MACOM Technology Solutions Holdings Inc

(Unaudited)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Information—The accompanying unaudited, condensed consolidated financial statements have been prepared according to the rules and regulations of the United States (the “U.S.”) Securities and Exchange Commission (the “SEC”) and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the condensed consolidated balance sheets, condensed consolidated statements of operations, comprehensive (loss) income, 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 27, 2024 is as reported in our audited consolidated financial statements as of that date. Our accounting policies are described in the notes to our September 27, 2024 consolidated financial statements, which were included in our Annual Report on Form 10-K for our fiscal year ended September 27, 2024 filed with the SEC on November 12, 2024 (the “2024 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 2024 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.

We have a 52- or 53-week fiscal year ending on the Friday closest to the last day of September. Fiscal year 2025 includes 53 weeks and fiscal year 2024 included 52 weeks. To offset the effect of holidays, for fiscal years in which there are 53 weeks, we include the extra week arising in such fiscal years in the first fiscal quarter. Our quarter ended January 3, 2025 includes 14 weeks.

Use of Estimates—The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities during the reporting periods, the reported amounts of revenue and expenses during the reporting periods and the disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, we base estimates and assumptions on historical experience, currently available information and various other factors that management believes to be reasonable under the circumstances. Actual results may differ materially from these estimates and assumptions. The accounting policies which our management believes involve the most significant application of judgment or involve complex estimation, are inventories and associated reserves; revenue reserves; business combinations; goodwill and intangible asset valuation; share-based compensation valuations and income taxes.

Property and Equipment—Property and equipment is stated at cost, less accumulated depreciation and amortization. Expenditures for maintenance and repairs are charged to expense as incurred, whereas major improvements that significantly extend the useful life of the assets are capitalized as additions to property and equipment.

As of September 28, 2024, the Company changed its accounting estimate for the expected useful lives of certain fabrication-related machinery and equipment. The Company evaluated its current asset base and reassessed the estimated useful lives of certain machinery and equipment in connection with its recent usage of older equipment, including considering the technological and physical obsolescence of such machinery and equipment. Based on our ability to re-use equipment across generations of process technologies and historical usage trends, the Company determined that the expected useful lives for certain fabrication-related machinery and equipment should be increased to ten years to reflect more closely the estimated economic lives of those assets. This change in estimate was applied prospectively effective for the first quarter of fiscal year 2025 and resulted in a decrease in depreciation expense of$0.7 million for the three months ended January 3, 2025, to cost of revenue. This benefit increased income from operations by$0.7 million and earnings per share by $0.01 for the three months ended January 3, 2025.

Recent Accounting Pronouncements—Our Recent Accounting Pronouncements are described in our 2024 Annual Report on Form 10-K.

In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-04, Debt - Debt with Conversion and Other Options (Subtopic 470-20) Induced Conversions of Convertible Debt Instruments, which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. We elected to early adopt ASU 2024-04 in November 2024 and applied the amendment when assessing the accounting treatment for our debt extinguishment (discussed in Note 9 - Debt).

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 requires 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 the adoption of this ASU will have on our consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement Reporting Comprehensive Income - Expense Disaggregation Disclosures, which requires disclosure, in the notes to financial statements, of specified information about certain costs and expenses. The amendments in this update improve financial reporting by requiring that public business entities disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods. This ASU should be applied on a prospective basis, with retrospective application permitted. The amendments in this update are effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027, 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.

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):

(1)Asia Pacific primarily represents 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, Asia Pacific region and Cayman Islands 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.

The following table presents the changes in contract liabilities during the three months ended January 3, 2025 (in thousands, except percentage):

During the three months ended January 3, 2025, we recognized sales of $0.9 million, that were included in the contract liabilities balance as of the beginning of the period. The decrease in contract liabilities during the three months ended January 3, 2025 was primarily related to recognition of revenue that was previously deferred for products and services invoiced prior to when certain of our customers obtained control of such products and/or services, offset by additional invoicing prior to when our customers obtain control of such products and/or services.

3. ACQUISITIONS

ENGIN-IC, Inc.— On November 5, 2024, we completed the acquisition of ENGIN-IC, Inc. (“ENGIN-IC”), a fabless semiconductor company that designs advanced gallium arsenide (“GaAs”) and gallium nitride (“GaN”) monolithic microwave integrated circuits (“MMICs”) and integrated microwave assemblies located in Plano, Texas and San Diego, California (the “ENGIN-IC Acquisition”). We acquired ENGIN-IC to further expand and strengthen our MMIC and module design capabilities. In connection with the ENGIN-IC Acquisition, we acquired all of the outstanding shares of ENGIN-IC for a total purchase price of approximately $14.2 million and was acquired with cash consideration of $12.5 million, net of cash acquired of $0.2 million, and consideration payable of $1.5 million, subject to customary purchase price adjustments. The ENGIN-IC Acquisition was accounted for as a business combination and the operations of ENGIN-IC have been included in our consolidated financial statements since the date of acquisition. We have recorded a preliminary allocation of the purchase price for ENGIN-IC, which primarily resulted in intangible assets, including acquired technology and customer relationships, of $9.7 million and goodwill of $5.1 million.

Consolidated estimated pro forma unaudited revenue and consolidated estimated pro forma net loss for the fiscal quarter ended January 3, 2025 and the actual results of operations for ENGIN-IC since the acquisition date are not material to our condensed consolidated financial statements for the periods presented.

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 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 and 711,528 shares of our common stock. The fair value of our common stock issued as consideration for the RF Business Acquisition was $60.8 million as of December 29, 2023 and during the quarter ended March 29, 2024, we reduced the fair value to $57.7 million. The fair value of the shares were discounted for the lack of marketability as the shares that were transferred were unregistered and legally restricted from being sold. 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 January 3, 2025, we did not incur any acquisition-related transaction costs. During the three months ended December 29, 2023, we incurred acquisition-related transaction costs of approximately $7.1 million, which are included in selling, general and administrative expense.

We finalized the RF Business Acquisition purchase accounting during the fiscal quarter ended January 3, 2025. The following table summarize the final purchase price (in thousands, except shares and closing share price amount):

The final purchase price has been allocated as follows (in thousands):

Intangible assets consist of technology, a favorable contract and customer relationships with fair values of $21.0 million, $14.5 million and $8.3 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 three months ended January 3, 2025, based on additional information, we updated inputs and assumptions used to calculate the fair value of certain assets and liabilities, primarily resulting in an increase to the fair value of intangible assets of $1.8 million, an increase to the fair value of inventory of $0.6 million and an increase to the fair value of current liabilities of $1.6 million, with an offsetting decrease to goodwill. The goodwill acquired will be deductible for tax purposes. Due to these adjustments, the condensed consolidated statement of operations for the three months ended January 3, 2025 includes an expense of $0.4 million for intangible asset and inventory step-up amortization related to prior periods.

The prepayment of $16.3 million for the net assets associated with the RTP Fab Transfer, classified in Prepaid and other current assets as of January 3, 2025 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 RF Business has been included in our consolidated financial statements since the date of acquisition. Consolidated estimated pro forma unaudited revenue for the fiscal quarter ended December 29, 2023 was $184.0 million. Consolidated pro forma net loss for the fiscal quarter ended December 29, 2023 is not material to understanding our condensed consolidated financial statements due to the business combination effects from the RF Business Acquisition, primarily acquisition transaction costs. Pro forma revenue 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.

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):

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

We have determined that the gross unrealized losses on available for sale securities as of January 3, 2025 and September 27, 2024 are temporary in nature and/or do not relate to credit loss, and therefore there is no expense for credit losses recorded in our condensed consolidated statements of operations. Unrealized gains and losses on available-for-sale investments are reported as a separate component of stockholders’ equity within accumulated other comprehensive income (loss).

5. FAIR VALUE AND FINANCIAL INSTRUMENTS

We group our financial assets and liabilities measured at fair value on a recurring basis in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-driven valuations in which all significant inputs are observable or can be derived principally from, or corroborated with, observable market data.

Level 3 - Fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including assumptions and judgments made by us.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

We measure certain assets and liabilities at fair value on a recurring basis such as our financial instruments. There have been no transfers between Level 1, 2 or 3 assets or liabilities during the three months ended January 3, 2025.

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

Derivatives

We have foreign currency exposure arising from certain intercompany foreign currency denominated debt. We have entered into foreign currency exchange hedging contracts associated with certain of our Euro and Yen denominated intercompany debt to partially mitigate the impact of currency rate changes. They are not designated as cash flow or fair value hedges under Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging. Changes in fair value are reported in current period earnings. These gains and losses are intended to offset the gains and losses recorded on the associated intercompany debt. We do not use derivative financial instruments for trading or speculation purposes.

As of January 3, 2025 and September 27, 2024, we had $37.3 million and $34.4 million, respectively, in notional forward foreign currency contracts. As of January 3, 2025 and September 27, 2024, the fair value of derivative instruments not designated as hedges was zero and $0.1 million, respectively, and was presented in Accrued liabilities on the Consolidated Balance Sheets.

6. INVENTORIES

Inventories consist of the following (in thousands):

7. PROPERTY AND EQUIPMENT

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

During the three months ended January 3, 2025, we exercised an option to purchase manufacturing facilities that we leased in France for €1 (one Euro). This lease was acquired in May 2023 in connection with a prior year asset acquisition and was valued as part of purchase accounting using a market approach. During the three months ended January 3, 2025, we reclassified the finance lease asset to land and buildings.

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 investments in U.S. semiconductor manufacturing equipment. As of January 3, 2025 and September 27, 2024, there was a $4.6 million and $5.2 million reduction to the carrying amounts of the qualifying assets, respectively, in the condensed consolidated balance sheet.

Depreciation and amortization expense related to property and equipment for the three months ended January 3, 2025 and December 29, 2023 was $7.3 million and $6.5 million, respectively. Accumulated amortization on finance lease assets as of January 3, 2025 and September 27, 2024 was $9.8 million and $10.2 million, respectively.

8. INTANGIBLE ASSETS

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

A summary of the activity in gross intangible assets as of January 3, 2025 and September 27, 2024 is as follows (in thousands):

(1) Includes an indefinite-lived trade name of $3.4 million that is not amortized.

(2) Foreign intangible asset carrying amounts include foreign currency translation adjustments.

As of January 3, 2025, our estimated amortization of our intangible assets in future fiscal years is as follows (in thousands):

A summary of the changes in goodwill as of January 3, 2025 is as follows (in thousands):

(1)The acquired balance consists of an increase of $5.1 million related to the ENGIN-IC Acquisition, partially offset by a decrease of $0.9 million related to measurement period adjustments for the RF Business 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 January 3, 2025 and September 27, 2024, (in thousands, except percentages):

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 “2021 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 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.

On December 12, 2024, we entered into separate, privately negotiated exchange and subscription agreements (the “Exchange and Subscription Agreements”) with a limited number of holders of the 2026 Convertible Notes. Under the terms of the Exchange and Subscription Agreements, the holders exchanged $288.8 million in aggregate principal amount of 2026 Convertible Notes held by them for $257.7 million of our 2029 Convertible Notes (defined below),1,582,958 newly-issued shares of the Company’s common stock, par value $0.001 per share, issued at a fair value of $205.9 million, and $17.6 million in cash. These exchanges resulted in aggregate pre-tax debt extinguishment charges of $193.1 million. The Company also issued approximately $86.6 million in additional aggregate principal amount of the 2029 Convertible Notes in a private placement to certain investors (the “Subscription” and, together with the Exchange, the “Transactions”). The Transactions closed on December 19, 2024.

Following the closing of the Transactions, the aggregate principal balance of the 2026 Convertible Notes is $161.2 million and the terms of the 2021 Indenture are unchanged. The 2026 Convertible Notes will mature on March 15, 2026, unless earlier converted, redeemed or repurchased.

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 thefive business day period after anyfive consecutive trading day period (the “Measurement Period”) in which the “trading price” (as defined in the 2021 Indenture) per $1,000 principal amount of the notes for each trading day of the Measurement Period wasless 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 2021 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 2021 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 2021 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 2021 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.

During the fiscal quarter ended January 3, 2025, our common stock price met the price trigger defined above, and therefore, holders of our 2026 Convertible Notes may convert their notes at their option at any time during our second fiscal quarter ended April 4, 2025. Therefore, the 2026 Convertible Notes balance of $160.6 million, net of deferred financing costs, is classified as short-term debt in our condensed consolidated balance sheet.

For the three months ended January 3, 2025 and December 29, 2023, total interest expense for the 2026 Convertible Notes was $0.3 million and $0.3 million, respectively.

The fair value of our 2026 Convertible Notes was$267.5 million and $640.6 millionas of January 3, 2025 and September 27, 2024, respectively, and was determined based on quoted prices in markets that are not active, which is considered a Level 2 valuation input.

There areno future minimum principal payments under the notes as of January 3, 2025; the full amount of $161.2 million is due on March 15, 2026.

2029 Convertible Notes

On December 19, 2024, we issued 0.00% convertible senior notes due in fiscal year 2030, pursuant to an indenture dated as of such date (the “2024 Indenture”), between the Company and U.S. Bank National Association, as trustee with an aggregate principal amount of $344.3 million (the “2029 Convertible Notes”).

Holders of the 2029 Convertible Notes may convert their notes at their option at any time prior to the close of business on the business day immediately preceding September 15, 2029 in multiples of $1,000 principal amount, only under the following circumstances: (i) during any fiscal quarter commencing after the fiscal quarter ending on April 4, 2025 (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 calendar quarter is greater than or equal to 130% of the conversion price for the notes on each applicable trading day; (ii) during thefive business day period after anyfive consecutive trading day period (the “Measurement Period”) in which the “trading price” (as defined in the 2024 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 redemption date; or (iv) upon the occurrence of specified corporate events described in the 2024 Indenture. On or after September 15, 2029 until the close of business on the second scheduled trading day immediately preceding the maturity date, the holders may convert their notes, in multiples of $1,000 principal amount, regardless of the foregoing circumstances.

The initial conversion rate for the Notes is 5.7463 shares of common stock (subject to adjustment as provided for in the 2024 Indenture) per $1,000 principal amount of the notes, which is equal to an initial conversion price of approximately $174.03 per share of common stock.

The 2029 Convertible Notes do not bear regular interest, and the principal amount of the notes does not accrete. The notes are senior unsecured obligations of the Company and will mature on December 15, 2029, unless earlier redeemed, repurchased or converted. Upon conversion of the 2029 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 2024 Indenture). We may redeem for cash all or any portion of the notes, at our option, on or after December 20, 2027 and prior to September 15, 2029 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 2024 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.

The fair value of our 2029 Convertible Notes was$351.3 millionas of January 3, 2025 and was determined based on quoted prices in markets that are not active, which is considered a Level 2 valuation input.

There areno future minimum principal payments under the notes as of January 3, 2025; the full amount of $344.3 million is due on December 15, 2029.

10. FINANCING 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. We do not own these systems; however, we control the use of the assets during operation. As of January 3, 2025 and September 27, 2024, the net book value of the systems in Property and equipment, net was $8.0 million and $8.2 million, respectively, and the corresponding liability was $9.2 million and $9.3 million, respectively, primarily classified in Financing obligation on our condensed consolidated balance sheet.

11. EARNINGS PER SHARE

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

(1) Excludes the effects of 2,914,956 and 112,021 shares for the three months ended January 3, 2025 and December 29, 2023, respectively, of the assumed issuance of common stock associated with a conversion premium for the 2026 Convertible Notes, the assumed exercise of outstanding stock options and potential shares of common stock issuable upon vesting of restricted stock and restricted stock units, as the inclusion would be anti-dilutive, but they could become dilutive in the future. The three months ended January 3, 2025 excludes 1,696,940 potential shares of common stock associated with a conversion premium for the 2026 Convertible Notes, as the inclusion would be anti-dilutive.

Potentially dilutive shares of common stock from employee equity incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options and the assumed vesting of outstanding restricted stock and restricted stock units. The potentially dilutive impact from the assumed issuance of common stock associated with a conversion premium for our convertible notes is determined by applying the if-converted method to the assumed exercise of the outstanding conversion premium.

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 months ended January 3, 2025.

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 January 3, 2025.

Stock Plans

As of January 3, 2025, we had 3.2 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 offour years toseven years. Certain of the share-based awards granted and outstanding as of January 3, 2025 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 three orfour 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 January 3, 2025 and September 27, 2024, the fair value of outstanding ISUs was $5.9 million and $6.8 million, respectively, and the associated accrued compensation liability was $2.5 million and $4.6 million, respectively. During the three months ended January 3, 2025 and December 29, 2023, we recorded an expense for ISU awards of $1.5 million and $0.5 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):

As of January 3, 2025, the total unrecognized compensation costs related to RSUs and PRSUs was $120.9 million, which we expect to recognize over a weighted-average period of 2.2 years. As of January 3, 2025, total unrecognized compensation cost related to our Employee Stock Purchase Plan was $1.5 million.

Restricted Stock Units and Performance-Based Restricted Stock Units

A summary of RSU and PRSU activity for the three months ended January 3, 2025 is as follows:

(1) The amount shown represents performance adjustments for market-based performance awards. These were granted in prior fiscal years and vested during the three months ended January 3, 2025 based on the Company’s achievement of total stockholder return.

Stock awards that vested during the three months ended January 3, 2025 and December 29, 2023 had combined fair values of $106.7 million and $33.3 million, respectively, as of the vesting date. RSUs granted generally vest over a period ofthree orfour years.

Market-based PRSUs

We granted 106,166 market-based PRSUs during the three months ended January 3, 2025, at a weighted average grant date fair value of $168.01 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 thethree-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 thethree-year measurement period. The assumptions used to value the awards are as follows:

Stock Options

As of each of January 3, 2025 and September 27, 2024, there were 5,000 stock options outstanding, with a weighted-average exercise price per share of $16.06. As of January 3, 2025, the weighted-average remaining contractual term was 0.84 years and the aggregate intrinsic value was $0.6 million. Aggregate intrinsic value is calculated using the difference between our closing stock price on January 3, 2025 and the exercise price of outstanding, in-the-money options. There were no options exercised during the three months ended January 3, 2025. The total intrinsic value of options exercised during the three months ended December 29, 2023 was $0.3 million.

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 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 our 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, any 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):

The difference between the U.S. federal statutory income tax rate of 21% and our effective income tax rate for the three months ended January 3, 2025 was primarily driven by the non-deductibility of the loss on extinguishment of debt and 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 months ended December 29, 2023 was primarily driven by favorable stock based compensation and R&D tax credits, partially offset by foreign withholding taxes and GILTI.

During the three months ended December 29, 2023, 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 wereno unrecognized tax benefits as of January 3, 2025 and September 27, 2024. It is our policy to recognize any interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the fiscal quarters ended January 3, 2025 and December 29, 2023, we did not make any accrual or payment of interest or penalties.

15. SUPPLEMENTAL CASH FLOW INFORMATION

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

Operating lease right-of-use assets obtained in exchange for new lease liabilities for thethree months ended December 29, 2023 includes $5.6 million operating lease right-of-use assets acquired as part of the RF Business Acquisition. For additional information on the RF Business Acquisition, see Note 3 - Acquisitions.

16. GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION

We haveone 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 and Chair of the Board. In evaluating financial performance and making operating decisions, the CODM primarily uses consolidated metrics. The Company assesses its determination of operating segments at least annually. We continue to evaluate our internal reporting structure, changes to our business and the potential impact of these changes on our segment reporting.

For information about our revenue in different geographic regions, based upon customer locations, see Note 2 - Revenue.

Information about net property and equipment in different geographic regions is presented below (in thousands):

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

The following is a summary of customer concentrations as a percentage of revenue and accounts receivable as of and for the periods presented:

Customer Concentration

Customer A did not represent more than 10% of our revenue in the three months ended January 3, 2025. Customer B and Customer C did not represent more than 10% of our revenue in the three months ended December 29, 2023. No other customer represented more than 10% of revenue or accounts receivable in the periods presented in the accompanying condensed consolidated financial statements. For the three months ended January 3, 2025 and December 29, 2023, our top ten customers represented 60% and 57%, respectively, of total revenue.