MACOM Reports Fiscal First Quarter 2019 Financial Results

LOWELL, MA, February 5, 2019 - MACOM Technology Solutions Holdings, Inc. (Nasdaq: MTSI) (“MACOM”), a leading supplier of high-performance RF, microwave, millimeterwave and lightwave semiconductor products, today announced its financial results for its fiscal first quarter ended December 28, 2018.

First Quarter Fiscal Year 2019 GAAP Results

  • Revenue was $150.7 million, an increase of 15.1% compared to $130.9 million in the previous year fiscal first quarter and a decrease of 0.3% compared to $151.2 million in the prior fiscal quarter;
  • Gross profit was $76.6 million, an increase of 25.7% compared to $61.0 million in the previous year fiscal first quarter and an increase of 7.9% compared to $71.0 million in the prior fiscal quarter;
  • Gross margin was 50.8%, compared to 46.6% in the previous year fiscal first quarter and 46.9% in the prior fiscal quarter;
  • Operating loss was $14.4 million, compared to $23.0 million in the previous year fiscal first quarter and $17.5 million in the prior fiscal quarter; and
  • Net loss from continuing operations was $23.4 million, or $0.44 loss per diluted share, compared to net loss of $17.0 million, or $0.49 loss per diluted share, in the previous year fiscal first quarter and net loss of $16.1 million, or $0.29 loss per diluted share, in the prior fiscal quarter.

First Quarter Fiscal Year 2019 Adjusted Non-GAAP Results

  • Adjusted gross margin was 56.3%, compared to 53.7% in the previous year fiscal first quarter and 54.8% in the prior fiscal quarter;
  • Adjusted operating income was $21.9 million, or 14.5% of revenue, compared to $13.4 million, or 10.3% of revenue, in the previous year fiscal first quarter and $18.7 million, or 12.3% of revenue, in the prior fiscal quarter;
  • Adjusted net income was $12.9 million, or $0.20 per diluted share, compared to $6.6 million, or $0.10 per diluted share, in the previous year fiscal first quarter and $10.5 million, or $0.16 per diluted share, in the prior fiscal quarter; and
  • Adjusted EBITDA was $29.5 million, compared to $20.9 million for the previous year fiscal first quarter and $26.1 million for the prior fiscal quarter.

Management Commentary

“Revenue for the fiscal first quarter was $151 million dollars, roughly flat sequentially. Adjusted gross margin was 56% and adjusted earnings per share was $0.20. All in all, a solid quarterly performance in the face of a challenging macro environment,” commented John Croteau, President and CEO of MACOM.

“Seasonally speaking, the early part of the year normally tends to have lower visibility as orders slow ahead of Chinese New Year. This year, trade tensions and recent geopolitical events have exacerbated the situation, which we view as short-term and temporary in nature. Based on current discussions with customers, we believe end market demand looks healthy for the year as a whole, with 5G in particular expected to drive a rebound for MACOM in the second half of the calendar year.”

Business Outlook

For the fiscal second quarter ending March 29, 2019, MACOM expects revenue to be in the range of $134 million to $142 million. Adjusted gross margin is expected to be between 55% and 57%, and adjusted earnings per share is expected to be between $0.04 and $0.12 on an anticipated 66.0 million fully diluted shares outstanding.

“Our second quarter outlook reflects the confluence of macroeconomic and trade-related cross currents that are impacting all three of our target end markets and multiple geographies. At the same time, we’re faced with a number of variable investments that we plan to follow-through in support of critical customers and program ramps for the second half of the calendar year.” Mr. Croteau concluded.

Conference Call

MACOM will host a conference call on Tuesday, February 5, 2019 at 5:00 p.m. Eastern Time to discuss its fiscal first quarter 2019 financial results and business outlook. Investors and analysts may join the conference call by dialing 1-877-837-3908 and providing the passcode 6666619.

International callers may join the teleconference by dialing +1-973-872-3000 and entering the same passcode at the prompt. A telephone replay of the call will be made available beginning two hours after the call and will remain available for five business days. The replay number is 1-855-859-2056 with a passcode of 6666619. International callers should dial +1-404-537-3406 and enter the same passcode at the prompt.

Additionally, this conference call will be broadcast live over the Internet and can be accessed by all interested parties in the Investors section of MACOM's website at http://www.macom.com. To listen to the live call, please go to the Investors section of MACOM's website and click on the conference call link at least fifteen minutes prior to the start of the conference call. For those unable to participate during the live broadcast, a replay will be available shortly after the call and will remain available for approximately 30 days.

About MACOM

MACOM enables a better-connected and safer world by delivering breakthrough semiconductor technologies for optical, wireless and satellite networks that satisfy society’s insatiable demand for information.

Today, MACOM powers the infrastructure that millions of lives and livelihoods depend on every minute to communicate, transact business, travel, stay informed and be entertained.  Our technology increases the speed and coverage of the mobile Internet and enables fiber optic networks to carry previously unimaginable volumes of traffic to businesses, homes and datacenters.

Keeping us all safe, MACOM technology enables next-generation radars for air traffic control and weather forecasting, as well as mission success on the modern networked battlefield.

MACOM is the partner of choice to the world’s leading communications infrastructure, aerospace and defense companies, helping solve their most complex challenges in areas including network capacity, signal coverage, energy efficiency and field reliability, through its best-in-class team and broad portfolio of RF, microwave, millimeterwave and lightwave semiconductor products.

MACOM is a pillar of the semiconductor industry, thriving for more than 60 years of daring to change the world for the better, through bold technological strokes that deliver true competitive advantage to customers and superior value to investors.

Headquartered in Lowell, Massachusetts, MACOM is certified to the ISO9001 international quality standard and ISO14001 environmental management standard. MACOM has design centers and sales offices throughout North America, Europe and Asia.

MACOM, M/A-COM, M/A-COM Technology Solutions, M/A-COM Tech, Partners in RF & Microwave and related logos are trademarks of MACOM. All other trademarks are the property of their respective owners. For more information about MACOM, please visit www.macom.com follow @MACOMtweets on Twitter, join MACOM on LinkedIn and Facebook or visit the MACOM YouTube Channel.

Special Note Regarding Forward-Looking Statements

This press release and our commentary in our conference call held today each contain forward-looking statements based on MACOM management's beliefs and assumptions and on information currently available to our management. Forward-looking statements include, among others, information concerning our stated business outlook and future results of operations, our expectations concerning our plans to follow through on investments in support of critical customers and program ramps, our expectations for business and market conditions, positioning and growth aspirations in the Industrial & Defense, Data Center, Telecom, Cloud Data Center, 5G Telecom and China markets and elsewhere, the timing and success of the 5G Telecom buildout, our expectations for the launch and success of our Data Center solutions business model, our anticipated controlled ramp and efforts to scale our 25G lasers into high volume production, statements regarding market and geographic cycles and downturns for MACOM in terms of revenue and demand, our anticipated ability to navigate international trade tensions and geopolitical headwinds, our belief that recent macroeconomic and trade-related cross currents are short term and temporary in nature, our commitment to invest in our portfolio of disruptive technologies, our beliefs regarding our ability to meet industry demand, continued strong investment by Cloud Service Providers and a surge in Defense spending and Industrial capital investment, our expectations regarding our ability to capitalize on the next phase of infrastructure spending, our expectation that sales across all our end markets will contribute to top line growth throughout fiscal 2019 and our ability to scale operationally, both with our strategic suppliers and in our own factories, our belief that the future contribution from these sales can provide significant operating leverage as we monetize what were previously strategic investments for the company, with improved gross margins for MACOM, any expectations as to our relationships with customers and vendors, our future market share, the timing or nature of future Cloud Data Center and network upgrade cycles, customer order activity and customer adoption of our solutions, our future investment decisions, our GaN strategy and expectations for execution on that strategy, the expected impact of the settlement of our litigation against Infineon and any other statements regarding future trends, business strategies, competitive position, industry conditions, acquisitions and market opportunities. Forward-looking statements include all statements that are not historical facts and generally may be identified by terms such as "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "projects," "seeks," "should," "will," "would" or similar expressions and the negatives of those terms.

These forward-looking statements reflect MACOM's current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause those events or our actual activities or results to differ materially from those expressed in any forward-looking statement. Although MACOM believes that the expectations reflected in the forward-looking statements are reasonable, it cannot and does not guarantee future events, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including the potential that we are unable to identify and timely enter into new markets for our products, such as our publicly-announced market opportunities in Cloud Data Centers, 100G optical networks, 10G PON, 25G lasers, L-PICs, Active and Security Radar Antennas and our AlGaAs, heterolithic microwave ICs (HMIC), Indium Phosphide (InP) etched facet laser and GaN technologies, the potential that we are unable to timely deliver the quantities of our products targeting these or other applications at the right price point due to design challenges, manufacturing bottlenecks, supply shortages, yield issues or otherwise, the potential that the expected rollout of Cloud Data Center build-outs, 5G network upgrades, fiber-to-the-home network technology or other new optical or other network technology deployments in the U.S., China, Japan and other geographies fails to occur, occurs more slowly than we expect or does not result in the amount or type of new business we anticipate, lower than expected demand in the Cloud Data Center market, the optical network infrastructure market or any or all of our primary end markets or from any or all of our large OEM customers based on seasonal effects, regulatory action (such as the ZTE export ban or ongoing Huawei investigation and resulting charges or other denial orders prohibiting sales to Chinese customers) or inaction, technology shifts, standards changes, macro-economic weakness or otherwise, and other events and trends on a national, regional and global scale, including those of a political, economic, business, competitive, intellectual property and regulatory nature, the potential for greater than expected pricing pressure and average selling price erosion based on attempts to win or maintain market share, competitive factors, technology shifts or otherwise, the impact of international trade agreements, including new or potential increases in existing trade tariffs, on our business, our suppliers, or our customers, our potential inability to ramp key new products into volume production with acceptable manufacturing yields to satisfy key customer demand in a timely fashion, the potential for inventory obsolescence and related write-offs, a delay or failure to efficiently transition the activities from our Ithaca facility to our headquarters, the expense, business disruption or other impact of any current or future investigations, administrative actions, litigation or enforcement proceedings we may be involved in, the potential loss of access to any in-licensed intellectual property or inability to license technology we may require on reasonable terms, the impact of any claims of intellectual property infringement or misappropriation, which could require us to pay substantial damages for infringement, expend significant resources in prosecuting or defending such matters or developing non-infringing technology, incur material liability for royalty or license payments, or prevent us from selling certain of our products, greater than expected dilutive effect on earnings of our equity issuances, outstanding indebtedness and related interest expense and other costs, our failure to realize the expected economies of scale, lowered production cost, increased customer penetration and other anticipated benefits of our previously announced GaN intellectual property licensing program or supply chain build-out initiatives, the potential for defense spending cuts, program delays, cancellations or sequestration, failures or delays by any customer in winning business or to make purchases from us in support of such business, lack of adoption or delayed adoption by customers and industries we serve of Cloud Data Centers, MACsec, single-Lambda PAM4, MMICs, L-PICs, Active and Security Antennas, SPAR tiles, GaN, InP lasers, AlGaAs HMIC, or other solutions offered by us, failures or delays in porting and qualifying GaN or InP process technology to our fabrication facilities or third party facilities and achieving anticipated manufacturing economies of scale, lower than expected utilization and absorption in our manufacturing facilities, lack of success or slower than expected success in our new product development or new product introduction efforts, loss of key personnel to competitors or otherwise, failure of any announced transaction to close in accordance with its terms, failure to successfully integrate acquired companies, technologies or products or realize synergies associated with acquisitions, the potential that we will experience difficulties in managing the personnel and operations associated with our acquisitions, loss of business due to competitive factors, product or technology obsolescence, customer program shifts or otherwise, the potential for a shift in the mix of products sold in any period toward lower-margin products or a shift in the geographical mix of our revenues, the impact of any executed or abandoned acquisition, divestiture, joint venture, financing or restructuring activity, the impact of supply shortages or other disruptions in our internal or outsourced supply chain, the impact of changes in export, environmental or other laws applicable to us, the relative success of our cost-savings initiatives, as well as those factors described in "Risk Factors" in MACOM's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended September 28, 2018, as filed on November 16, 2018. Except as required by law, MACOM undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Discussion Regarding the Use of Historical and Forward-Looking Non-GAAP Financial Measures

In addition to GAAP reporting, MACOM provides investors with financial measures that have not been calculated in accordance with United States Generally Accepted Accounting Principles ("GAAP"), such as: non-GAAP gross profit and gross margin, non-GAAP income from operations and operating margin, non-GAAP operating expenses, non-GAAP net income, non-GAAP diluted earnings per share, adjusted EBITDA and Free Cash Flow. From time to time in this release or elsewhere, we may alternatively refer to such non-GAAP measures as “adjusted” measures. This non-GAAP information excludes the effect, where applicable, of discontinued operations, intangible amortization expense, share-based compensation costs, impairment and restructuring charges, changes in common stock warrant liability, financing and litigation costs, acquisition and integration related costs, equity investment gains and losses, divested business losses, other costs and the tax effect of each adjustment.

Management believes that these excluded items are not reflective of our underlying performance. Management uses these non-GAAP financial measures to: evaluate our ongoing operating performance and compare it against prior periods, make operating decisions, forecast future periods, evaluate potential acquisitions, compare our operating performance against peer companies and assess certain compensation programs. The exclusion of these and other similar items from our non-GAAP financial results should not be interpreted as implying that these items are non-recurring, infrequent or unusual. We believe this non-GAAP financial information provides additional insight into our ongoing performance and have therefore chosen to provide this information to investors for a more consistent basis of comparison and to help them evaluate the results of our ongoing operations and enable more meaningful period-to-period comparisons. These non-GAAP measures are provided in addition to, and not as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

A reconciliation between GAAP and non-GAAP financial data is included in the supplemental financial data attached to this press release. We have not provided a reconciliation with respect to any forward-looking non-GAAP financial data presented because we do not have and cannot reliably estimate certain key inputs required to calculate the most comparable GAAP financial data, such as the future price per share of our common stock for purposes of calculating the value of our common stock warrant liability, future acquisition costs, the possibility and impact of any litigation costs, changes in our GAAP effective tax rate and impairment charges. We believe these unknown inputs are likely to have a significant impact on any estimate of the comparable GAAP financial data.

Investors are cautioned against placing undue reliance on these non-GAAP financial measures and are urged to review and consider carefully the adjustments made by management to the most directly comparable GAAP financial measures to arrive at these non-GAAP financial measures. Non-GAAP financial measures may have limited value as analytical tools because they may exclude certain expenses that some investors consider important in evaluating our operating performance or ongoing business performance. Further, non-GAAP financial measures may have limited value for purposes of drawing comparisons between companies because different companies may calculate similarly titled non-GAAP financial measures in different ways because non-GAAP measures are not based on any comprehensive set of accounting rules or principles.

Additional information and management’s assessment regarding why certain items are excluded from our Non-GAAP measures are summarized below:

Amortization Expense - is related to acquired intangible assets which are based upon valuation methodologies, and are generally amortized over the expected life of the intangible asset at the time of acquisition, which may result in amortization amounts that vary over time. The expense is not considered by management in making operating decisions, and the expense is non-cash.

Share-Based and Non-cash Compensation Expense - includes share-based compensation including awards that are equity and liability classified on our balance sheet. Share based compensation expense is partially outside of our control due to factors such as stock price volatility and interest rates, which may be unrelated to our operating performance during the period in which the expense is incurred. It is an expense based upon valuation methodologies and assumptions that vary over time, and the amount of the expense can vary significantly between companies due to factors that can be outside of their control. Share-based and non-cash compensation expense amounts are not considered by management in making operating decisions.

Impairment Charges - on April 15, 2018, Zhongxing Telecommunications Equipment Corporation, of Shenzhen, China, and certain affiliated entities (collectively "ZTE") were added to the U.S. Department of Commerce's Bureau of Industry and Security's List of Denied Persons. Fiscal year 2018 includes expenses associated with the impairment of property and equipment, inventory and other assets associated with ZTE which are not expected to have any future value. The adjustment recorded in the quarter ended December 28, 2018 is associated with these expenses. We believe these charges are one-time in nature and are not correlated to future business operations and including such charges does not reflect our ongoing operations.

Restructuring Charges - includes amounts primarily associated with approved plans to reduce staffing and manufacturing, research and development or administrative footprints. We believe these amounts are not correlated to future business operations and including such charges does not reflect our ongoing operations.

Warrant Liability Expenses/Gains - are associated with mark-to-market fair value adjustments which are largely based on the value of our common stock, which may vary from period to period due to factors such as stock price volatility. We believe these amounts are not correlated to future business operations and including such charges does not reflect our ongoing operations.

Non-Cash Interest, Net - includes amounts associated with the amortization of certain fees associated with the establishment or amendment of our credit agreement and term loans that are being amortized over the life of the agreement. We believe these amounts are non-cash in nature and not correlated to future business operations and including such charges does not reflect our ongoing operations.

Litigation Costs - includes gains, losses and expenses related to the resolution of other-than-ordinary-course threatened and actually filed lawsuits and other-than-ordinary-course contractual disputes and legal matters. We exclude these gains and losses because they are not considered by management in making operating decisions. We believe such gains, losses and expenses do not necessarily reflect the performance of our ongoing operations for the period in which such charges are recognized and the amount of such gains or losses and expenses can vary significantly between companies and make comparisons less reliable.

Acquisition, Integration and Restructuring Related Costs - includes such items as professional fees incurred in connection with pre-acquisition and integration specific activities, post-acquisition employee retention amounts, contingent consideration adjustments, severance and other amounts accrued or paid to terminated employees of acquired businesses, costs including salaries incurred which are not expected to have a continuing contribution to operations or are expected to have a diminishing contribution during the integration or restructuring period and the amortization of the fair market step-up value of acquired inventory and fixed assets. We believe the exclusion of these items is useful in providing management a basis to evaluate ongoing operating activities and strategic decision making.

Production and Product Line Exits - includes costs associated with our decision to exit certain production facilities and product lines.  The costs are primarily inventory reserves associated with products that are considered excess and may not be internally consumed due to the production process change, have potential reliability issues that will not be resolved due to our decision to exit production and or may not be sold to customers.  In addition, there are certain other costs incurred associated with the production process that is being exited that are not expected to occur in the future.  We believe the exclusion of these items is useful in providing management a basis to evaluate ongoing operating activities and strategic decision making.

Discontinued Operations - includes the profit and loss amounts of discontinued operations. We believe excluding gains and losses associated with historically divested businesses from our net income provides management with a comparable basis to our current ongoing operating activities. We do not exclude the consulting agreement income classified as discontinued operations because management views this income as part of our ongoing operations and correlated with future operations since we both derive income and incur ongoing costs associated with the consulting services available under the consulting agreement.

Equity Investment and Sale of Business Losses - includes losses associated with non-marketable equity investments we have in a private business. We believe the investment losses are non-cash in nature and including such amounts does not reflect our ongoing operations.

Tax Effect of Non-GAAP Adjustments - adjustments to arrive at an estimate of our Adjusted Non-GAAP tax rate associated with our Adjusted Non-GAAP income over a period of time. We determine our Adjusted Non-GAAP income tax rate by using applicable rates in taxing jurisdictions and assessing certain factors including our historical and forecast earnings by jurisdiction, discrete items, cash taxes paid in relation to our Adjusted Non-GAAP Net Income before income taxes and our ability to realize tax assets. We generally assess this Adjusted Non-GAAP income tax rate quarterly and have utilized 8% for our fiscal year 2018 and fiscal first quarter 2019. Our historical effective income tax rate under GAAP has varied significantly from our Adjusted Non-GAAP income tax rate. Items that have historically resulted in significant difference between our effective income tax rate under GAAP and our Adjusted Non-GAAP income tax rate include changes in fair values of the common stock warrant liability, which is excluded from our Adjusted Non-GAAP net Income and is neither deductible nor taxable for tax purposes, income taxed in foreign jurisdictions at generally lower tax rates, non-deductible compensation, research and development tax credits and merger expenses, as well as the establishment of a valuation allowance against our U.S. deferred tax assets during our fiscal year 2017. We believe it is beneficial for our management to review our Adjusted Non-GAAP income tax rate on a consistent basis over periods of time.  Items such as those noted above may have a significant impact on our U.S. GAAP income tax expense and associated effective tax rate over time. Our Adjusted Non-GAAP income tax rate is an estimate, and may differ from our effective income tax rate determined under GAAP.

Adjusted EBITDA - is a calculation that adds depreciation expense to our Adjusted Non-GAAP Income from Operations. Adjusted EBITDA is a measure that management reviews and utilizes for operational analysis purposes. We believe competitors and others in the financial industry utilize this Non-GAAP measure for analysis purposes.

Free Cash Flow - is a calculation that starts with cash flow from operating activities, reduces this amount by our capital expenditures in the applicable period and adds AppliedMicro transaction-related payments. Free Cash Flow is a measure that management reviews and utilizes for cash flow analysis purposes. We believe competitors and others in the financial industry utilize this Non-GAAP measure for analyzing a company's cash flow.


Company Contact:
MACOM Technology Solutions Holdings, Inc.
Stephen Ferranti
Vice President of Investor Relations
P: 978-656-2977
E: stephen.ferranti@macom.com    

Investor Relations Contact:
Shelton Group
Leanne K. Sievers
EVP, Investor Relations
P: 949-224-3874
E: lsievers@sheltongroup.com

 

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share data)


 

 Three Months Ended

 

December 28, 2018

 

September 28, 2018

 

December 29, 2017

 

 

 

Revenue

$

150,689

 

 

$

151,188

 

 

$

130,925

 

Cost of revenue

74,064

 

 

80,206

 

 

69,971

 

Gross profit

76,625

 

 

70,982

 

 

60,954

 

Operating expenses:

 

 

 

 

 

Research and development

43,525

 

 

46,226

 

 

41,651

 

Selling, general and administrative

42,519

 

 

42,280

 

 

37,634

 

Restructuring charges

4,978

 

 

(36

)

 

4,662

 

 Total operating expenses

91,022

 

 

88,470

 

 

83,947

 

Loss from operations

(14,397

)

 

(17,488

)

 

(22,993

)

Other income (expense):

 

 

 

 

 

Warrant liability gain

5,468

 

 

2,750

 

 

14,608

 

 Interest expense, net

(8,773

)

 

(8,089

)

 

(7,239

)

 Other (expense) income, net

(4,569

)

 

(3,609

)

 

7

 

 Total (expense) other income

(7,874

)

 

(8,948

)

 

7,376

 

 

 

 

 

 

 

Loss before income taxes

(22,271

)

 

(26,436

)

 

(15,617

)

Income tax expense (benefit)

1,125

 

 

(10,320

)

 

1,353

 

Loss from continuing operations

(23,396

)

 

(16,116

)

 

(16,970

)

Loss from discontinued operations

 

 

(378

)

 

(5,599

)

Net loss

$

(23,396

)

 

$

(16,494

)

 

$

(22,569

)

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

Basic:

 

 

 

 

 

Loss from continuing operations

$

(0.36

)

 

$

(0.25

)

 

$

(0.26

)

Loss from discontinued operations

 

 

(0.01

)

 

(0.09

)

Loss per share - basic

$

(0.36

)

 

$

(0.25

)

 

$

(0.35

)

 

 

 

 

 

 

Diluted:

 

 

 

 

 

Loss from continuing operations

$

(0.44

)

 

$

(0.29

)

 

$

(0.49

)

Loss from discontinued operations

 

 

(0.01

)

 

(0.09

)

Loss per share - diluted

$

(0.44

)

 

$

(0.29

)

 

$

(0.57

)

 

 

 

 

 

 

Shares - Basic

65,277

 

 

65,170

 

 

64,325

 

Shares - Diluted

65,444

 

 

65,648

 

 

65,109

 

 

 

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and in thousands)


 

 

 

December 28, 2018

 

September 28, 2018

 

 

 

 ASSETS

 

 

 

 

 Current assets:

 

 

 

 

 Cash and cash equivalents

 

$

87,089

 

 

$

94,676

 

 Short term investments

 

98,670

 

 

98,221

 

 Accounts receivable, net

 

109,683

 

 

97,375

 

 Inventories

 

120,858

 

 

122,837

 

 Income tax receivable

 

17,820

 

 

17,601

 

 Assets held for sale, current

 

 

 

4,840

 

 Prepaids and other current assets

 

25,308

 

 

23,311

 

 Total current assets

 

459,428

 

 

458,861

 

 Property and equipment, net

 

148,884

 

 

149,923

 

 Goodwill and intangible assets, net

 

806,657

 

 

826,861

 

 Deferred income taxes

 

2,285

 

 

2,272

 

Other investments

 

26,538

 

 

31,094

 

 Other long-term assets

 

14,051

 

 

13,484

 

 TOTAL ASSETS

 

$

1,457,843

 

 

$

1,482,495

 

 

 

 

 

 

 LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 Current liabilities:

 

 

 

 

Current portion of lease payable

 

$

1,131

 

 

$

467

 

Current portion of long-term debt

 

6,885

 

 

6,885

 

Accounts payable

 

32,567

 

 

41,951

 

Accrued liabilities

 

45,064

 

 

49,945

 

Deferred revenue

 

7,532

 

 

7,757

 

 Total current liabilities

 

93,179

 

 

107,005

 

 Lease payable, less current portion

 

29,545

 

 

29,023

 

 Long-term debt obligations, less current portion

 

659,318

 

 

658,372

 

 Common stock warrant liability

 

7,661

 

 

13,129

 

 Deferred income taxes

 

442

 

 

389

 

 Other long-term liabilities

 

10,442

 

 

5,902

 

 Total liabilities

 

800,587

 

 

813,820

 

 Stockholders' equity

 

657,256

 

 

668,675

 

 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

1,457,843

 

 

$

1,482,495

 

 

 

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)


 

 

 

Three Months Ended

 

 

December 28, 2018

 

December 29, 2017

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net loss

 

$

(23,396

)

 

$

(22,569

)

Depreciation and amortization

 

28,184

 

 

26,874

 

Share based compensation

 

9,273

 

 

9,992

 

Warrant liability gain

 

(5,468

)

 

(14,608

)

Acquired inventory step-up amortization

 

 

 

224

 

Deferred income taxes

 

27

 

 

403

 

Loss on minority equity investment

 

4,556

 

 

 

Restructuring and impairment related charges

 

2,746

 

 

 

Other adjustments to reconcile loss to net operating cash

 

1,229

 

 

(4,224

)

Inventories

 

1,985

 

 

(8,017

)

Accounts receivable

 

(12,308

)

 

38,874

 

Change in other operating assets and liabilities

 

(3,919

)

 

(26,415

)

Net cash provided by operating activities

 

2,909

 

 

534

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Acquisition of businesses, net

 

(375

)

 

 

Sales, purchases and maturities of investments

 

(450

)

 

39,395

 

Purchases of other investments

 

 

 

(5,000

)

Proceeds associated with discontinued operations

 

 

 

(263

)

Purchases of property and equipment

 

(11,521

)

 

(13,823

)

Net cash (used in) provided by investing activities

 

(12,346

)

 

20,309

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Payments of notes payable and assumed debt

 

(185

)

 

(1,937

)

Proceeds from stock option exercises and employee stock purchases

 

2,392

 

 

3,241

 

Repurchase of common stock

 

(341

)

 

(259

)

Net cash provided by financing activities

 

1,866

 

 

1,045

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 

(16

)

 

93

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

(7,587

)

 

21,981

 

CASH AND CASH EQUIVALENTS — Beginning of period

 

94,676

 

 

130,104

 

CASH AND CASH EQUIVALENTS — End of period

 

$

87,089

 

 

$

152,085

 

 

 

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
RECONCILIATION OF GAAP TO NON-GAAP RESULTS

(unaudited and in thousands, except per share data)


 

 

 

 

 

 

 

 

Three Months Ended

 

December 28, 2018

September 28, 2018

December 29, 2017

 

 Amount

 % Revenue

 Amount

 % Revenue

 Amount

 % Revenue

Gross profit - GAAP

$

76,625

 

50.8

 

$

70,982

 

46.9

 

$

60,954

 

46.6

 

Amortization expense

8,053

 

5.3

 

8,515

 

5.6

 

8,146

 

6.2

 

Share-based and non-cash compensation

533

 

0.4

 

1,115

 

0.7

 

927

 

0.7

 

Impairment related charges

(991

)

(0.7

)

 

 

 

 

Acquisition, integration and restructuring related costs

547

 

0.4

 

1,176

 

0.8

 

338

 

0.3

 

Production and product line exits

 

 

1,000

 

0.7

 

 

 

Adjusted gross profit (Non-GAAP)

$

84,767

 

56.3

 

$

82,788

 

54.8

 

$

70,365

 

53.7

 

 

 

 

Three Months Ended

 

December 28, 2018

September 28, 2018

December 29, 2017

 

 Amount

 % Revenue

 Amount

 % Revenue

 Amount

 % Revenue

Operating expenses - GAAP

91,022

 

60.4

 

88,470

 

58.5

 

83,947

 

64.1

 

Amortization expense

(12,519

)

(8.3

)

(12,438

)

(8.2

)

(10,993

)

(8.4

)

Share-based and non-cash compensation

(8,530

)

(5.7

)

(6,984

)

(4.6

)

(8,289

)

(6.3

)

Impairment and restructuring charges

(4,978

)

(3.3

)

36

 

 

(4,661

)

(3.6

)

Litigation costs

(151

)

(0.1

)

(982

)

(0.6

)

(746

)

(0.6

)

Acquisition, integration and restructuring related costs

(1,972

)

(1.3

)

(3,117

)

(2.1

)

(2,315

)

(1.8

)

Production and product line exits

 

 

(857

)

(0.6

)

 

 

Adjusted operating expenses (Non-GAAP)

62,872

 

41.7

 

64,128

 

42.4

 

56,943

 

43.5

 

 

 

 

Three Months Ended

 

December 28, 2018

September 28, 2018

December 29, 2017

 

 Amount

 % Revenue

 Amount

 % Revenue

 Amount

 % Revenue

Loss from operations - GAAP

$

(14,397

)

(9.6

)

$

(17,488

)

(11.6

)

$

(22,993

)

(17.6

)

Amortization expense

20,572

 

13.7

 

20,953

 

13.9

 

19,139

 

14.6

 

Share-based and non-cash compensation

9,063

 

6.0

 

8,099

 

5.4

 

9,215

 

7.0

 

Impairment and restructuring charges

3,987

 

2.6

 

(36

)

 

4,661

 

3.6

 

Litigation costs

151

 

0.1

 

982

 

0.6

 

746

 

0.6

 

Acquisition, integration and restructuring related costs

2,519

 

1.7

 

4,293

 

2.8

 

2,653

 

2.0

 

Production and product line exits

 

 

1,857

 

1.2

 

 

 

Adjusted income from operations (Non-GAAP)

$

21,895

 

14.5

 

$

18,660

 

12.3

 

$

13,421

 

10.3

 

 

 

 

 

 

 

 

Depreciation expense

7,612

 

5.1

 

7,416

 

4.9

 

7,466

 

5.7

 

Adjusted EBITDA (Non-GAAP)

$

29,507

 

19.6

 

$

26,076

 

17.2

 

$

20,887

 

16.0

 

 

 

 

Three Months Ended

 

December 28, 2018

September 28, 2018

December 29, 2017

 

 Amount

 % Revenue

 Amount

 % Revenue

 Amount

 % Revenue

Net loss - GAAP

$

(23,396

)

(15.5

)

$

(16,494

)

(10.9

)

$

(22,569

)

(17.2

)

Amortization expense

20,572

 

13.7

 

20,953

 

13.9

 

19,139

 

14.6

 

Share-based and non-cash compensation

9,063

 

6.0

 

8,099

 

5.4

 

9,215

 

7.0

 

Impairment and restructuring charges

3,987

 

2.6

 

(36

)

 

4,661

 

3.6

 

Warrant liability expense (gain)

(5,468

)

(3.6

)

(2,750

)

(1.8

)

(14,608

)

(11.2

)

Non-cash interest, net

1,015

 

0.7

 

1,015

 

0.7

 

1,028

 

0.8

 

Litigation costs

151

 

0.1

 

982

 

0.6

 

746

 

0.6

 

Acquisition, integration and restructuring related costs

2,519

 

1.7

 

4,293

 

2.8

 

2,653

 

2.0

 

Production and product line exits

 

 

1,857

 

1.2

 

 

 

Discontinued operations

 

 

378

 

0.3

 

5,599

 

4.3

 

Equity investment and sale of business losses

4,446

 

3.0

 

3,462

 

2.3

 

 

 

Tax effect of non-GAAP adjustments

4

 

 

(11,235

)

(7.4

)

775

 

0.6

 

Adjusted net income (Non-GAAP)

$

12,893

 

8.6

 

$

10,524

 

7.0

 

$

6,639

 

5.1

 

 

 

 

Three Months Ended

 

December 28, 2018

September 28, 2018

December 29, 2017

 

Net Income (Loss)

Income (loss) per diluted share

Net Income (Loss)

Income (loss) per diluted share

Net Income (Loss)

Income (loss) per diluted share

Net loss - GAAP

$

(23,396

)

 

$

(16,494

)

 

(22,569

)

 

Warrant liability gain

(5,468

)

 

(2,750

)

 

(14,608

)

 

Net loss - diluted

$

(28,864

)

$

(0.44

)

$

(19,244

)

$

(0.29

)

$

(37,177

)

$

(0.57

)

 

 

 

 

 

 

 

Adjusted net loss (Non-GAAP)

$

12,893

 

$

0.20

 

$

10,524

 

$

0.16

 

$

6,639

 

$

0.10

 

 

 

 

Three Months Ended

 

December 28, 2018

September 28, 2018

December 29, 2017

 

Shares

 

Shares

 

Shares

 

Diluted shares - GAAP

65,444

 

 

65,648

 

 

65,109

 

 

Incremental shares

129

 

 

236

 

 

500

 

 

Adjusted diluted shares (Non-GAAP)

65,573

 

 

65,884

 

 

65,609

 

 

 

 

 

Three Months Ended

 

December 28, 2018

September 28, 2018

December 29, 2017

 

 Amount

 % Revenue

 Amount

 % Revenue

 Amount

 % Revenue

Interest expense, net - GAAP

$

8,773

 

5.8

 

$

8,089

 

5.4

 

$

7,239

 

5.5

 

Non-cash interest expense

(1,015

)

(0.7

)

(1,015

)

(0.7

)

(1,028

)

(0.8

)

Adjusted Interest Expense (Non-GAAP)

$

7,758

 

5.1

 

$

7,074

 

4.7

 

$

6,211

 

4.7

 

 

 

 

Three Months Ended

 

December 28, 2018

September 28, 2018

December 29, 2017

 

 Amount

 % Revenue

 Amount

 % Revenue

 Amount

 % Revenue

Cash flow from operations

$

2,909

 

1.9

 

$

25,076

 

16.6

 

$

534

 

0.4

 

Capital expenditures

(11,521

)

(7.6

)

(13,601

)

(9.0

)

(13,823

)

(10.6

)

AppliedMicro transaction-related payments

 

 

 

 

4,015

 

3.1

 

Free cash flow (Non-GAAP)

$

(8,612

)

(5.7

)

$

11,475

 

7.6

 

$

(9,274

)

(7.1

)

Free cash flow as a percentage of Adjusted net income

(67

)%

 

109

%

 

(140

)%

 

 

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