MACOM Reports Fiscal First Quarter 2019 Financial Results

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

First Quarter Fiscal Year 2019 GAAP Results

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

First Quarter Fiscal Year 2019 Adjusted Non-GAAP Results

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

Management Commentary

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

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

Business Outlook

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

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

Conference Call

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

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

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

About MACOM

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

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

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

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

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

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

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

Special Note Regarding Forward-Looking Statements

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Litigation Costs – includes gains, losses and expenses related to
the resolution of other-than-ordinary-course threatened and actually
filed lawsuits and other-than-ordinary-course contractual disputes and
legal matters. We exclude these gains and losses because they are not
considered by management in making operating decisions.

Contacts

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

Investor
Relations Contact:

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

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