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 June 28, 2024
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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(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 | ||||||
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.
| ☒ | 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 July 29, 2024, there were 72,191,208 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 5. | |||||||||||
| Item 6. | |||||||||||
PART I—FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS | ||||
MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
| June 28, 2024 | September 29, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Short-term investments | |||||||||||
| Accounts receivable, net | |||||||||||
| Inventories | |||||||||||
| Prepaid and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Deferred income taxes | |||||||||||
| Other long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of finance lease obligations | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Accrued liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Finance lease obligations, less current portion | |||||||||||
| Financing obligation | |||||||||||
| Long-term debt | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (see Note 12) | |||||||||||
| Stockholders’ equity: | |||||||||||
| Common stock | |||||||||||
| Treasury stock, at cost | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
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 Ended | Nine Months Ended | ||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Other expense, net | ( | ( | |||||||||||||||||||||
| Total other income | |||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Net income per share: | |||||||||||||||||||||||
| Income per share - Basic | $ | $ | $ | $ | |||||||||||||||||||
| Income per share - Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average shares used: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See notes to condensed consolidated financial statements.
2
MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Unrealized (loss) gain on short term investments, net of tax | ( | ( | |||||||||||||||||||||
| Foreign currency translation (loss) gain, net of tax | ( | ( | ( | ||||||||||||||||||||
| Other comprehensive (loss) income, net of tax | ( | ( | |||||||||||||||||||||
| Total comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
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 June 28, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated Other Comprehensive Loss | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 29, 2024 | $ | ( | $ | ( | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
Vesting of restricted common stock and units | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to employee stock purchase plan | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for taxes on equity awards | ( | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance as of June 28, 2024 | $ | ( | $ | ( | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Nine Months Ended June 28, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated Other Comprehensive (Loss) Income | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 29, 2023 | $ | ( | $ | ( | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Stock option exercises | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Vesting of restricted common stock and units | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to employee stock purchase plan | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for taxes on equity awards | ( | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock as consideration for acquisition | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance as of June 28, 2024 | $ | ( | $ | ( | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
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 June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated Other Comprehensive (Loss) Income | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | ( | $ | ( | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
Vesting of restricted common stock and units | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to employee stock purchase plan | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for taxes on equity awards | ( | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | ( | $ | ( | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Nine Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated Other Comprehensive (Loss) Income | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | ( | $ | ( | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
Vesting of restricted common stock and units | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to employee stock purchase plan | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for taxes on equity awards | ( | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | ( | $ | ( | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
See notes to condensed consolidated financial statements.
5
MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
| Nine Months Ended | |||||||||||
| June 28, 2024 | June 30, 2023 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and intangibles amortization | |||||||||||
| Share-based compensation | |||||||||||
| Deferred income taxes | |||||||||||
| Amortization on marketable securities, net | ( | ( | |||||||||
| Other adjustments, net | |||||||||||
| Change in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses and other assets | ( | ( | |||||||||
| Accounts payable | ( | ||||||||||
| Accrued and other liabilities | ( | ( | |||||||||
| Income taxes | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Acquisition of businesses, net of cash acquired | ( | ( | |||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Other investing | ( | ||||||||||
| Proceeds from sale of property and equipment | |||||||||||
| Proceeds from sales and maturities of short-term investments | |||||||||||
| Purchases of short-term investments | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Payments on finance leases and other | ( | ( | |||||||||
| Proceeds from stock option exercises and employee stock purchases | |||||||||||
| Common stock withheld for taxes on employee equity awards | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Foreign currency effect on cash | |||||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | ( | ||||||||||
| CASH AND CASH EQUIVALENTS — Beginning of period | |||||||||||
| CASH AND CASH EQUIVALENTS — End of period | $ | $ | |||||||||
| Supplemental disclosure of non-cash activities | |||||||||||
Issuance of common stock in connection with the RF Business Acquisition (See Note 3 - Acquisitions) | $ | $ | |||||||||
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 29, 2023 is as reported in our audited consolidated financial statements as of that date. Our accounting policies are described in the notes to our September 29, 2023 consolidated financial statements, which were included in our Annual Report on Form 10-K for our fiscal year ended September 29, 2023 filed with the SEC on November 13, 2023 (the “2023 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 2023 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, Interest income has been reclassified to conform to the current year presentation.
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; business combinations; goodwill and intangible asset valuation; share-based compensation valuations and income taxes.
Recent Accounting Pronouncements—Our Recent Accounting Pronouncements are described in our 2023 Annual Report on Form 10-K.
In June 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which amends Account Standards Codification Topic 820, Fair Value Measurement (“ASU 2022-03”). ASU 2022-03 clarifies guidance for fair value measurement of an equity security subject to a contractual sale restriction and establishes new disclosure requirements for such equity securities. We elected to early adopt ASU 2022-03 on September 30, 2023, and applied the amendment in measuring consideration transferred in the RF Business Acquisition (as defined in Note 3 - Acquisitions). As a result, we have not applied a discount for lack of marketability related to the RF Business Acquisition stockholder restrictions set forth in the asset purchase agreement (discussed in Note 3 - Acquisitions). However, the fair value of the shares was discounted for lack of marketability as the shares that were transferred were unregistered and legally restricted from being sold. See Note 3 - Acquisitions for additional information.
7
Pronouncements for Adoption in Subsequent Periods
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures, which improves disclosures about a public entity’s reportable segments and addresses requests from investors and other allocators of capital for additional, more detailed information about a reportable segment’s expenses. The amendments in this update improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. This ASU should be applied on a retrospective basis. The amendments in this update are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the future effect the adoption of this ASU will have on our consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures, which require greater disaggregation of income tax disclosures. The amendments in this update improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. Other amendments in this update improve the effectiveness and comparability of disclosures by (1) adding disclosures of pretax income (or loss) and income tax expense (or benefit) and (2) removing disclosures that no longer are considered cost beneficial or relevant. This ASU should be applied on a prospective basis, with retrospective application permitted. The guidance in this update is effective for fiscal years beginning after December 15, 2024. We are currently evaluating the future effect of the adoption of this ASU will have on our consolidated financial statements and related disclosures.
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 | Nine Months Ended | ||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||
| Revenue by Market: | |||||||||||||||||||||||
Industrial & Defense | $ | $ | $ | $ | |||||||||||||||||||
Data Center | |||||||||||||||||||||||
| Telecom | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||
| Revenue by Geographic Region: | |||||||||||||||||||||||
United States | $ | $ | $ | $ | |||||||||||||||||||
China | |||||||||||||||||||||||
Asia Pacific, excluding China (1) | |||||||||||||||||||||||
Other Countries (2) | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
(1)Asia Pacific primarily represents Australia, India, Japan, 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.
Revenue by geographic region is aggregated by customer billing address.
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.
8
The following table presents the changes in contract liabilities during the nine months ended June 28, 2024 (in thousands, except percentage):
| June 28, 2024 | September 29, 2023 | $ Change | % Change | ||||||||||||||||||||
| Contract liabilities | $ | $ | $ | % | |||||||||||||||||||
During the three and nine months ended June 28, 2024, we recognized sales of less than $0.1 million and $2.5 million, respectively, that were included in the contract liabilities balance as of the beginning of the period. The increase in contract liabilities during the nine months ended June 28, 2024 was primarily related to deferral of revenue for invoiced products and services prior to when certain of our customers obtained control of the product and or services.
3. ACQUISITIONS
RF Business of Wolfspeed, Inc.— On December 2, 2023, we completed the acquisition of certain assets and specified liabilities of the radio frequency (“RF”) business of Wolfspeed, Inc. (“Wolfspeed”) (the “RF Business,”), which was accounted for as a business combination (the “RF Business Acquisition”). The RF Business includes a portfolio of gallium nitride (“GaN”) on Silicon Carbide products used in high-performance RF and microwave applications. In connection with the RF Business Acquisition, we expect to assume control of a wafer fabrication facility in Research Triangle Park, North Carolina (the “RTP Fab”) approximately two years following the closing of the RF Business Acquisition (the “RTP Fab Transfer”). Prior to the RTP Fab Transfer, Wolfspeed will continue to operate the facility and supply wafer product and other fabrication services to us pursuant to various agreements entered into between the parties concurrently with the closing of the RF Business Acquisition.
The purchase price for the RF Business Acquisition consisted of $75.0 million payable in cash, subject to customary purchase price adjustments, and 711,528 shares of our common stock, with a fair value of $57.7 million, which were issued at the closing of the RF Business Acquisition. The shares of our common stock issued in connection with the RF Business Acquisition are subject to restrictions on the sale of shares until transfer of the RTP Fab to the Company is complete. In addition, if the RTP Fab has not transferred by the fourth anniversary of the closing date of the RF Business Acquisition, Wolfspeed will forfeit 25 % of the share consideration. We funded the cash purchase price for the RF Business Acquisition through cash-on-hand.
During the three months ended June 28, 2024, we did not incur any acquisition-related transaction costs. During the nine months ended June 28, 2024, we incurred acquisition-related transaction costs of approximately $7.4 million, which are included in selling, general and administrative expense. During the three and nine months ended June 30, 2023, we incurred acquisition-related transaction costs of approximately $2.0 million, which are included in selling, general and administrative expense.
The following table summarizes the preliminary estimate of the purchase price (in thousands, except shares and closing share price amount):
| At Acquisition Date as Reported December 29, 2023 | Measurement Period Adjustments | At Acquisition Date as Reported June 28, 2024 | ||||||||||||
| Cash purchase consideration | $ | $ | ( | $ | ||||||||||
| Number of shares of MACOM common stock issued at closing | ||||||||||||||
| Fair value of shares issued | $ | |||||||||||||
| Equity purchase consideration | ( | |||||||||||||
| Total purchase consideration | $ | $ | ( | $ | ||||||||||
During the three months ended June 28, 2024, the net working capital acquired was finalized, resulting in a refund of cash purchase consideration of $2.2 million. During the nine months ended June 28, 2024, we reduced the fair value of our common stock issued at the closing of the RF Business Acquisition by $3.0 million, representing the discount for lack of marketability as the shares were unregistered.
The purchase price for the RF Business 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):
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| At Acquisition Date as Reported December 29, 2023 | Measurement Period Adjustments | At Acquisition Date as Reported June 28, 2024 | |||||||||
| Current assets | $ | $ | ( | $ | |||||||
| Inventory | |||||||||||
| Property and equipment | — | ||||||||||
| Intangible assets | ( | ||||||||||
| Prepayment for net assets associated with the RTP Fab Transfer | ( | ||||||||||
| Other non-current assets | ( | ||||||||||
| Goodwill | |||||||||||
| Total assets acquired | ( | ||||||||||
| Current liabilities | |||||||||||
| Long-term liabilities | |||||||||||
| Total liabilities assumed | |||||||||||
| Purchase Price | $ | $ | ( | $ | |||||||
Intangible assets consist of technology, a favorable contract and customer relationships with fair values of $21.0 million, $14.5 million and $6.5 million, respectively, and useful lives of 4.8 years, 2.0 years and 8.8 years, respectively. We used variations of income approaches with estimates and assumptions developed by us to determine the fair values of technology, the favorable contract and customer relationships. We valued technology by using the relief-from-royalty method, the favorable contract by using the discounted cash flow method and customer relationships by using the multi-period excess earnings method. We valued backlog using the multi-period excess earnings method and determined that the value for backlog is zero. The process for estimating the fair values of identifiable intangible assets requires the use of significant estimates and assumptions, including revenue growth rates, royalty rates, operating margin and discount rates. We used the cost and market approaches to determine the fair value of our property and equipment. We amortize definite-lived assets based on the pattern over which we expect to receive the economic benefit from these assets. During the nine months ended June 28, 2024, based on additional information, we updated inputs and assumptions used to calculate the fair value of certain assets and liabilities, primarily resulting in a decrease to the fair value of intangible assets of $18.0 million, an increase to the fair value of inventory of $8.4 million, with an offsetting increase to Goodwill. Due to these adjustments, the condensed consolidated statement of operations for the three months ended June 28, 2024 includes a net benefit of less than $0.1 million for intangible asset and inventory step-up amortization related to the quarters ended March 29, 2024 and December 29, 2024.
The prepayment of $16.3 million for the net assets associated with the RTP Fab Transfer, classified in Other long-term assets in our condensed consolidated balance sheet, relates to the estimated fair value of property and equipment, inventory and liabilities that we will assume control of at the time of the RTP Fab Transfer. The cost and market approaches were used in determining the fair value of $10.4 million for property and equipment expected to transfer at the RTP Fab Transfer date. The remaining prepayment relates to inventory and liabilities, net, that we will assume control of at the time of the RTP Fab Transfer.
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 June 28, 2024, the purchase price allocation for the RF Business remains open as we gather additional information regarding the fair value of consideration transferred, the assets acquired and the liabilities assumed, primarily in relation to the valuation of intangibles, inventory, property and equipment, leases, the prepayment for the assets and liabilities to be conveyed with the RTP Fab Transfer and contingencies.
The RF Business has been included in our consolidated financial statements since the date of acquisition. During the three and nine months ended June 28, 2024, the RF Business contributed approximately $47.1 million and $89.0 million of our total revenue, respectively. During the three and nine months ended June 28, 2024, the RF Business did not materially impact our consolidated net income.
Consolidated estimated pro forma unaudited revenue and net income as if the RF Business Acquisition had occurred on October 1, 2022, is as follows (in thousands):
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| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||
| Consolidated estimated pro forma unaudited revenue | $ | $ | $ | $ | |||||||||||||||||||
| Consolidated estimated pro forma unaudited net loss | $ | $ | ( | $ | $ | ( | |||||||||||||||||
Pro forma revenue and net loss was prepared for comparative purposes only and is not indicative of what would have occurred had the acquisition actually occurred on October 1, 2022, or of the results that may occur in the future. Pro forma net loss includes business combination accounting effects from the RF Business Acquisition, primarily amortization expense from acquired intangible assets, acquisition transaction costs and tax-related effects. Pro forma earnings for the nine months ended June 28, 2024 were adjusted to exclude transaction costs incurred of $15.8 million, and pro forma earnings for the nine months ended June 30, 2023 were adjusted and include $42.0 million of transaction costs associated with the RF Business Acquisition.
MESC— On May 31, 2023, we completed the acquisition of the key manufacturing facilities, capabilities, technologies and other assets and certain specified liabilities of OMMIC SAS, a semiconductor manufacturer based in Limeil-Brévannes, France with expertise in wafer fabrication, epitaxial growth and monolithic microwave integrated circuit (“MMIC”) processing and design. We are referring to this acquisition as the MACOM European Semiconductor Center Acquisition (the “MESC Acquisition”) and it was accounted for as a business combination. We completed the MESC Acquisition to expand our European footprint and to enable us to offer higher frequency gallium arsenide (“GaAs”) and GaN MMICs. Total cash consideration paid for the MESC Acquisition was approximately $36.9 million and was funded with cash-on-hand. During the three months ended June 28, 2024, we did not incur any acquisition-related transaction costs. During the nine months ended June 28, 2024, we incurred acquisition-related transaction costs of approximately $0.3 million, which are included in selling, general and administrative expense. During the three and nine months ended June 30, 2023, we incurred acquisition-related transaction costs of approximately $1.0 million and $2.6 million, respectively, which are included in selling, general and administrative expense. The MESC Acquisition was accounted for as a business combination and the operations of MESC have been included in our consolidated financial statements since the date of acquisition.
We finalized the MESC Acquisition purchase accounting during the fiscal quarter ended June 28, 2024. The final purchase price has been allocated as follows (in thousands):
| At Acquisition Date as Reported June 28, 2024 | |||||
| Current assets | $ | ||||
| Inventory | |||||
| Property and equipment | |||||
| Intangible assets | |||||
| Total assets acquired | |||||
| Current liabilities | |||||
| Total liabilities assumed | |||||
| Purchase Price | $ | ||||
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As part of the acquisition, we assumed a lease agreement for manufacturing facilities in France that provides us with the option to purchase the real property for one Euro at the end of the lease term, in October 2024. We expect to exercise this bargain purchase option and have recorded a right-of-use-asset of $24.7 million in Property and equipment. The real property was valued using a market approach.
Intangible assets consist of technology and customer relationships of $4.9 million and $1.1 million, respectively, and both having useful lives of 8.3 years. 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.
Linearizer Technology, Inc.— On March 3, 2023, we completed the acquisition of Linearizer Technology, Inc. (“Linearizer”), a developer of modules and subsystems, including SSPAs, microwave predistortion linearizers and microwave photonics based in Hamilton, New Jersey (the “Linearizer Acquisition”), which was accounted for as a business combination. 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 $51.4 million. We funded the Linearizer Acquisition with cash-on-hand. During the three and nine months ended June 28, 2024, we did not incur any acquisition-related transaction costs. During the three and nine months ended June 30, 2023, we incurred acquisition-related transaction costs of approximately $0.2 million and $2.1 million, respectively, which are included in selling, general and administrative expense. 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.
We finalized the Linearizer Acquisition purchase accounting during the fiscal quarter ended March 29, 2024. The final purchase price has been allocated as follows (in thousands):
| At Acquisition Date as Reported September 29, 2023 | Measurement Period Adjustments | At Acquisition Date as Reported March 29, 2024 | |||||||||||||||
| Current assets | $ | $ | ( | $ | |||||||||||||
| Inventory | |||||||||||||||||
| Property and equipment | — | ||||||||||||||||
| Intangible assets | — | ||||||||||||||||
| Goodwill | ( | ||||||||||||||||
| Total assets acquired | ( | ||||||||||||||||
| Current liabilities | — | ||||||||||||||||
| Total liabilities assumed | — | ||||||||||||||||
| Purchase Price | $ | $ | ( | $ | |||||||||||||
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4. INVESTMENTS
All investments are short-term in nature and are invested in certificates of deposit, corporate bonds, commercial paper, U.S. Treasuries and agency bonds and are classified as available-for-sale. These investments 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):
| June 28, 2024 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Holding Gains | Gross Unrealized Holding Losses | Aggregate Fair Value | ||||||||||||||||||||
| Certificates of deposit | $ | $ | $ | ( | $ | ||||||||||||||||||
| Corporate bonds | ( | ||||||||||||||||||||||
| Commercial paper | ( | ||||||||||||||||||||||
| U.S. Treasuries and agency bonds | ( | ||||||||||||||||||||||
| Total short-term investments | $ | $ | $ | ( | $ | ||||||||||||||||||
| September 29, 2023 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Holding Gains | Gross Unrealized Holding Losses | Aggregate Fair Value | ||||||||||||||||||||
| Corporate bonds | $ | $ | $ | ( | $ | ||||||||||||||||||
| Commercial paper | ( | ||||||||||||||||||||||
| U.S. Treasuries and agency bonds | ( | ||||||||||||||||||||||
| Total short-term investments | $ | $ | $ | ( | $ | ||||||||||||||||||
The contractual maturities of available-for-sale investments were as follows (in thousands):
| June 28, 2024 | September 29, 2023 | |||||||
| Less than one year | $ | $ | ||||||
| Over one year | ||||||||
| Total available-for-sale investments | $ | $ | ||||||
We have determined that the gross unrealized losses on available for sale securities as of June 28, 2024 and September 29, 2023 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 loss.
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
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 nine months ended June 28, 2024.
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Assets and liabilities measured at fair value on a recurring basis consist of the following (in thousands):
| June 28, 2024 | |||||||||||||||||||||||
| Fair Value | Active Markets for Identical Assets (Level 1) | Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| U.S. Treasuries and agency bonds | $ | $ | $ | $ | |||||||||||||||||||
| Money market funds | |||||||||||||||||||||||
| Certificates of deposit | |||||||||||||||||||||||
| Corporate bonds | |||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | |||||||||||||||||||
| September 29, 2023 | |||||||||||||||||||||||
| Fair Value | Active Markets for Identical Assets (Level 1) | Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||
| U.S. Treasuries | |||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||
| Corporate bonds | |||||||||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | |||||||||||||||||||
6. INVENTORIES
Inventories consist of the following (in thousands):
| June 28, 2024 | September 29, 2023 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Finished goods | |||||||||||
| Total inventory, net | $ | $ | |||||||||
7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
| June 28, 2024 | September 29, 2023 | ||||||||||
| Construction in process | $ | $ | |||||||||
| Machinery and equipment | |||||||||||
| Leasehold improvements | |||||||||||
| Furniture and fixtures | |||||||||||
| Computer equipment | |||||||||||
| Finance lease assets | |||||||||||
| Total property and equipment | |||||||||||
| Less accumulated depreciation and amortization | ( | ( | |||||||||
| Property and equipment, net | $ | $ | |||||||||
In August 2022, the U.S. government enacted the CHIPS and Science Act of 2022 (CHIPS Act), which provides funding for manufacturing grants and research investments and establishes a 25% investment tax credit for certain qualifying
14
investments in U.S. semiconductor manufacturing equipment. As of June 28, 2024, we recognized a $4.4 million reduction to the carrying amounts of the qualifying manufacturing assets in the condensed consolidated balance sheet.
Depreciation and amortization expense related to property and equipment for the three and nine months ended June 28, 2024 was $7.9 million and $22.3 million, respectively. Depreciation and amortization expense related to property and equipment for the three and nine months ended June 30, 2023 was $5.9 million and $17.7 million, respectively. Accumulated amortization on finance lease assets as of June 28, 2024 and September 29, 2023 was $9.6 million and $7.8 million, respectively.
8. INTANGIBLE ASSETS
Amortization expense related to intangible assets is as follows (in thousands):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | |||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
A summary of the activity in gross intangible assets as of June 28, 2024 and September 29, 2023 is as follows (in thousands):
| June 28, 2024 | |||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||
| Acquired technology | $ | $ | ( | $ | |||||||||||||
| Customer relationships | ( | ||||||||||||||||
| Favorable contract | ( | ||||||||||||||||
| Software licenses | ( | ||||||||||||||||
Trade name (1) | ( | ||||||||||||||||
Balance as of June 28, 2024 (2) | $ | $ | ( | $ | |||||||||||||
| September 29, 2023 | |||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||
| Acquired technology | $ | $ | ( | $ | |||||||||||||
| Customer relationships | ( | ||||||||||||||||
| Software licenses | |||||||||||||||||
Trade name (1) | ( | ||||||||||||||||
Balance as of September 29, 2023 (2) | $ | $ | ( | $ | |||||||||||||
(1) Includes an indefinite-lived trade name of $3.4
As of June 28, 2024, our estimated amortization of our intangible assets in future fiscal years was as follows (in thousands):
| 2024 Remaining | 2025 | 2026 | 2027 | 2028 | Thereafter | Total | |||||||||||||||||
| Amortization expense | $ | $ | |||||||||||||||||||||
15
A summary of the changes in goodwill as of June 28, 2024 is as follows (in thousands):
| June 28, 2024 | |||||
Balance as of September 29, 2023 | $ | ||||
Acquired (1) | |||||
| Foreign currency translation adjustment | ( | ||||
Balance as of June 28, 2024 | $ | ||||
(1) The acquired balance consists of an increase of $9.1 million to goodwill related to measurement period adjustments for the RF Business Acquisition and a reduction of $1.5 million to goodwill related to measurement period adjustments for the Linearizer Acquisition. For additional information refer to Note 3 - Acquisitions.
9. DEBT
The following represents the outstanding balances and effective interest rates of our borrowings as of June 28, 2024 and September 29, 2023, (in thousands, except percentages):
| June 28, 2024 | September 29, 2023 | ||||||||||||||||
| Principal Balance | Effective Interest Rate | Principal Balance | Effective Interest Rate | ||||||||||||||
| % | % | ||||||||||||||||
| Unamortized discount on deferred financing costs | ( | ( | |||||||||||||||
| Total long-term debt, less current portion | $ | $ | |||||||||||||||
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
16
Indenture). 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.
For the three and nine months ended June 28, 2024 and June 30, 2023, total interest expense for the 2026 Convertible Notes was $0.3 million and $0.8 million, respectively.
The fair value of our 2026 Convertible Notes was $636.1 million and $512.5 million as of June 28, 2024 and September 29, 2023, respectively, 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 notes as of June 28, 2024; the full amount of $450.0 million is due on March 15, 2026.
Term Loans
10. F INANCING OBLIGATION
We are party to a power purchase agreement for the use of electric power and thermal energy producing systems at our fabrication facility in Lowell, Massachusetts. These systems are expected to reduce our consumption of energy while delivering sustainable, resilient energy for heating and cooling. We do not own these systems; however, we control the use of the assets during operation. As of June 28, 2024 and September 29, 2023, the net book value of the systems in Property and equipment, net was $8.4 million and $8.9 million, respectively, and the corresponding liability was $9.4 million and $9.6 million, respectively, primarily classified in Financing obligation on our condensed consolidated balance sheet. The initial financing obligation was 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 7.4 %, and the remaining future minimum payments are for power purchases. As of June 28, 2024 and September 29, 2023, we had $24.4 million and $25.5 million, respectively, in remaining fixed payments over a 14 -year term associated with the power purchase agreement, of which $15.2 million and $15.9 million, respectively, is included in our consolidated balance sheets on a discounted basis.
As of June 28, 2024, expected future minimum payments for the financing obligation were as follows (in thousands):
| Fiscal year ending: | Amount | |||||||
| 2024 | $ | |||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | ||||||||
| Total payments | $ | |||||||
| Less: interest | ||||||||
| Present value of liabilities | $ | |||||||
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11. EARNINGS PER SHARE
The following table sets forth the computation for basic and diluted net income per share of common stock (in thousands, except per share data):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income attributable to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average common shares outstanding-basic | |||||||||||||||||||||||
| Dilutive effect of stock options, restricted stock awards and restricted stock units | |||||||||||||||||||||||
Dilutive effect of convertible debt (1) | |||||||||||||||||||||||
| Weighted average common shares outstanding-diluted | |||||||||||||||||||||||
| Net income to common stockholders per share-Basic: | $ | $ | $ | $ | |||||||||||||||||||
| Net income to common stockholders per share-Diluted: | $ | $ | $ | $ | |||||||||||||||||||
(1) Each amount shown represents the number of shares that would be necessary to settle the conversion premium for the 2026 Convertible Notes as of the corresponding reporting period. For additional information on the 2026 Convertible Notes, see Note 9 - Debt.
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 three and nine months ended June 28, 2024.
13. STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION
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 June 28, 2024.
Stock Plans
As of June 28, 2024, we had 3.9 million shares available for issuance under our 2021 Omnibus Incentive Plan (the “2021 Plan”), which replaced our 2012 Omnibus Incentive Plan (as amended and restated) (the “2012 Plan”), and 1.1 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 and 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 2021 Plan, we have the ability to issue incentive stock options (“ISOs”), non-statutory stock options (“NSOs”), 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 awards, cash awards, and other share-based awards to employees, directors, consultants and advisors. The ISOs and NSOs must be granted at an exercise price, and the SARs must be granted at a base value, per share of not less than 100% of the closing price of a share of our common stock on the date of 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 under the 2012 Plan primarily vested based on certain market-based and performance-based criteria and generally have a term of four years to seven years . Certain of the share-based awards granted and outstanding as of June 28, 2024 are subject to accelerated vesting upon a change in control of the Company.
Incentive Stock Units
Aside from the equity plans described above, we also grant incentive stock units (“ISUs”) to certain of our international employees which typically vest over 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 June 28, 2024 and September 29, 2023, the fair value of outstanding ISUs was $7.0 million and $5.0 million, respectively, and the associated accrued compensation liability was $4.0 million and $3.3 million, respectively. During the three
18
and nine months ended June 28, 2024, we recorded an expense for ISU awards of $1.2 million and $2.6 million, respectively. During the three and nine months ended June 30, 2023, we recorded an expense for ISU awards of $0.3 million and $2.2 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 | Nine Months Ended | ||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | |||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Total share-based compensation expense | $ | $ | $ | $ | |||||||||||||||||||
As of June 28, 2024, the total unrecognized compensation costs related to RSUs and PRSUs was $74.1 million, which we expect to recognize over a weighted-average period of 2.0 years. As of June 28, 2024, total unrecognized compensation cost related to our Employee Stock Purchase Plan was $1.2 million.
Restricted Stock Units and Performance-Based Restricted Stock Units
A summary of stock award activity for the nine months ended June 28, 2024 is as follows:
| Number of shares (in thousands) | Weighted- Average Grant Date Fair Value | ||||||||||
| Balance as of September 29, 2023 | $ | ||||||||||
| Granted | |||||||||||
Performance-based adjustment (1) | |||||||||||
| Vested and released | ( | ||||||||||
| Forfeited, canceled or expired | ( | ||||||||||
| Balance as of June 28, 2024 | $ | ||||||||||
(1) The amount shown represents performance adjustments for performance-based awards. These were granted in prior fiscal years and vested during the nine months ended June 28, 2024 based on the Company’s achievement of adjusted earnings per share performance conditions.
Stock awards that vested during the nine months ended June 28, 2024 and June 30, 2023 had combined fair values of $41.8 million and $85.1 million, respectively, as of the vesting date. RSUs granted generally vest over a period of or four years .
Market-based PRSUs
We granted 132,247 market-based PRSUs during the nine months ended June 28, 2024, at a weighted average grant date fair value of $88.88 per share. Recipients may earn between 0 % and 200 % of the target number of shares based on the Company’s achievement of total stockholder return in comparison to a peer group of companies in the PHLX Semiconductor Sector Index (^SOX) over a period of approximately three years . The fair value of the awards was estimated using a Monte Carlo simulation and 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 expected volatility of the Company’s common stock was estimated based on the historical average volatility rate over the three-year period. The dividend yield assumption was based on historical and anticipated dividend payouts. The risk-free rate assumption was based on observed interest rates consistent with the three-year measurement period. The assumptions used to value the awards are as follows:
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| Nine Months Ended | |||||
| June 28, 2024 | |||||
| Grant date stock price | $ | ||||
| Average stock price at the start of the performance period | $ | ||||
| Risk free interest rate | |||||
| Years to maturity | |||||
| Expected volatility rate | |||||
| Expected dividend yield | |||||
Stock Options
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, the realizability of our deferred tax assets and related valuation allowance 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 | Nine Months Ended | ||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||
| Income tax expense | $ | $ | $ | $ | |||||||||||||||||||
| Effective income tax rate | % | % | % | % | |||||||||||||||||||
The difference between the U.S. federal statutory income tax rate of 21 % and our effective income tax rate for the three and nine months ended June 28, 2024 was primarily driven by favorable stock based compensation and research and development (“R&D”) tax credits, partially offset by global intangible low taxed income (“GILTI”). The difference between the U.S. federal statutory income tax rate of 21% and our effective income tax rate for the three and nine months ended June 30, 2023 was primarily driven by tax on GILTI including changes to IRC Section 174, non-deductible compensation and state income taxes partially offset by income taxed in foreign jurisdictions generally at lower tax rates and R&D tax credits.
During the nine months ended June 28, 2024, we determined the earnings of one of our entities in India are no longer permanently reinvested, and due to the change in our position, we recorded a foreign withholding tax expense of $1.0 million associated with undistributed earnings.
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 assets including results of recent operations, future reversals of existing taxable temporary differences, projected future taxable income and tax-planning strategies.
There were no
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15. SUPPLEMENTAL CASH FLOW INFORMATION
The following is a summary of supplemental cash flow information for the periods presented (in thousands):
| Nine Months Ended | |||||||||||
| June 28, 2024 | June 30, 2023 | ||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| Non-cash activities: | |||||||||||
| Operating lease right-of-use assets obtained in exchange for new lease liabilities | $ | $ | |||||||||
| Finance lease assets obtained in exchange for new lease liabilities | $ | $ | |||||||||
| Additions to property and equipment, net included in liabilities | $ | $ | |||||||||
| Purchase of software licenses included in liabilities | $ | $ | |||||||||
16. GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION
We have one 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 op