MACOM Reports Third Quarter 2016 Financial Results

Warrant Liability Charges- are associated with market to market fair value adjustments which are largely based on the value of our common stock, which may vary from period to period. We believe these amounts are not correlated to future business operations and including such charges does not reflect our ongoing operations.

Non Cash Interest Expense - includes amounts associated with the amortization of certain fees associated with the establishment of our Credit Agreement 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 and Integration 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 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 excluding consulting income - includes the profit and loss amounts of discontinued operations, with the exception of consulting income associated with a consulting agreement we entered into at the time of our Automotive business divestiture. 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.

Other - includes historical amounts primarily associated with the impairment of minority investment of $3.5 million during the second fiscal quarter of 2015 as well as income associated with transition service agreements entered in connection with divested businesses. We believe these amounts are not correlated to future business operations and including such charges does not reflect our ongoing operations.

Tax Effect of Non-GAAP Adjustments - adjustments to arrive at an estimate of our Adjusted Non-GAAP cash tax rate associated with our Adjusted Non-GAAP income over a period of time. These adjustments have resulted in an estimated Adjusted Non-GAAP cash tax rate of 15% and 18% for our fiscal years 2016 and 2015, respectively. We believe it is beneficial for our management to review Adjusted Non-GAAP cash tax rate on a consistent basis over periods of time. Certain items including many of the items noted above may have a significant impact on our US GAAP tax expense and associated tax rate during a specific period of time.

Adjusted EBITDA - is a calculation that adds interest income taxes and depreciation expense to our Adjusted Non-GAAP Net Income. 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 and reduces this amount by our capital expenditures in the applicable period. 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 analysis purposes.


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (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
Revenue	$	142,288		$	133,579		$	109,058		$	391,641		$	308,045
Cost of revenue		68,326			68,054			56,562			191,836			161,416
Gross profit		73,962			65,525			52,496			199,805			146,629
Operating expenses:
Research and development		26,064			26,203			20,965			77,589			60,186
Selling, general and administrative		35,866			34,617			26,592			105,169			80,067
Impairment charges		760			11,005			—			11,765			—
Restructuring charges		1,092			851			558			2,100			971
Total operating expenses		63,782			72,676			48,115			196,623			141,224
Income (loss) from operations		10,180			(7,151	)		4,381			3,182			5,405
Other income (expense):
Warrant liability gain (expense)		15,339			(4,201	)		546			(3,741	)		(15,671	)
Interest expense, net		(4,363	)		(4,408	)		(4,505	)		(13,117	)		(13,951	)
Other income (expense), net		16			(81	)		(225	)		36			(1,227	)
Total other income (expense)		10,992			(8,690	)		(4,184	)		(16,822	)		(30,849	)

Income (loss) before income taxes		21,172			(15,841	)		197			(13,640	)		(25,444	)
Income tax benefit		(181	)		(3,796	)		(1,559	)		(6,178	)		(6,059	)
Income (loss) from continuing operations		21,353			(12,045	)		1,756			(7,462	)		(19,385	)
Income from discontinued operations		1,199			1,396			6,271			3,794			13,568
Net income (loss)	$	22,552		$	(10,649	)	$	8,027		$	(3,668	)	$	(5,817	)

Net income (loss) per share:
Basic:
Income (loss) from continuing operations	$	0.40		$	(0.23	)	$	0.03		$	(0.14	)	$	(0.38	)
Income from discontinued operations		0.02			0.03			0.12			0.07			0.27
Income (loss) per share - basic	$	0.42		$	(0.20	)	$	0.15		$	(0.07	)	$	(0.12	)

Diluted:
Income (loss) from continuing operations	$	0.11		$	(0.23	)	$	0.02		$	(0.14	)	$	(0.38	)
Income from discontinued operations		0.02			0.03			0.11			0.07			0.27
Income (loss) per share - diluted	$	0.13		$	(0.20	)	$	0.14		$	(0.07	)	$	(0.12	)

Shares - Basic		53,516			53,228			53,098			53,253			50,433
Shares - Diluted		55,288			53,228			55,174			53,253			50,433


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

	July 1, 2016		October 2, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	66,842	$	122,312
Short term investments		23,726		39,557
Accounts receivable, net		91,962		83,950
Inventories		117,078		79,943
Deferred income taxes ⁽¹⁾		—		31,431
Income tax receivable		16,123		15,854
Prepaids and other current assets		12,353		11,172
Total current assets		328,084		384,219
Property and equipment, net		100,452		83,759
Goodwill and intangible assets, net		388,700		337,012
Deferred income taxes		83,900		48,239
Other long-term assets		12,015		13,022
TOTAL ASSETS	$	913,151	$	866,251

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt obligations	$	4,513	$	4,058
Accounts payable, accrued liabilities and other		73,624		67,418
Total current liabilities		78,137		71,476
Long-term debt obligations, less current portion		340,581		340,504
Common stock warrant liability		25,563		21,822
Deferred income taxes		14,293		—
Long-term liabilities and other		7,945		7,916
Total liabilities		466,519		441,718
Stockholders' equity		446,632		424,533
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	913,151	$	866,251

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