MACOM Reports Fiscal Second Quarter 2017 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 31, 2017			December 30, 2016			April 1, 2016			March 31, 2017			April 1, 2016
	March 31, 2017			December 30, 2016			April 1, 2016			March 31, 2017			April 1, 2016
Revenue	$	186,084		$	151,752		$	133,579		$	337,836		$	249,353
Cost of revenue	117,220			73,257			68,054			190,477			123,510
Gross profit	68,864			78,495			65,525			147,359			125,843
Operating expenses:
Research and development	39,685			30,174			26,203			69,859			51,525
Selling, general and administrative	62,326			36,496			34,617			98,821			69,303
Impairment charges	—			—			11,005			—			11,005
Restructuring charges	469			1,287			851			1,757			1,008
Total operating expenses	102,480			67,957			72,676			170,437			132,841
Income from operations	(33,616		)	10,538			(7,151		)	(23,078		)	(6,998		)
Other income (expense):
Warrant liability expense	(2,573		)	(4,823		)	(4,201		)	(7,395		)	(19,079		)
Interest expense, net	(7,374		)	(7,350		)	(4,408		)	(14,724		)	(8,754		)
Other (expense) income, net	(899		)	(4		)	(81		)	(904		)	19
Total other expense	(10,846		)	(12,177		)	(8,690		)	(23,023		)	(27,814		)

Loss before income taxes	(44,462		)	(1,639		)	(15,841		)	(46,101		)	(34,812		)
Income tax expense (benefit)	89,805			532			(3,796		)	90,337			(5,997		)
(Loss) income from continuing operations	(134,267		)	(2,171		)	(12,045		)	(136,438		)	(28,815		)
Income from discontinued operations	4,136			1,206			1,396			5,342			2,595
Net (loss) income	$	(130,131	)	$	(965	)	$	(10,649	)	$	(131,096	)	$	(26,220	)

Net (loss) income per share:
Basic:
(Loss) income from continuing operations	$	(2.21	)	$	(0.04	)	$	(0.23	)	$	(2.38	)	$	(0.54	)
Income from discontinued operations	0.07			0.02			0.03			0.09			0.05
(Loss) income per share - basic	$	(2.14	)	$	(0.02	)	$	(0.20	)	$	(2.29	)	$	(0.49	)

Diluted:
(Loss) income from continuing operations	$	(2.21	)	$	(0.04	)	$	(0.23	)	$	(2.38	)	$	(0.54	)
Income from discontinued operations	0.07			0.02			0.03			0.09			0.05
(Loss) income per share - diluted	$	(2.14	)	$	(0.02	)	$	(0.20	)	$	(2.29	)	$	(0.49	)

Shares - Basic	60,813			53,737			53,228			57,276			53,122
Shares - Diluted	60,813			53,737			53,228			57,276			53,122


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

	March 31, 2017		September 30, 2016
	March 31, 2017		September 30, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	112,615	$	332,977
Short term investments	31,571		23,776
Accounts receivable, net	127,709		108,331
Inventories	139,622		114,935
Income tax receivable	20,199		21,607
Assets held for sale, current	30,652		—
Prepaids and other current assets	17,805		11,318
Total current assets	480,173		612,944
Property and equipment, net	118,518		99,167
Goodwill and intangible assets, net	948,761		379,626
Deferred income taxes	1,941		89,606
Other long-term assets	6,339		7,208
TOTAL ASSETS	$	1,555,732	$	1,188,551

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of lease payable	$	991	$	1,152
Current portion of long-term debt obligations	6,051		6,051
Liabilities held for sale	6,869		—
Accounts payable, accrued liabilities and other	92,186		84,947
Total current liabilities	106,097		92,150
Lease payable, less current portion	14,036		2,463
Long-term debt obligations, less current portion	572,180		573,882
Common stock warrant liability	45,648		38,253
Deferred income taxes	10,116		11,765
Other long-term liabilities	7,537		7,254
Total liabilities	755,614		725,767
Stockholders' equity	800,118		462,784
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,555,732	$	1,188,551


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

	Six Months Ended
	March 31, 2017			April 1, 2016
	March 31, 2017			April 1, 2016

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(131,096	)	$	(26,220	)
Adjustments to reconcile loss to net operating cash	168,083			77,452
Change in operating assets and liabilities	(16,148		)	(16,134		)
Net cash provided by operating activities	20,839			35,098
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net	(229,423		)	(85,516		)
Purchases, sales and maturities of investments	(7,939		)	15,596
Proceeds from discontinued operations	3,750			3,750
Sale of businesses	18,020			—
Proceeds from sale of assets	215			—
Purchases of property and equipment	(16,295		)	(16,962		)
Acquisition of intellectual property	—			(777		)
Net cash used in investing activities	(231,672		)	(83,909		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from corporate facility financing obligation	4,250			—
Payments of notes payable and assumed debt	(3,644		)	(10,870		)
Proceeds from stock option exercises and employee stock purchases	2,688			3,071
Repurchase of common stock	(10,027		)	(6,152		)
Other adjustments	(2,517		)	(1,195		)
Net cash provided by (used in) financing activities	(9,250		)	(15,146		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(279		)	(168		)
NET CHANGE IN CASH AND CASH EQUIVALENTS	(220,362		)	(64,125		)
CASH AND CASH EQUIVALENTS — Beginning of period	332,977			122,312
CASH AND CASH EQUIVALENTS — End of period	$	112,615		$	58,187

Supplemental disclosure of non-cash activities
Issuance of common stock in connection with the AppliedMicro Acquisition	465,082			—


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 31, 2017			December 30, 2016			April 1, 2016			March 31, 2017			April 1, 2016
	Amount		% Revenue	Amount		% Revenue	Amount		% Revenue	Amount		% Revenue	Amount		% Revenue
Gross profit - GAAP	$	68,864	37.0	$	78,495	51.7	$	65,525	49.1	$	147,359	43.6	$	125,843	50.5
Amortization expense	7,277		3.9	6,001		4.0	6,642		5.0	13,279		3.9	13,809		5.5
Share-based and non-cash compensation	966		0.5	794		0.5	691		0.5	1,760		0.5	1,233		0.5
Impairment and restructuring charges	—		—	—		—	1,950		1.5	—		—	1,950		0.8
Acquisition and integration related costs	31,793		17.1	1,546		1.0	2,748		2.1	33,339		9.9	2,680		1.1
Adjusted gross profit (Non-GAAP)	$	108,900	58.5	$	86,836	57.2	$	77,556	58.1	$	195,737	57.9	$	145,515	58.4


	Three Months Ended															Six Months Ended
	March 31, 2017					December 30, 2016					April 1, 2016					March 31, 2017					April 1, 2016
	Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue
Operating expenses - GAAP	$	102,480		55.1		$	67,957		44.8		$	72,676		54.4		$	170,437		50.4		$	132,841		53.3
Amortization expense	(7,163		)	(3.8	)	(6,467		)	(4.3	)	(6,304		)	(4.7	)	(13,630		)	(4.0	)	(10,727		)	(4.3	)
Share-based and non-cash compensation	(11,260		)	(6.1	)	(9,291		)	(6.1	)	(7,718		)	(5.8	)	(20,551		)	(6.1	)	(18,599		)	(7.5	)
Impairment and restructuring charges	(469		)	(0.3	)	(1,287		)	(0.8	)	(11,856		)	(8.9	)	(1,757		)	(0.5	)	(12,013		)	(4.8	)
Litigation costs	(780		)	(0.4	)	(262		)	(0.2	)	(232		)	(0.2	)	(1,041		)	(0.3	)	(340		)	(0.1	)
Acquisition and integration related costs	(22,334		)	(12.0	)	(4,768		)	(3.1	)	(1,412		)	(1.1	)	(27,102		)	(8.0	)	(5,727		)	(2.3	)
Other	(183		)	(0.1	)	(2		)	—		—			—		(184		)	(0.1	)	—			—
Adjusted operating expenses (Non-GAAP)	$	60,291		32.4		$	45,880		30.2		$	45,154		33.8		$	106,172		31.4		$	85,435		34.3


	Three Months Ended													Six Months Ended
	March 31, 2017					December 30, 2016			April 1, 2016					March 31, 2017					April 1, 2016
	Amount			% Revenue		Amount		% Revenue	Amount			% Revenue		Amount			% Revenue		Amount			% Revenue
Income (loss) from operations - GAAP	$	(33,616	)	(18.1	)	$	10,538	6.9	$	(7,151	)	(5.4	)	$	(23,078	)	(6.8	)	$	(6,998	)	(2.8	)
Amortization expense	14,440			7.8		12,468		8.2	12,946			9.7		26,909			8.0		24,536			9.8
Share-based and non-cash compensation	12,226			6.6		10,085		6.6	8,409			6.3		22,311			6.6		19,832			8.0
Impairment and restructuring charges	469			0.3		1,287		0.8	13,806			10.3		1,757			0.5		13,963			5.6
Litigation costs	780			0.4		262		0.2	232			0.2		1,041			0.3		340			0.1
Acquisition and integration related costs	54,127			29.1		6,314		4.2	4,160			3.1		60,441			17.9		8,407			3.4
Other	183			0.1		2		—	—			—		184			0.1		—			—
Adjusted income from operations (Non-GAAP)	$	48,609		26.1		$	40,956	27.0	$	32,402		24.3		$	89,565		26.5		$	60,080		24.1

Depreciation expense	6,173			3.3		5,535		3.6	4,840			3.6		11,708			3.5		8,743			3.5
Consulting income	1,875			1.0		1,875		1.2	1,792			1.3		3,717			1.1		3,746			1.5
Adjusted EBITDA (Non-GAAP)	$	56,657		30.4		$	48,366	31.9	$	39,034		29.2		$	104,990		31.1		$	72,569		29.1


	Three Months Ended															Six Months Ended
	March 31, 2017					December 30, 2016					April 1, 2016					March 31, 2017					April 1, 2016
	Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue
Net (loss) income - GAAP	$	(130,131	)	(69.9	)	$	(965	)	(0.6	)	$	(10,649	)	(8.0	)	$	(131,096	)	(38.8	)	$	(26,220	)	(10.5	)
Amortization expense	14,440			7.8		12,468			8.2		12,946			9.7		26,909			8.0		24,536			9.8
Share-based and non-cash compensation	12,226			6.6		10,085			6.6		8,409			6.3		22,311			6.6		19,832			8.0
Impairment and restructuring charges	469			0.3		1,287			0.8		13,806			10.3		1,757			0.5		13,963			5.6
Warrant liability expense	2,573			1.4		4,823			3.2		4,201			3.1		7,395			2.2		19,080			7.7
Non-cash interest, net	721			0.4		702			0.5		425			0.3		1,424			0.4		823			0.3
Litigation costs	780			0.4		261			0.2		232			0.2		1,041			0.3		340			0.1
Acquisition and integration related costs	54,127			29.1		6,314			4.2		4,158			3.1		60,441			17.9		8,384			3.4
Discontinued operations, excluding consulting income	(2,261		)	(1.2	)	669			0.4		479			0.4		(1,592		)	(0.5	)	1,155			0.5
Other	1,055			0.6		2			—		—			—		1,055			0.3		—			—
Tax effect of non-GAAP adjustments	85,424			45.9		(3,810		)	(2.5	)	(8,327		)	(6.2	)	81,615			24.2		(14,381		)	(5.8	)
Adjusted net income (Non-GAAP)	$	39,423		21.2		$	31,836		21.0		$	25,680		19.2		$	71,260		21.1		$	47,512		19.1


	Three Months Ended																		Six Months Ended
	March 31, 2017						December 30, 2016						April 1, 2016						March 31, 2017						April 1, 2016
	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) income - diluted	$	(130,131	)	$	(2.14	)	$	(965	)	$	(0.02	)	$	(10,649	)	$	(0.20	)	$	(131,096	)	$	(2.29	)	$	(26,220	)	$	(0.49	)
Adjusted (Non-GAAP)	$	39,423		$	0.63		$	31,836		$	0.57		$	25,680		$	0.46		$	71,260		$	1.20		$	47,512		$	0.86


	Three Months Ended			Six Months Ended
	March 31, 2017	December 30, 2016	April 1, 2016	March 31, 2017	April 1, 2016
	Shares	Shares	Shares	Shares	Shares
Diluted shares - GAAP	60,813	53,737	53,228	57,276	53,122
Incremental shares	2,031	1,875	2,139	1,953	2,081
Adjusted diluted shares (Non-GAAP)	62,844	55,612	55,367	59,229	55,203


	Three Months Ended															Six Months Ended
	March 31, 2017					December 30, 2016					April 1, 2016					March 31, 2017					April 1, 2016
	Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue
Interest expense, net - GAAP	$	7,374		4.0		$	7,350		4.8		$	4,408		3.3		14,724			4.4		8,754			3.5
Non-cash interest expense	(721		)	(0.4	)	(702		)	(0.5	)	(425		)	(0.3	)	(1,423		)	(0.4	)	(823		)	(0.3	)
Adjusted Interest Expense (Non-GAAP)	$	6,653		3.6		$	6,648		4.4		$	3,983		3.0		$	13,301		3.9		$	7,931		3.2


	Three Months Ended															Six Months Ended
	March 31, 2017					December 30, 2016					April 1, 2016					March 31, 2017					April 1, 2016
	Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue
Cash flow from operations	$	432		0.2		$	20,407		13.4		$	19,584		14.7		20,839			6.2		35,098			14.1
Capital expenditures	(11,353		)	(6.1	)	(4,942		)	(3.3	)	(11,032		)	(8.3	)	(16,295		)	(4.8	)	(17,738		)	(7.1	)
AppliedMicro transaction related payments	28,114			15.1		—			—		—			—		28,114			8.3		—			—
Free cash flow (Non-GAAP)	$	17,193		9.2		$	15,465		10.2		$	8,552		6.4		$	32,658		9.7		$	17,360		7.0
Free cash flow as a percentage of adjusted net income	44		%			49		%			33		%			46		%			37		%

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