UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~January 1,~~December 31, 2021


☐			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
(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 ☒ No ☐

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of January ~~25, 2021,~~24, 2022, there were ~~68,344,490~~69,687,160 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

(Unaudited, in thousands)


		January 1, 2021		October 2, 2020			December 31, 2021		October 1, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	128,728	$	129,441	Cash and cash equivalents	$	273,396	$	156,537
Short-term investments	Short-term investments	226,044		203,711		Short-term investments	204,314		188,365
Accounts receivable		55,209		45,884
Accounts receivable, net						Accounts receivable, net	97,444		84,570
Inventories	Inventories	89,015		91,584		Inventories	88,538		82,699
Prepaid and other current assets	Prepaid and other current assets	10,219		10,899		Prepaid and other current assets	7,872		9,365
Total current assets	Total current assets	509,215		481,519		Total current assets	671,564		521,536
Property and equipment, net	Property and equipment, net	115,953		118,866		Property and equipment, net	120,773		120,526
Goodwill	Goodwill	315,338		315,012		Goodwill	313,898		314,240
Intangible assets, net	Intangible assets, net	118,905		130,898		Intangible assets, net	75,398		84,685
Deferred income taxes	Deferred income taxes	41,417		41,935		Deferred income taxes	38,883		39,516
Other investments	Other investments	12,942		17,745		Other investments	2,500		15,342
Other long-term assets	Other long-term assets	39,912		40,453		Other long-term assets	37,102		38,300
TOTAL ASSETS		$	1,153,682	$	1,146,428
Total assets						Total assets	$	1,260,118	$	1,134,145
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Current portion of finance lease obligations and other		$	1,319	$	1,368
Current portion of long-term debt		6,885		6,885
Current portion of finance lease obligations						Current portion of finance lease obligations	$	921	$	958

Accounts payable	Accounts payable	28,158		23,043		Accounts payable	33,936		28,712
Accrued liabilities	Accrued liabilities	61,794		63,654		Accrued liabilities	62,334		63,374
Total current liabilities	Total current liabilities	98,156		94,950		Total current liabilities	97,191		93,044
Finance lease obligations and other, less current portion		28,715		28,994
Long-term debt, less current portion		650,931		652,172
Warrant liability		0		25,312
Finance lease obligations, less current portion						Finance lease obligations, less current portion	27,795		28,037
Financing obligation, less current portion						Financing obligation, less current portion	9,175		8,720
Long-term debt						Long-term debt	564,686		492,097

Other long-term liabilities	Other long-term liabilities	46,430		44,854		Other long-term liabilities	36,497		40,511
Total liabilities	Total liabilities	824,232		846,282		Total liabilities	735,344		662,409
Commitments and contingencies (see Note 12)						Commitments and contingencies (see Note 12)
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock	Common stock	68		67		Common stock	70		69
Treasury stock, at cost	Treasury stock, at cost	(330)		(330)		Treasury stock, at cost	(330)		(330)
Accumulated other comprehensive income	Accumulated other comprehensive income	6,138		5,009		Accumulated other comprehensive income	3,209		4,150
Additional paid-in capital	Additional paid-in capital	1,172,269		1,135,127		Additional paid-in capital	1,177,239		1,269,601
Accumulated deficit	Accumulated deficit	(848,695)		(839,727)		Accumulated deficit	(655,414)		(801,754)
Total stockholders’ equity	Total stockholders’ equity	329,450		300,146		Total stockholders’ equity	524,774		471,736
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,153,682	$	1,146,428
Total liabilities and stockholders' equity						Total liabilities and stockholders' equity	$	1,260,118	$	1,134,145

See notes to condensed consolidated financial statements.

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)


		Three Months Ended			Three Months Ended
			January 1, 2021			January 3, 2020			December 31, 2021		January 1, 2021
Revenue	Revenue		$	148,504		$	119,097	Revenue	$	159,620	$	148,504
Cost of revenue	Cost of revenue		68,242			60,893		Cost of revenue	65,477		68,242
Gross profit	Gross profit		80,262			58,204		Gross profit	94,143		80,262
Operating expenses:	Operating expenses:							Operating expenses:
Research and development	Research and development		36,936			35,158		Research and development	35,470		36,936
Selling, general and administrative	Selling, general and administrative		31,252			32,340		Selling, general and administrative	31,604		31,252

Restructuring charges			0			1,234
Total operating expenses	Total operating expenses		68,188			68,732		Total operating expenses	67,074		68,188
Income (loss) from operations			12,074			(10,528)
Other expense:
Income from operations								Income from operations	27,069		12,074
Other income (expense):								Other income (expense):

Warrant liability expense	Warrant liability expense		(11,130)			(4,087)		Warrant liability expense	—		(11,130)
Interest expense, net	Interest expense, net		(4,734)			(8,621)		Interest expense, net	(1,693)		(4,734)
Other expense, net			(4,504)			(3,740)
Total other expense, net			(20,368)			(16,448)
Loss before income taxes			(8,294)			(26,976)
Other income (expense), net								Other income (expense), net	114,908		(4,504)
Total other income (expense), net								Total other income (expense), net	113,215		(20,368)
Income (loss) before income taxes								Income (loss) before income taxes	140,284		(8,294)
Income tax expense	Income tax expense		674			1,386		Income tax expense	1,457		674
Net loss			$	(8,968)		$	(28,362)
Net income (loss)								Net income (loss)	$	138,827	$	(8,968)

Net loss per share:
Loss per share - Basic			$	(0.13)		$	(0.43)
Loss per share - Diluted			$	(0.13)		$	(0.43)
Net income (loss) per share:								Net income (loss) per share:
Income (loss) per share - Basic								Income (loss) per share - Basic	$	2.00	$	(0.13)
Income (loss) per share - Diluted								Income (loss) per share - Diluted	$	1.95	$	(0.13)
Weighted average shares used:	Weighted average shares used:							Weighted average shares used:
Basic	Basic		67,756			66,240		Basic	69,400		67,756
Diluted	Diluted		67,756			66,240		Diluted	71,224		67,756

See notes to condensed consolidated financial statements.

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~LOSS~~INCOME (LOSS)

(Unaudited, in thousands)

Three Months Ended
January 1,
2021 January 3,
2020
Net loss $ (8,968) $ (28,362)
Unrealized gain on short term investments, net of tax 176 79
Foreign currency translation gain, net of tax 953 (248)
Other comprehensive income, net of tax 1,129 (169)
Total comprehensive loss $ (7,839) $ (28,531)


	Three Months Ended
	December 31, 2021		January 1, 2021
Net income (loss)	$	138,827	$	(8,968)
Unrealized (loss) gain on short term investments, net of tax	(616)		176
Foreign currency translation (loss) gain, net of tax	(325)		953
Other comprehensive (loss) income, net of tax	(941)		1,129
Total comprehensive income (loss)	$	137,886	$	(7,839)

See notes to condensed consolidated financial statements.

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, in thousands)


	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 as of October 1, 2021	68,877	$	69	(23)	$	(330)	$	4,150	$	1,269,601	$	(801,754)	$	471,736
Stock option exercises	190	—		—	—		—		2,688		—		2,688
Vesting of restricted common stock and units	969	1		—	—		—		—		—		1
Issuance of common stock pursuant to employee stock purchase plan	56	—		—	—		—		2,447		—		2,447
Shares repurchased for tax withholdings on restricted stock awards	(383)	—		—	—		—		(27,756)		—		(27,756)
Share-based compensation	—	—		—	—		—		9,949		—		9,949
Other comprehensive loss, net of tax	—	—		—	—		(941)		—		—		(941)

Cumulative-effect adjustment from adoption of ASU 2020-06	—	—		—	—		—		(79,690)		7,513		(72,177)
Net income	—	—		—	—		—		—		138,827		138,827
Balance as of December 31, 2021	69,709	$	70	(23)	$	(330)	$	3,209	$	1,177,239	$	(655,414)	$	524,774

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 as of October 2, 2020 66,921 $ 67 (23) $ (330) $ 5,009 $ 1,135,127 $ (839,727) $ 300,146
Stock option exercises 10 — — — — 175 — 175
Vesting of restricted common stock and units 782 0 — — — — — 0
Issuance of common stock pursuant to employee stock purchase plan 93 — — — — 2,239 — 2,239
Shares repurchased for tax withholdings on equity awards (297) — — — — (11,844) — (11,844)
Share-based compensation — — — — — 10,131 — 10,131
Other comprehensive income, net of tax — — — — 1,129 — — 1,129
Issuance of common stock for the cashless exercise of warrants 858 1 — — — 36,441 — 36,442
Net loss — — — — — — (8,968) (8,968)
Balance as of January 1, 2021 68,367 $ 68 (23) $ (330) $ 6,138 $ 1,172,269 $ (848,695) $ 329,450

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 as of October 2, 2020	66,921	$	67	(23)	$	(330)	$	5,009	$	1,135,127	$	(839,727)	$	300,146
Stock option exercises	10	—		—	—		—		175		—		175
Vesting of restricted common stock and units	782	—		—	—		—		—		—		—
Issuance of common stock pursuant to employee stock purchase plan	93	—		—	—		—		2,239		—		2,239
Shares repurchased for tax withholdings on equity awards	(297)	—		—	—		—		(11,844)		—		(11,844)
Share-based compensation	—	—		—	—		—		10,131		—		10,131
Other comprehensive income, net of tax	—	—		—	—		1,129		—		—		1,129
Issuance of common stock for the cashless exercise of warrants	858	1		—	—		—		36,441				36,442
Net loss	—	—		—	—		—		—		(8,968)		(8,968)
Balance as of January 1, 2021	68,367	$	68	(23)	$	(330)	$	6,138	$	1,172,269	$	(848,695)	$	329,450

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 as of September 27, 2019 66,177 $ 66 (23) $ (330) $ 4,358 $ 1,101,576 $ (791,774) $ 313,896
Cumulative effect of ASU 2016-02 — — — — — — (1,875) (1,875)
Stock option exercises 3 — — — — 43 — 43
Vesting of restricted common stock and units 10 0 — — — — — 0
Issuance of common stock pursuant to employee stock purchase plan 160 — — — — 1,930 — 1,930
Shares repurchased for tax withholdings on equity awards (4) — — — — (93) — (93)
Share-based compensation — — — — — 8,150 — 8,150
Other comprehensive loss, net of tax — — — — (169) — — (169)
Net loss — — — — — — (28,362) (28,362)
Balance as of January 3, 2020 66,346 $ 66 (23) $ (330) $ 4,189 $ 1,111,606 $ (822,011) $ 293,520

See notes to condensed consolidated financial statements.

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


		Three Months Ended					Three Months Ended
		January 1, 2021		January 3, 2020			December 31, 2021		January 1, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(8,968)	$	(28,362)
Adjustments to reconcile net loss to net cash provided by operating activities:
Net income (loss)						Net income (loss)	$	138,827	$	(8,968)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:						Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and intangibles amortization	Depreciation and intangibles amortization	18,200		20,503		Depreciation and intangibles amortization	15,234		18,200
Share-based compensation	Share-based compensation	10,131		8,150		Share-based compensation	9,949		10,131
Warrant liability expense	Warrant liability expense	11,130		4,087		Warrant liability expense	—		11,130
Deferred financing cost amortization		548		1,015
Deferred financing cost and discount amortization						Deferred financing cost and discount amortization	458		548

Deferred income taxes	Deferred income taxes	580		487		Deferred income taxes	662		580

Loss on minority equity investment		4,803		3,749

(Gain) loss on equity method investment, net						(Gain) loss on equity method investment, net	(114,908)		4,803
Other adjustments, net	Other adjustments, net	(385)		(477)		Other adjustments, net	169		(385)
Change in operating assets and liabilities:	Change in operating assets and liabilities:					Change in operating assets and liabilities:
Accounts receivable	Accounts receivable	(9,325)		18,013		Accounts receivable	(12,875)		(9,325)
Inventories	Inventories	2,570		1,023		Inventories	(5,839)		2,570
Prepaid expenses and other assets	Prepaid expenses and other assets	301		5,675		Prepaid expenses and other assets	3,009		301
Accounts payable	Accounts payable	5,401		(1,710)		Accounts payable	5,687		5,401
Accrued and other liabilities	Accrued and other liabilities	(27)		4,956		Accrued and other liabilities	(6,868)		(27)
Income taxes	Income taxes	(179)		549		Income taxes	599		(179)
Net cash provided by operating activities	Net cash provided by operating activities	34,780		37,658		Net cash provided by operating activities	34,104		34,780
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equity method investment						Proceeds from sale of equity method investment	127,750		—
Purchases of property and equipment	Purchases of property and equipment	(2,890)		(4,248)		Purchases of property and equipment	(5,095)		(2,890)
Proceeds from sales and maturities of short-term investments	Proceeds from sales and maturities of short-term investments	60,167		77,211		Proceeds from sales and maturities of short-term investments	58,500		60,167
Purchases of short-term investments	Purchases of short-term investments	(82,046)		(77,504)		Purchases of short-term investments	(75,437)		(82,046)

Proceeds from sale of assets						Proceeds from sale of assets	19		—
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	105,737		(24,769)
CASH FLOWS FROM FINANCING ACTIVITIES:						CASH FLOWS FROM FINANCING ACTIVITIES:

Net cash used in investing activities		(24,769)		(4,541)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt						Payments on long-term debt	—		(1,721)
Payments on finance leases						Payments on finance leases	(279)		(328)
Proceeds from stock option exercises and employee stock purchases	Proceeds from stock option exercises and employee stock purchases	2,414		1,973		Proceeds from stock option exercises and employee stock purchases	5,135		2,414
Payments on long-term debt		(1,721)		(1,721)
Payments on finance leases and other		(328)		(751)
Repurchase of common stock - tax withholdings on equity awards	Repurchase of common stock - tax withholdings on equity awards	(11,844)		(93)		Repurchase of common stock - tax withholdings on equity awards	(27,756)		(11,844)
Net cash used in financing activities	Net cash used in financing activities	(11,479)		(592)		Net cash used in financing activities	(22,900)		(11,479)
Foreign currency effect on cash	Foreign currency effect on cash	755		140		Foreign currency effect on cash	(82)		755
NET CHANGE IN CASH AND CASH EQUIVALENTS	NET CHANGE IN CASH AND CASH EQUIVALENTS	(713)		32,665		NET CHANGE IN CASH AND CASH EQUIVALENTS	116,859		(713)
CASH AND CASH EQUIVALENTS — Beginning of period	CASH AND CASH EQUIVALENTS — Beginning of period	129,441		75,519		CASH AND CASH EQUIVALENTS — Beginning of period	156,537		129,441
CASH AND CASH EQUIVALENTS — End of period	CASH AND CASH EQUIVALENTS — End of period	$	128,728	$	108,184	CASH AND CASH EQUIVALENTS — End of period	$	273,396	$	128,728

See notes to condensed consolidated financial statements.

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 (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, comprehensive ~~loss,~~income (loss), stockholders' equity and 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 as of October ~~2, 2020~~1, 2021 is as reported in our audited consolidated financial statements as of that date. Our accounting policies are described in the notes to our October ~~2, 2020~~1, 2021 consolidated financial statements, which were included in our Annual Report on Form 10-K for our fiscal year ended October ~~2, 2020~~1, 2021 filed with the SEC on November ~~18, 2020~~15, 2021 (the ~~“2020~~“2021 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 ~~2020~~2021 Annual Report on Form 10-K.

Principles of Consolidation—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 52- or 53-week fiscal year ending on the Friday closest to the last day of September. Fiscal ~~year~~years 2022 and 2021 ~~includes~~each include 52 ~~weeks and fiscal year 2020 included 53~~ weeks. To offset the effect of holidays, for fiscal years in which there are 53 weeks, we include the extra week arising in such fiscal years in the first fiscal quarter. ~~Our first fiscal quarter ended January 1, 2021 included 13 weeks and the first fiscal quarter ended January 3, 2020 had 14 weeks.~~

Use of Estimates—The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“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. 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 long-lived asset valuations and associated impairment assessments; revenue reserves; share-based compensation valuations and income taxes.

Recent Accounting Pronouncements—Our Recent Accounting Pronouncements are described in ~~the 2020~~our 2021 Annual Report on Form 10-K.

Pronouncements Adopted in Fiscal Year ~~2021~~2022

OnIn August 2020, the ~~first day of fiscal year 2021, we adopted~~Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) ~~2016-13,~~2020-06, ~~Financial~~Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments ~~- Credit Losses (Topic 326): Measurement~~and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of ~~Credit Losses~~liability and equity, including convertible instruments and contracts on ~~Financial Instruments~~an entity’s own equity. The standard reduces the number of models used to account for convertible instruments, removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and requires the if-converted method for calculation of diluted earnings per share for all convertible instruments. We early adopted this standard effective October 2, 2021 using the modified retrospective approach transition method. This ASU introduces a new accounting model known as Credit Expected Credit Losses (“CECL”), which requires earlier recognition of credit losses. The CECL model utilizes a lifetime expected credit loss measurement objective forTherefore, the recognition of credit losses for receivables at the 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 affecting how impairments of other financial assets may be recorded and presented, as well as expanded disclosures. There was no impact to our unaudited condensed consolidated financial statements ~~from~~for the ~~adoption of this guidance.~~

~~We generate accounts receivable from customers~~three months ended December 31, 2021 are presented under the new standard, while the comparative period presented is not adjusted and they are classified as short-term. We monitor collections and maintain a provision for expected credit losses based on historical trends, current conditions, and relevant forecasted information, in addition to provisions established for any specific collection issues that have been identified. As of January 1, 2021, our allowance for expected credit losses was less than ~~$0.1 million~~.

~~Our investments in debt securities, which are classified as available-for-sale, are further disclosed in Note 3,~~ ~~Investments. As of January 1, 2021, our available-for-sale debt securities had gross unrealized losses of $0.1 million, which we believe~~continues to be ~~temporary, and therefore there is no allowance~~ reported in accordance with the Company's historical accounting policy. Refer to Note 8 - Debt for ~~credit losses recorded in~~the impact of adoption on our ~~condensed consolidated statement of operations.~~2026 Convertible Notes (as defined below).

~~In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04,~~ ~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.~~ ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, a one-step quantitative impairment test calculates goodwill impairment as the excess of the carrying value of a reporting unit over its fair value, up to the carrying value of the goodwill. This ASU should be applied on a prospective basis. We adopted this ASU in the first quarter of fiscal year 2021 and the adoption of this update did not have an impact on our condensed consolidated financial statements and related disclosures.

~~In August 2018, the FASB issued ASU 2018-15,~~ ~~Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,~~ to provide additional guidance on the accounting for costs of implementing cloud computing arrangements that are service contracts, and requiring customers in such arrangements to follow the guidance in Subtopic 350-40. The amendments in this update require the capitalization of implementation costs during the application development stage of such hosting arrangements and amortization of the expense over the term of the arrangement beginning when the module or component of the hosting arrangement is ready for its intended use. Capitalized implementation costs and amortization thereof are also required to be classified in the same line item in the statements of financial position, operations and cash flows associated with the hosting service fees. We adopted this ASU in the first quarter of fiscal year 2021 and selected prospective application to all implementation costs incurred after the adoption date. The adoption of this update did not have an impact on our condensed consolidated financial statements and related disclosures.

Pronouncements for Adoption in Subsequent Periods

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to applying the guidance on contract modifications, hedge accounting, and other transactions, to simplify the accounting for transitioning from the London Interbank Offered Rate, and other interbank offered rates expected to be discontinued, to alternative reference rates. The guidance in this update was effective upon its ~~issuance; if~~issuance. If elected, itthe guidance is to be applied prospectively through December 31, 2022. We are currently evaluating the effect the potential adoption of this ASU will have on our consolidated financial statements, including, but not limited to, our ~~credit agreement.~~Credit Agreement (defined below). For additional information regarding our Credit Agreement, refer to Note 8 - Debt.

2. REVENUE

Disaggregation of Revenue

We disaggregate revenue from contracts with customers by markets and geography, as we believe it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

The following tables present our revenue disaggregated by markets and geography (in thousands):


		Three Months Ended			Three Months Ended
			January 1, 2021			January 3, 2020			December 31, 2021		January 1, 2021
Revenue by Market:	Revenue by Market:							Revenue by Market:
Telecommunications	Telecommunications		$	51,532		$	45,602	Telecommunications	$	55,822	$	51,532
Industrial & Defense	Industrial & Defense		61,618			50,482		Industrial & Defense	73,146		61,618
Data Center	Data Center		35,354			23,013		Data Center	30,652		35,354
Total	Total		$	148,504		$	119,097	Total	$	159,620	$	148,504

Three Months Ended
January 1, 2021 January 3, 2020
Revenue by Geographic Region:
United States $ 63,982 $ 53,951
China 42,376 37,341
Asia Pacific, excluding China (1)
21,773 18,820
Other Countries (2)
20,373 8,985
Total $ 148,504 $ 119,097


	Three Months Ended
	December 31, 2021		January 1, 2021
Revenue by Geographic Region:
United States	$	74,426	$	63,982
China	36,063		42,376
Asia Pacific, excluding China (1)	30,650		21,773
Other Countries (2)	18,481		20,373
Total	$	159,620	$	148,504

(1)Asia Pacific primarily represents Taiwan, Japan, Singapore, ~~India,~~ Thailand, South Korea, Australia ~~Malaysia, New Zealand~~ and ~~the Philippines.~~Malaysia.

(2)No country or region represented greater than 10% of our total revenue as of the 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 revenue recognition, billings and cash collections on a contract-by-contract basis. Our contract liabilities primarily relate to deferred revenue, including advanced consideration received from customers for contracts prior to the transfer of control to the customer, and therefore revenue is subsequently recognized upon delivery of products and services.

The following table presents the changes in contract liabilities during the three months ended ~~January 1,~~December 31, 2021 (in thousands, except percentage):

January 1, 2021 October 2, 2020 $ Change % Change
Contract liabilities $ 7,370 $ 9,861 $ (2,491) (25) %


	December 31, 2021		October 1, 2021		$ Change		% Change
Contract liabilities	$	2,991	$	2,793	$	198	7	%

As of ~~January 1,~~December 31, 2021 and October ~~2, 2020, $3.5~~1, 2021, $0.7 million and $0.9 million, respectively, of our contract liabilities, were recorded as other long-term liabilities on our balance sheet with the remainder recorded as accrued liabilities. During the three months ended ~~January 1,~~December 31, 2021, we recognized net sales of ~~$5.3~~$0.4 million that were included in the contract liabilities balance

as of the beginning of the period. The ~~decrease~~increase in contract liabilities during the three months ended ~~January 1,~~December 31, 2021, as shown in the table above, was primarily related to ~~recognition of license revenue, partially offset by the~~ deferral of revenue for invoiced products and services prior to when certain of our customers obtained control of the product and or services.

3. INVESTMENTS

~~Our~~All investments are short-term~~investments include~~ in nature and are invested in corporate bonds and commercial paper, and are classified as available-for-sale. The amortized cost, gross unrealized holding gains or losses and fair value of our available-for-sale ~~and~~investments by major investment type are summarized in the tables below (in thousands):


		January 1, 2021									December 31, 2021
		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	Corporate bonds	$	76,981	$	421	$	(86)	$	77,316	Corporate bonds	$	89,230	$	48	$	(617)	$	88,661
Commercial paper	Commercial paper	148,694		70		(36)		148,728		Commercial paper	115,706		—		(53)		115,653
Total short-term investments	Total short-term investments	$	225,675	$	491	$	(122)	$	226,044	Total short-term investments	$	204,936	$	48	$	(670)	$	204,314


		October 2, 2020									October 1, 2021
		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	Corporate bonds	$	68,605	$	348	$	(333)	$	68,620	Corporate bonds	$	73,653	$	151	$	(171)	$	73,633
Commercial paper	Commercial paper	134,913		192		(14)		135,091		Commercial paper	114,718		21		(7)		114,732
Total short-term investments	Total short-term investments	$	203,518	$	540	$	(347)	$	203,711	Total short-term investments	$	188,371	$	172	$	(178)	$	188,365

The contractual maturities of available-for-sale investments were as follows (in thousands):

January 1, 2021 October 2, 2020
Less than 1 year $ 153,139 $ 138,612
Over 1 year 72,905 65,099
Total short-term investments $ 226,044 $ 203,711


	December 31, 2021		October 1, 2021
Less than one year	$	132,074	$	120,590
Over one year	72,240		67,775
Total available-for-sale investments	$	204,314	$	188,365

~~Available-for-sale investments~~

We have determined that the gross unrealized losses on available for sale securities as of December 31, 2021 and October 1, 2021 are ~~reported at fair value~~temporary in nature and/or do not relate to credit loss, and ~~as such, their associated unrealized~~therefore there is no expense for credit losses recorded in our condensed consolidated statements of operations. Unrealized gains and losses on available-for-sale investments are reported as a separate component of stockholders’ equity within accumulated other comprehensive income.

Other Investments — As of ~~January 1,~~December 31, 2021, we held ~~two~~a non-marketable equity ~~investments classified as long-term investments, including an~~ investment in a Series B preferred stock ~~ownership~~ of a privately held manufacturing 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~~Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, we have elected to account for this investment at cost less any impairment. We evaluate this investment for impairment at each balance sheet date. As of ~~January 1,~~December 31, 2021 and October ~~2, 2020,~~1, 2021, the carrying value of this investment was $2.5 ~~million.~~million and is classified as a long-term investment.

~~Also~~As of October 1, 2021, also included in long-term investments iswas a ~~minority~~non-controlling investment of less than ~~20%~~10% in the outstanding equity of a private company, Ampere Computing Holdings LLC (“~~Compute”~~Ampere”), that was acquired in conjunction with our divestiture of ~~the Compute~~our compute business during our fiscal year 2018. This ~~investment~~investment’s carrying value iswas updated quarterly based on our proportionate share of the ~~losses~~gains or ~~earnings,~~losses, as well as any changes in ~~Compute's~~Ampere's equity, utilizing the equity method. ~~During the three months ended January~~

As of October 1, 2021, and January 3, 2020, we recorded losses of $4.8 million and $3.7 million, respectively, associated with this investment as other expense in our condensed consolidated statements of operations. As of January 1, 2021 and October 2, 2020, the carrying value of this investment was ~~$10.4~~$12.8 million. During the three months ended December 31, 2021 and January 1, 2021, we recorded our proportionate share of the losses on this investment of $3.3 million and ~~$15.2~~$4.8 million, ~~respectively.~~respectively, in Other income (expense), net in our condensed consolidated statements of operations.

On December 23, 2021, we sold our investment in Ampere to one of Ampere’s other limited liability company members, pursuant to the terms of a previously negotiated call option included in Ampere’s limited liability company agreement, as amended and restated (the “LLC Agreement”), in exchange for a predetermined fixed price as set forth in the LLC Agreement of approximately $127.8 million in cash consideration. As of December 23, 2021, the carrying value of this investment was

approximately $9.5 million. As a result of this transaction, during the fiscal quarter ended December 31, 2021, we recorded a gain of $118.2 million in Other income (expense), net in our condensed consolidated statements of operations.

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. There have been no transfers between Level 1, 2 or 3 assets or liabilities during the three months ended ~~January 1,~~December 31, 2021.

Assets and liabilities measured at fair value on a recurring basis consist of the following (in thousands):


		January 1, 2021									December 31, 2021
		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									Assets
Money market funds	Money market funds	$	18,585	$	18,585	$	0	$	0	Money market funds	$	60,240	$	60,240	$	—	$	—
Commercial paper	Commercial paper	148,728		0		148,728		0		Commercial paper	115,653		—		115,653		—
Corporate bonds	Corporate bonds	77,316		0		77,316		0		Corporate bonds	88,661		—		88,661		—
Total assets measured at fair value	Total assets measured at fair value	$	244,629	$	18,585	$	226,044	$	0	Total assets measured at fair value	$	264,554	$	60,240	$	204,314	$	—


		October 2, 2020									October 1, 2021
		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									Assets
Money market funds	Money market funds	$	20,139	$	20,139	$	0	$	0	Money market funds	$	26,363	$	26,363	$	—	$	—
Commercial paper	Commercial paper	135,091		0		135,091		0		Commercial paper	114,732		—		114,732		—

Corporate bonds	Corporate bonds	68,620		0		68,620		0		Corporate bonds	73,633		—		73,633		—
Total assets measured at fair value	Total assets measured at fair value	$	223,850	$	20,139	$	203,711	$	0	Total assets measured at fair value	$	214,728	$	26,363	$	188,365	$	—
Liabilities

Common stock warrant liability		$	25,312	$	0	$	0	$	25,312
Total liabilities measured at fair value		$	25,312	$	0	$	0	$	25,312

~~As of~~All common stock warrants were exercised during the three months ended January 1, 2021. During the three months ended January 1, 2021, ~~no warrants remain outstanding. As of October 2, 2020,~~the change in the fair value of the ~~common stock warrants was estimated using a Black-Scholes option pricing model. For additional information related to these warrants, refer to~~ ~~Note 9 - Stockholder's Equity~~.

~~The quantitative information utilized in the fair value calculation of our Level 3 liabilities is as follows:~~

~~Inputs~~

~~Liabilities~~

~~Valuation Technique~~

~~Unobservable Input~~

~~October 2, 2020~~

~~Warrant~~warrant liability,

~~Black-Scholes model~~

~~Volatility~~

~~61.8%~~

~~Discount rate~~

~~0.09%~~

~~Expected life~~

~~0.2 years~~

~~Exercise price~~

~~$14.05~~

~~Stock price~~

~~$33.80~~

~~Dividend rate~~

~~The changes in liabilities with inputs~~ classified within Level 3 of the fair value hierarchy, consist of the following (in thousands):

October 2,
2020 Net Realized/Unrealized Losses Included in Earnings Purchases
and
Issuances Sales and
Settlements January 1,
2021
Common stock warrant liability $ 25,312 $ 11,130 $ 0 $ (36,442) $ 0


	October 2, 2020		Net Realized Losses (Gains) Included in Earnings		Sales and Settlements		January 1, 2021
Common stock warrant liability	$	25,312	$	11,130	$	(36,442)	$	—

September 27,
2019 Net Realized/Unrealized Losses (Gains) Included in Earnings Purchases
and
Issuances Sales and
Settlements January 3,
2020
Common stock warrant liability $ 12,364 $ 4,087 $ 0 $ 0 $ 16,451

5. INVENTORIES

Inventories consist of the following (in thousands):


		January 1, 2021		October 2, 2020			December 31, 2021		October 1, 2021
Raw materials	Raw materials	$	49,245	$	46,954	Raw materials	$	55,657	$	50,950
Work-in-process	Work-in-process	9,102		9,324		Work-in-process	10,452		9,201
Finished goods	Finished goods	30,668		35,306		Finished goods	22,429		22,548
Total inventory, net	Total inventory, net	$	89,015	$	91,584	Total inventory, net	$	88,538	$	82,699

6. PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

January 1,
2021 October 2,
2020
Construction in process $ 16,952 $ 16,174
Machinery and equipment 193,112 191,953
Leasehold improvements 21,311 19,854
Furniture and fixtures 2,742 2,659
Computer equipment and software 18,516 18,487
Finance lease assets 35,589 35,589
Total property and equipment 288,222 284,716
Less accumulated depreciation and amortization (172,269) (165,850)
Property and equipment, net $ 115,953 $ 118,866


	December 31, 2021		October 1, 2021
Construction in process	$	15,212	$	24,086
Machinery and equipment	215,566		200,843
Leasehold improvements	24,711		24,347
Furniture and fixtures	2,391		2,377
Computer equipment and software	17,747		17,749
Finance lease assets	34,554		35,589
Total property and equipment	310,181		304,991
Less accumulated depreciation and amortization	(189,408)		(184,465)
Property and equipment, net	$	120,773	$	120,526

Depreciation and amortization expense related to property and equipment for the three months ended December 31, 2021 and January 1, 2021 ~~and January 3, 2020,~~ was ~~$6.2~~$5.9 million and ~~$7.4~~$6.2 million, respectively. Accumulated amortization on finance lease assets as of ~~January 1,~~December 31, 2021 and October ~~2, 2020~~1, 2021 was ~~$3.1~~$4.5 million and ~~$2.5~~$4.9 million, respectively.

7. ~~DEBT~~INTANGIBLE ASSETS

Amortization expense related to intangible assets is as follows (in thousands):


	Three Months Ended
	December 31, 2021		January 1, 2021
Cost of revenue	$	2,505	$	3,877
Selling, general and administrative	6,782		8,116
Total	$	9,287	$	11,993

Intangible assets consist of the following (in thousands):


	December 31, 2021		October 1, 2021
Acquired technology	$	179,434	$	179,434
Customer relationships	245,870		245,870
Trade name (indefinite-lived)	3,400		3,400
Total	428,704		428,704
Less accumulated amortization	(353,306)		(344,019)
Intangible assets — net	$	75,398	$	84,685

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 as of October 1, 2021	$	428,704	$	179,434	$	245,870	$	3,400	$	314,240

Currency translation adjustment	—		—		—		—		(342)

Balance as of December 31, 2021	$	428,704	$	179,434	$	245,870	$	3,400	$	313,898

As of ~~January~~December 31, 2021, our estimated amortization of our intangible assets in future fiscal years was as follows (in thousands):


	2022 Remaining		2023	2024	2025	2026	Thereafter	Total
Amortization expense	$	24,146	26,048	15,410	3,490	1,644	1,260	$	71,998

Accumulated amortization for acquired technology and customer relationships were $169.9 million and $183.4 million, respectively, as of December 31, 2021, and $167.3 million and $176.7 million, respectively, as of October 1, 2021.

8. DEBT

The following represents the outstanding balances and effective interest rates of our borrowings as of December 31, 2021 and October 1, 2021, (in thousands, except percentages):


	December 31, 2021				October 1, 2021
	Principal Balance		Effective Interest Rate		Principal Balance		Effective Interest Rate
LIBOR plus 2.25% term loans due May 2024	$	120,766	2.34	%	$	120,766	2.33	%
0.25% convertible notes due March 2026	450,000		0.25	%	450,000		4.25	%
Total principal amount outstanding	570,766				570,766
Less: Unamortized discount on term loans and deferred financing costs	(6,080)				(5,567)
Less: Unamortized discount on convertible notes	—				(73,102)

Total long-term debt	$	564,686			$	492,097

Term Loans

As of December 31, 2021, 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, May 19, 2017, May 2, 2018 and May 9, 2018, the “Credit Agreement”).

As of ~~January 1,~~December 31, 2021, the Credit Agreement consisted of term loans with an initial aggregate principal amount of $700.0 million (the “Term Loans”) ~~and a revolving credit facility with an aggregate borrowing capacity of $160.0 million (the “Revolving Facility”). The Revolving Facility will mature in November 2021 and the Term Loans~~that 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~~As of December 31, 2021, there are no minimum principal ~~amounts outstanding and interest rate information~~repayments on the Term Loans until fiscal year 2024 when the remaining principal balance of $120.8 million becomes due. The fair value of the Term Loans was estimated to be approximately $120.3 million as of ~~January 1,~~December 31, 2021 ~~for the Credit Agreement were as follows (in thousands, except rate data):~~

Principal Outstanding LIBOR Rate Margin Effective Interest Rate
Term loans $664,366 0.15% 2.25% 2.40%
and was determined using Level 2 inputs, including a quoted price from a financial institution.

As of ~~January 1,~~December 31, 2021, approximately ~~$4.7~~$0.8 million of deferred financing costs remain unamortized ~~of which $4.5 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 $0.3 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.

The Term Loans are payable in quarterly principal installments of 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 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 Loans except to the 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 January 1, 2021, we had $160.0 million of borrowing capacity under our Revolving Facility, of which we may borrow up to $50.0 million without being subject to certain financial covenants.~~

~~As of January 1, 2021, the following remained outstanding on the Term Loans (in thousands):~~


	~~January 1, 2021~~
~~Principal balance~~	$	~~664,366~~
~~Unamortized discount~~	~~(2,054)~~
~~Unamortized deferred financing costs~~	~~(4,496)~~
~~Total term loans~~	~~657,816~~
~~Current portion~~	~~6,885~~
~~Long-term, less current portion~~	$	~~650,931~~

As2026 Convertible Notes

On March 25, 2021, we issued 0.25% convertible senior notes due in fiscal year 2026, pursuant to an indenture dated as of ~~January 1,~~such date (the “Indenture”), between the Company and U.S. Bank National Association, as trustee, with an aggregate principal amount of $400.0 million (the “Initial Notes”), and on April 6, 2021, we issued an additional $50.0 million aggregate principal amount (the “Additional Notes”) (together, the “2026 Convertible Notes”). The aggregate principal balance of the 2026 Convertible Notes is $450.0 million. The 2026 Convertible Notes will mature on March 15, 2026, unless earlier converted, redeemed or repurchased.

The Additional Notes were issued and sold to the initial purchaser of the Initial Notes, pursuant to the option to purchase the Additional Notes granted by the Company to the initial purchaser and have the same terms as the Initial Notes.

Holders of the 2026 Convertible Notes may convert their notes at their option at any time prior to the close of business on the business day immediately preceding December 15, 2025 in multiples of $1,000 principal amount, only under the following circumstances: (i) during any fiscal quarter commencing after the fiscal quarter ending on July 2, 2021 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price for the notes on each applicable trading day; (ii) during the 5 business day period after any 5 consecutive trading day period (the “Measurement Period”) in which the “trading price” (as defined in the Indenture) per $1,000 principal amount of the notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the notes on each such trading day; (iii) if we call such notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the applicable redemption date; or (iv) upon the occurrence of specified corporate events described in the Indenture. On or after December 15, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes in multiples of $1,000 principal amount, regardless of the foregoing circumstances.

The initial conversion rate for the 2026 Convertible Notes is 12.1767 shares of common stock per $1,000 principal amount of the notes, equivalent to an initial conversion price of approximately $82.12 per share of common stock. The conversion rate will be subject to adjustment upon the occurrence of certain specified events in the Indenture.

In November 2021, we made an irrevocable election to pay cash for the aggregate principal amount of notes to be converted. Upon conversion of the 2026 Convertible Notes, we are required to pay cash up to the aggregate principal amount of the notes to be converted and pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the notes being converted (subject to, and in accordance with, the settlement provisions of the Indenture). We may not redeem the notes prior to March 20, 2024. We may redeem for cash all or any portion of the notes, at our option, on or after March 20, 2024 if the last reported sale price per share of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, to, but not including, the redemption date.

The Indenture does not contain any financial or operating covenants or restrictions on the payments of dividends, the making of investments, the incurrence of indebtedness or the purchase or prepayment of securities by us or any of our subsidiaries.

Prior to the adoption of ASU 2020-06 on October 2, 2021, the proceeds from the issuance of the 2026 Convertible Notes were allocated between the conversion feature recorded as equity and the liability for the notes themselves. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2026 Convertible Notes. The difference of $80.7 million between the principal amount of the 2026 Convertible Notes and the liability component (the “Debt Discount”) was amortized to interest expense using the effective interest method over the term of the 2026 Convertible Notes until the adoption of ASU 2020-06. The equity component of the 2026 Convertible Notes was included in additional paid-in capital in the consolidated balance sheet and was not to be remeasured as long as it continued to meet the conditions for equity classification.

Prior to the adoption of ASU 2020-06, to account for the transaction costs related to the 2026 Convertible Notes, we allocated the total amount incurred of approximately $5.7 million to the liability and equity components of the 2026 Convertible Notes based on the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the liability component were approximately $4.7 million, were recorded as additional Debt Discount and were

amortized to interest expense over the contractual terms of the 2026 Convertible Notes. Issuance costs attributable to the equity component were approximately $1.0 million and were recorded as a reduction of additional paid in capital in stockholders’ equity.

In connection with the adoption of ASU 2020-06, we reclassified $72.2 million, consisting of $73.1 million of principal and issuance costs of $0.9 million, previously allocated to the conversion feature, from additional paid-in capital to long-term debt on our condensed consolidated balance sheet as of October 2, 2021. The reclassification was recorded to combine the two legacy units of account into a single instrument classified as a liability. We also recognized a cumulative effect adjustment of $7.5 million to accumulated deficit on our condensed consolidated balance sheet as of October 2, 2021, that was primarily driven by the derecognition of interest expense related to the accretion of the Debt Discount as required under the legacy accounting guidance. Under ASU 2020-06, we will no longer incur non-cash interest expense related to the accretion of the debt discount associated with the embedded conversion option.

For the three months ended December 31, 2021, total interest expense for the 2026 Convertible Notes was $0.3 million.

The fair value of our 2026 Convertible Notes, including the conversion feature, was $529.3 million as of December 31, 2021 and was determined based on quoted prices in markets that are not active, which is considered a Level 2 valuation input.

There are no future minimum principal payments under the ~~Term Loans~~notes as of December 31, 2021; the full amount of $450.0 million is due in ~~future~~ fiscal ~~years were as follows (in thousands):~~year 2026.

Amount
2021 (remainder of fiscal year) $ 5,163
2022 6,885
2023 6,885
2024 645,433
Total $ 664,366

~~The fair value~~9. FINANCING OBLIGATION

On July 17, 2020, we entered into a power purchase agreement, which includes installation of electric power and thermal energy producing systems at our fabrication facility in Lowell, Massachusetts. We do not own these systems, however, we control the use of the ~~Term Loans was estimated to be approximately $644.4 million as~~assets during construction and operation. As of ~~January 1,~~December 31, 2021 and October 1, 2021, we capitalized $9.4 million and $8.9 million, respectively, to property and equipment, net and recorded a corresponding liability of $9.4 million and $8.9 million, respectively, primarily to Financing obligation, less current portion on our condensed consolidated balance sheet. The financing obligation was ~~determined using Level 2 inputs, including~~calculated based on future fixed payments allocated to the power generator of $16.8 million over the 15-year term, discounted at an implied discount rate of 7.7%, and the remaining future minimum payments are for power purchases. In total, we have $27.2 million in fixed payments associated with the power purchase agreement which is expected to commence in fiscal 2022 and has a ~~quoted price from a financial institution.~~15-year term.

~~8. INTANGIBLE ASSETS~~

~~Amortization expense related to intangible assets is as follows (in thousands):~~

Three Months Ended
January 1,
2021 January 3,
2020
Cost of revenue $ 3,877 $ 4,420
Selling, general and administrative 8,116 8,654
Total $ 11,993 $ 13,074

~~Intangible assets consist of the following (in thousands):~~

January 1,
2021 October 2,
2020
Acquired technology $ 179,434 $ 179,434
Customer relationships 245,870 245,870
Trade name (indefinite-lived) 3,400 3,400
Total 428,704 428,704
Less accumulated amortization (309,799) (297,806)
Intangible assets — net $ 118,905 $ 130,898

~~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 as of October 2, 2020 $ 428,704 $ 179,434 $ 245,870 $ 3,400 $ 315,012
Currency translation adjustment 0 0 0 0 326
Balance as of January 1, 2021 $ 428,704 $ 179,434 $ 245,870 $ 3,400 $ 315,338

~~As of January 1, 2021, our estimated amortization of our intangible assets in future fiscal years was as follows (in thousands):~~

2021 Remaining 2022 2023 2024 2025 Thereafter Total
Amortization expense $ 34,220 33,433 26,048 15,410 3,489 2,905 $ 115,505

Accumulated amortization for acquired technology and customer relationships were $155.9 million and $153.9 million, respectively, as of January 1, 2021, and $152.1 million and $145.7 million, respectively, as of October 2, 2020.

9.10. 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 ~~January 1,~~December 31, 2021.

Common Stock Warrants—In March 2012, we issued warrants to purchase 1,281,358 shares of common stock for $14.05 per share. During the fiscal quarter ended January 1, 2021, ~~Summit Partners Private Equity Fund VII-A, L.P., Summit Partners~~

~~Private Equity Fund VII-B, L.P., Summit Investors I, LLC, Summit Investors I (UK), L.P. and Mainsail Partners II, L.P.~~the holders of the warrants made cashless exercises of ~~warrants for~~ 1,281,358 shares at an exercise price of $14.05 per share, resulting in the issuance of 857,631 shares of common stock. ~~We received no proceeds from the exercise of warrants.~~

During the three months ended January 1, 2021, ~~and January 3, 2020,~~ we recorded the changes in the estimated fair value of the warrants in the accompanying statements of operations. See Note 4 - Fair Value for additional ~~information related to the fair value of our warrant liability.~~information. See Note 1011 - Earnings (Loss) Per Share for impact of the common stock warrants on loss per share.

~~10.~~

11. EARNINGS (LOSS) PER SHARE

The following table sets forth the computation for basic and diluted net ~~loss~~income (loss) per share of common stock (in thousands, except per share data):


		Three Months Ended			Three Months Ended
			January 1, 2021			January 3, 2020			December 31, 2021		January 1, 2021
Numerator:	Numerator:							Numerator:

Net loss attributable to common stockholders			$	(8,968)		$	(28,362)
Net income (loss) attributable to common stockholders								Net income (loss) attributable to common stockholders	$	138,827	$	(8,968)
Denominator:	Denominator:							Denominator:
Weighted average common shares outstanding-basic	Weighted average common shares outstanding-basic		67,756			66,240		Weighted average common shares outstanding-basic	69,400		67,756
Dilutive effect of stock options, restricted stock, restricted stock units and warrants			0			0
Dilutive effect of stock options, restricted stock and restricted stock units								Dilutive effect of stock options, restricted stock and restricted stock units	1,824		—
Weighted average common shares outstanding-diluted	Weighted average common shares outstanding-diluted		67,756			66,240		Weighted average common shares outstanding-diluted	71,224		67,756

Net loss to common stockholders per share-Basic:			$	(0.13)		$	(0.43)
Net loss to common stockholders per share-Diluted:			$	(0.13)		$	(0.43)
Net income (loss) to common stockholders per share-Basic:								Net income (loss) to common stockholders per share-Basic:	$	2.00	$	(0.13)
Net income (loss) to common stockholders per share-Diluted:								Net income (loss) to common stockholders per share-Diluted:	$	1.95	$	(0.13)

During the three months ended January 1, 2021, ~~and January 3, 2020,~~ we had warrants outstanding which were measured at fair value. When calculating earnings per share, we are required to adjust for the dilutive effect of outstanding common stock equivalents, including adjustment to the numerator for the dilutive effect of contracts that must be settled in ~~stock.~~stock, including warrants. The table above excludes the effects of 2,004,621 shares for the three months ended January 1, 2021 ~~and 1,292,101 shares for the three months ended January 3, 2020~~ of potential shares of common stock issuable upon exercise of stock options, warrants, and the vesting of restricted stock and restricted stock units, as applicable, as the inclusion would be antidilutive. The 2026 Convertible Notes do not have an impact on diluted earnings (loss) per share for the three months ended December 31, 2021.

~~11.~~12. 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 litigation. Any such claims may lead to future litigation and material damages and defense costs. We were not involved in any material pending legal proceedings during the fiscal quarter ended ~~January 1,~~December 31, 2021.

~~12. 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.

There were no restructuring charges incurred during the three months ended January 1, 2021. The following is a summary of the restructuring charges incurred during the three months ended January 3, 2020 (in thousands):

~~Three Months Ended~~

January 3,
2020

~~Employee related expenses and adjustments~~

~~1,160~~

~~Facility related expenses~~

~~Total restructuring charges~~

~~1,234~~

~~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 restructuring charges of $1.3 million in the three months ended January 3, 2020 under the 2019 Plan, including $1.2 million of employee-related costs and $0.1 million of other costs. This action was completed during fiscal 2020 and we do not expect to incur further costs. The remaining charges will be paid during fiscal 2021.

~~Details of the 2019 Plan accrual activity for the three months ended January 1, 2021 are as follows (in thousands):~~

Employee-Related Expense (1)
Facility-Related Expense (2)
Total
Balance as of October 2, 2020 $ 235 $ 26 $ 261
Charges and adjustments 0 0 0
Charges paid/settled/other 11 (26) (15)
Balance as of January 1, 2021 $ 246 $ 0 $ 246

~~(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.~~

13. SHARE-BASED COMPENSATION

Stock Plans

As of ~~January 1,~~December 31, 2021, we had ~~18.4~~5.4 million shares available for issuance under our 2021 Omnibus Incentive Plan (the “2021 Plan”), which replaced our 2012 Omnibus Incentive Plan (as ~~Amended~~amended and ~~Restated)~~restated) (the “2012 Plan”), and ~~4.1~~1.4 million shares available for issuance under our 2021 Employee Stock Purchase Plan (the “Employee Stock Purchase Plan”), which replaced our 2012 Employee Stock Purchase Plan. We have outstanding awards under the 2021 Plan, as well as the 2012 Plan. Following the adoption of the 2021 Plan, no additional awards have been or will be made under the 2012 Plan. Under the ~~2012~~2021 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 (“SARs”), restricted stock awards (“RSAs”), unrestricted stock awards, stock units (including restricted stock units (“RSUs”), and performance-based restricted stock units (“PRSUs”)), performance ~~shares~~awards, cash awards, and other ~~equity-based~~share-based awards to employees, directors, consultants and ~~outside consultants.~~advisors. The ISOs and NSOs must be granted at an exercise price, and the SARs must be granted at a ~~price~~base value, per share of not less than 100% of the ~~fair value~~closing price of a share of our common stock on the date of ~~grant.~~grant (or, if no closing price is reported on that date, the closing price on the immediately preceding date on which a closing price was reported) (110% in the case of certain ISOs). Options granted ~~to date~~under the 2012 Plan primarily ~~vest~~vested based on certain market-based and performance-based ~~criteria. Options granted~~criteria and generally have a term of four years to seven years. Certain of the share-based awards granted and outstanding as of ~~January 1,~~December 31, 2021 are subject to accelerated vesting upon a change in control of the Company.

Incentive Stock Units

Outside of the equity plans described above, we also grant incentive stock units (“ISUs”) to certain of our international employees which typically vest over three or four years and for which the fair value is determined by our underlying stock price, which are classified as liabilities and settled in cash upon vesting.

As of December 31, 2021 and October 1, 2021, the fair value of outstanding awards was $9.2 million and $8.9 million, respectively, and the associated accrued compensation liability was $5.4 million and $6.2 million, respectively. During the

three months ended December 31, 2021 and January 1, 2021, we recorded an expense for ISU awards of $1.4 million and $3.0 million, respectively. These expenses are not included in the share-based compensation expense totals below.

Share-Based Compensation

The following table shows a summary of share-based compensation expense included in the condensed consolidated statements of operations (in thousands):


		Three Months Ended			Three Months Ended
			January 1, 2021			January 3, 2020			December 31, 2021		January 1, 2021
Cost of revenue	Cost of revenue		$	871		$	962	Cost of revenue	$	1,033	$	871
Research and development	Research and development		3,554			2,907		Research and development	3,599		3,554
Selling, general and administrative	Selling, general and administrative		5,706			4,281		Selling, general and administrative	5,317		5,706
Total share-based compensation expense	Total share-based compensation expense		$	10,131		$	8,150	Total share-based compensation expense	$	9,949	$	10,131

As of ~~January 1,~~December 31, 2021, the total unrecognized compensation costs related to ~~NQs,~~ RSAs, RSUs and ~~RSUs, including awards with time-based and performance-based vesting~~PRSUs was ~~$61.9~~$71.2 million, which we expect to recognize over a weighted-average period of ~~2.4~~2.3 years. As of ~~January 1,~~December 31, 2021, total unrecognized compensation cost related to our Employee Stock Purchase Plan was ~~$0.7~~$0.6 million.

Restricted Stock, Restricted Stock Units and Performance-Based Restricted Stock Unit Awards

A summary of stock award activity for the three months ended December 31, 2021 is as follows:


	Number of shares (in thousands)	Weighted- Average Grant Date Fair Value
Balance as of October 1, 2021	2,351	$	24.57
Granted	913	53.08
Vested and released	(969)	22.99
Forfeited, canceled or expired	(40)	27.54
Balance as of December 31, 2021	2,255	$	36.73

Stock awards that vested during the three months ended December 31, 2021 and January 1, 2021 had combined fair values of $69.9 million and $31.0 million, respectively, as of the vesting date. RSUs granted generally vest over a period of three or four years.

We granted 161,349 market-based PRSUs during the three months ended December 31, 2021, at a weighted average grant date fair value of $89.82 per share, or $14.5 million. Recipients may earn between 0% and 200% of the target number of shares granted, based on our achievement of total shareholder return in comparison to a selected group of peer companies over a three-year performance period. The fair value of these awards was estimated using a Monte Carlo simulation and share-based compensation expense is recognized ratably over the service period, based on the grant date fair value of the awards subject to the market condition. The significant assumptions used in the Monte Carlo simulation to calculate the fair value of these market-based PRSUs are as follows:


	Three Months Ended
	December 31, 2021
Grant date stock price	$	66.12
Average stock price at the start of the performance period	$	64.11
Risk free interest rate	0.8		%
Years to maturity	3.00
Expected volatility rate	57.8		%
Expected dividend yield	—

Stock Options

A summary of stock option activity for the three months ended ~~January 1,~~December 31, 2021 is as follows (in thousands, except per share amounts and contractual term):

Number of Shares Weighted-Average Exercise Price per Share Weighted-Average Remaining Contractual Term (in Years) Aggregate Intrinsic Value
Options outstanding as of October 2, 2020 325 $ 15.12
Exercised (10) 17.50
Forfeited, canceled or expired 0 0
Options outstanding as of January 1, 2021 315 $ 15.05 6.85 $ 12,598
Options vested & expected to vest as of January 1, 2021 315 15.05 6.85 12,598
Options exercisable as of January 1, 2021 220 $ 14.61 7.72 $ 8,895


	Number of Shares	Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Options outstanding as of October 1, 2021	205	$	14.29

Exercised	(190)	14.15
Forfeited, canceled or expired	—	—
Options outstanding as of December 31, 2021	15	$	16.06	3.85	$	934
Options vested and exercisable as of December 31, 2021	15	16.06		3.85	934

Aggregate intrinsic value represents the difference between our closing stock price on ~~January 1,~~December 31, 2021 and the exercise price of outstanding, in-the-money options. The total intrinsic value of options exercised was $11.0 million for the three months ended December 31, 2021 and was $0.3 million for the three months ended January 1, ~~2021 and was not material for the three months ended January 3, 2020.~~

~~Restricted Stock, Restricted Stock Units and Performance-Based Restricted Stock Units~~

~~A summary of RSAs, RSUs and PRSUs activity for the three months ended January 1, 2021 is as follows:~~

Number of RSAs, RSUs and PRSUs
(in thousands) Weighted-
Average
Grant Date Fair Value
Balance as of October 2, 2020 2,788 $ 20.84
Granted 907 29.30
Vested and released (782) 19.85
Forfeited, canceled or expired (30) 25.68
Balance as of January 1, 2021 2,883 $ 23.72

RSAs, RSUs and PRSUs that vested during the three months ended January 1, 2021 and January 3, 2020 had combined fair values of $31.0 million and $0.3 million, respectively, as of the vesting date. RSUs granted generally vest over a period of three or four years.2021.

14. 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 items such as: 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 for income taxes and effective income tax rate are as follows (in thousands, except percentages):


		Three Months Ended				Three Months Ended
			January 1, 2021				January 3, 2020				December 31, 2021			January 1, 2021
Income tax expense	Income tax expense		$	674			$	1,386		Income tax expense	$	1,457		$	674
Effective income tax rate	Effective income tax rate		(8.1)		%		(5.1)		%	Effective income tax rate	1.0		%	(8.1)		%

The difference between the U.S. federal statutory income tax rate of 21% and our effective income tax rates for the three months ended ~~January 1,~~December 31, 2021 and January ~~3, 2020~~1, 2021 was primarily driven by the continuation of a full valuation allowance against any expense or benefit associated with income or losses in the U.S. and income taxed in foreign jurisdictions generally at lower tax rates and where a valuation allowance does not apply.The gain on the sale of our equity interest in Ampere during the three months ended December 31, 2021 has been offset by our NOL carryforwards.

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 positive and negative evidence. 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. We have determined that there was not sufficient objectively verifiable positive evidence to offset our significant negative objective evidence, therefore, we concluded that a full valuation allowance is appropriate for our U.S. deferred tax assets. Our negative objective evidence consists primarily of adjusted cumulative losses in the U.S. over the three-year period ended ~~January 1,~~December 31, 2021.

Our deferred income tax asset balance as of ~~January 1,~~December 31, 2021 and October ~~2, 2020~~1, 2021 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~~There were no unrecognized tax benefits ~~remained at $0.3 million~~ as of ~~January~~December 31, 2021 and October 1, ~~2021 when compared to the balance as of October 2, 2020.~~2021. It is our policy to recognize any interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the fiscal quarter ended ~~January 1,~~December 31, 2021, we did not make any accrual or payment of interest or penalties, nor did we make any ~~payment, because we believe our $0.3 million accrual would cover any additional amounts due.~~payment.

15. SUPPLEMENTAL CASH FLOW INFORMATION

The following is a summary of supplemental cash flow information for the periods presented (in thousands):

Three Months Ended
January 1,
2021 January 3,
2020
Cash paid for interest $ 4,586 $ 7,624
Cash paid for income taxes $ 249 $ 377
Non-cash activities:
Operating lease right-of-use assets obtained in exchange for new lease liabilities $ 717 $ 74
Financing lease assets obtained in exchange for new lease liabilities $ 0 $ 586
Non-cash capital expenditures $ 350 $ 1,517

During the three months ended January 1, 2021 we capitalized $0.6 million of non-cash costs to property and equipment associated with construction of a power generator that are paid by our service provider. For accounting purposes, we control the underlying assets during construction.


	Three Months Ended
	December 31, 2021		January 1, 2021
Cash paid for interest	$	1,197	$	4,586
Cash paid for income taxes	$	178	$	249
Non-cash activities:
Operating lease right-of-use assets obtained in exchange for new lease liabilities	$	280	717

Non-cash capital expenditures	$	1,618	350
Issuance of common stock for the cashless exercise of warrants	$	—	36,442

16. GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION

We have 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 (“CODM”) use of financial information provided for the purposes of assessing performance and making operating decisions. The Company's CODM is its President and Chief Executive Officer. In evaluating financial performance and making operating decisions, the ~~chief operating decision maker~~CODM primarily uses consolidated metrics. The Company assesses its determination of operating segments at least annually. We continue to evaluate ~~this assessment~~our internal reporting structure and the potential impact of any changes on ~~an ongoing basis as facts and circumstances change and as of January 1, 2021 there were no changes to~~ our ~~conclusion.~~segment reporting.

For information about our 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):


		January 1, 2021		October 2, 2020			December 31, 2021		October 1, 2021
United States	United States	$	97,547	$	99,118	United States	$	104,732	$	103,527
Europe (1)	Europe (1)	12,963		13,129		Europe (1)	12,295		12,766
Other Countries (2)	Other Countries (2)	5,443		6,619		Other Countries (2)	3,746		4,233
Total	Total	$	115,953	$	118,866	Total	$	120,773	$	120,526

(1)Europe primarily represents Finland, France, Germany, Ireland and Italy.

(2)Other than the United States and Europe, no country or region represented greater than 10% of the total net property and equipment as of the dates presented.

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
Revenue January 1,
2021 January 3,
2020
Customer A 14% 16 %

Three Months Ended

Revenue

December 31,
2021

January 1,
2021

Customer A

—

Accounts Receivable January 1,
2021 October 2,
2020
Customer A 24 % 20 %
Customer B 11 % 8 %

Customer A did not represent more than 10% of our revenue in the three months ended December 31, 2021. 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 months ended ~~January 1,~~December 31, 2021 and January ~~3, 2020~~1, 2021, our top ten customers represented ~~55%~~44% and ~~60%, respectively,~~55% of total ~~revenue.~~revenue, respectively.

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 October ~~2, 2020~~1, 2021 filed with the United States Securities and Exchange Commission (“SEC”) on November ~~18, 2020~~15, 2021 (the ~~“2020~~“2021 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~~“MACOM Technology Solutions,” ~~“M/A-COM Tech,” “Partners in RF & Microwave”~~“MACOM KV CAPS” 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~~regarding our business outlook, strategic plans and priorities, expectations, anticipated drivers of future revenue growth, industry trends, the potential impacts of COVID-19 on our future operations and results, our plans for use of our cash and cash equivalents and short-term investments, ~~and revolving credit facility,~~ our ability to meet working capital requirements, estimates and objectives for future operations, our future results of operations and our financial position and other matters that do not relate strictly to historical facts. ~~These~~Forward-looking statements ~~are often~~generally may be identified by ~~the use of words~~terms such as “anticipates,” “believes,” “could,” “continue,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “targets,” “will,” “would” ~~and~~or similar expressions or ~~variations.~~variations or the negatives of those terms. 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 and the ~~2020~~2021 Annual Report on Form 10-K. 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. Except 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 design and manufacture semiconductor products for Telecommunications (“Telecom”), Industrial and Defense (“I&D”) and Data Center ~~applications.~~industries. Headquartered in Lowell, Massachusetts, with operational facilities throughout North America, Europe and Asia, we design, develop and manufacture differentiated semiconductor products for customers who demand high performance, quality and reliability. We have more than 70 years of application expertise, combined with ~~proficiencies~~expertise in analog and mixed signal circuit design, compound semiconductor fabrication (including gallium arsenide (“GaAs”), indium phosphide (“InP”) and specialized silicon), advanced packaging and back-end assembly and test. We offer a broad portfolio of thousands of standard and custom devices, which include integrated circuits (“IC”), multi-chip modules (“MCM”), diodes, amplifiers, switches and switch limiters, passive and active components and complete subsystems, across dozens of product lines serving over 6,000 end customers in three primary markets. Our semiconductor products are electronic components that our customers incorporate into larger electronic systems, such as wireless communication systems including basestations, high capacity optical networks, data center applications, radar, medical systems and test and measurement applications. Our primary end markets are: (1) Telecom, which includes carrier infrastructure such as long-haul/metro, 5G and Fiber-to-the-X (“FTTx”)/passive optical network (“PON”), among others; (2) I&D, which includes military and commercial radar, radio frequency (“RF”) jammers, electronic countermeasures, communication data links, satellite communications and multi-market applications, which include industrial, medical, test and measurement and scientific applications; and (3) Data Center, which includes intra-Data Center, Data Center Interconnect

(“DCI”) applications, at 100G, 200G, 400G, 800G and higher speeds, 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, through the three months ended December 31, 2021, have a material impact on our consolidated operating ~~results for the periods presented.~~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 a further economic slowdown or recession and could result in adverse impacts to our overall business, such as increased credit and collectability risks, adverse impacts on our ~~suppliers,~~supply chain, 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, any resurgence of

COVID-19 cases, including as a result of variant strains of the underlying virus, actions taken to contain the virus or treat its impact, the availability and efficacy of vaccines against COVID-19, 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 the section entitled “Risk Factors” in ~~this Quarterly Report on Form 10-Q and~~ the ~~2020~~2021 Annual Report on Form 10-K.

Description of Our Revenue

Revenue. Our revenue is derived from sales of high-performance RF, microwave, millimeter wave, optical and photonic semiconductor products. We design, integrate, manufacture and package differentiated ~~semiconductor~~semiconductor-based products that we sell to customers through our direct sales organization, our network of independent sales representatives and our distributors.

~~Our core strategy is to develop and innovate high-performance products that address our customers’ most difficult technical challenges in our primary markets: Telecom, I&D and Data Center.~~

We believe the primary drivers of our future revenue growth will include:

•continued growth in the demand for high-performance analog, digital and optical semiconductors in our three primary markets;

•introducing new products using advanced technologies, added features, higher levels of integration and improved performance;

•increasing content of our semiconductor solutions 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

•engaging early with our lead customers to develop custom and 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, I&D and Data Center.

We expect our revenue in the Telecom market to be driven by 5G deployments, with continued upgrades and expansion of communications equipment, and increasing adoption of our high-performance RF, millimeter wave, optical and photonic components.

We expect our revenue in the I&D market to be driven by the expanding product portfolio that we offer which services applications such as test and measurement, satellite communications, civil and military radar, industrial, scientific and medical applications, further supported by growth in applications for our 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

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 U.S. 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 long-lived asset valuations and associated impairment assessments; revenue reserves; share-based compensation valuations and income taxes.

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 and the value of our long-lived asset groups could be adversely affected by, but not limited to, a change in strategy, the outcome of development activities, a significant slowdown in our primary markets, the semiconductor industry or worldwide economy, or a decline in the valuation of technology company stocks, including the valuation of our common stock.

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 the ~~2020~~2021 Annual Report on Form 10-K 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
January 1,
2021 January 3,
2020
Revenue $ 148,504 $ 119,097
Cost of revenue (1)
68,242 60,893
Gross profit 80,262 58,204
Operating expenses:
Research and development (1)
36,936 35,158
Selling, general and administrative (1)
31,252 32,340
Restructuring charges (2)
— 1,234
Total operating expenses 68,188 68,732
Income (loss) from operations 12,074 (10,528)
Other expense:
Warrant liability expense (3)
(11,130) (4,087)
Interest expense (4,734) (8,621)
Other expense, net (4)
(4,504) (3,740)
Total other expense, net (20,368) (16,448)
Loss before income taxes (8,294) (26,976)
Income tax expense 674 1,386
Net loss $ (8,968) $ (28,362)


	Three Months Ended
	December 31, 2021		January 1, 2021
Revenue	$	159,620	$	148,504
Cost of revenue (1)	65,477		68,242
Gross profit	94,143		80,262
Operating expenses:
Research and development (1)	35,470		36,936
Selling, general and administrative (1)	31,604		31,252

Total operating expenses	67,074		68,188
Income from operations	27,069		12,074
Other income (expense):

Warrant liability expense (2)	—		(11,130)
Interest expense	(1,693)		(4,734)
Other income (expense), net (3)	114,908		(4,504)
Total other income (expense), net	113,215		(20,368)
Income (loss) before income taxes	140,284		(8,294)
Income tax expense	1,457		674
Net income (loss)	$	138,827	$	(8,968)

(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			Three Months Ended
			January 1, 2021			January 3, 2020			December 31, 2021		January 1, 2021
(a) Intangible amortization expense:	(a) Intangible amortization expense:							(a) Intangible amortization expense:
Cost of revenue	Cost of revenue		$	3,877		$	4,420	Cost of revenue	$	2,505	$	3,877
Selling, general and administrative	Selling, general and administrative		8,116			8,654		Selling, general and administrative	6,782		8,116
(b) Share-based compensation expense:	(b) Share-based compensation expense:							(b) Share-based compensation expense:
Cost of revenue	Cost of revenue		$	871		$	962	Cost of revenue	$	1,033	$	871
Research and development	Research and development		3,554			2,907		Research and development	3,599		3,554
Selling, general and administrative	Selling, general and administrative		5,706			4,281		Selling, general and administrative	5,317		5,706

(2) ~~See~~ ~~Note 12 - Restructurings~~ ~~to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.~~

~~(3)~~ Represents changes in the fair value of common stock warrants recorded as liabilities and adjusted each reporting period to fair value. See Note 910 - Stockholders’ Equity to our Condensed Consolidated Financial Statements in this Quarterly Report on Form ~~10-Q for additional information.~~10-Q.

~~(4)~~(3) The three months ended December 31, 2021 includes gain on sale of our equity method investment of $118.2 million. Includes net losses of $3.3 million for the three months ended December 31, 2021 and losses of $4.8 million ~~and $3.7 million of losses~~ for the three months ended January 1, 2021 ~~and January 3, 2020, respectively,~~ associated with our equity method investment. See Note 3 - Investments to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for ~~additional~~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			Three Months Ended
			January 1, 2021			January 3, 2020			December 31, 2021		January 1, 2021
Revenue	Revenue		100.0	%		100.0	%	Revenue	100.0	%	100.0	%
Cost of revenue	Cost of revenue		46.0			51.1		Cost of revenue	41.0		46.0
Gross profit	Gross profit		54.0			48.9		Gross profit	59.0		54.0
Operating expenses:	Operating expenses:							Operating expenses:
Research and development	Research and development		24.9			29.5		Research and development	22.2		24.9
Selling, general and administrative	Selling, general and administrative		21.0			27.2		Selling, general and administrative	19.8		21.0

Restructuring charges			—			1.0
Total operating expenses	Total operating expenses		45.9			57.7		Total operating expenses	42.0		45.9
Income (loss) from operations			8.1			(8.8)
Other expense:
Income from operations								Income from operations	17.0		8.1
Other income (expense):								Other income (expense):

Warrant liability expense	Warrant liability expense		(7.5)			(3.4)		Warrant liability expense	—		(7.5)
Interest expense	Interest expense		(3.2)			(7.2)		Interest expense	(1.1)		(3.2)
Other expense, net			(3.0)			(3.1)
Total other expense, net			(13.7)			(13.8)
Loss before income taxes			(5.6)			(22.7)
Other income (expense), net								Other income (expense), net	72.0		(3.0)
Total other income (expense), net								Total other income (expense), net	70.9		(13.7)
Income (loss) before income taxes								Income (loss) before income taxes	87.9		(5.6)
Income tax expense	Income tax expense		0.4			1.2		Income tax expense	0.9		0.5
Net loss			(6.0)	%		(23.8)	%
Net income (loss)								Net income (loss)	87.0	%	(6.0)	%

Comparison of the Three Months Ended ~~January 1,~~December 31, 2021 to the Three Months Ended January ~~3, 2020~~1, 2021

Revenue. Our revenue increased by ~~$29.4~~$11.1 million, or ~~24.7%~~7.5%, to $159.6 million for the three months ended December 31, 2021, from $148.5 million for the three months ended January 1, ~~2021, from $119.1 million for the three months ended January 3, 2020.~~2021. The increase in revenue in the three months ended ~~January 1,~~December 31, 2021 is described by end market in the following paragraphs.

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									Three Months Ended
				January 1, 2021			January 3, 2020		% Change					December 31, 2021			January 1, 2021		% Change
Telecom	Telecom		$	51,532		$	45,602		13.0	%		Telecom	$	55,822		$	51,532		8.3	%
Industrial & Defense	Industrial & Defense			61,618			50,482		22.1	%		Industrial & Defense		73,146			61,618		18.7	%
Data Center	Data Center			35,354			23,013		53.6	%		Data Center		30,652			35,354		(13.3)	%
Total	Total		$	148,504		$	119,097		24.7	%		Total	$	159,620		$	148,504		7.5	%

Telecom	Telecom			34.7	%		38.3	%				Telecom		35.0	%		34.7	%
Industrial & Defense	Industrial & Defense			41.5	%		42.4	%				Industrial & Defense		45.8	%		41.5	%
Data Center	Data Center			23.8	%		19.3	%				Data Center		19.2	%		23.8	%
Total	Total			100.0	%		100.0	%				Total		100.0	%		100.0	%

In the three months ended ~~January 1,~~December 31, 2021, our Telecom market revenue increased by ~~$5.9~~$4.3 million, or ~~13.0%~~8.3%, compared to the three months ended January ~~3, 2020.~~1, 2021. The increase for the three months ended ~~January 1,~~December 31, 2021 was primarily driven by ~~increased sales of legacy~~an increase in RF and microwave products, ~~products targeting fiber to the home~~for cable and ~~licensing revenue,~~video infrastructure, offset partially by a decrease in ~~carrier-based optical semiconductor products, including those targeted for 5G applications.~~our China fronthaul market.

In the three months ended ~~January 1,~~December 31, 2021, our I&D market revenue increased by ~~$11.1~~$11.5 million, or ~~22.1%~~18.7%, compared to the three months ended January ~~3, 2020.~~1, 2021. The increase in the three months ended ~~January 1,~~December 31, 2021 was primarily related to new program wins, ~~and~~ expansion of our RF and microwave product ~~lines.~~lines and increases in legacy product sales.

In the three months ended ~~January 1,~~December 31, 2021, our Data Center market revenue ~~increased~~decreased by ~~$12.3~~$4.7 million, or ~~53.6%~~13.3%, compared to the three months ended January ~~3, 2020.~~1, 2021. The ~~increase~~decrease in ~~revenue for~~ the three months ended ~~January 1,~~December 31, 2021 was primarily due to ~~increased~~a decrease in sales of our high-performance analog Data Center ~~products.~~products due to supply constraints.

Gross profit. Gross margin was ~~54.0%~~59.0% and ~~48.9%~~54.0% for the three months ended ~~January 1,~~December 31, 2021 and January ~~3, 2020,~~1, 2021, respectively. Gross profit was ~~$80.3~~$94.1 million and ~~$58.2~~$80.3 million for the three months ended ~~January 1,~~December 31, 2021 and January ~~3, 2020,~~1, 2021, respectively. Gross profit increased for the three months ended ~~January 1,~~December 31, 2021 as compared to the three months ended January ~~3, 2020~~1, 2021 primarily as a result of ~~increased~~higher sales, favorable ~~product~~revenue mix, production efficiencies, as well as decreases in intangible amortization and ~~the recognition of licensing revenue during fiscal year 2021.~~warranty expense, partially offset by increases in employee-related costs.

Research and development. Research and development expense ~~increased~~decreased by ~~$1.8~~$1.5 million, or ~~5.1%~~4.0%, to $35.5 million, or 22.2% of our revenue, for the three months ended December 31, 2021, compared to $36.9 million, or 24.9% of our revenue, for the three months ended January 1, ~~2021, compared with $35.2 million, or 29.5% of our revenue, for the three months ended January 3, 2020.~~ 2021. Research and development expense ~~increased~~decreased in the three months ended ~~January 1,~~December 31, 2021 primarily as a result of ~~increased R&D activities including~~lower equipment rental charges and supplies and ~~an increase in share-based compensation expense offset by lower payroll-related~~foundry costs.

Selling, general and administrative. Selling, general and administrative expense ~~decreased~~increased by ~~$1.1~~$0.4 million, or ~~3.4%~~1.1%, to $31.6 million, or 19.8% of our revenue, for the three months ended December 31, 2021, compared to $31.3 million, or 21.0% of our revenue, for the three months ended January 1, ~~2021, compared with $32.3 million, or 27.2% of our revenue, for the three months ended January 3, 2020.~~2021. Selling, general and administrative expense ~~decreased~~increased in the three months ended ~~January 1,~~December 31, 2021 primarily due to ~~lower payroll-related costs, professional service fees and other discretionary spending, offset by~~ an increase in ~~share-based compensation expense.~~

~~Restructuring charges.~~ There were no restructuring charges incurred during the three months ended January 1, 2021 as compared to $1.2 million for the three months ended January 3, 2020. All restructuring actions were completed as of October 2, 2020. For additional information refer to ~~Note 12 - Restructurings~~ ~~to our Condensed Consolidated Financial Statements~~employee-related and variable selling costs, offset by a decrease in ~~this Quarterly Report on Form 10-Q.~~intangible amortization.

Warrant liability expense. ~~Our~~There was no warrant liability ~~resulted in~~expense for the three months ended December 31, 2021, compared to an expense of $11.1 million for the three months ended January 1, ~~2021, compared to an~~2021. The expense ~~of $4.1 million~~ for the three months ended January ~~3, 2020. The difference between periods~~1, 2021 was driven by a change in the estimated fair value of common stock warrants, primarily driven by the increase in the underlying price of our common stock, which was recorded as a liability at fair value. During November 2020, all of the warrants were exercised and 857,631 shares of common stock were issued. ~~As of January 1, 2021, there are no remaining common stock warrants outstanding.~~ For additional information refer to Note 910 - Stockholders' Equity to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Interest expense, net. In the three months ended December 31, 2021, interest expense, net was $1.7 million, or 1.1% of our revenue, compared to $4.7 million, or 3.2% of our revenue, for the three months ended January 1, 2021. The decrease for the three months ended December 31, 2021 is primarily due to the adoption of ASU 2020-06 resulting in a lower effective interest rate on our long-term debt and the decrease in our long-term debt balance.

Other income (expense), net. In the three months endedDecember 31, 2021, other income, net was $114.9 million, or 72.0% of our revenue, compared to other expense, net of $4.5 million, or 3.0% of our revenue, for the three months ended January 1, 2021. The increase in the three months ended December 31, 2021 is primarily due to the gain on sale of our equity method investment of $118.2 million. See Note 3 - Investments to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information.

Provision for income taxes. Our income tax expense and effective income tax rates for the periods indicated were (in thousands, except percentages):


		Three Months Ended				Three Months Ended
			January 1, 2021		January 3, 2020			December 31, 2021		January 1, 2021
Income tax expense	Income tax expense		674		1,386		Income tax expense	1,457		674
Effective income tax rate	Effective income tax rate		(8.1)	%	(5.1)	%	Effective income tax rate	1.0	%	(8.1)	%

Our estimated annual effective tax rate for the year ended ~~October 1, 2021~~September 30, 2022 is expected to be ~~negative,~~approximately 2%, adjusted for discrete taxation matters arising during the interim periods.

The difference between the U.S. federal statutory income tax rate of 21% and our effective income tax rate for the three months ended ~~January 1,~~December 31, 2021 and the three months ended January ~~3, 2020~~1, 2021 was primarily driven by the continuation of a full valuation allowance against any benefit or expense associated with losses or income in the U.S. ~~losses~~ and income taxed in foreign jurisdictions at generally lower tax rates, where we are not in a valuation allowance because it is expected that we will be in a taxable income position. The gain on the sale of our equity interest in Ampere during the three months ended December 31, 2021 has been offset by our NOL carryforwards.For additional information refer to Note 14 - 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 (in thousands):


		Three Months Ended					Three Months Ended
		January 1, 2021		January 3, 2020			December 31, 2021		January 1, 2021
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	$	129,441	$	75,519	Cash and cash equivalents, beginning of period	$	156,537	$	129,441
Net cash provided by operating activities	Net cash provided by operating activities	34,780		37,658		Net cash provided by operating activities	34,104		34,780
Net cash used in investing activities		(24,769)		(4,541)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	105,737		(24,769)
Net cash used in financing activities	Net cash used in financing activities	(11,479)		(592)		Net cash used in financing activities	(22,900)		(11,479)
Foreign currency effect on cash	Foreign currency effect on cash	755		140		Foreign currency effect on cash	(82)		755
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	128,728	$	108,184	Cash and cash equivalents, end of period	$	273,396	$	128,728

Cash Flow from Operating Activities

Our cash flow from operating activities for the three months ended December 31, 2021 of $34.1 million consisted of a net income of $138.8 million, less adjustments to reconcile our net income to cash provided by operating activities of $88.4 million and cash used in operating assets and liabilities of $16.3 million. Adjustments to reconcile our net income to cash provided by operating activities primarily included a net gain of $114.9 million related to the sale of our equity method investment offset by equity method investment losses, depreciation and intangible amortization expense of $15.2 million and share-based compensation expense of $9.9 million. In addition, cash used in operating assets and liabilities was $16.3 million for the three months ended December 31, 2021, primarily driven by an increase in accounts receivable of $12.9 million and an increase in inventories of $5.8 million.

Our cash flow from operating activities for the three months ended January 1, 2021 of $34.8 million consisted of a net loss of $9.0 million, plus cash used in operating assets and liabilities of $1.3 million, plus adjustments to reconcile our net loss to cash provided by operating activities of $45.0 million. Adjustments to reconcile our net loss to cash provided by operating activities primarily included depreciation and intangible amortization expense of $18.2 million, ~~and~~ share-based compensation expense of $10.1 million, a warrant liability expense of $11.1 million and a loss on ~~minority~~an equity method investment of $4.8 million. In addition, cash used in operating assets and liabilities was $1.3 million for the three months ended January 1, 2021, primarily driven by an increase in accounts receivable of $9.3 million, offset by an increase in accounts payable of $5.4 million and a decrease in inventories of $2.6 million.

Cash Flow from Investing Activities

Our cash flow ~~from operating~~provided by investing activities for the three months ended ~~January 3, 2020~~December 31, 2021 of ~~$37.7~~$105.7 million consisted primarily of ~~a net loss~~proceeds from the sale of ~~$28.4 million, plus cash provided by operating assets and liabilities of $28.5 million, plus adjustments to reconcile~~ our net loss to cash provided by operating activities of $37.5 million. Adjustments to reconcile our net loss to cash provided by operating activities primarily included depreciation and intangible amortization expense of $20.5 million and share-based compensation expense of $8.2 million, partially offset by a warrant liability expense of $4.1 million and a loss on minority equity method investment of ~~$3.7 million. In addition, cash provided by operating assets and liabilities was $28.5~~$127.8 million, proceeds of $58.5 million for the ~~three months ended January~~sale and maturity of short-term investments, offset by purchases of $75.4 million of short-term investments and capital expenditures of $5.1 million. For additional information on the sale of our equity method investment, see Note 3 ~~2020, primarily driven by a decrease~~- Investments to our Condensed Consolidated Financial Statements in accounts receivable of $18.0 million, due to improved revenue linearity throughout the quarter and timing of collections from customers, a decrease in prepaid expenses and other assets of $5.7 million and an increase in accrued and other liabilities of $5.0 million.

~~Cash Flow from Investing Activities~~this Quarterly Report on Form 10-Q.

Our cash flow used in investing activities for the three months ended January 1, 2021 of $24.8 million consisted primarily of purchases of $82.0 million of short-term investments, capital expenditures of $2.9 million, offset by proceeds of $60.2 million related to the sale and maturity of short-term investments.

~~Our cash flow used in used in investing activities for~~Cash Flow from Financing Activities

During the three months ended ~~January 3, 2020 consisted~~December 31, 2021, our cash used in financing activities of $22.9 million was primarily ~~of purchases of $77.5~~related to $27.8 million of ~~short-term investments and capital expenditures~~repurchases of ~~$4.2 million,~~common stock associated with employee tax withholdings on vested equity awards, partially offset by $5.1 million of proceeds ~~of $77.2 million related to the sale~~from stock option exercises and ~~maturity of short-term investments.~~

~~Cash Flow from Financing Activities~~employee stock purchases.

During the three months ended January 1, 2021, our cash used in financing activities of $11.5 million was primarily related to $11.8 million of repurchases of stock associated with employee tax withholdings on vested equity awards and $1.7 million of payments on long-term debt offset by $2.4 million of proceeds from stock option exercises and employee stock purchases.

During the three months ended January 3, 2020, our cash used in financing activities of $0.6 million was primarily related to $1.7 million of payments on notes payable, $0.8 million of payments on financing leases offset by $2.0 million of proceeds from stock option exercises and employee stock purchases.

Liquidity

As of ~~January 1,~~December 31, 2021, we held ~~$128.7~~$273.4 million of cash and cash equivalents, primarily deposited with financial institutions, as well as ~~$226.0~~$204.3 million of liquid short-term investments. During the three months ended December 31, 2021, our revolving credit facility, which had $160.0 million in borrowing capacity, expired and is no longer available. The undistributed earnings of certain foreign subsidiaries are considered indefinitely reinvested for the periods presented 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 ~~January 1,~~December 31, 2021, cash held by our indefinitely reinvested foreign subsidiaries was ~~$38.2~~$32.1 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 January 1, 2021, we had $160.0 million in borrowing capacity under our Revolving Facility, of which we may borrow up to $50.0 million without being subject to certain financial covenants.~~

We plan to use our remaining available cash and cash equivalents and short-term investments ~~and, as deemed appropriate, our borrowing capacity under our 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 investments and cash generated from operations ~~and borrowing availability under the Revolving Facility~~ will be sufficient to meet our working capital requirements for at least the next twelve 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 to do so on favorable terms or at all.

As of December 31, 2021, we had no off-balance sheet arrangements.

For additional information related to our Liquidity and Capital Resources, see Note 78 - Debt to our Condensed Consolidated Financial Statements 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 January 1, 2021.~~

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 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. As of January 1, 2021, no warrants remain outstanding.

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 bonds, bank deposits, money market funds and commercial paper. The 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~~Term Loans 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 ~~January 1,~~December 31, 2021, we had ~~$664.4~~$120.8 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 ~~$6.6~~$1.2 million. The interest rates on our 2026 Convertible Notes are fixed and therefore not subject to interest rate risk.

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 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 ~~January 1,~~December 31, 2021.

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 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.

2425

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 1112 - 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 ~~2020~~2021 Annual Report on Form 10-K, 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 ~~2020~~2021 Annual Report on Form 10-K.

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 ~~January 1,~~December 31, 2021.

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
October 3, 2020-October 30, 2020 104,833 $ 36.80 — —
October 31, 2020-November 27, 2020 192,376 41.45 — —
November 28, 2020-January 1, 2021 238 50.18 — —
Total 297,447 $ 39.82 — —


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 (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
October 2, 2021-October 29, 2021	142,844	$	68.88	—	—
October 30, 2021-November 26, 2021	239,511	74.64		—	—
November 27, 2021-December 31, 2021	535	76.28		—	—
Total	382,890	$	72.49	—	—

(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.

~~Unregistered Sales of Equity Securities~~

During the fiscal quarter ended January 1, 2021, Summit Partners Private Equity Fund VII-A, L.P., Summit Partners Private Equity Fund VII-B, L.P., Summit Investors I, LLC, Summit Investors I (UK), L.P. and Mainsail Partners II, L.P. made a cashless exercise of warrants for 1,281,358 shares at an exercise price of $14.05 per share, resulting in the issuance of 857,631 shares of common stock. We received no proceeds from the exercise of the warrants. In issuing the shares of common stock, we relied on the exemption from the registration requirements provided by Section 4(a)(2) of the Securities Act of 1933, as amended.

2526

ITEM 6. EXHIBITS


Exhibit Number			Description
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			The following material from the Quarterly Report on Form 10-Q of MACOM Technology Solutions Holdings, Inc. for the fiscal quarter ended ~~January 1,~~December 31, 2021, 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.
104			The cover page for the Quarterly Report on Form 10-Q of MACOM Technology Solutions Holdings, Inc. for the fiscal quarter ended ~~January 1,~~December 31, 2021, formatted in Inline XBRL and included as Exhibit 101

2627

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: January ~~28, 2021~~27, 2022	By:	/s/ Stephen G. Daly
		Stephen G. Daly
		President and Chief Executive Officer (Principal Executive Officer)

Dated: January ~~28, 2021~~27, 2022	By:	/s/ John F. Kober
		John F. Kober
		Senior Vice President and Chief Financial Officer (Principal Accounting and Principal Financial Officer)


			Page No.
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)		1
		Condensed Consolidated Balance Sheets	1
		Condensed Consolidated Statements of Operations	2
		Condensed Consolidated Statements of Comprehensive ~~Loss~~Income (Loss)	3
		Condensed Consolidated Statements of Stockholders’ Equity	4
		Condensed Consolidated Statements of Cash Flows	5
		Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		2324
Item 4.	Controls and Procedures		2425
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings		2526
Item 1A.	Risk Factors		2526
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		2526

Item 6.	Exhibits		2627
Signatures			2728


	January 1, 2021		October 2, 2020
Less than 1 year	$	153,139	$	138,612
Over 1 year	72,905		65,099
Total short-term investments	$	226,044	$	203,711


	October 2, 2020		Net Realized/Unrealized Losses Included in Earnings		Purchases and Issuances		Sales and Settlements		January 1, 2021

Common stock warrant liability	$	25,312	$	11,130	$	0	$	(36,442)	$	0


	September 27, 2019		Net Realized/Unrealized Losses (Gains) Included in Earnings		Purchases and Issuances		Sales and Settlements		January 3, 2020
Common stock warrant liability	$	12,364	$	4,087	$	0	$	0	$	16,451


	Principal Outstanding	LIBOR Rate	Margin	Effective Interest Rate
Term loans	$664,366	0.15%	2.25%	2.40%


	Amount
2021 (remainder of fiscal year)	$	5,163
2022	6,885
2023	6,885
2024	645,433

Total	$	664,366


	2021 Remaining		2022	2023	2024	2025	Thereafter	Total
Amortization expense	$	34,220	33,433	26,048	15,410	3,489	2,905	$	115,505


	Employee-Related Expense (1)		Facility-Related Expense (2)		Total
Balance as of October 2, 2020	$	235	$	26	$	261
Charges and adjustments	0		0		0
Charges paid/settled/other	11		(26)		(15)
Balance as of January 1, 2021	$	246	$	0	$	246