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



MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
FORM 10-Q
TABLE OF CONTENTS
 Page No.
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)
April 2,
2021
October 2,
2020
ASSETS
Current assets:
Cash and cash equivalents$105,540 $129,441 
Short-term investments162,554 203,711 
Accounts receivable, net 68,281 45,884 
Inventories84,516 91,584 
Prepaid and other current assets11,742 10,899 
Total current assets432,633 481,519 
Property and equipment, net114,253 118,866 
Goodwill314,377 315,012 
Intangible assets, net107,499 130,898 
Deferred income taxes40,214 41,935 
Other investments19,483 17,745 
Other long-term assets39,936 40,453 
TOTAL ASSETS$1,068,395 $1,146,428 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of finance lease obligations and other$1,203 $1,368 
Current portion of long-term debt 6,885 
Accounts payable26,473 23,043 
Accrued liabilities60,897 63,654 
Total current liabilities88,573 94,950 
Finance lease obligations and other, less current portion28,494 28,994 
Long-term debt, less current portion492,173 652,172 
Warrant liability 25,312 
Other long-term liabilities47,022 44,854 
Total liabilities656,262 846,282 
Stockholders’ equity:
Common stock69 67 
Treasury stock, at cost(330)(330)
Accumulated other comprehensive income4,462 5,009 
Additional paid-in capital1,241,820 1,135,127 
Accumulated deficit(833,888)(839,727)
Total stockholders’ equity412,133 300,146 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,068,395 $1,146,428 
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
 April 2,
2021
April 3,
2020
April 2,
2021
April 3,
2020
Revenue$150,583 $126,424 $299,087 $245,521 
Cost of revenue66,470 63,054 134,713 123,947 
Gross profit84,113 63,370 164,374 121,574 
Operating expenses:
Research and development34,619 35,830 71,555 70,988 
Selling, general and administrative30,522 31,994 61,774 64,334 
Restructuring charges 815  2,049 
Total operating expenses65,141 68,639 133,329 137,371 
Income (loss) from operations18,972 (5,269)31,045 (15,797)
Other expense:
Warrant liability gain (expense) 8,647 (11,130)4,560 
Interest expense, net(4,851)(7,672)(9,585)(16,293)
Other income (expense), net2,879 (4,352)(1,624)(8,092)
Total other expense, net(1,972)(3,377)(22,339)(19,825)
Income (loss) before income taxes17,000 (8,646)8,706 (35,622)
Income tax expense2,193 1,580 2,867 2,966 
Net income (loss)$14,807 $(10,226)$5,839 $(38,588)
Net income (loss) per share:
Income (loss) per share - Basic$0.22 $(0.15)$0.09 $(0.58)
Income (loss) per share - Diluted$0.21 $(0.28)$0.08 $(0.64)
 Weighted average shares used:
Basic68,504 66,522 68,130 66,375 
Diluted70,546 67,085 69,983 66,921 
See notes to condensed consolidated financial statements.

2


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands)
 
 Three Months EndedSix Months Ended
 April 2,
2021
April 3,
2020
April 2,
2021
April 3,
2020
Net income (loss)$14,807 $(10,226)$5,839 $(38,588)
Unrealized loss on short term investments, net of tax(373)(1,376)(196)(1,297)
Foreign currency translation loss, net of tax(1,303)(687)(351)(935)
Other comprehensive loss, net of tax(1,676)(2,063)(547)(2,232)
Total comprehensive income (loss)$13,131 $(12,289)$5,292 $(40,820)
See notes to condensed consolidated financial statements.
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 January 1, 202168,367 $68 (23)$(330)$6,138 $1,172,269 $(848,695)$329,450 
Stock option exercises40 — — — — 642 — 642 
Vesting of restricted common stock and units
440 1 — — — — — 1 
Shares repurchased for tax withholdings on equity awards
(155)— — — — (10,494)— (10,494)
Share-based compensation
— — — — — 8,569 — 8,569 
Other comprehensive loss, net of tax— — — — (1,676)— — (1,676)
Equity component of convertible notes, net— — — — — 70,834 — 70,834 
Net income— — — — — — 14,807 14,807 
Balance as of April 2, 202168,692 $69 (23)$(330)$4,462 $1,241,820 $(833,888)$412,133 
Six Months Ended
   Accumulated
Other
Comprehensive Income
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
 Common StockTreasury Stock
 SharesAmountSharesAmount
Balance as of October 2, 202066,921 $67 (23)$(330)$5,009 $1,135,127 $(839,727)$300,146 
Stock option exercises50 — — — — 817 — 817 
Vesting of restricted common stock and units
1,222 1 — — — — — 1 
Issuance of common stock pursuant to employee stock purchase plan
93 — — — — 2,239 — 2,239 
Shares repurchased for tax withholdings on equity awards
(452)— — — — (22,338)— (22,338)
Share-based compensation
— — — — — 18,700 — 18,700 
Other comprehensive loss, net of tax— — — — (547)— — (547)
Issuance of common stock for the cashless exercise of warrants858 1 — — — 36,441 — 36,442 
Equity component of convertible notes, net— — — — — 70,834 — 70,834 
Net income— — — — — — 5,839 5,839 
Balance as of April 2, 202168,692 $69 (23)$(330)$4,462 $1,241,820 $(833,888)$412,133 
See notes to condensed consolidated financial statements.

4


Three Months Ended
   Accumulated
Other
Comprehensive Income
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
 Common StockTreasury Stock
 SharesAmountSharesAmount
Balance as of January 03, 202066,346 $66 (23)$(330)$4,189 $1,111,606 $(822,011)$293,520 
Stock option exercises16 — — — — 79 — 79 
Vesting of restricted common stock and units
554 1 — — — — — 1 
Shares repurchased for tax withholdings on equity awards
(198)— — — — (5,856)— (5,856)
Share-based compensation
— — — — — 10,276 — 10,276 
Other comprehensive loss, net of tax— — — — (2,063)— — (2,063)
Net loss— — — — — — (10,226)(10,226)
Balance as of April 3, 202066,718 $67 (23)$(330)$2,126 $1,116,105 $(832,237)$285,731 
Six Months Ended
   Accumulated
Other
Comprehensive Income
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
 Common StockTreasury Stock
 SharesAmountSharesAmount
Balance as of September 27, 201966,177 $66 (23)$(330)$4,358 $1,101,576 $(791,774)$313,896 
Cumulative effect of ASU 2016-02— — — — — — (1,875)(1,875)
Stock option exercises
18 — — — — 122 — 122 
Vesting of restricted common stock and units
564 1 — — — — — 1 
Issuance of common stock pursuant to employee stock purchase plan
160 — — — — 1,930 — 1,930 
Shares repurchased for tax withholdings on equity awards
(201)— — — — (5,949)— (5,949)
Share-based compensation
— — — — — 18,426 — 18,426 
Other comprehensive loss, net of tax— — — — (2,232)— — (2,232)
Net loss— — — — — — (38,588)(38,588)
Balance as of April 3, 202066,718 $67 (23)$(330)$2,126 $1,116,105 $(832,237)$285,731 
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
 April 2, 2021April 3, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$5,839 $(38,588)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and intangibles amortization35,613 40,241 
Share-based compensation18,700 18,426 
Warrant liability expense (gain)11,130 (4,560)
Deferred financing cost amortization and write offs4,954 2,031 
Deferred income taxes1,629 2,322 
(Gain) loss on equity method investment(1,738)9,066 
Other adjustments, net331 1,029 
Change in operating assets and liabilities:
Accounts receivable(22,397)16,787 
Inventories7,068 8,256 
Prepaid expenses and other assets(4,033)9,772 
Accounts payable3,841 1,812 
Accrued and other liabilities1,324 (849)
Income taxes460 (2,807)
Net cash provided by operating activities62,721 62,938 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment(7,328)(9,036)
Proceeds from sales and maturities of short-term investments179,426 90,026 
Purchases of short-term investments(138,149)(90,401)
Sale of assets63 363 
Net cash provided by (used in) investing activities34,012 (9,048)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes, net of issuance costs394,871  
Payments on long-term debt(496,021)(3,442)
Payments on finance leases and other(666)(871)
Proceeds from stock option exercises and employee stock purchases3,056 2,052 
Repurchase of common stock - tax withholdings on equity awards(22,338)(5,949)
Net cash used in financing activities(121,098)(8,210)
Foreign currency effect on cash464 (464)
NET CHANGE IN CASH AND CASH EQUIVALENTS(23,901)45,216 
CASH AND CASH EQUIVALENTS — Beginning of period129,441 75,519 
CASH AND CASH EQUIVALENTS — End of period$105,540 $120,735 
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 (loss), stockholders' equity and cash flows of MACOM Technology Solutions Holdings, Inc. (“MACOM”, the “Company”, “us”, “we” or “our”) for the periods presented. We prepare our interim financial information using the same accounting principles we use for our annual audited consolidated financial statements. Certain information and note disclosures normally included in the annual audited consolidated financial statements have been condensed or omitted in accordance with prescribed SEC rules. We believe that the disclosures made in our condensed consolidated financial statements and the accompanying notes are adequate to make the information presented not misleading.
The condensed consolidated balance sheet as of October 2, 2020 is as reported in our audited consolidated financial statements as of that date. Our accounting policies are described in the notes to our October 2, 2020 consolidated financial statements, which were included in our Annual Report on Form 10-K for our fiscal year ended October 2, 2020 filed with the SEC on November 18, 2020 (the “2020 Annual Report on Form 10-K”). We recommend that the financial statements included in this Quarterly Report on Form 10-Q be read in conjunction with the consolidated financial statements and notes included in our 2020 Annual Report on Form 10-K.
Principles of Consolidation—The accompanying condensed consolidated financial statements include our accounts and the accounts of our majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
We have a 52- or 53-week fiscal year ending on the Friday closest to the last day of September. Fiscal year 2021 includes 52 weeks and fiscal year 2020 included 53 weeks. To offset the effect of holidays, for fiscal years in which there are 53 weeks, we include the extra week arising in such fiscal years in the first fiscal quarter. Our first fiscal quarter ended January 1, 2021 included 13 weeks and the first fiscal quarter ended January 3, 2020 had 14 weeks.
Use of Estimates—The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities during the reporting periods, the reported amounts of revenue and expenses during the reporting periods, and the disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, we base estimates and assumptions on historical experience, currently available information and various other factors that management believes to be reasonable under the circumstances. Actual results may differ materially from these estimates and assumptions.
Recent Accounting Pronouncements—Our Recent Accounting Pronouncements are described in the 2020 Annual Report on Form 10-K.
Pronouncements Adopted in Fiscal Year 2021
On the first day of fiscal year 2021, we adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU introduces a new accounting model known as Credit Expected Credit Losses (“CECL”), which requires earlier recognition of credit losses. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses for receivables at the time the financial asset is originated or acquired, replacing the current incurred loss methodology that delays recognition of credit losses until a probable loss has been incurred. There are other provisions within the standard affecting how impairments of other financial assets may be recorded and presented, as well as expanded disclosures. There was no impact to our unaudited condensed consolidated financial statements from the adoption of this guidance.
We generate accounts receivable from customers and they are classified as short-term. We monitor collections and maintain a provision for expected credit losses based on historical trends, current conditions, and relevant forecasted information, in addition to provisions established for any specific collection issues that have been identified. As of April 2, 2021, our allowance for expected credit losses was less than $0.1 million.
Our investments in debt securities, which are classified as available-for-sale, are further disclosed in Note 3, Investments. As of April 2, 2021, our available-for-sale debt securities had gross unrealized losses of $0.2 million, which we believe to be temporary, and therefore there is no allowance for credit losses recorded in our condensed consolidated statement of operations.
7


In January 2017, the Financial Accounting Standards Board (the “FASB”) issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, a one-step quantitative impairment test calculates goodwill impairment as the excess of the carrying value of a reporting unit over its fair value, up to the carrying value of the goodwill. This ASU should be applied on a prospective basis. We adopted this ASU in the first quarter of fiscal year 2021 and the adoption of this update did not have an impact on our condensed consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15, Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, to provide additional guidance on the accounting for costs of implementing cloud computing arrangements that are service contracts, and requiring customers in such arrangements to follow the guidance in Subtopic 350-40. The amendments in this update require the capitalization of implementation costs during the application development stage of such hosting arrangements and amortization of the expense over the term of the arrangement beginning when the module or component of the hosting arrangement is ready for its intended use. Capitalized implementation costs and amortization thereof are also required to be classified in the same line item in the statements of financial position, operations and cash flows associated with the hosting service fees. We adopted this ASU in the first quarter of fiscal year 2021 and selected prospective application to all implementation costs incurred after the adoption date. The adoption of this update did not have an impact on our condensed consolidated financial statements and related disclosures.
Pronouncements for Adoption in Subsequent Periods

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to applying the guidance on contract modifications, hedge accounting, and other transactions, to simplify the accounting for transitioning from the London Interbank Offered Rate, and other interbank offered rates expected to be discontinued, to alternative reference rates. The guidance in this update was effective upon its issuance; if elected, it is to be applied prospectively through December 31, 2022. We are currently evaluating the effect the potential adoption of this ASU will have on our consolidated financial statements, including but not limited to our credit agreement. For additional information regarding our credit agreement, refer to Note 8 - Debt.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liability and equity, including convertible instruments and contracts on an entity’s own equity. The standard reduces the number of models used to account for convertible instruments, removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and requires the if-converted method for calculation of diluted earnings per share for all convertible instruments. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. We are evaluating the impact to our financial statements and expect that the resulting impact will be to reclassify the equity component of our 2026 Convertible Notes (as defined below) from additional paid-in capital to long-term debt, up to the par value, and a reduction of our reported interest expense on our 2026 Convertible Notes to their stated 0.25% percent coupon rate on a prospective basis. For additional information regarding our debt, refer to Note 8 - Debt.
2. REVENUE
Disaggregation of Revenue
We disaggregate revenue from contracts with customers by markets and geography, as we believe it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
8


The following tables present our revenue disaggregated by markets and geography (in thousands):
Three Months EndedSix Months Ended
April 2, 2021April 3, 2020April 2, 2021April 3, 2020
Revenue by Market:
Telecommunications
$42,273 $51,648 $93,805 $97,249 
Industrial & Defense
72,090 48,069 133,708 98,552 
Data Center
36,220 26,707 71,574 49,720 
Total $150,583 $126,424 $299,087 $245,521 

Three Months EndedSix Months Ended
April 2, 2021April 3, 2020April 2, 2021April 3, 2020
Revenue by Geographic Region:
United States
$72,255 $56,380 $136,237 $110,331 
China
37,199 40,433 79,575 77,773 
Asia Pacific, excluding China (1)
25,515 20,044 47,288 38,864 
Other Countries (2)
15,614 9,567 35,987 18,553 
Total$150,583 $126,424 $299,087 $245,521 
(1)Asia Pacific represents Taiwan, Japan, Singapore, India, Thailand, South Korea, Australia, Malaysia, the Philippines and Vietnam.
(2)No country or region represented greater than 10% of our total revenue as of the dates presented, other than the United States, China and Asia Pacific region as presented above.
Contract Balances
We record contract assets or contract liabilities depending on the timing of revenue recognition, billings and cash collections on a contract-by-contract basis. Our contract liabilities primarily relate to deferred revenue, including advanced consideration received from customers for contracts prior to the transfer of control to the customer, and therefore revenue is subsequently recognized upon delivery of products and services.
The following table presents the changes in contract liabilities during the six months ended April 2, 2021 (in thousands, except percentage):
April 2, 2021October 2, 2020$ Change% Change
 Contract liabilities$6,548 $9,861 $(3,313)(34)%
As of April 2, 2021 and October 2, 2020, $4.8 million and $3.5 million, respectively, of our contract liabilities, were recorded as other long-term liabilities on our balance sheet with the remainder recorded as accrued liabilities. During the three and six months ended April 2, 2021, we recognized net sales of $0.7 million and $6.0 million, respectively, that were included in the contract liabilities balance as of the beginning of the period. The decrease in contract liabilities during the six months ended April 2, 2021, as shown in the table above, was primarily related to recognition of license revenue, partially offset by the deferral of revenue for invoiced products and services prior to when certain of our customers obtained control of the product and or services.
3. INVESTMENTS
Our short-term investments are classified as available-for-sale and are summarized in the tables below (in thousands):
 April 2, 2021
 Amortized
Cost
 Gross
Unrealized
Holding Gains
  Gross
Unrealized
Holding Losses
 Aggregate Fair
Value
Corporate bonds$58,240   $151 $(152)$58,239 
Commercial paper104,317 17 (19)104,315 
Total short-term investments$162,557   $168 $(171)$162,554 
9


October 2, 2020
 Amortized
Cost
 Gross
Unrealized
Holding Gains
Gross
Unrealized
Holding Losses
 Aggregate Fair
Value
Corporate bonds$68,605   $348 $(333)$68,620 
Commercial paper134,913 192 (14)135,091 
Total short-term investments$203,518 $540 $(347)$203,711 
    
The contractual maturities of available-for-sale investments were as follows (in thousands):
 April 2, 2021
Less than one year$104,315 
Over one year58,239 
Total available-for-sale investments$162,554 
Available-for-sale investments are reported at fair value and, as such, their associated unrealized gains and losses are reported as a separate component of stockholders’ equity within accumulated other comprehensive income.
Other Investments — As of April 2, 2021, we held two non-marketable equity investments classified as long-term investments, including an investment in a Series B preferred stock ownership of a privately held manufacturing corporation with preferred liquidation rights over other equity shares. As the equity securities do not have a readily determinable fair value and do not qualify for the practical expedient under Accounting Standards Codification ("ASC") 820, Fair Value Measurement, we have elected to account for this investment at cost less any impairment. We evaluate this investment for impairment at each balance sheet date. As of April 2, 2021 and October 2, 2020, the carrying value of this investment was $2.5 million.
Also included in long-term investments, is a non-controlling investment of less than 20% in the outstanding equity of a private company (“Compute”) that was acquired in conjunction with our divestiture of the Compute business during our fiscal year 2018. This investment value is updated quarterly based on our proportionate share of the losses or earnings, as well as any changes in Compute's equity, utilizing the equity method. During the three and six months ended April 2, 2021, we recorded income of $6.5 million and $1.7 million, respectively, associated with this investment as other income (expense) in our condensed consolidated statements of operations. Amounts for the three and six months ended April 2, 2021 include a non-cash gain of $9.8 million associated with changes in Compute's equity. During the three and six months ended April 3, 2020, we recorded losses of $5.3 million and $9.1 million, respectively. As of April 2, 2021 and October 2, 2020, the carrying value of this investment was $17.0 million and $15.2 million, respectively.
4. FAIR VALUE
We group our financial assets and liabilities measured at fair value on a recurring basis in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-driven valuations in which all significant inputs are observable or can be derived principally from, or corroborated with, observable market data.
Level 3 - Fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including assumptions and judgments made by us.
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
We measure certain assets and liabilities at fair value on a recurring basis such as our financial instruments. There have been no transfers between Level 1, 2 or 3 assets or liabilities during the three and six months ended April 2, 2021.
10


Assets and liabilities measured at fair value on a recurring basis consist of the following (in thousands):
April 2, 2021
Fair ValueActive Markets for Identical Assets (Level 1)Observable Inputs (Level 2)Unobservable Inputs (Level 3)
Assets
Money market funds$22,531 $22,531 $ $ 
Commercial paper104,315  104,315  
Corporate bonds58,239  58,239  
Total assets measured at fair value$185,085 $22,531 $162,554 $ 
October 2, 2020
Fair ValueActive Markets for Identical Assets (Level 1)Observable Inputs (Level 2)Unobservable Inputs (Level 3)
Assets
Money market funds$20,139 $20,139 $ $ 
Commercial paper135,091  135,091  
Corporate bonds68,620  68,620  
Total assets measured at fair value$223,850 $20,139 $203,711 $ 
Liabilities
Common stock warrant liability$25,312 $ $ $25,312 
Total liabilities measured at fair value$25,312 $ $ $25,312 
As of April 2, 2021, no common stock warrants remain outstanding. As of October 2, 2020, the fair value of the common stock warrants was estimated using a Black-Scholes option pricing model. For additional information related to these warrants, refer to Note 9 - Stockholder's Equity.
The quantitative information utilized in the fair value calculation of our Level 3 liabilities is as follows:
Inputs
LiabilitiesValuation TechniqueUnobservable InputOctober 2, 2020
Warrant liabilityBlack-Scholes modelVolatility61.8%
Discount rate0.09%
Expected life0.2 years
Exercise price$14.05
Stock price$33.80
Dividend rate%
The changes in liabilities with inputs classified within Level 3 of the fair value hierarchy consist of the following (in thousands):
October 2,
2020
Net Realized Losses Included in EarningsPurchases
and
Issuances
Sales and
Settlements
April 2,
2021
Common stock warrant liability$25,312 $11,130 $ $(36,442)$ 
September 27,
2019
Net Realized Losses (Gains) Included in EarningsPurchases
and
Issuances
Sales and
Settlements
April 3,
2020
Common stock warrant liability$12,364 $(4,560)$ $ $7,804 
11


5. INVENTORIES
Inventories consist of the following (in thousands):
April 2,
2021
October 2,
2020
Raw materials$44,680 $46,954 
Work-in-process12,000 9,324 
Finished goods27,836 35,306 
Total inventory, net$84,516 $91,584 
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
April 2,
2021
October 2,
2020
Construction in process$17,711 $16,174 
Machinery and equipment195,290 191,953 
Leasehold improvements21,670 19,854 
Furniture and fixtures2,735 2,659 
Computer equipment and software18,512 18,487 
Finance lease assets35,589 35,589 
Total property and equipment291,507 284,716 
Less accumulated depreciation and amortization(177,254)(165,850)
Property and equipment, net$114,253 $118,866 
Depreciation and amortization expense related to property and equipment for the three and six months ended April 2, 2021 was $6.0 million and $12.2 million, respectively. Depreciation and amortization expense related to property and equipment for the three and six months ended April 3, 2020 was $7.3 million and $14.7 million, respectively.
7. INTANGIBLE ASSETS
Amortization expense related to intangible assets is as follows (in thousands):
 Three Months EndedSix Months Ended
 April 2,
2021
April 3,
2020
April 2,
2021
April 3,
2020
Cost of revenue$3,806 $4,347 $7,683 $8,767 
Selling, general and administrative7,601 8,072 15,717 16,726 
Total$11,407 $12,419 $23,400 $25,493 
    
Intangible assets consist of the following (in thousands):
April 2,
2021
October 2,
2020
Acquired technology$179,434 $179,434 
Customer relationships245,870 245,870 
Trade name (indefinite-lived)3,400 3,400 
Total 428,704 428,704 
Less accumulated amortization(321,205)(297,806)
Intangible assets — net$107,499 $130,898 
12


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 October 2, 2020$428,704 $179,434 $245,870 $3,400 $315,012 
Currency translation adjustment    (635)
Balance as of April 2, 2021$428,704 $179,434 $245,870 $3,400 $314,377 
As of April 2, 2021, our estimated amortization of our intangible assets in future fiscal years was as follows (in thousands):
2021 Remaining2022202320242025ThereafterTotal
Amortization expense$22,814