MACOM Reports Third Quarter 2016 Financial Results

(1) During the second quarter of fiscal 2016, we early-adopted Accounting Standards Update (ASU) No. 2015-17, Balance Sheet Classification of Deferred Taxes, and applied ASU 2015-17 on a prospective basis. This standard requires that all deferred tax assets and liabilities, and any related valuation allowance, be classified as noncurrent on the balance sheet. As of the second quarter of fiscal 2016, we included $31.4 million of current deferred income tax assets with our noncurrent deferred income tax assets; no adjustments were made to deferred tax liabilities.

 

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

 
    Nine Months Ended
July 1,
2016
  July 3,
2015
 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,668 ) $ (5,817 )
Adjustments to reconcile loss to net operating cash 91,282 86,208
Change in operating assets and liabilities   (33,267 )   (52,196 )
Net cash from operating activities   54,347     28,195  
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net (85,516 ) (208,352 )
Purchases, sales and maturities of investments 15,412 (250 )
Gain on disposition of business 3,750
Strategic investments 1,500
Purchases of property and equipment (24,100 ) (32,488 )
Acquisition of intellectual property   (777 )   (2,483 )
Net cash used in investing activities   (91,231 )   (242,073 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable (12,178 ) (3,997 )
Proceeds from stock offering 127,697
Proceeds from stock option exercises and employee stock purchases 5,336 5,329
Repurchase of common stock (9,966 ) (7,919 )
Borrowings on revolving facility 100,000
Payments on revolving facility (100,000 )
Other financing activities   (1,195 )   (39 )
Net cash from financing activities   (18,003 )   121,071  
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (583 ) (401 )
NET CHANGE IN CASH AND CASH EQUIVALENTS (55,470 ) (93,208 )
CASH AND CASH EQUIVALENTS — Beginning of period   122,312     173,895  
CASH AND CASH EQUIVALENTS — End of period $ 66,842   $ 80,687  
 
 

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
July 1, 2016   April 1, 2016   July 3, 2015   July 1, 2016   July 3, 2015
Amount   % Revenue   Amount   % Revenue   Amount   % Revenue   Amount   % Revenue   Amount   % Revenue
Gross profit - GAAP $ 73,962   52.0   $ 65,525   49.1   $ 52,496   48.1   $ 199,805   51.0   $ 146,629   47.6
Amortization expense 6,440 4.5 6,642 5.0 6,932 6.4 20,249 5.2 19,638 6.4
Share-based and non-cash compensation 685 0.5 691 0.5 512 0.5 1,918 0.5 1,668 0.5
Impairment and restructuring charges 1,950 1.5 1,950 0.5
Acquisition and integration related costs 422 0.3 2,748 2.1 2,951 2.7 3,102 0.8 7,676 2.5
Other                           396       0.4                   1,625       0.5  
Adjusted gross profit (NonGAAP) $ 81,509       57.3     $ 77,556       58.1     $ 63,287       58.0     $ 227,024       58.0     $ 177,236       57.5  
                                     
Three Months Ended   Nine Months Ended
July 1, 2016   April 1, 2016   July 3, 2015   July 1, 2016   July 3, 2015
Amount   % Revenue   Amount   % Revenue   Amount   % Revenue   Amount   % Revenue   Amount   % Revenue
Operating expenses - GAAP $ 63,782 44.8 $ 72,676 54.4 $ 48,115 44.1 $ 196,623 50.2 $ 141,224 45.8
Amortization expense (6,415 ) (4.5 ) (6,304 ) (4.7 ) (3,201 ) (2.9 ) (17,142 ) (4.4 ) (7,350 ) (2.4 )
Share-based and non-cash compensation (6,206 ) (4.4 ) (7,717 ) (5.8 ) (6,704 ) (6.1 ) (24,806 ) (6.3 ) (21,231 ) (6.9 )
Impairment and restructuring charges (1,852 ) (1.3 ) (11,856 ) (8.9 ) (558 ) (0.5 ) (13,865 ) (3.5 ) (971 ) (0.3 )
Litigation costs (818 ) (0.6 ) (232 ) (0.2 ) 21 (1,159 ) (0.3 ) (745 ) (0.2 )
Acquisition and integration related costs   (1,911 )     (1.3 )     (1,413 )     (1.1 )     (171 )     (0.2 )     (7,637 )     (2.0 )     (4,398 )     (1.4 )
Adjusted operating expenses (NonGAAP) $ 46,580       32.7     $ 45,154       33.8     $ 37,502       34.4     $ 132,015       33.7     $ 106,529       34.6  
                                     
Three Months Ended   Nine Months Ended
July 1, 2016   April 1, 2016   July 3, 2015   July 1, 2016   July 3, 2015
Amount   % Revenue   Amount   % Revenue   Amount   % Revenue   Amount   % Revenue   Amount   % Revenue
Income (loss) from operations - GAAP $ 10,180 7.2 $ (7,151 ) (5.4 ) $ 4,381 4.0 $ 3,182 0.8 $ 5,405 1.8
Amortization expense 12,855 9.0 12,946 9.7 10,133 9.3 37,391 9.5 26,991 8.8
Share-based and non-cash compensation 6,891 4.8 8,409 6.3 7,216 6.6 26,723 6.8 22,899 7.4
Impairment and restructuring charges 1,852 1.3 13,806 10.3 558 0.5 15,815 4.0 971 0.3
Litigation costs 817 0.6 232 0.2 (21 ) 1,157 0.3 745 0.2
Acquisition and integration related costs   2,334       1.6       4,160       3.1       3,518       3.2       10,740       2.7       13,696       4.4  
Adjusted income from operations (NonGAAP) $ 34,929       24.5     $ 32,402       24.3     $ 25,785       23.6     $ 95,008       24.3     $ 70,707       23.0  
Depreciation expense 5,278 3.7 4,840 3.6 3,253 3.0 14,021 3.6 10,342 3.4
Other income (expense), net   1,890       1.3       1,792       1.3                   5,637       1.4              
Adjusted EBITDA $ 42,097       29.6     $ 39,034       29.2     $ 29,038       26.6     $ 114,666       29.3     $ 81,049       26.3  
                                     
Three Months Ended   Nine Months Ended
July 1, 2016   April 1, 2016   July 3, 2015   July 1, 2016   July 3, 2015
Amount   % Revenue   Amount   % Revenue   Amount   % Revenue   Amount   % Revenue   Amount   % Revenue
Net income (loss) - GAAP $ 22,552 15.8 $ (10,649 ) (8.0 ) $ 8,027 7.4 $ (3,668 ) (0.9 ) $ (5,817 ) (1.9 )
Amortization expense 12,855 9.0 12,946 9.7 10,133 9.3 37,391 9.5 26,991 8.8
Share-based and non-cash compensation 6,891 4.8 8,409 6.3 7,216 6.6 26,723 6.8 22,899 7.4
Impairment and restructuring charges 1,852 1.3 13,806 10.3 558 0.5 15,815 4.0 971 0.3
Warrant liability expense (gain) (15,339 ) (10.8 ) 4,201 3.1 (546 ) (0.5 ) 3,741 1.0 15,671 5.1
Non-cash interest 405 0.3 425 0.3 405 0.4 1,228 0.3 1,247 0.4
Litigation costs 817 0.6 232 0.2 (21 ) 1,157 0.3 745 0.2
Acquisition and integration related costs 2,334 1.6 4,158 3.1 3,518 3.2 10,717 2.7 11,696 3.8
Discontinued operations 676 0.5 479 0.4 (6,271 ) (5.8 ) 1,831 0.4 (13,567 ) (4.4 )
Other 225 0.2 3,226 1.0
Tax effect of non-GAAP adjustments   (5,111 )     (3.6 )     (8,327 )     (6.2 )     (4,812 )     (4.4 )     (19,491 )     (5.0 )     (14,760 )     (4.8 )
Adjusted net income (NonGAAP) $ 27,932       19.6     $ 25,680       19.2     $ 18,432       16.9     $ 75,445       19.3     $ 49,302       16.0  
                                     
Three Months Ended   Nine Months Ended
July 1, 2016   April 1, 2016   July 3, 2015   July 1, 2016   July 3, 2015

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 income (loss) - GAAP 22,552 (10,649 ) 8,027 (3,668 ) (5,817 )
Warrant liability gain   (15,339 )                   (546 )                        
Net income (loss) - diluted $ 7,213     $ 0.13     $ (10,649 )   $ (0.20 )   $ 7,481     $ 0.14     $ (3,668 )   $ (0.07 )   $ (5,817 )   $ (0.12 )
Adjusted (NonGAAP) $ 27,932     $ 0.51     $ 25,680     $ 0.46     $ 18,432     $ 0.33     $ 75,445     $ 1.37     $ 49,302     $ 0.94  
                                     
Three Months Ended   Nine Months Ended
July 1, 2016   April 1, 2016   July 3, 2015   July 1, 2016   July 3, 2015
Shares       Shares       Shares       Shares       Shares    
Diluted shares - GAAP 53,516 53,228 53,098 53,253 50,433
Incremental shares   1,772           2,139           2,076           2,007           2,127      
Adjusted diluted shares (NonGAAP)   55,288           55,367           55,174           55,260           52,560      
                                     
Three Months Ended   Nine Months Ended
July 1, 2016   April 1, 2016   July 3, 2015   July 1, 2016   July 3, 2015
Amount   % Revenue   Amount   % Revenue   Amount   % Revenue   Amount   % Revenue   Amount   % Revenue
Interest expense- GAAP 4,477 3.1 4,478 3.4 4,505 4.1 13,430 3.4 13,951 4.5
Non-cash interest expense   (405 )     (0.3 )     (425 )     (0.3 )     (405 )     (0.4 )     (1,228 )     (0.3 )     (1,247 )     (0.4 )
Adjusted Interest Expense (NonGAAP) $ 4,072       2.9     $ 4,053       3.0     $ 4,100       3.8     $ 12,202       3.1     $ 12,704       4.1  
                                     
Three Months Ended   Nine Months Ended
July 1, 2016   April 1, 2016   July 3, 2015   July 1, 2016   July 3, 2015
Amount   % Revenue   Amount   % Revenue   Amount   % Revenue   Amount   % Revenue   Amount   % Revenue
Cash flow from operations 19,249 13.5 19,584 14.7 26,763 24.5 54,347 13.9 28,195 9.2
Capital expenditures   (7,138 )     (5.0 )     (11,033 )     (8.3 )     (19,348 )     (17.7 )     (24,877 )     (6.4 )     (34,971 )     (11.4 )
Free cash flow $ 12,111       8.5     $ 8,551       6.4     $ 7,415       6.8     $ 29,470       7.5     $ (6,776 )     (2.2 )
         
Three Months Ended

July 1,
2016

 

April 1,
2016

 

January 1,
2016

Amount   Amount   Amount
Revenue - GAAP 142,288 133,579 115,774
FiBest and Aeroflex/Metelics revenue   20,052       18,780       4,577  
Adjusted revenue - excluding acquisitions (NonGAAP)   122,236       114,799       111,197  
 
Sequential growth % 85 % 20 %
 
Adjusted gross profit (NonGAAP) 81,509 77,556 67,959
FiBest and Aeroflex/Metelics gross profit   6,195       3,605       1,234  
Adjusted gross profit - excluding acquisitions (NonGAAP)   75,314       73,951       66,725  
Adjusted gross margin (NonGAAP)   62 %     64 %     60 %
 

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