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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 March 31, 2023
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            
Commission File Number: 001-35451
MACOM Technology Solutions Holdings, Inc.
(Exact name of registrant as specified in its charter) 
Delaware 27-0306875
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
100 Chelmsford Street
Lowell, MA 01851
(Address of principal executive offices and zip code)
(978) 656-2500
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of exchange on which registered
Common Stock, par value $0.001 per shareMTSINasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes      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 May 1, 2023, there were 70,884,080 shares of the registrant’s common stock outstanding.



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



PART I—FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
March 31,
2023
September 30,
2022
ASSETS
Current assets:
Cash and cash equivalents$136,573 $119,952 
Short-term investments440,735 466,580 
Accounts receivable, net 121,823 101,551 
Inventories131,882 114,960 
Prepaid and other current assets17,303 10,040 
Total current assets848,316 813,083 
Property and equipment, net123,266 123,701 
Goodwill324,610 311,417 
Intangible assets, net67,289 51,254 
Deferred income taxes217,816 237,415 
Other long-term assets36,176 34,947 
Total assets$1,617,473 $1,571,817 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of finance lease obligations$4,870 $1,006 
Accounts payable31,095 30,733 
Accrued liabilities55,284 65,475 
Total current liabilities91,249 97,214 
Finance lease obligations, less current portion26,486 27,032 
Financing obligation9,436 9,544 
Long-term debt566,743 565,920 
Other long-term liabilities29,544 29,359 
Total liabilities723,458 729,069 
Commitments and contingencies (see Note 12)
Stockholders’ equity:
Common stock71 70 
Treasury stock, at cost(330)(330)
Accumulated other comprehensive income(1,433)(5,851)
Additional paid-in capital1,194,719 1,203,145 
Accumulated deficit(299,012)(354,286)
Total stockholders’ equity894,015 842,748 
Total liabilities and stockholders' equity$1,617,473 $1,571,817 
See notes to condensed consolidated financial statements.
1


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)

 
 Three Months EndedSix Months Ended
 March 31,
2023
April 1,
2022
March 31,
2023
April 1,
2022
Revenue$169,406 $165,147 $349,510 $324,767 
Cost of revenue66,716 66,158 136,465 131,636 
Gross profit102,690 98,989 213,045 193,131 
Operating expenses:
Research and development35,537 35,455 74,369 70,925 
Selling, general and administrative31,249 30,963 64,189 62,566 
Total operating expenses66,786 66,418 138,558 133,491 
Income from operations35,904 32,571 74,487 59,640 
Other income (expense):
Interest income (expense), net1,634 (1,389)2,236 (3,082)
Other (expense) income, net(123)(55)(178)114,853 
Total other income (expense), net1,511 (1,444)2,058 111,771 
Income before income taxes37,415 31,127 76,545 171,411 
Income tax expense11,660 1,569 21,271 3,026 
Net income$25,755 $29,558 $55,274 $168,385 
Net income per share:
Income per share - Basic$0.36 $0.42 $0.78 $2.42 
Income per share - Diluted$0.36 $0.42 $0.77 $2.37 
 Weighted average shares used:
Basic70,799 69,788 70,640 69,594 
Diluted71,402 71,107 71,388 71,166 
See notes to condensed consolidated financial statements.

2


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
 
 Three Months EndedSix Months Ended
 March 31,
2023
April 1,
2022
March 31,
2023
April 1,
2022
Net income$25,755 $29,558 $55,274 $168,385 
Unrealized gain (loss) on short term investments, net of tax833 (2,335)3,380 (2,952)
Foreign currency translation gain (loss), net of tax301 (679)1,038 (1,003)
Other comprehensive income (loss), net of tax1,134 (3,014)4,418 (3,955)
Total comprehensive income$26,889 $26,544 $59,692 $164,430 
See notes to condensed consolidated financial statements.
3


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 StockTreasury Stock
 SharesAmountSharesAmount
Balance as of December 30, 202270,757 $71 (23)$(330)$(2,567)$1,190,137 $(324,767)$862,544 
Vesting of restricted common stock and units
212  — — — — —  
Shares repurchased for tax withholdings on restricted stock awards(72)— — — — (4,878)— (4,878)
Share-based compensation
— — — — — 9,460 — 9,460 
Other comprehensive income, net of tax— — — — 1,134 — — 1,134 
Net income— — — — — — 25,755 25,755 
Balance as of March 31, 202370,897 $71 (23)$(330)$(1,433)$1,194,719 $(299,012)$894,015 
Six Months Ended
   Accumulated
Other
Comprehensive Income
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
 Common StockTreasury Stock
 SharesAmountSharesAmount
Balance as of September 30, 202270,022 $70 (23)$(330)$(5,851)$1,203,145 $(354,286)$842,748 
Vesting of restricted common stock and units
1,338 1 — — — — — 1 
Issuance of common stock pursuant to employee stock purchase plan
52 — — — — 2,320 — 2,320 
Shares repurchased for tax withholdings on equity awards
(515)— — — — (31,253)— (31,253)
Share-based compensation
— — — — — 20,507 — 20,507 
Other comprehensive income, net of tax— — — — 4,418 — — 4,418 
Net income— — — — — — 55,274 55,274 
Balance as of March 31, 202370,897 $71 (23)$(330)$(1,433)$1,194,719 $(299,012)$894,015 
See notes to condensed consolidated financial statements.















4


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 StockTreasury Stock
 SharesAmountSharesAmount
Balance as of December 31, 202169,709 $70 (23)$(330)$3,209 $1,177,239 $(655,414)$524,774 
Vesting of restricted common stock and units
315  — — — — —  
Shares repurchased for tax withholdings on equity awards
(114)— — — — (7,002)— (7,002)
Share-based compensation
— — — — — 9,967 — 9,967 
Other comprehensive loss, net of tax— — — — (3,014)— — (3,014)
Net income— — — — — — 29,558 29,558 
Balance as of April 1, 202269,910 $70 (23)$(330)$195 $1,180,204 $(625,856)$554,283 
Six Months Ended
   Accumulated
Other
Comprehensive Income
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
 Common StockTreasury Stock
 SharesAmountSharesAmount
Balance as of October 1, 202168,877 $69 (23)$(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
1,284 1 — — — — — 1 
Issuance of common stock pursuant to employee stock purchase plan
56 — — — — 2,447 — 2,447 
Shares repurchased for tax withholdings on equity awards
(497)— — — — (34,758)— (34,758)
Share-based compensation
— — — — — 19,916 — 19,916 
Other comprehensive loss, net of tax— — — — (3,955)— — (3,955)
Cumulative-effect adjustment from adoption of ASU 2020-06— — — — — (79,690)7,513 (72,177)
Net income— — — — — — 168,385 168,385 
Balance as of April 1, 202269,910 $70 (23)$(330)$195 $1,180,204 $(625,856)$554,283 
See notes to condensed consolidated financial statements.
5


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 Six Months Ended
 March 31, 2023April 1, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$55,274 $168,385 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and intangibles amortization25,365 29,080 
Share-based compensation20,507 19,916 
Deferred income taxes20,233 1,284 
Gain on equity method investment, net (114,908)
Other adjustments, net(2,784)1,176 
Change in operating assets and liabilities:
Accounts receivable(18,316)(15,983)
Inventories(8,236)(10,653)
Prepaid expenses and other assets(2,857)597 
Accounts payable(253)1,632 
Accrued and other liabilities(17,471)(4,930)
Income taxes(715)1,001 
Net cash provided by operating activities70,747 76,597 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired(50,835) 
Proceeds from sale of equity method investment 127,750 
Purchases of property and equipment(15,614)(12,184)
Proceeds from sale of property and equipment8,000 23 
Proceeds from sales and maturities of short-term investments261,634 91,841 
Purchases of short-term investments(228,157)(282,642)
Net cash used in investing activities(24,972)(75,212)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on finance leases and other(591)(500)
Proceeds from stock option exercises and employee stock purchases2,320 5,135 
Repurchase of common stock - tax withholdings on equity awards(31,253)(34,758)
Net cash used in financing activities(29,524)(30,123)
Foreign currency effect on cash370 (224)
NET CHANGE IN CASH AND CASH EQUIVALENTS16,621 (28,962)
CASH AND CASH EQUIVALENTS — Beginning of period119,952 156,537 
CASH AND CASH EQUIVALENTS — End of period$136,573 $127,575 
See notes to condensed consolidated financial statements.
6


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, 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 September 30, 2022 is as reported in our audited consolidated financial statements as of that date. Our accounting policies are described in the notes to our September 30, 2022 consolidated financial statements, which were included in our Annual Report on Form 10-K for our fiscal year ended September 30, 2022 filed with the SEC on November 14, 2022 (the “2022 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 2022 Annual Report on Form 10-K.
Principles of Consolidation, Basis of Presentation and Reclassification—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. In the condensed consolidated financial statements, certain balances have been reclassified to conform to the current year presentation.
We have a 52- or 53-week fiscal year ending on the Friday closest to the last day of September. Fiscal years 2023 and 2022 each include 52 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.
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; revenue reserves; goodwill and intangible asset valuation; share-based compensation valuations and income taxes.
Recent Accounting Pronouncements—Our Recent Accounting Pronouncements are described in our 2022 Annual Report on Form 10-K.
Pronouncements for Adoption in Subsequent Periods
The FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, amended by ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, 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, the guidance is to be applied prospectively through December 31, 2024. 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 (defined below). For additional information regarding our Credit Agreement, refer to Note 9 - 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.
7


The following tables present our revenue disaggregated by markets and geography (in thousands):
Three Months EndedSix Months Ended
March 31, 2023April 1, 2022March 31, 2023April 1, 2022
Revenue by Market:
Telecommunications
$53,888 $62,927 $115,337 $118,749 
Industrial & Defense
77,194 67,139 154,363 140,285 
Data Center
38,324 35,081 79,810 65,733 
Total $169,406 $165,147 $349,510 $324,767 
Three Months EndedSix Months Ended
March 31, 2023April 1, 2022March 31, 2023April 1, 2022
Revenue by Geographic Region:
United States
$82,835 $74,547 $171,423 $148,973 
China
33,325 46,028 74,481 82,091 
Asia Pacific, excluding China (1)
28,008 25,881 49,542 56,531 
Other Countries (2)
25,238 18,691 54,064 37,172 
Total$169,406 $165,147 $349,510 $324,767 
(1)Asia Pacific primarily represents Australia, Japan, Malaysia, Singapore, South Korea, Taiwan and Thailand.
(2)No country or region represented greater than 10% of our total revenue as of the dates presented, other than the United States, China and Asia Pacific region as presented above.
Contract Balances
We record contract assets or contract liabilities depending on the timing of revenue recognition, billings and cash collections on a contract-by-contract basis. Our contract liabilities primarily relate to deferred revenue, including advanced consideration received from customers for contracts prior to the transfer of control to the customer, and therefore revenue is subsequently recognized upon delivery of products and services.
The following table presents the changes in contract liabilities during the six months ended March 31, 2023 (in thousands, except percentage):
March 31, 2023September 30, 2022$ Change% Change
 Contract liabilities$1,076 $3,916 $(2,840)(73)%
During the three and six months ended March 31, 2023, we recognized sales of $1.4 million and $2.9 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 March 31, 2023 was primarily related to recognition of revenue that was previously deferred for products and services invoiced prior to when certain of our customers obtained control of such products and/or services.
3. ACQUISITIONS
Acquisition of Linearizer Technology Inc.— On March 3, 2023, we completed the acquisition of Linearizer Technology, Inc. (“Linearizer”), a developer of modules and subsystems, including solid state amplifiers (SSPAs), microwave predistortion linearizers and microwave photonics (the “Linearizer Acquisition”). We acquired Linearizer to further strengthen our component and subsystem design expertise in our target markets. In connection with the Linearizer Acquisition, we acquired all of the outstanding shares of Linearizer for total cash consideration of approximately $51.6 million, subject to customary purchase price adjustments. We funded the Linearizer Acquisition with cash-on-hand. During the three and six months ended March 31, 2023, we incurred acquisition-related transaction costs of approximately $1.9 million, which are included in selling, general and administrative expense. There were no transaction costs for the three and six months ended April 1, 2022. The Linearizer Acquisition was accounted for as a business combination and the operations of Linearizer have been included in our consolidated financial statements since the date of acquisition.
The purchase price for the Linearizer Acquisition has been allocated based on preliminary estimates of fair values of the acquired assets and assumed liabilities at the date of acquisition as follows (in thousands):
8


At Acquisition Date as Reported
March 31, 2023
Current assets$11,726 
Property and equipment5,485 
Intangible assets29,600 
Goodwill12,332 
Total assets acquired59,143 
Current liabilities7,544 
Total liabilities assumed7,544 
Purchase Price$51,599 
We recorded goodwill of $12.3 million. Intangible assets consist of customer relationships of $20.7 million with an 8.6 year life, technology of $7.1 million with a 7.6 year life and a trade name of $1.8 million with a 7.6 year life. We used the income approach to determine the fair value of the definite-lived intangible assets and the cost and market approaches to determine the fair value of our property, plant and equipment. We amortize definite-lived assets based on the pattern over which we expect to receive the economic benefit from these assets. The intangible assets and goodwill acquired will be amortizable for tax purposes due to the Section 338 election filed.
The determination and allocation of purchase price consideration is based on preliminary estimates of fair value; such estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). As of March 31, 2023, the purchase price allocation for Linearizer remains open as we gather additional information regarding the assets acquired and the liabilities assumed, primarily in relation to the valuation of intangibles, inventory, fixed assets, leases and contingencies.
Pro forma financial information for the three and six months ended March 31, 2023 and April 1, 2022 and the actual results of operations for Linearizer since the acquisition date are not material to our condensed consolidated financial statements for the periods presented.
On March 3, 2023, we entered into a lease agreement with an entity that is majority-owned by certain former Linearizer employees, which is deemed to be a related party agreement. We have the option to purchase the facility for $3.8 million. As of the date of this Quarterly Report on Form 10-Q, we have not exercised such right. During the three months ended March 31, 2023, we made lease-related payments of $0.2 million. This lease is classified as a finance lease on our condensed consolidated balance sheet and is included in property and equipment of $5.5 million in the purchase price allocation table above.
Other Acquisition On December 23, 2022, we entered into a definitive agreement to acquire substantially all of the assets and certain specified liabilities of OMMIC SAS, a semiconductor manufacturer based in France with expertise in wafer fabrication, epitaxial growth and monolithic microwave integrated circuit semiconductor processing and integrated circuit design. The purchase price is expected to be approximately €38.5 million, funded by cash-on-hand, and the proposed transaction is expected to close in our fiscal year 2023, subject to regulatory and other government approvals and the satisfaction of certain closing conditions.
4. INVESTMENTS
All investments are short-term in nature and are invested in corporate bonds and commercial paper and are classified as available-for-sale. These corporate bonds and commercial paper are owned directly by the Company and are segregated in brokerage custody accounts. The amortized cost, gross unrealized holding gains or losses and fair value of our available-for-sale investments by major investment type are summarized in the tables below (in thousands):
 March 31, 2023
 Amortized
Cost
Gross
Unrealized
Holding Gains
Gross
Unrealized
Holding Losses
Aggregate Fair
Value
Corporate bonds$140,151 $27 $(2,999)$137,179 
Commercial paper303,871 25 (340)303,556 
Total short-term investments$444,022 $52 $(3,339)$440,735 
9


September 30, 2022
 Amortized
Cost
Gross
Unrealized
Holding Gains
Gross
Unrealized
Holding Losses
Aggregate Fair
Value
Corporate bonds$146,163 $5 $(4,492)$141,676 
Commercial paper326,318  (1,414)324,904 
Total short-term investments$472,481 $5 $(5,906)$466,580 
    
The contractual maturities of available-for-sale investments were as follows (in thousands):
 March 31, 2023September 30, 2022
Less than one year$347,944 $368,141 
Over one year92,791 98,439 
Total available-for-sale investments$440,735 $466,580 

We have determined that the gross unrealized losses on available for sale securities as of March 31, 2023 and September 30, 2022 are temporary in nature and/or do not relate to credit loss, and 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.
During the three months ended March 31, 2023 and April 1, 2022, Interest income (expense), net included interest income on short-term investments of $5.1 million and $0.5 million, respectively. During the six months ended March 31, 2023 and April 1, 2022, Interest income (expense), net included interest income on short-term investments of $8.7 million and $0.8 million, respectively.
Other Investments — As of March 31, 2023, we held a non-marketable equity investment in Series B preferred stock 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 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 March 31, 2023 and September 30, 2022, the carrying value of this investment was $2.5 million and it was classified as a long-term investment.
On December 23, 2021, we sold our non-controlling investment of less than 10% in the outstanding equity of a private company to one of the other limited liability company members, pursuant to the terms of a previously negotiated call option included in the private company’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 three months ended December 31, 2021, we recorded a gain of $118.2 million in Other (expense) income, net in our condensed consolidated statements of operations. The six months ended April 1, 2022 includes a gain on the sale of our equity method investment of $118.2 million, and we recorded net losses of $3.3 million associated with such equity method investment.
5. 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
10


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 March 31, 2023.
Assets and liabilities measured at fair value on a recurring basis consist of the following (in thousands):
March 31, 2023
Fair ValueActive Markets for Identical Assets (Level 1)Observable Inputs (Level 2)Unobservable Inputs (Level 3)
Assets
Money market funds$20,570 $20,570 $ $ 
Commercial paper303,556  303,556  
Corporate bonds137,179  137,179  
Total assets measured at fair value$461,305 $20,570 $440,735 $ 
September 30, 2022
Fair ValueActive Markets for Identical Assets (Level 1)Observable Inputs (Level 2)Unobservable Inputs (Level 3)
Assets
Money market funds$1,392 $1,392 $ $ 
Commercial paper324,904  324,904  
Corporate bonds141,676  141,676  
Total assets measured at fair value$467,972 $1,392 $466,580 $ 
6. INVENTORIES
Inventories consist of the following (in thousands):
March 31,
2023
September 30,
2022
Raw materials$83,057 $72,595 
Work-in-process16,990 12,455 
Finished goods31,835 29,910 
Total inventory, net$131,882 $114,960 
7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
March 31,
2023
September 30,
2022
Construction in process$14,318 $10,837 
Machinery and equipment229,125 227,844 
Leasehold improvements35,288 35,651 
Furniture and fixtures2,601 2,535 
Computer equipment and software18,519 18,347 
Finance lease assets38,238 34,417 
Total property and equipment338,089 329,631 
Less accumulated depreciation and amortization(214,823)(205,930)
Property and equipment, net$123,266 $123,701 
Depreciation and amortization expense related to property and equipment for the three and six months ended March 31, 2023 was $5.8 million and $11.8 million, respectively. Depreciation and amortization expense related to property and equipment for the three and six months ended April 1, 2022 was $5.8 million and $11.7 million, respectively. Accumulated amortization on finance lease assets as of March 31, 2023 and September 30, 2022 was $6.7 million and $5.8 million, respectively.
11



8. INTANGIBLE ASSETS
Amortization expense related to intangible assets is as follows (in thousands):
 Three Months EndedSix Months Ended
 March 31,
2023
April 1,
2022
March 31,
2023
April 1,
2022
Cost of revenue$988 $1,778 $1,898 $4,283 
Selling, general and administrative5,764 6,276 11,667 13,058 
Total$6,752 $8,054 $13,565 $17,341 
    
Intangible assets consist of the following (in thousands):
March 31,
2023
September 30,
2022
Acquired technology$186,534 $179,434 
Customer relationships266,570 245,870 
Trade name5,200 3,400 
Total 458,304 428,704 
Less accumulated amortization(391,015)(377,450)
Intangible assets — net$67,289 $51,254 
A summary of the activity in gross intangible assets and goodwill is as follows (in thousands):
Intangible Assets
Total Intangible AssetsAcquired
Technology
Customer
Relationships
Trade NameGoodwill
Balance as of September 30, 2022$428,704 $179,434 $245,870 $3,400 $311,417 
Acquired29,600 7,100 20,700 1,800 12,332 
Currency translation adjustment    861 
Balance as of March 31, 2023$458,304 $186,534 $266,570 $5,200 $324,610 
As of March 31, 2023, our estimated amortization of our intangible assets in future fiscal years was as follows (in thousands):
2023 Remaining2024202520262027ThereafterTotal
Amortization expense$14,295 18,643 7,381 6,397 5,842 11,331 $63,889 
Accumulated amortization for acquired technology and customer relationships were $177.1 million and $213.9 million, respectively, as of March 31, 2023, and $175.2 million and $202.3 million, respectively, as of September 30, 2022.
9. DEBT
The following represents the outstanding balances and effective interest rates of our borrowings as of March 31, 2023 and September 30, 2022, (in thousands, except percentages):
March 31, 2023September 30, 2022
Principal BalanceEffective Interest RatePrincipal BalanceEffective Interest Rate
LIBOR plus 2.25% term loans due May 2024
$120,766 6.88 %$120,766 4.77 %
0.25% convertible notes due March 2026
450,000 0.54 %450,000 0.54 %
Total principal amount outstanding570,766 570,766 
Less: Unamortized discount on term loans and deferred financing costs(4,023)(4,846)
Total long-term debt$566,743 $565,920 
12


Term Loans
As of March 31, 2023, we are party to a credit agreement, dated as of May 8, 2014, with a syndicate of lenders and Goldman Sachs Bank USA, 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 March 31, 2023, the Credit Agreement consisted of term loans with an initial aggregate principal amount of $700.0 million (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%. The UK Financial Conduct Authority announced that they will cease publishing certain tenors of USD LIBOR on June 30, 2023; we expect our interest rate to change to synthetic USD LIBOR during the third quarter of fiscal year 2023.
As of March 31, 2023, there are no minimum principal repayments on the Term Loans until May 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 and $120.2 million as of March 31, 2023 and September 30, 2022, respectively, and was determined using Level 2 inputs, including a quoted price from a financial institution.
As of March 31, 2023, approximately $0.4 million of deferred financing costs remain unamortized related to the Term Loans and is recorded as a direct reduction of the recognized debt liabilities in our accompanying condensed consolidated balance sheet.
The Term Loans 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.
2026 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 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 five business day period after any five 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
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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.
In connection with the adoption of 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, on October 2, 2021 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 derecognitio