MACOM Reports Fiscal Third 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									Nine Months Ended
	June 30, 2017			March 31, 2017			July 1, 2016			June 30, 2017			July 1, 2016
	June 30, 2017			March 31, 2017			July 1, 2016			June 30, 2017			July 1, 2016
Revenue	$	194,555		$	186,084		$	142,288		$	532,391		$	391,641
Cost of revenue	101,926			117,220			68,326			292,403			191,836
Gross profit	92,629			68,864			73,962			239,988			199,805
Operating expenses:
Research and development	38,729			39,685			26,064			108,588			77,589
Selling, general and administrative	46,666			62,326			35,866			145,488			105,169
Impairment charges	—			—			760			—			11,765
Restructuring charges	586			469			1,092			2,342			2,100
Total operating expenses	85,981			102,480			63,782			256,418			196,623
Income (loss) from operations	6,648			(33,616		)	10,180			(16,430		)	3,182
Other income (expense):
Warrant liability expense (gain)	(9,085		)	(2,573		)	15,339			(16,481		)	(3,741		)
Interest expense, net	(7,178		)	(7,374		)	(4,363		)	(21,902		)	(13,117		)
Other (expense) income, net	(1,139		)	(899		)	16			(2,042		)	36
Total other (expense) income	(17,402		)	(10,846		)	10,992			(40,425		)	(16,822		)

(Loss) income before income taxes	(10,754		)	(44,462		)	21,172			(56,855		)	(13,640		)
Income tax expense (benefit)	3,223			89,805			(181		)	93,559			(6,178		)
(Loss) income from continuing operations	(13,977		)	(134,267		)	21,353			(150,414		)	(7,462		)
(Loss) income from discontinued operations	(13,700		)	4,136			1,199			(8,358		)	3,794
Net (loss) income	$	(27,677	)	$	(130,131	)	$	22,552		$	(158,772	)	$	(3,668	)

Net (loss) income per share:
Basic:
(Loss) income from continuing operations	$	(0.22	)	$	(2.21	)	$	0.40		$	(2.53	)	$	(0.14	)
(Loss) income from discontinued operations	(0.21		)	0.07			0.02			(0.14		)	0.07
(Loss) income per share - basic	$	(0.43	)	$	(2.14	)	$	0.42		$	(2.67	)	$	(0.07	)

Diluted:
(Loss) income from continuing operations	$	(0.22	)	$	(2.21	)	$	0.11		$	(2.53	)	$	(0.14	)
(Loss) income from discontinued operations	(0.21		)	0.07			0.02			(0.14		)	0.07
(Loss) income per share - diluted	$	(0.43	)	$	(2.14	)	$	0.13		$	(2.67	)	$	(0.07	)

Shares - Basic	64,019			60,813			53,516			59,524			53,253
Shares - Diluted	64,019			60,813			55,288			59,524			53,253


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

	June 30, 2017		September 30, 2016
	June 30, 2017		September 30, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	167,606	$	332,977
Short term investments	81,641		23,776
Accounts receivable, net	129,838		108,331
Inventories	120,345		114,935
Income tax receivable	20,617		21,607
Assets held for sale, current	31,519		—
Prepaids and other current assets	18,284		11,318
Total current assets	569,850		612,944
Property and equipment, net	121,413		99,167
Goodwill and intangible assets, net	933,096		379,626
Deferred income taxes	2,070		89,606
Other long-term assets	6,450		7,208
TOTAL ASSETS	$	1,632,879	$	1,188,551

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of lease payable	$	888	$	1,152
Current portion of long-term debt obligations	7,071		6,051
Liabilities held for sale	10,719		—
Accounts payable, accrued liabilities and other	82,935		84,947
Total current liabilities	101,613		92,150
Lease payable, less current portion	15,117		2,463
Long-term debt obligations, less current portion	662,260		573,882
Common stock warrant liability	54,734		38,253
Deferred income taxes	11,731		11,765
Other long-term liabilities	8,043		7,254
Total liabilities	853,498		725,767
Stockholders' equity	779,381		462,784
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,632,879	$	1,188,551


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

	Nine Months Ended
	June 30, 2017			July 1, 2016
	June 30, 2017			July 1, 2016

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(158,772	)	$	(3,668	)
Adjustments to reconcile loss to net operating cash	229,591			91,282
Change in operating assets and liabilities	(22,130		)	(33,267		)
Net cash provided by operating activities	48,689			54,347
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net	(231,712		)	(85,516		)
Purchases, sales and maturities of investments	(58,088		)	15,412
Proceeds from discontinued operations	23,645			3,750
Sale of businesses and assets	215			—
Purchases of property and equipment	(24,496		)	(24,100		)
Acquisition of intellectual property	—			(777		)
Net cash used in investing activities	(290,436		)	(91,231		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable	96,558			—
Payments of financing costs	(9,077		)	—
Proceeds from corporate facility financing obligation	4,250			—
Payments of notes payable and assumed debt	(3,954		)	(12,178		)
Proceeds from stock option exercises and employee stock purchases	8,162			5,336
Repurchase of common stock	(18,092		)	(9,966		)
Other adjustments	(1,296		)	(1,195		)
Net cash provided by (used in) financing activities	76,551			(18,003		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(175		)	(583		)
NET CHANGE IN CASH AND CASH EQUIVALENTS	(165,371		)	(55,470		)
CASH AND CASH EQUIVALENTS — Beginning of period	332,977			122,312
CASH AND CASH EQUIVALENTS — End of period	$	167,606		$	66,842

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									Nine Months Ended
	June 30, 2017			March 31, 2017			July 1, 2016			June 30, 2017			July 1, 2016
	Amount		% Revenue	Amount		% Revenue	Amount		% Revenue	Amount		% Revenue	Amount		% Revenue
Gross profit - GAAP	$	92,629	47.6	$	68,864	37.0	$	73,962	52.0	$	239,988	45.1	$	199,805	51.0
Amortization expense	8,416		4.3	7,277		3.9	6,440		4.5	21,694		4.1	20,249		5.2
Share-based and non-cash compensation	956		0.5	966		0.5	685		0.5	2,716		0.5	1,918		0.5
Impairment and restructuring charges	—		—	—		—	—		—	—		—	1,950		0.5
Acquisition and integration related costs	11,736		6.0	31,793		17.1	422		0.3	45,075		8.5	3,102		0.8
Adjusted gross profit (Non-GAAP)	$	113,737	58.5	$	108,900	58.5	$	81,509	57.3	$	309,473	58.1	$	227,024	58.0

	Three Months Ended															Nine Months Ended
	June 30, 2017					March 31, 2017					July 1, 2016					June 30, 2017					July 1, 2016
	Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue
Operating expenses - GAAP	$	85,981		44.2		$	102,480		55.1		$	63,782		44.8		$	256,418		48.2		$	196,623		50.2
Amortization expense	(10,832		)	(5.6	)	(7,163		)	(3.8	)	(6,415		)	(4.5	)	(24,462		)	(4.6	)	(17,142		)	(4.4	)
Share-based and non-cash compensation	(9,833		)	(5.1	)	(11,260		)	(6.1	)	(6,206		)	(4.4	)	(30,384		)	(5.7	)	(24,806		)	(6.3	)
Impairment and restructuring charges	(586		)	(0.3	)	(469		)	(0.3	)	(1,852		)	(1.3	)	(2,342		)	(0.4	)	(13,865		)	(3.5	)
Litigation costs	(569		)	(0.3	)	(780		)	(0.4	)	(818		)	(0.6	)	(1,610		)	(0.3	)	(1,159		)	(0.3	)
Acquisition and integration related costs	(2,645		)	(1.4	)	(22,334		)	(12.0	)	(1,911		)	(1.3	)	(29,746		)	(5.6	)	(7,637		)	(2.0	)
Other	(719		)	(0.4	)	(183		)	(0.1	)	—			—		(905		)	(0.2	)	—			—
Adjusted operating expenses (Non-GAAP)	$	60,797		31.2		$	60,291		32.4		$	46,580		32.7		$	166,969		31.4		$	132,014		33.7

	Three Months Ended											Nine Months Ended
	June 30, 2017			March 31, 2017					July 1, 2016			June 30, 2017					July 1, 2016
	Amount		% Revenue	Amount			% Revenue		Amount		% Revenue	Amount			% Revenue		Amount		% Revenue
Income (loss) from operations - GAAP	$	6,648	3.4	$	(33,616	)	(18.1	)	$	10,180	7.2	$	(16,430	)	(3.1	)	$	3,182	0.8
Amortization expense	19,248		9.9	14,440			7.8		12,855		9.0	46,157			8.7		37,391		9.5
Share-based and non-cash compensation	10,789		5.5	12,226			6.6		6,891		4.8	33,100			6.2		26,723		6.8
Impairment and restructuring charges	586		0.3	469			0.3		1,852		1.3	2,342			0.4		15,815		4.0
Litigation costs	569		0.3	780			0.4		817		0.6	1,610			0.3		1,157		0.3
Acquisition and integration related costs	14,380		7.4	54,127			29.1		2,334		1.6	74,821			14.1		10,740		2.7
Other	719		0.4	183			0.1		—		—	905			0.2		—		—
Adjusted income from operations (Non-GAAP)	$	52,939	27.2	$	48,609		26.1		$	34,929	24.5	$	142,505		26.8		$	95,008	24.3

Depreciation expense	6,739		3.5	6,173			3.3		5,278		3.7	18,447			3.5		14,021		3.6
Consulting income	1,875		1.0	1,875			1.0		1,890		1.3	5,625			1.1		5,637		1.4
Adjusted EBITDA (Non-GAAP)	$	61,553	31.6	$	56,657		30.4		$	42,097	29.6	$	166,577		31.3		$	114,666	29.3

	Three Months Ended															Nine Months Ended
	June 30, 2017					March 31, 2017					July 1, 2016					June 30, 2017					July 1, 2016
	Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue
Net (loss) income - GAAP	$	(27,677	)	(14.2	)	$	(130,131	)	(69.9	)	$	22,552		15.8		$	(158,772	)	(29.8	)	$	(3,668	)	(0.9	)
Amortization expense	19,248			9.9		14,440			7.8		12,855			9.0		46,157			8.7		37,391			9.5
Share-based and non-cash compensation	10,789			5.5		12,226			6.6		6,891			4.8		33,100			6.2		26,723			6.8
Impairment and restructuring charges	586			0.3		469			0.3		1,852			1.3		2,342			0.4		15,815			4.0
Warrant liability expense	9,085			4.7		2,573			1.4		(15,339		)	(10.8	)	16,480			3.1		3,741			1.0
Non-cash interest, net	1,122			0.6		721			0.4		405			0.3		2,546			0.5		1,228			0.3
Litigation costs	569			0.3		780			0.4		817			0.6		1,610			0.3		1,157			0.3
Acquisition and integration related costs	14,380			7.4		54,127			29.1		2,334			1.6		74,821			14.1		10,717			2.7
Discontinued operations, excluding consulting income	15,575			8.0		(2,261		)	(1.2	)	676			0.5		13,983			2.6		1,831			0.5
Other	719			0.4		1,055			0.6		—			—		1,776			0.3		—			—
Tax effect of non-GAAP adjustments	(516		)	(0.3	)	85,424			45.9		(5,111		)	(3.6	)	81,098			15.2		(19,491		)	(5.0	)
Adjusted net income (Non-GAAP)	$	43,880		22.6		$	39,423		21.2		$	27,932		19.6		$	115,141		21.6		$	75,444		19.3

	Three Months Ended																Nine Months Ended
	June 30, 2017						March 31, 2017						July 1, 2016				June 30, 2017						July 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	$	(27,677	)	$	(0.43	)	$	(130,131	)	$	(2.14	)	$	7,213	$	0.13	$	(158,772	)	$	(2.67	)	$	(3,668	)	$	(0.07	)
Adjusted (Non-GAAP)	$	43,880		$	0.67		$	39,423		$	0.63		$	27,932	$	0.51	$	115,141		$	1.87		$	75,444		$	1.37

	Three Months Ended			Nine Months Ended
	June 30, 2017	March 31, 2017	July 1, 2016	June 30, 2017	July 1, 2016
	Shares	Shares	Shares	Shares	Shares
Diluted shares - GAAP	64,019	60,813	55,288	59,524	53,253
Incremental shares	1,916	2,031	—	1,941	2,007
Adjusted diluted shares (Non-GAAP)	65,935	62,844	55,288	61,465	55,260

	Three Months Ended															Nine Months Ended
	June 30, 2017					March 31, 2017					July 1, 2016					June 30, 2017					July 1, 2016
	Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue
Interest expense, net - GAAP	$	7,178		3.7		$	7,374		4.0		$	4,477		3.1		$	21,902		4.1		$	13,430		3.4
Non-cash interest expense	(1,122		)	(0.6	)	(721		)	(0.4	)	(405		)	(0.3	)	(2,546		)	(0.5	)	(1,228		)	(0.3	)
Adjusted Interest Expense (Non-GAAP)	$	6,056		3.1		$	6,653		3.6		$	4,072		2.9		$	19,356		3.6		$	12,202		3.1

	Three Months Ended															Nine Months Ended
	June 30, 2017					March 31, 2017					July 1, 2016					June 30, 2017					July 1, 2016
	Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue		Amount			% Revenue
Cash flow from operations	$	27,850		14.3		$	432		0.2		$	19,249		13.5		$	48,689		9.1		$	54,347		13.9
Capital expenditures	(8,201		)	(4.2	)	(11,353		)	(6.1	)	(7,138		)	(5.0	)	(24,496		)	(4.6	)	(24,877		)	(6.4	)
AppliedMicro transaction related payments	419			0.2		28,114			15.1		—			—		28,533			5.4		—			—
Free cash flow (Non-GAAP)	$	20,068		10.3		$	17,193		9.2		$	12,111		8.5		$	52,726		9.9		$	29,470		7.5
Free cash flow as a percentage of adjusted net income	46		%			44		%			43		%			46		%			39		%

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