SEC Filing | MACOM Technology Solutions Holdings, Inc.

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mtsi-20210402

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 April 2, 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 April 26, 2021, there were 68,669,376 shares of the registrant’s common stock outstanding.

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

FORM 10-Q

TABLE OF CONTENTS


			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 Income (Loss)	3
		Condensed Consolidated Statements of Stockholders’ Equity	4
		Condensed Consolidated Statements of Cash Flows	6
		Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		27
Item 4.	Controls and Procedures		28
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings		29
Item 1A.	Risk Factors		29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		30
Item 6.	Exhibits		31
Signatures			32

PART I—FINANCIAL INFORMATION


ITEM 1.			FINANCIAL STATEMENTS

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)


	April 2, 2021		October 2, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	105,540	$	129,441
Short-term investments	162,554		203,711
Accounts receivable, net	68,281		45,884
Inventories	84,516		91,584
Prepaid and other current assets	11,742		10,899
Total current assets	432,633		481,519
Property and equipment, net	114,253		118,866
Goodwill	314,377		315,012
Intangible assets, net	107,499		130,898
Deferred income taxes	40,214		41,935
Other investments	19,483		17,745
Other long-term assets	39,936		40,453
TOTAL ASSETS	$	1,068,395	$	1,146,428
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of finance lease obligations and other	$	1,203	$	1,368
Current portion of long-term debt	—		6,885
Accounts payable	26,473		23,043
Accrued liabilities	60,897		63,654
Total current liabilities	88,573		94,950
Finance lease obligations and other, less current portion	28,494		28,994
Long-term debt, less current portion	492,173		652,172
Warrant liability	—		25,312
Other long-term liabilities	47,022		44,854
Total liabilities	656,262		846,282
Stockholders’ equity:
Common stock	69		67
Treasury stock, at cost	(330)		(330)
Accumulated other comprehensive income	4,462		5,009
Additional paid-in capital	1,241,820		1,135,127
Accumulated deficit	(833,888)		(839,727)
Total stockholders’ equity	412,133		300,146
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,068,395	$	1,146,428

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				Six Months Ended
	April 2, 2021		April 3, 2020		April 2, 2021		April 3, 2020
Revenue	$	150,583	$	126,424	$	299,087	$	245,521
Cost of revenue	66,470		63,054		134,713		123,947
Gross profit	84,113		63,370		164,374		121,574
Operating expenses:
Research and development	34,619		35,830		71,555		70,988
Selling, general and administrative	30,522		31,994		61,774		64,334
Restructuring charges	—		815		—		2,049
Total operating expenses	65,141		68,639		133,329		137,371
Income (loss) from operations	18,972		(5,269)		31,045		(15,797)
Other expense:
Warrant liability gain (expense)	—		8,647		(11,130)		4,560
Interest expense, net	(4,851)		(7,672)		(9,585)		(16,293)
Other income (expense), net	2,879		(4,352)		(1,624)		(8,092)
Total other expense, net	(1,972)		(3,377)		(22,339)		(19,825)
Income (loss) before income taxes	17,000		(8,646)		8,706		(35,622)
Income tax expense	2,193		1,580		2,867		2,966
Net income (loss)	$	14,807	$	(10,226)	$	5,839	$	(38,588)

Net income (loss) per share:
Income (loss) per share - Basic	$	0.22	$	(0.15)	$	0.09	$	(0.58)
Income (loss) per share - Diluted	$	0.21	$	(0.28)	$	0.08	$	(0.64)
Weighted average shares used:
Basic	68,504		66,522		68,130		66,375
Diluted	70,546		67,085		69,983		66,921

See notes to condensed consolidated financial statements.

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in thousands)


	Three Months Ended				Six Months Ended
	April 2, 2021		April 3, 2020		April 2, 2021		April 3, 2020
Net income (loss)	$	14,807	$	(10,226)	$	5,839	$	(38,588)
Unrealized loss on short term investments, net of tax	(373)		(1,376)		(196)		(1,297)
Foreign currency translation loss, net of tax	(1,303)		(687)		(351)		(935)
Other comprehensive loss, net of tax	(1,676)		(2,063)		(547)		(2,232)
Total comprehensive income (loss)	$	13,131	$	(12,289)	$	5,292	$	(40,820)

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 January 1, 2021	68,367	$	68	(23)	$	(330)	$	6,138	$	1,172,269	$	(848,695)	$	329,450
Stock option exercises	40	—		—	—		—		642		—		642
Vesting of restricted common stock and units	440	1		—	—		—		—		—		1

Shares repurchased for tax withholdings on equity awards	(155)	—		—	—		—		(10,494)		—		(10,494)
Share-based compensation	—	—		—	—		—		8,569		—		8,569
Other comprehensive loss, net of tax	—	—		—	—		(1,676)		—		—		(1,676)
Equity component of convertible notes, net	—	—		—	—		—		70,834		—		70,834
Net income	—	—		—	—		—		—		14,807		14,807
Balance as of April 2, 2021	68,692	$	69	(23)	$	(330)	$	4,462	$	1,241,820	$	(833,888)	$	412,133


	Six 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	50	—		—	—		—		817		—		817
Vesting of restricted common stock and units	1,222	1		—	—		—		—		—		1
Issuance of common stock pursuant to employee stock purchase plan	93	—		—	—		—		2,239		—		2,239
Shares repurchased for tax withholdings on equity awards	(452)	—		—	—		—		(22,338)		—		(22,338)
Share-based compensation	—	—		—	—		—		18,700		—		18,700
Other comprehensive loss, net of tax	—	—		—	—		(547)		—		—		(547)
Issuance of common stock for the cashless exercise of warrants	858	1		—	—		—		36,441		—		36,442
Equity component of convertible notes, net	—	—		—	—		—		70,834		—		70,834
Net income	—	—		—	—		—		—		5,839		5,839
Balance as of April 2, 2021	68,692	$	69	(23)	$	(330)	$	4,462	$	1,241,820	$	(833,888)	$	412,133

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 January 03, 2020	66,346	$	66	(23)	$	(330)	$	4,189	$	1,111,606	$	(822,011)	$	293,520
Stock option exercises	16	—		—	—		—		79		—		79
Vesting of restricted common stock and units	554	1		—	—		—		—		—		1

Shares repurchased for tax withholdings on equity awards	(198)	—		—	—		—		(5,856)		—		(5,856)
Share-based compensation	—	—		—	—		—		10,276		—		10,276
Other comprehensive loss, net of tax	—	—		—	—		(2,063)		—		—		(2,063)
Net loss	—	—		—	—		—		—		(10,226)		(10,226)
Balance as of April 3, 2020	66,718	$	67	(23)	$	(330)	$	2,126	$	1,116,105	$	(832,237)	$	285,731


	Six 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	18	—		—	—		—		122		—		122
Vesting of restricted common stock and units	564	1		—	—		—		—		—		1
Issuance of common stock pursuant to employee stock purchase plan	160	—		—	—		—		1,930		—		1,930
Shares repurchased for tax withholdings on equity awards	(201)	—		—	—		—		(5,949)		—		(5,949)
Share-based compensation	—	—		—	—		—		18,426		—		18,426
Other comprehensive loss, net of tax	—	—		—	—		(2,232)		—		—		(2,232)
Net loss	—	—		—	—		—		—		(38,588)		(38,588)
Balance as of April 3, 2020	66,718	$	67	(23)	$	(330)	$	2,126	$	1,116,105	$	(832,237)	$	285,731

See notes to condensed consolidated financial statements.

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Six Months Ended
	April 2, 2021		April 3, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	5,839	$	(38,588)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and intangibles amortization	35,613		40,241
Share-based compensation	18,700		18,426
Warrant liability expense (gain)	11,130		(4,560)
Deferred financing cost amortization and write offs	4,954		2,031
Deferred income taxes	1,629		2,322
(Gain) loss on equity method investment	(1,738)		9,066
Other adjustments, net	331		1,029
Change in operating assets and liabilities:
Accounts receivable	(22,397)		16,787
Inventories	7,068		8,256
Prepaid expenses and other assets	(4,033)		9,772
Accounts payable	3,841		1,812
Accrued and other liabilities	1,324		(849)
Income taxes	460		(2,807)
Net cash provided by operating activities	62,721		62,938
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(7,328)		(9,036)
Proceeds from sales and maturities of short-term investments	179,426		90,026
Purchases of short-term investments	(138,149)		(90,401)
Sale of assets	63		363
Net cash provided by (used in) investing activities	34,012		(9,048)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes, net of issuance costs	394,871		—
Payments on long-term debt	(496,021)		(3,442)
Payments on finance leases and other	(666)		(871)
Proceeds from stock option exercises and employee stock purchases	3,056		2,052
Repurchase of common stock - tax withholdings on equity awards	(22,338)		(5,949)
Net cash used in financing activities	(121,098)		(8,210)
Foreign currency effect on cash	464		(464)
NET CHANGE IN CASH AND CASH EQUIVALENTS	(23,901)		45,216
CASH AND CASH EQUIVALENTS — Beginning of period	129,441		75,519
CASH AND CASH EQUIVALENTS — End of period	$	105,540	$	120,735

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 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 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 consolidated financial statements, which were included in our Annual Report on Form 10-K for our fiscal year ended October 2, 2020 filed with the SEC on November 18, 2020 (the “2020 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 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 2021 includes 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.

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

Pronouncements Adopted in Fiscal Year 2021

On the first day of fiscal year 2021, we adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. 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 for 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 the adoption of this guidance.

We generate accounts receivable from customers 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 April 2, 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 April 2, 2021, our available-for-sale debt securities had gross unrealized losses of $0.2 million, which we believe to be temporary, and therefore there is no allowance for credit losses recorded in our condensed consolidated statement of operations.

In January 2017, the Financial Accounting Standards Board (the “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 elected, it 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. For additional information regarding our credit agreement, refer to Note 8 - Debt.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liability and equity, including convertible instruments and contracts on 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. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. We are evaluating the impact to our financial statements and expect that the resulting impact will be to reclassify the equity component of our 2026 Convertible Notes (as defined below) from additional paid-in capital to long-term debt, up to the par value, and a reduction of our reported interest expense on our 2026 Convertible Notes to their stated 0.25% percent coupon rate on a prospective basis. For additional information regarding our debt, 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				Six Months Ended
	April 2, 2021		April 3, 2020		April 2, 2021		April 3, 2020
Revenue by Market:
Telecommunications	$	42,273	$	51,648	$	93,805	$	97,249
Industrial & Defense	72,090		48,069		133,708		98,552
Data Center	36,220		26,707		71,574		49,720
Total	$	150,583	$	126,424	$	299,087	$	245,521


	Three Months Ended				Six Months Ended
	April 2, 2021		April 3, 2020		April 2, 2021		April 3, 2020
Revenue by Geographic Region:
United States	$	72,255	$	56,380	$	136,237	$	110,331
China	37,199		40,433		79,575		77,773
Asia Pacific, excluding China (1)	25,515		20,044		47,288		38,864
Other Countries (2)	15,614		9,567		35,987		18,553
Total	$	150,583	$	126,424	$	299,087	$	245,521

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

(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 six months ended April 2, 2021 (in thousands, except percentage):


	April 2, 2021		October 2, 2020		$ Change		% Change
Contract liabilities	$	6,548	$	9,861	$	(3,313)	(34)	%

As of April 2, 2021 and October 2, 2020, $4.8 million and $3.5 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 and six months ended April 2, 2021, we recognized net sales of $0.7 million and $6.0 million, respectively, that were included in the contract liabilities balance as of the beginning of the period. The decrease in contract liabilities during the six months ended April 2, 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 short-term investments are classified as available-for-sale and are summarized in the tables below (in thousands):


	April 2, 2021
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Aggregate Fair Value
Corporate bonds	$	58,240	$	151	$	(152)	$	58,239
Commercial paper	104,317		17		(19)		104,315
Total short-term investments	$	162,557	$	168	$	(171)	$	162,554


	October 2, 2020
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Aggregate Fair Value
Corporate bonds	$	68,605	$	348	$	(333)	$	68,620
Commercial paper	134,913		192		(14)		135,091
Total short-term investments	$	203,518	$	540	$	(347)	$	203,711

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


	April 2, 2021
Less than one year	$	104,315
Over one year	58,239
Total available-for-sale investments	$	162,554

Available-for-sale investments are reported at fair value and, as such, their associated unrealized gains and losses are reported as a separate component of stockholders’ equity within accumulated other comprehensive income.

Other Investments — As of April 2, 2021, we held two 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 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 April 2, 2021 and October 2, 2020, the carrying value of this investment was $2.5 million.

Also included in long-term investments, is a non-controlling investment of less than 20% in the outstanding equity of a private company (“Compute”) that was acquired in conjunction with our divestiture of the Compute business during our fiscal year 2018. This investment value is updated quarterly based on our proportionate share of the losses or earnings, as well as any changes in Compute's equity, utilizing the equity method. During the three and six months ended April 2, 2021, we recorded income of $6.5 million and $1.7 million, respectively, associated with this investment as other income (expense) in our condensed consolidated statements of operations. Amounts for the three and six months ended April 2, 2021 include a non-cash gain of $9.8 million associated with changes in Compute's equity. During the three and six months ended April 3, 2020, we recorded losses of $5.3 million and $9.1 million, respectively. As of April 2, 2021 and October 2, 2020, the carrying value of this investment was $17.0 million and $15.2 million, respectively.

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 and six months ended April 2, 2021.

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


	April 2, 2021
	Fair Value		Active Markets for Identical Assets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets
Money market funds	$	22,531	$	22,531	$	—	$	—
Commercial paper	104,315		—		104,315		—
Corporate bonds	58,239		—		58,239		—
Total assets measured at fair value	$	185,085	$	22,531	$	162,554	$	—


	October 2, 2020
	Fair Value		Active Markets for Identical Assets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets
Money market funds	$	20,139	$	20,139	$	—	$	—
Commercial paper	135,091		—		135,091		—

Corporate bonds	68,620		—		68,620		—
Total assets measured at fair value	$	223,850	$	20,139	$	203,711	$	—
Liabilities

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

As of April 2, 2021, no common stock warrants remain outstanding. As of October 2, 2020, 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 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 Losses Included in Earnings		Purchases and Issuances		Sales and Settlements		April 2, 2021

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


	September 27, 2019		Net Realized Losses (Gains) Included in Earnings		Purchases and Issuances		Sales and Settlements		April 3, 2020
Common stock warrant liability	$	12,364	$	(4,560)	$	—	$	—	$	7,804

5. INVENTORIES

Inventories consist of the following (in thousands):


	April 2, 2021		October 2, 2020
Raw materials	$	44,680	$	46,954
Work-in-process	12,000		9,324
Finished goods	27,836		35,306
Total inventory, net	$	84,516	$	91,584

6. PROPERTY AND EQUIPMENT

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


	April 2, 2021		October 2, 2020
Construction in process	$	17,711	$	16,174
Machinery and equipment	195,290		191,953
Leasehold improvements	21,670		19,854
Furniture and fixtures	2,735		2,659
Computer equipment and software	18,512		18,487
Finance lease assets	35,589		35,589
Total property and equipment	291,507		284,716
Less accumulated depreciation and amortization	(177,254)		(165,850)
Property and equipment, net	$	114,253	$	118,866

Depreciation and amortization expense related to property and equipment for the three and six months ended April 2, 2021 was $6.0 million and $12.2 million, respectively. Depreciation and amortization expense related to property and equipment for the three and six months ended April 3, 2020 was $7.3 million and $14.7 million, respectively.

7. INTANGIBLE ASSETS

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


	Three Months Ended				Six Months Ended
	April 2, 2021		April 3, 2020		April 2, 2021		April 3, 2020
Cost of revenue	$	3,806	$	4,347	$	7,683	$	8,767
Selling, general and administrative	7,601		8,072		15,717		16,726
Total	$	11,407	$	12,419	$	23,400	$	25,493

Intangible assets consist of the following (in thousands):


	April 2, 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	(321,205)		(297,806)
Intangible assets — net	$	107,499	$	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	—		—		—		—		(635)

Balance as of April 2, 2021	$	428,704	$	179,434	$	245,870	$	3,400	$	314,377

As of April 2, 2021, our estimated amortization of our intangible assets in future fiscal years was as follows (in thousands):