Press release

MACOM Reports Fiscal Second Quarter 2019 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 second quarter ended March 29, 2019.

Second Quarter Fiscal Year 2019 GAAP Results

  • Revenue was $128.5 million, a decrease of 14.6% compared to $150.4
    million in the previous year fiscal second quarter and a decrease of
    14.7% compared to $150.7 million in the prior fiscal quarter;
  • Gross profit was $57.3 million, a decrease of 12.6% compared to $65.6
    million in the previous year fiscal second quarter and a decrease of
    25.2% compared to $76.6 million in the prior fiscal quarter;
  • Gross margin was 44.6%, compared to 43.6% in the previous year fiscal
    second quarter and 50.8% in the prior fiscal quarter;
  • Operating loss was $30.2 million, compared to a loss of $23.4 million
    in the previous year fiscal second quarter and a loss of $14.4 million
    in the prior fiscal quarter; and
  • Net loss from continuing operations was $46.2 million, or $0.71 loss
    per diluted share, compared to net loss of $15.5 million, or $0.50
    loss per diluted share, in the previous year fiscal second quarter and
    net loss of $23.4 million, or $0.44 loss per diluted share, in the
    prior fiscal quarter.

Second Quarter Fiscal Year 2019 Adjusted Non-GAAP Results

  • Adjusted revenue, which excludes $7.0 million of revenue that was
    previously included as adjusted revenue in the fiscal third quarter of
    2018, was $121.5 million, a decrease of 19.2% compared to $150.4
    million in the previous year fiscal second quarter and a decrease of
    19.4% compared to $150.7 million in the prior fiscal quarter;
  • Adjusted gross margin was 48.7%, compared to 51.6% in the previous
    year fiscal second quarter and 56.3% in the prior fiscal quarter;
  • Adjusted operating loss was $4.2 million, or 3.4% of revenue, compared
    to adjusted operating income of $15.7 million, or 10.5% of revenue, in
    the previous year fiscal second quarter and adjusted operating income
    of $21.9 million, or 14.5% of revenue, in the prior fiscal quarter;
  • Adjusted net loss was $11.6 million, or $0.18 loss per diluted share,
    compared to adjusted net income of $8.5 million, or $0.13 per diluted
    share, in the previous year fiscal second quarter and adjusted net
    income of $12.9 million, or $0.20 per diluted share, in the prior
    fiscal quarter; and
  • Adjusted EBITDA was $3.4 million, compared to $23.4 million for the
    previous year fiscal second quarter and $29.5 million for the prior
    fiscal quarter.

Management Commentary

“Fiscal Q2 was a challenging quarter as the magnitude of the Data Center
inventory correction has been deeper and more disruptive than we
originally anticipated. However, some customers are indicating they will
be exiting the quarter at more normalized inventory levels, which is a
leading indicator of a recovery in the second half of the year,” said
John Croteau, President and CEO of MACOM.

“Despite this temporary, albeit precipitous market correction in Data
Centers, the fundamental demand drivers for each of our growth
opportunities remain intact with several potentially coming to fruition
simultaneously.”

Mr. Croteau concluded, “Our recently announced joint venture with
Goertek is a great example of a proactive solution to the challenge of
seizing these windows of opportunity with a prudent OpEx model. The JV
places MACOM in an even better position for success in 5G basestations,
while defraying operating expenses, and at the same time, retaining
substantial earnings power for our shareholders.”

Business Outlook

For the fiscal third quarter ending June 28, 2019, MACOM expects revenue
to be in the range of $120 million to $124 million. Adjusted gross
margin is expected to be between 53% and 55%, and adjusted loss per
share is expected to be between $(0.08) and $(0.04) on an anticipated
66.5 million fully diluted shares outstanding.

Conference Call

MACOM will host a conference call on Tuesday, May 7, 2019 at 5:00 p.m.
Eastern Time to discuss its fiscal second 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 6194258.

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 6194258.
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, our positioning and
growth aspirations in the Industrial & Defense, Data Center, Telecom,
Cloud Data Center, 5G Telecom and China markets and elsewhere, the
requirements, timing and success of the 5G Telecom buildout, the
potential consideration, timing and benefits associated with our joint
venture transaction with Goertek, the size of the 5G Telecom
opportunity, 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, any expectations as to our relationships with customers
and vendors, statements about the inventory levels of customers, our
predictions regarding the build out of ground based radar in the United
States, our belief that Global and Homeland Defense will be a growth
engine, our future market share, the timing or nature of future Cloud
Data Center and network upgrade cycles, our prediction that 100G has a
long lifecycle, customer order activity and customer adoption of our
solutions, our future investment decisions, our GaN strategy and
expectations for execution on that strategy, 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 do 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, such
as our joint venture transaction with Goertek, to close on the
anticipated timeframe or at all, in accordance with its terms, failure
to successfully integrate acquired companies, technologies or products
or realize synergies or other anticipated benefits associated with
acquisitions, divestitures or joint venture transactions, 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 (the “SEC”), including its Annual
Report on Form 10-K for the fiscal year ended September 28, 2018, as
filed on November 16, 2018 and its Quarterly Report on Form 10-Q for the
fiscal quarter ended December 28, 2018, as filed on February 6, 2019.
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
revenue, non-GAAP gross profit and gross margin, non-GAAP income (loss)
from operations and operating margin, non-GAAP operating expenses,
non-GAAP net income, non-GAAP diluted earnings per share, non-GAAP
income tax rate, 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,
deferred revenue, intangible amortization expense, share-based and
non-cash 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:

Deferred Revenue – includes deferred revenue invoiced during the
third fiscal quarter of 2018 which was associated with our Data Center
solutions business model. In the fiscal third quarter of 2018, MACOM
delivered materials required, and received customer written acceptance.
In the fiscal second quarter of 2019 we recorded this $7.0 million
amount as GAAP revenue and have now excluded it from our non-GAAP
adjusted revenue as this amount was previously included in our third
fiscal quarter 2018 adjusted revenue. This non-GAAP revenue was not
included in our fiscal year 2019 second 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. 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 as a gross profit adjustment 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.

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 income 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 the first and second quarters of fiscal year 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 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 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 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 Six Months Ended

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

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

 
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 )%