Market Overview

MACOM Reports Fiscal Third Quarter 2018 Financial Results

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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 third quarter ended June 29, 2018.

Third Quarter Fiscal Year 2018 GAAP Results

  • Revenue was $137.9 million, a decrease of 29.1% compared to $194.6
    million in the previous year fiscal third quarter and a decrease of
    8.3% compared to $150.4 million in the prior fiscal quarter;
  • Fiscal third quarter revenue included $0.4 million compared to $12.4
    million in the fiscal second quarter from the LR4 subassembly business
    divested on May 10, 2018;
  • Gross profit was $48.2 million, a decrease of 48.0% compared to $92.6
    million in the previous year fiscal third quarter and a decrease of
    26.6% compared to $65.6 million in the prior fiscal quarter;
  • Gross margin was 34.9%, compared to 47.6% in the previous year fiscal
    third quarter and 43.6% in the prior fiscal quarter;
  • Operating loss was $42.6 million, compared to operating income of $6.6
    million in the previous year fiscal third quarter and operating loss
    of $23.4 million in the prior fiscal quarter; and
  • Net loss from continuing operations was $85.2 million, or $1.31 loss
    per diluted share, compared to net loss from continuing operations of
    $14.0 million, or $0.22 loss per diluted share, in the previous year
    fiscal third quarter and net loss from continuing operations of $15.5
    million, or $0.50 loss per diluted share, in the prior fiscal quarter.

Third Quarter Fiscal Year 2018 Adjusted Non-GAAP Results

  • Adjusted revenue, which includes $7.0 million of deferred revenue, was
    $144.9 million, a decrease of 25.5% compared to $194.6 million in the
    previous year fiscal third quarter and a decrease of 3.7% compared to
    $150.4 million in the prior fiscal quarter.
  • Adjusted gross margin was 56.0%, compared to 58.5% in the previous
    year fiscal third quarter and 51.6% in the prior fiscal quarter;
  • Adjusted operating income was $16.5 million, or 11.4% of revenue,
    compared to $52.9 million, or 27.2% of revenue, in the previous year
    fiscal third quarter and $15.7 million, or 10.5% of revenue, in the
    prior fiscal quarter;
  • Adjusted net income was $8.6 million, or $0.13 per diluted share,
    compared to $43.9 million, or $0.67 per diluted share, in the previous
    year fiscal third quarter and $8.5 million, or $0.13 per diluted
    share, in the prior fiscal quarter; and
  • Adjusted EBITDA was $24.1 million, compared to $61.6 million for the
    previous year fiscal third quarter and $23.4 million for the prior
    fiscal quarter.

Management Commentary

"Overall the quarter played out largely as expected," commented John
Croteau, President and CEO of MACOM. "We made tangible progress in yield
improvements for our 25G lasers and are now starting to execute a
controlled ramp, scaling into high volume production. Based on our
expected higher production volumes of 25G lasers, we added a new
white-box transceiver customer, thereby launching our Data Center
solutions business model. This business model provides dedicated
transceiver manufacturing capacity and a ready-made supply chain to the
end markets, and for MACOM, a dedicated customer which we anticipate
will consume our Data Center semiconductor components as we scale
production in the second half of calendar 2018."

Mr. Croteau concluded, "With increasing availability of our lasers, we
believe that we are well positioned to step and repeat, scaling our
solutions business model by enabling multiple, high-volume manufacturing
customers to begin production ramps to meet industry demand over the
course of the coming quarters."

Business Outlook

For the fiscal fourth quarter ending September 28, 2018, MACOM expects
adjusted revenue to be in the range of $149 million to $155 million.
Adjusted gross margin is expected to be between 55% and 57%, and
adjusted earnings per share between $0.15 and $0.17 on an anticipated
66.5 million fully diluted shares outstanding.

Conference Call

MACOM will host a conference call on Tuesday, July 31, 2018 at 5:00 p.m.
Eastern Time to discuss its fiscal third quarter 2018 financial results
and business outlook. Investors and analysts may join the conference
call by dialing 1-877-837-3908 and providing the passcode 3978874.

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 3978874.
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, Asia and Australia.

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
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 for business and market conditions,
positioning and growth aspirations in the Industrial & Defense,
Datacenter Telecom, Cloud Data Center, 5G Telecom and China markets and
elsewhere, 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, our
expectations regarding a customer's consumption of our Data Center
semiconductor components, our belief that the December quarter marked
the bottom of the cycle for MACOM in terms of revenue and demand, our
anticipated ability to navigate international trade tensions, 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 now, 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 quarter-by-quarter throughout calendar 2018 and that the
exact slope will be paced by 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, our expectation that our exit of the LR4
subassembly business will result in better overall cost structures for
our TOSA customers, 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
outcome of our ongoing 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, GaN technology and Active Antennas, 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 recently resolved
ZTE export ban or previously announced Huawei investigation) 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 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 potential increases in 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
in consummating or failure to consummate the LR4 subassembly divestment
based on required regulatory approvals or otherwise, 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 Antennas,
SPAR tiles, GaN, InP lasers 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 ("SEC"), including its Annual Report
on Form 10-K for the fiscal year ended September 29, 2017, as filed on
November 15, 2017, its Quarterly Report on Form 10-Q for the fiscal
quarter ended December 29, 2017, as filed on February 7, 2018 and its
Quarterly Report on Form 10-Q for the fiscal quarter ended March 30,
2018, as filed on May 3, 2018. 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
revenue, 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. The non-GAAP information includes income associated with a
consulting agreement that we entered into in connection with the
Automotive divestiture which ended in August 2017.

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:

Deferred Revenue - includes deferred revenue invoiced during the
third fiscal quarter of 2018 which is associated with our new Data
Center solutions business model. After multiple quarters of negotiation
with the customer, we included the associated revenue in our financial
guidance for the fiscal third quarter. In the fiscal third quarter,
MACOM delivered materials required, and received customer written
acceptance and MACOM's understanding is that the customer is processing
payment in accordance with the contractual terms. We believe that
presenting this deferred revenue amount in the current quarter as
non-GAAP revenue best aligns with our historical revenue recognition for
product sales and other revenue offerings in line with presenting
meaningful results of operations. We expect the non-GAAP deferred
revenue to be recorded as GAAP revenue in the fiscal fourth quarter and
be deducted from non-GAAP revenue. This non-GAAP deferred revenue is
excluded from our fiscal fourth quarter financial guidance.

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 as well as non-cash compensation expense
primarily associated with amounts due to employees of an acquired
business that were placed in escrow at the time of the acquisition and
amortized as expense over a 2-year period. 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. 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 excluding consulting income - includes
the profit and loss amounts of discontinued operations, with the
exception of consulting income associated with a consulting agreement we
entered into at the time of our Automotive business divestiture. 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 as well as the $34 million loss associated with the third
quarter of 2018 sale of our LR4 business. We believe the investment
losses are non-cash in nature and the sale of the LR4 business is not
correlated to future business operations and including such amounts does
not reflect our ongoing operations.

Other - primarily includes transaction expenses incurred as part
of our Credit Agreement Amendments in the second, third and fourth
fiscal quarters of 2017. We believe these amounts are not correlated to
future business operations and including such charges 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 12% for our first
fiscal quarter of 2017, 10% for our second, third and fourth fiscal
quarters of 2017 and 8% for our fiscal year 2018. 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 the three months
ended March 31, 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
and consulting agreement income 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.

       

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share data)

 
Three Months Ended Nine Months Ended

June 29,
2018

   

March 30,
2018

   

June 30,
2017

June 29,
2018

   

June 30,
2017

Revenue $ 137,872 $ 150,414 $ 194,555 $ 419,210 $ 532,391
Cost of revenue 89,703   84,813   101,926   244,486   292,403  
Gross profit 48,169   65,601   92,629   174,724   239,988  
Operating expenses:
Research and development 48,240 41,596 38,729 131,487 108,588
Selling, general and administrative 42,471 39,287 46,666 119,393 145,488
Impairment charges 6,575 6,575
Restructuring charges 102   1,539   586   6,302   2,342  
Total operating expenses 90,813   88,997   85,981   263,757   256,418  
(Loss) income from operations (42,644 ) (23,396 ) 6,648   (89,033 ) (16,430 )
Other income (expense):
Warrant liability (expense) gain (6,728 ) 17,015 (9,085 ) 24,895 (16,481 )
Interest expense, net (8,039 ) (7,970 ) (7,178 ) (23,249 ) (21,902 )
Other expense, net (37,281 ) (4,139 ) (1,139 ) (41,413 ) (2,042 )
Total other (expense) income (52,048 ) 4,906   (17,402 ) (39,767 ) (40,425 )
 
Loss before income taxes (94,692 ) (18,490 ) (10,754 ) (128,800 ) (56,855 )
Income tax (benefit) expense (9,482 ) (3,024 ) 3,223   (11,153 ) 93,559  
Loss from continuing operations (85,210 ) (15,466 ) (13,977 ) (117,647 ) (150,414 )
Loss from discontinued operations (220 ) (18 ) (13,700 ) (5,837 ) (8,358 )
Net loss $ (85,430 ) $ (15,484 ) $ (27,677 ) $ (123,484 ) $ (158,772 )
 
Net loss per share:
Basic:
Loss from continuing operations $ (1.31 ) $ (0.24 ) $ (0.22 ) $ (1.82 ) $ (2.53 )
Loss from discontinued operations 0.00   0.00     (0.21 )   (0.09 )   (0.14 )
Loss per share - basic $ (1.32 ) $ (0.24 ) $ (0.43 ) $ (1.91 ) $ (2.67 )
 
Diluted:
Loss from continuing operations $ (1.31 ) $ (0.50 ) $ (0.22 ) $ (2.19 ) $ (2.53 )
Loss from discontinued operations 0.00     0.00     (0.21 )   (0.09 ) (0.14 )
Loss per share - diluted $ (1.32 ) $ (0.50 ) $ (0.43 ) $ (2.28 ) $ (2.67 )
 
Shares - Basic 64,920   64,549   64,019   64,598   59,524  
Shares - Diluted 64,920   65,132   64,019   65,198   59,524  
         

 

 

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and in thousands)

 

June 29, 2018

September 29,
2017

ASSETS
Current assets:
Cash and cash equivalents $ 85,268 $ 130,104
Short term investments 97,723 84,121
Accounts receivable, net 101,285 136,096
Inventories 122,866 136,074
Income tax receivable 19,945 18,493
Assets held for sale, current 4,971 35,571
Prepaids and other current assets 22,335   22,438
Total current assets 454,393 562,897
Property and equipment, net 139,415 131,019
Goodwill and intangible assets, net 848,277 934,857
Deferred income taxes 1,662 948
Other investments 34,259
Other long-term assets 7,709   7,402
TOTAL ASSETS $ 1,485,715   $ 1,637,123
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of lease payable $ 499 $ 815
Current portion of long-term debt 6,885 6,885
Accounts payable 29,370 47,038
Accrued liabilities 46,446 58,243
Liabilities held for sale 2,144
Deferred revenue 8,279   1,994
Total current liabilities 91,479 117,119
Lease payable, less current portion 26,658 17,275
Long-term debt obligations, less current portion 659,146 661,471
Common stock warrant liability 15,880 40,775
Deferred income taxes 7,791 15,172
Other long-term liabilities 5,724   7,937
Total liabilities 806,678 859,749
Stockholders' equity 679,037   777,374
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,485,715   $ 1,637,123
 

 

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)

 
      Nine Months Ended
June 29, 2018     June 30, 2017
 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (123,484 ) $ (158,772 )
Depreciation and amortization 83,695 65,823
Share based compensation 24,095 27,666
Warrant liability (gain) expense (24,895 ) 16,481
Acquired inventory step-up amortization 224 43,985
Loss (gain) on disposition of business 34,046 (17,316 )
Deferred income taxes (8,502 ) 87,608
Loss on minority equity investment 7,241
Impairment related charges 9,143
Other adjustments to reconcile loss to net operating cash (1,758 ) 5,344
Inventories (1,617 ) 7,997
Accounts receivable 34,769 (12,755 )
Change in other operating assets and liabilities (21,741 ) (17,372 )
Net cash provided by operating activities 11,216   48,689  
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net (231,712 )
Sales, purchases and maturities of investments (13,941 ) (58,088 )
Purchases of other investments (5,000 )
Proceeds associated with discontinued operations (263 ) 23,645
Sale of businesses and assets 5,000 215
Purchases of property and equipment (39,443 ) (24,496 )
Net cash used in investing activities (53,647 ) (290,436 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 96,558
Payments of financing costs (505 ) (9,077 )
Proceeds from corporate facility financing obligation 4,000 4,250
Payments of notes payable and assumed debt (5,734 ) (3,954 )
Proceeds from stock option exercises and employee stock purchases 6,944 8,162
Repurchase of common stock (6,673 ) (18,092 )
Other adjustments (478 ) (1,296 )
Net cash used in (provided by) financing activities (2,446 ) 76,551  
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 41   (175 )
NET CHANGE IN CASH AND CASH EQUIVALENTS (44,836 ) (165,371 )
CASH AND CASH EQUIVALENTS — Beginning of period 130,104   332,977  
CASH AND CASH EQUIVALENTS — End of period $ 85,268   $ 167,606  
 
Supplemental disclosure of non-cash activities
Issuance of common stock in connection with the AppliedMicro
Acquisition
465,082
       

MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

RECONCILIATION OF GAAP TO NON-GAAP RESULTS

(unaudited and in thousands, except per share data)

 

Three Months Ended Nine Months Ended
June 29, 2018   March 30, 2018   June 30, 2017 June 29, 2018   June 30, 2017
Amount   Amount   Amount   Amount   Amount
Revenue - GAAP $ 137,872 $ 150,414 $ 194,555 $ 419,210 $ 532,391
Deferred revenue 7,000             7,000    
Adjusted revenue (Non-GAAP) $ 144,872     $ 150,414     $ 194,555     $ 426,210     $ 532,391
      Three Months Ended   Nine Months Ended
June 29, 2018   March 30, 2018   June 30, 2017 June 29, 2018   June 30, 2017
Amount   % Revenue Amount   % Revenue Amount   % Revenue Amount   % Revenue Amount   % Revenue
Gross profit - GAAP $ 48,169 34.9 $ 65,601 43.6 $ 92,629 47.6 $ 174,724 41.7 $ 239,988 45.1
Amortization expense 8,593 5.9 8,173 5.4 8,416 4.3 24,913 5.8 21,694 4.1
Share-based and non-cash compensation 1,059 0.7 952 0.6 956 0.5 2,938 0.7 2,716 0.5
Impairment related charges 2,568 1.7 2,568 0.6
Acquisition, integration and restructuring related costs 93 0.1 358 0.2 11,736 6.0 790 0.2 45,075 8.5
Production and product line exits 16,165 11.2 16,165 3.8
Deferred revenue 7,000   4.8           7,000   1.6    
Adjusted gross profit (Non-GAAP) $ 81,079   56.0   $ 77,652   51.6   $ 113,737   58.5   $ 229,098   53.8   $ 309,473   58.1
       
Three Months Ended Nine Months Ended
June 29, 2018   March 30, 2018   June 30, 2017 June 29, 2018   June 30, 2017
Amount   % Revenue Amount   % Revenue Amount   % Revenue Amount   % Revenue Amount   % Revenue
Operating expenses - GAAP 90,813 65.9 88,997 59.2 85,981 44.2 263,757 62.9 256,418 48.2
Amortization expense (13,083 ) (9.0 ) (11,753 ) (7.8 ) (10,832 ) (5.6 ) (35,828 ) (8.4 ) (24,462 ) (4.6 )
Share-based and non-cash compensation (8,657 ) (6.0 ) (3,683 ) (2.4 ) (9,833 ) (5.1 ) (20,630 ) (4.8 ) (30,384 ) (5.7 )
Impairment and restructuring charges (102 ) (0.1 ) (8,114 ) (5.4 ) (586 ) (0.3 ) (12,877 ) (3.0 ) (2,342 ) (0.4 )
Litigation costs (997 ) (0.7 ) (781 ) (0.5 ) (569 ) (0.3 ) (2,525 ) (0.6 ) (1,610 ) (0.3 )
Acquisition, integration and restructuring related costs (1,763 ) (1.2 ) (2,753 ) (1.8 ) (2,645 ) (1.4 ) (6,831 ) (1.6 ) (29,746 ) (5.6 )
Production and product line exits (1,589 ) (1.1 ) (1,589 ) (0.4 )
Other         (719 ) (0.4 )     (905 ) (0.2 )
Adjusted operating expenses (Non-GAAP) 64,622   44.6   61,913   41.2   60,797   31.2   183,477   43.0   166,969   31.4  
       
Three Months Ended Nine Months Ended
June 29, 2018   March 30, 2018   June 30, 2017 June 29, 2018   June 30, 2017
Amount   % Revenue Amount   % Revenue Amount   % Revenue Amount   % Revenue Amount   % Revenue
Loss from operations - GAAP $ (42,644 ) (30.9 ) $ (23,396 ) (15.6 ) $ 6,648 3.4 $ (89,033 ) (21.2 ) $ (16,430 ) (3.1 )
Amortization expense 21,676 15.0 19,926 13.2 19,248 9.9 60,741 14.3 46,157 8.7
Share-based and non-cash compensation 9,716 6.7 4,635 3.1 10,789 5.5 23,567 5.5 33,100 6.2
Impairment and restructuring charges 102 0.1 10,681 7.1 586 0.3 15,444 3.6 2,342 0.4
Litigation costs 997 0.7 781 0.5 569 0.3 2,525 0.6 1,610 0.3
Acquisition, integration and restructuring related costs 1,856 1.3 3,112 2.1 14,380 7.4 7,621 1.8 74,821 14.1
Production and product line exits 17,753 12.3 17,753 4.2
Deferred revenue 7,000 4.8 7,000 1.6
Other         719   0.4       905   0.2  
Adjusted income from operations (Non-GAAP) $ 16,456   11.4   $ 15,739   10.5   $ 52,939   27.2   $ 45,618   10.7   $ 142,505   26.8  
 
Depreciation expense 7,597 5.2 7,622 5.1 6,739 3.5 22,685 5.3 18,447 3.5
Consulting income         1,875   1.0       5,625   1.1  
Adjusted EBITDA (Non-GAAP) $ 24,053   16.6   $ 23,361   15.5   $ 61,553   31.6   $ 68,303   16.0   $ 166,577   31.3  
      Three Months Ended   Nine Months Ended
June 29, 2018   March 30, 2018   June 30, 2017 June 29, 2018   June 30, 2017
Amount   % Revenue Amount   % Revenue Amount   % Revenue Amount   % Revenue Amount   % Revenue
Net loss - GAAP $ (85,430 ) (62.0 ) $ (15,484 ) (10.3 ) $ (27,677 ) (14.2 ) $ (123,484 ) (29.5 ) $ (158,772 ) (29.8 )
Amortization expense 21,676 15.0 19,926 13.2 19,248 9.9 60,741 14.3 46,157 8.7
Share-based and non-cash compensation 9,716 6.7 4,635 3.1 10,789 5.5 23,567 5.5 33,100 6.2
Impairment and restructuring charges 102 0.1 10,681 7.1 586 0.3 15,444 3.6 2,342 0.4
Warrant liability expense (gain) 6,728 4.6 (17,015 ) (11.3 ) 9,085 4.7 (24,895 ) (5.8 ) 16,480 3.1
Non-cash interest, net 1,036 0.7 1,508 1.0 1,122 0.6 3,572 0.8 2,546 0.5
Litigation costs 997 0.7 781 0.5 569 0.3 2,525 0.6 1,610 0.3
Acquisition, integration and restructuring related costs 1,856 1.3 3,112 2.1 14,380 7.4 7,621 1.8 74,821 14.1
Production and product line exits 17,753 12.3 17,753 4.2
Discontinued operations, excluding consulting income 220 0.2 18 15,575 8.0 5,837 1.4 13,983 2.6
Equity investment and sale of business losses 37,202 25.7 4,085 2.7 41,287 9.7
Deferred revenue 7,000 4.8 7,000 1.6
Other 1,856 1.0 2,913 0.5
Tax effect of non-GAAP adjustments (10,232 ) (7.1 ) (3,762 ) (2.5 ) (1,653 ) (0.8 ) (13,218 ) (3.1 ) 79,962   15.0  
Adjusted net income (Non-GAAP) $ 8,624   6.0   $ 8,485   5.6   $ 43,880   22.6   $ 23,750   5.6   $ 115,142   21.6  
       
Three Months Ended Nine Months Ended
June 29, 2018   March 30, 2018   June 30, 2017 June 29, 2018   June 30, 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 Income
(Loss)

 

Income (loss)
per diluted
share

Net Income
(Loss)

 

Income (loss)
per diluted
share

Net loss - GAAP $ (85,430 ) $ (15,484 ) (27,677 ) (123,484 ) (158,772 )
Warrant liability gain     (17,015 )       (24,895 )      
Net loss - diluted $ (85,430 ) $ (1.32 ) $ (32,499 ) $ (0.50 ) $ (27,677 ) $ (0.43 ) $ (148,379 ) $ (2.28 ) $ (158,772 ) $ (2.67 )
                   
Adjusted (Non-GAAP) $ 8,624   $ 0.13   $ 8,485   $ 0.13   $ 43,880   $ 0.67   $ 23,750   $ 0.36   $ 115,142   $ 1.87  
       
Three Months Ended Nine Months Ended
June 29, 2018   March 30, 2018   June 30, 2017 June 29, 2018   June 30, 2017
Shares       Shares       Shares       Shares       Shares
Diluted shares - GAAP 64,920   65,132   64,019   65,198   59,524
Incremental shares 725         478         1,916         423         1,941
Adjusted diluted shares (Non-GAAP) 65,645         65,610         65,935         65,621         61,465
       
Three Months Ended Nine Months Ended
June 29, 2018   March 30, 2018   June 30, 2017 June 29, 2018   June 30, 2017
Amount   % Revenue   Amount   % Revenue   Amount   % Revenue   Amount   % Revenue   Amount   % Revenue
Interest expense, net - GAAP $ 8,039   5.8 $ 7,970   5.3 $ 7,178   3.7 $ 23,249   5.5 $ 21,902   4.1
Non-cash interest expense (1,036 )   (0.7 )   (1,508 )   (1.0 )   (1,122 )   (0.6 )   (3,573 )   (0.8 )   (2,546 )   (0.5 )
Adjusted Interest Expense (Non-GAAP) $ 7,003     4.8     $ 6,462     4.3     $ 6,056     3.1     $ 19,676     4.6     $ 19,356     3.6  
       
Three Months Ended Nine Months Ended
June 29, 2018   March 30, 2018   June 30, 2017 June 29, 2018   June 30, 2017
Amount   % Revenue   Amount   % Revenue   Amount   % Revenue   Amount   % Revenue   Amount   % Revenue
Cash flow from operations $ 59   $ 10,621   7.1 $ 27,850   14.3 $ 11,216   2.7 $ 48,689   9.1
Capital expenditures (12,863 ) (8.9 ) (12,756 ) (8.5 ) (8,201 ) (4.2 ) (39,443 ) (9.3 ) (24,496 ) (4.6 )
AppliedMicro transaction related payments                 419     0.2             28,533     5.4  
Free cash flow (Non-GAAP) $ (12,804 )   (8.8 )   $ (2,135 )   (1.4 )   $ 20,068     10.3     $ (28,227 )   (6.6 )   $ 52,726     9.9  
Free cash flow as a percentage of adjusted net income (148 )%       (25 )%       46 %       (119 )%       46 %    

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