MACOM Reports Fiscal Second Quarter 2019 Financial Results


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited and in thousands, except per share data)

	Three Months Ended									Six Months Ended
	March 29, 2019			December 28, 2018			March 30, 2018			March 29, 2019			March 30, 2018
	March 29, 2019			December 28, 2018			March 30, 2018			March 29, 2019			March 30, 2018
Revenue	$	128,465		$	150,689		$	150,414		$	279,154		$	281,338
Cost of revenue	71,135			74,064			84,813			145,199			154,784
Gross profit	57,330			76,625			65,601			133,955			126,554
Operating expenses:
Research and development	42,361			43,525			41,596			85,885			83,246
Selling, general and administrative	41,998			42,519			39,287			84,518			76,922
Impairment charges	—			—			6,575			—			6,575
Restructuring charges	3,182			4,978			1,539			8,160			6,200
Total operating expenses	87,541			91,022			88,997			178,563			172,943
Loss from operations	(30,211		)	(14,397		)	(23,396		)	(44,608		)	(46,389		)
Other (expense) income:
Warrant liability (expense) gain	(1,607		)	5,468			17,015			3,862			31,624
Interest expense, net	(9,402		)	(8,773		)	(7,970		)	(18,175		)	(15,209		)
Other expense, net	(4,440		)	(4,569		)	(4,139		)	(9,010		)	(4,133		)
Total other (expense) income	(15,449		)	(7,874		)	4,906			(23,323		)	12,282

Loss before income taxes	(45,660		)	(22,271		)	(18,490		)	(67,931		)	(34,107		)
Income tax expense (benefit)	544			1,125			(3,024		)	1,669			(1,671		)
Loss from continuing operations	(46,204		)	(23,396		)	(15,466		)	(69,600		)	(32,436		)
Loss from discontinued operations	—			—			(18		)	—			(5,617		)
Net loss	$	(46,204	)	$	(23,396	)	$	(15,484	)	$	(69,600	)	$	(38,053	)

Net loss per share:
Basic:
Loss from continuing operations	$	(0.71	)	$	(0.36	)	$	(0.24	)	$	(1.06	)	$	(0.50	)
Loss from discontinued operations	—			—			—			—			(0.09		)
Loss per share - basic	$	(0.71	)	$	(0.36	)	$	(0.24	)	$	(1.06	)	$	(0.59	)

Diluted:
Loss from continuing operations	$	(0.71	)	$	(0.44	)	$	(0.50	)	$	(1.12	)	$	(0.98	)
Loss from discontinued operations	—			—			—			—			(0.09		)
Loss per share - diluted	$	(0.71	)	$	(0.44	)	$	(0.50	)	$	(1.12	)	$	(1.07	)

Shares - Basic	65,531			65,277			64,549			65,404			64,437
Shares - Diluted	65,531			65,444			65,132			65,610			65,120


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited and in thousands)

	March 29, 2019		September 28, 2018
	March 29, 2019		September 28, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	92,677	$	94,676
Short term investments	99,708		98,221
Accounts receivable, net	87,386		97,375
Inventories	119,940		122,837
Income tax receivable	15,765		17,601
Assets held for sale, current	—		4,840
Prepaids and other current assets	29,783		23,311
Total current assets	445,259		458,861
Property and equipment, net	149,952		149,923
Goodwill and intangible assets, net	786,931		826,861
Deferred income taxes	2,298		2,272
Other investments	22,123		31,094
Other long-term assets	13,383		13,484
TOTAL ASSETS	$	1,419,946	$	1,482,495

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of lease payable	$	1,194	$	467
Current portion of long-term debt	6,885		6,885
Accounts payable	35,080		41,951
Accrued liabilities	45,430		49,945
Deferred revenue	215		7,757
Total current liabilities	88,804		107,005
Lease payable, less current portion	29,147		29,023
Long-term debt obligations, less current portion	656,821		658,372
Common stock warrant liability	9,268		13,129
Deferred income taxes	452		389
Other long-term liabilities	18,429		5,902
Total liabilities	802,921		813,820
Stockholders' equity	617,025		668,675
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,419,946	$	1,482,495


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited and in thousands)

	Six Months Ended
	March 29, 2019			March 30, 2018
	March 29, 2019			March 30, 2018

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(69,600	)	$	(38,053	)
Depreciation and amortization	55,478			54,439
Share based compensation	17,349			15,342
Warrant liability gain	(3,862		)	(31,624		)
Acquired inventory step-up amortization	—			224
Deferred income taxes	46			(573		)
Loss on minority equity investment	8,971			4,085
Restructuring and impairment related charges	4,696			9,143
Other adjustments to reconcile loss to net operating cash	2,408			(2,860		)
Inventories	2,904			(9,240		)
Accounts receivable	9,989			28,992
Change in other operating assets and liabilities	(1,541		)	(18,719		)
Net cash provided by operating activities	26,838			11,156
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net	(375		)	—
Sales, purchases and maturities of investments	(504		)	56,241
Purchases of other investments	—			(5,000		)
Proceeds associated with discontinued operations	—			(263		)
Purchases of property and equipment	(22,600		)	(26,580		)
Net cash (used in) provided by investing activities	(23,479		)	24,398
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from corporate facility financing obligation	—			1,081
Payments of notes payable and assumed debt	(3,960		)	(3,847		)
Proceeds from stock option exercises and employee stock purchases	2,416			3,252
Repurchase of common stock	(3,426		)	(3,846		)
Other adjustments	(577		)	—
Net cash used in financing activities	(5,547		)	(3,360		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	189			397
NET CHANGE IN CASH AND CASH EQUIVALENTS	(1,999		)	32,591
CASH AND CASH EQUIVALENTS — Beginning of period	94,676			130,104
CASH AND CASH EQUIVALENTS — End of period	$	92,677		$	162,695


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC. RECONCILIATION OF GAAP TO NON-GAAP RESULTS (unaudited and in thousands, except per share data)

	Three Months Ended							Six Months Ended
	March 29, 2019			December 28, 2018		March 30, 2018		March 29, 2019			March 30, 2018
	Amount			Amount		Amount		Amount			Amount
Revenue - GAAP	$	128,465		$	150,689	$	150,414	$	279,154		$	281,338
Deferred revenue	(7,000		)	—		—		(7,000		)	—
Adjusted revenue (Non-GAAP)	$	121,465		$	150,689	$	150,414	$	272,154		$	281,338


	Three Months Ended													Six Months Ended
	March 29, 2019					December 28, 2018					March 30, 2018			March 29, 2019					March 30, 2018
	Amount			% Revenue		Amount			% Revenue		Amount		% Revenue	Amount			% Revenue		Amount		% Revenue
Gross profit - GAAP	$	57,330		44.6		$	76,625		50.8		$	65,601	43.6	$	133,955		48.0		$	126,554	45.0
Amortization expense	7,872			6.5		8,053			5.3		8,173		5.4	15,925			5.9		16,320		5.8
Share-based and non-cash compensation	942			0.8		533			0.4		952		0.6	1,475			0.5		1,879		0.7
Impairment related charges	—			—		(991		)	(0.7	)	2,568		1.7	(991		)	(0.4	)	2,568		0.9
Acquisition, integration and restructuring related costs	—			—		547			0.4		358		0.2	547			0.2		697		0.2
Deferred revenue	(7,000		)	(5.8	)	—			—		—		—	(7,000		)	(2.6	)	—		—
Adjusted gross profit (Non-GAAP)	$	59,144		48.7		$	84,767		56.3		$	77,652	51.6	$	143,911		52.9		$	148,018	52.6


	Three Months Ended															Six Months Ended
	March 29, 2019					December 28, 2018					March 30, 2018					March 29, 2019					March 30, 2018
	Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue
Operating expenses - GAAP	$	87,541		68.1		$	91,022		60.4		$	88,997		59.2		$	178,563		64.0		$	172,943		61.5
Amortization expense	(11,883		)	(9.8	)	(12,519		)	(8.3	)	(11,753		)	(7.8	)	(24,402		)	(9.0	)	(22,746		)	(8.1	)
Share-based and non-cash compensation	(8,279		)	(6.8	)	(8,530		)	(5.7	)	(3,683		)	(2.4	)	(16,808		)	(6.2	)	(11,972		)	(4.3	)
Impairment and restructuring charges	(3,182		)	(2.6	)	(4,978		)	(3.3	)	(8,114		)	(5.4	)	(8,160		)	(3.0	)	(12,775		)	(4.5	)
Litigation costs	(16		)	—		(151		)	(0.1	)	(781		)	(0.5	)	(167		)	(0.1	)	(1,527		)	(0.5	)
Acquisition, integration and restructuring related costs	(848		)	(0.7	)	(1,972		)	(1.3	)	(2,753		)	(1.8	)	(2,821		)	(1.0	)	(5,069		)	(1.8	)
Adjusted operating expenses (Non-GAAP)	$	63,333		52.1		$	62,872		41.7		$	61,913		41.2		$	126,205		46.4		$	118,854		42.2


	Three Months Ended															Six Months Ended
	March 29, 2019					December 28, 2018					March 30, 2018					March 29, 2019					March 30, 2018
	Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue
Loss from operations - GAAP	$	(30,211	)	(23.5	)	$	(14,397	)	(9.6	)	$	(23,396	)	(15.6	)	$	(44,608	)	(16.0	)	$	(46,389	)	(16.5	)
Amortization expense	19,756			16.3		20,572			13.7		19,926			13.2		40,327			14.8		39,065			13.9
Share-based and non-cash compensation	9,190			7.6		9,063			6.0		4,635			3.1		18,252			6.7		13,851			4.9
Impairment and restructuring charges	3,182			2.6		3,987			2.6		10,681			7.1		7,169			2.6		15,343			5.5
Litigation costs	16			—		151			0.1		781			0.5		167			0.1		1,527			0.5
Acquisition, integration and restructuring related costs	879			0.7		2,519			1.7		3,112			2.1		3,398			1.2		5,765			2.0
Deferred revenue	(7,000		)	(5.8	)	—			—		—			—		(7,000		)	(2.6	)	—			—
Adjusted (loss) income from operations (Non-GAAP)	$	(4,188	)	(3.4	)	$	21,895		14.5		$	15,739		10.5		$	17,705		6.5		$	29,162		10.4

Depreciation expense	7,539			6.2		7,612			5.1		7,622			5.1		15,151			5.6		15,088			5.4
Adjusted EBITDA (Non-GAAP)	$	3,351		2.8		$	29,507		19.6		$	23,361		15.5		$	32,856		12.1		$	44,250		15.7


	Three Months Ended															Six Months Ended
	March 29, 2019					December 28, 2018					March 30, 2018					March 29, 2019					March 30, 2018
	Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue
Net loss - GAAP	$	(46,204	)	(36.0	)	$	(23,396	)	(15.5	)	$	(15,484	)	(10.3	)	$	(69,600	)	(24.9	)	$	(38,053	)	(13.5	)
Amortization expense	19,756			16.3		20,572			13.7		19,926			13.2		40,327			14.8		39,065			13.9
Share-based and non-cash compensation	9,190			7.6		9,063			6.0		4,635			3.1		18,252			6.7		13,851			4.9
Impairment and restructuring charges	3,182			2.6		3,987			2.6		10,681			7.1		7,169			2.6		15,343			5.5
Warrant liability expense (gain)	1,607			1.3		(5,468		)	(3.6	)	(17,015		)	(11.3	)	(3,862		)	(1.4	)	(31,624		)	(11.2	)
Non-cash interest, net	1,015			0.8		1,015			0.7		1,508			1.0		2,031			0.7		2,536			0.9
Litigation costs	16			—		151			0.1		781			0.5		167			0.1		1,527			0.5
Acquisition, integration and restructuring related costs	879			0.7		2,519			1.7		3,112			2.1		3,398			1.2		5,765			2.0
Production and product line exits	—			—		—			—		—			—		—			—		—			—
Discontinued operations	—			—		—			—		18			—		—			—		5,617			2.0
Equity investment and sale of business losses	4,415			3.6		4,446			3.0		4,085			2.7		8,860			3.3		4,085			1.5
Deferred revenue	(7,000		)	(5.8	)	—			—		—			—		(7,000		)	(2.6	)	—			—
Tax effect of non-GAAP adjustments	1,552			1.3		4			—		(3,762		)	(2.5	)	1,556			0.6		(2,986		)	(1.1	)
Adjusted net (loss) income (Non-GAAP)	$	(11,592	)	(9.5	)	$	12,893		8.6		$	8,485		5.6		$	1,298		0.5		$	15,126		5.4


	Three Months Ended																		Six Months Ended
	March 29, 2019						December 28, 2018						March 30, 2018						March 29, 2019						March 30, 2018
	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	$	(46,204	)				$	(23,396	)				(15,484		)				(69,600		)				(38,053		)
Warrant liability gain	—						(5,468		)				(17,015		)				(3,862		)				(31,624		)
Net loss - diluted	$	(46,204	)	$	(0.71	)	$	(28,864	)	$	(0.44	)	$	(32,499	)	$	(0.50	)	$	(73,462	)	$	(1.12	)	$	(69,677	)	$	(1.07	)

Adjusted net (loss) income (Non-GAAP)	$	(11,592	)	$	(0.18	)	$	12,893		$	0.20		$	8,485		$	0.13		$	1,298		$	0.02		$	15,126		$	0.23


	Three Months Ended			Six Months Ended
	March 29, 2019	December 28, 2018	March 30, 2018	March 29, 2019	March 30, 2018
	Shares	Shares	Shares	Shares	Shares
Diluted shares - GAAP	65,531	65,444	65,132	65,610	65,120
Incremental shares	425	129	478	155	489
Adjusted diluted shares (Non-GAAP)	65,956	65,573	65,610	65,765	65,609


	Three Months Ended															Six Months Ended
	March 29, 2019					December 28, 2018					March 30, 2018					March 29, 2019					March 30, 2018
	Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue
Interest expense, net - GAAP	$	9,402		7.3		$	8,773		5.8		$	7,970		5.3		$	18,175		6.5		$	15,209		5.4
Non-cash interest expense	(1,016		)	(0.8	)	(1,015		)	(0.7	)	(1,508		)	(1.0	)	(2,031		)	(0.7	)	(2,536		)	(0.9	)
Adjusted Interest Expense (Non-GAAP)	$	8,386		6.9		$	7,758		5.1		$	6,462		4.3		$	16,144		5.9		$	12,673		4.5


	Three Months Ended															Six Months Ended
	March 29, 2019					December 28, 2018					March 30, 2018					March 29, 2019					March 30, 2018
	Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue
Cash flow from operations	$	23,929		18.6		$	2,909		1.9		$	10,621		7.1		$	26,838		9.6		$	11,156		4.0
Capital expenditures	(11,079		)	(9.1	)	(11,521		)	(7.6	)	(12,756		)	(8.5	)	(22,600		)	(8.3	)	(26,580		)	(9.4	)
AppliedMicro transaction-related payments	—			—		—			—		—			—		—			—		4,015			1.4
Free cash flow (Non-GAAP)	$	12,850		10.6		$	(8,612	)	(5.7	)	$	(2,135	)	(1.4	)	$	4,238		1.6		$	(11,409	)	(4.1	)
Free cash flow as a percentage of Adjusted net income	111		%			(67		)%			(25		)%			327		%			(75		)%

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