MACOM Reports Fiscal First Quarter 2019 Financial Results

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
	December 28, 2018			September 28, 2018			December 29, 2017
	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
	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
	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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