Impairment 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 ~~$1.3~~charges of $8.9 million for the three months ended ~~December 29, 2017~~July 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 increase~~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, or 20%, exiting six development facilities, reducing certain development activities for one of our product lines and no longer investing in ~~restructuring~~the design and development of optical modules and subsystems for Data Center applications (the “2019 Plan”). Restructuring (benefit) charges ~~during~~for the ~~first~~ three and nine months ~~of fiscal year 2018 was~~ended July 3, 2020 are primarily related to ~~our planned exit~~the 2019 Plan.

Under the 2019 Plan we incurred a restructuring benefit of ~~facilities~~$0.6 million in ~~Long Beach, California, Belfast, United Kingdom~~the 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 $0.7~~up to $0.2 million ~~to $1.5 million during the remainder of calendar~~through fiscal year ~~2018~~2020 as we complete ~~these~~this 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.

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 gain~~an 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 expense~~a 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 ~~differences~~difference between periods ~~were primarily~~was driven by ~~changes~~a 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 carry~~is 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 to~~periods indicated were (in thousands, except percentages):


	Three Months Ended						Nine 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 expense~~rate for the ~~three months~~year ended ~~December 30, 2016 results from current period taxable income after adjusting~~October 2, 2020 is expected to be (13.0)%, adjusted for ~~a non-taxable~~ discrete ~~loss of $4.8 million for changes in fair value of~~taxation 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, 2017~~June 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, 2016				July 3, 2020		June 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 activities	96,994		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 activities						Net cash used in investing activities	(31,970)		(33,060)
Net cash used in financing activities						Net 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 ~~three~~nine months ended ~~December 29, 2017~~July 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 ~~gain~~loss of ~~$14.6~~$15.0 million and a ~~change in the net value~~loss 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 ~~three~~nine 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 ~~decreases~~a decrease in ~~accrued and other liabilities~~accounts 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 ~~three~~nine months ended ~~December 30, 2016~~June 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, ~~and~~partially offset by a warrant liability ~~expense~~gain of ~~$4.8~~$5.8 million. In addition, cash ~~used~~provided by operating assets and liabilities was ~~$10.3~~$43.3 million for the ~~three~~nine months

ended ~~December 30, 2016,~~June 28, 2019, primarily driven by ~~an increase~~a 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 ~~from~~used in investing activities for the ~~three~~nine months ended ~~December 29, 2017~~July 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 term~~short-term investments and ~~a $5.0~~proceeds of $11.0 million ~~investment~~associated 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 ~~three~~nine months ended ~~December 30, 2016~~June 28, 2019 consisted primarily of ~~purchases of $8.9 million of short term investments and~~ capital expenditures of ~~$4.9~~$31.9 million, ~~partially~~and 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 ~~three~~nine months ended ~~December 29, 2017,~~July 3, 2020, our cash ~~provided by~~used 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 ~~three~~nine months ended ~~December 30, 2016,~~June 28, 2019, our cash ~~provided from~~used in financing activities of ~~$5.0~~$4.8 million was primarily related to ~~$4.3~~$5.2 million of ~~proceeds from the sale~~payments on long-term debt and $3.9 million in purchases of ~~our corporate headquarters facility and $2.6~~stock 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. ~~The~~Other 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 term~~short-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 term~~short-term investments, and as deemed appropriate our borrowing capacity under our ~~revolving credit facility~~Revolving 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 term~~short-term investments, cash generated from operations and borrowing availability under ~~our revolving credit facility~~the 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 term~~short-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.

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-Q~~our 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.

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 ~~year~~quarters ended ~~September~~January 3, 2020, as filed with the SEC on January 29, ~~2017, except~~2020 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 Programs	Maximum 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, 2020	21,566	28.18		—	—
May 30, 2020-July 3, 2020	—	—		—	—
Total	21,566	$	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.

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 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, 2017 8,638
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
~~2.1~~3.1		Purchase Agreement by and among MACOM Connectivity Solutions, LLC, Ampere Computing Holdings LLC (f/k/a Project Denver Holdings LLC), and MACOM Technology Solutions Holdings, Inc. dated October 27, 2017 (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on October 27, 2017).
~~3.1~~	Fifth Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on June 2, 2016).
3.2		Third Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed on June 2, 2016).
31.1		Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2		Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1		Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350.
~~101.INS~~101		~~XBRL Instance Document~~The 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.SCH~~104		The 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 Document~~and included as Exhibit 101
~~101.CAL~~		~~XBRL Taxonomy Calculation Linkbase Document~~
~~101.DEF~~		~~XBRL Taxonomy Definition Linkbase Document~~
~~101.LAB~~		~~XBRL Taxonomy Label Linkbase Document~~
~~101.PRE~~	~~XBRL Taxonomy Presentation Linkbase Document~~

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, 2020		~~MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.~~By:	/s/ Stephen G. Daly
			Stephen G. Daly
~~Dated: February 7, 2018~~		~~By:~~	~~/s/ John Croteau~~
	~~John Croteau~~
	President and Chief Executive Officer (Principal Executive Officer)

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



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 units	2,143
Fair value of the replacement equity awards attributable to pre-acquisition service	9,307
Total consideration paid, excluding cash acquired	$	752,142



	Preliminary Allocation as of		Allocation Adjustments			Adjusted Allocation
	September 29, 2017		Allocation Adjustments			December 29, 2017

Current assets	$	70,434	$	(553	)	$	69,881
Intangible assets	412,848		—			412,848
Assets held for sale	40,944		—			40,944
Other assets	9,800		—			9,800
Total assets acquired	534,026		(553		)	533,473
Liabilities assumed:
Liabilities held for sale	4,444		—			4,444
Other liabilities	17,627		651			18,278
Total liabilities assumed	22,071		651			22,722
Net assets acquired	511,955		(1,204		)	510,751
Consideration:
Cash paid upon closing	230,298		—			230,298
Common stock issued	455,775		—			455,775
Equity instruments issued	9,307		—			9,307
Total consideration	$	695,380	$	—		$	695,380
Goodwill	$	183,425	$	1,204		$	184,629



	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



	December 30, 2016
Revenue	$	194,469
Income from continuing operations	9,019
Loss from discontinued operations	(17,923		)



	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



	Principal Outstanding	Base Rate	Margin	Effective Interest Rate
Term loans	$685.0	1.55%	2.25%	3.80%



Principal balance	$	685,019
Unamortized discount	(5,532		)
Unamortized deferred financing costs	(11,906		)
Total term loans	$	667,581
Current portion	6,885
Long-term, less current portion	$	660,696



2018 (rest of fiscal year)	$	5,163
2019	6,885
2020	6,885
2021	6,885
2022	6,885
Thereafter	652,316
Total	$	685,019



	2018 Remaining		2019	2020	2021	2022	Thereafter	Total
Amortization expense	$	63,659	90,420	88,023	79,156	65,463	211,799	$	598,520



Balance as of September 29, 2017	$	627
Current period expense	4,662
Charges paid/settled, net	(1,365		)
Balance as of December 29, 2017	$	3,924



	Three Months Ended
Revenue by Geographic Region	December 29, 2017		December 30, 2016
United States	$	55,356	$	43,961
China	37,688		60,301
Asia Pacific, excluding China (1)	22,886		36,929
Other Countries (2)	14,995		10,561
Total	$	130,925	$	151,752



	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