MACOM Reports Fiscal Third Quarter 2019 Financial Results

Adjusted EBITDA - is a calculation that adds depreciation expense to our adjusted income from operations. 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, 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 analyzing a company's cash flow.

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 28, 2019		March 29, 2019		June 29, 2018		June 28, 2019		June 29, 2018

Revenue	$	108,306	$	128,465	$	137,872	$	387,460	$	419,210
Cost of revenue	74,478		71,135		89,703		219,678		244,486
Gross profit	33,828		57,330		48,169		167,782		174,724
Operating expenses:
Research and development	42,708		42,361		48,240		128,593		131,487
Selling, general and administrative	41,920		41,998		42,471		126,437		119,393
Impairment charges	264,086		—		—		264,086		6,575
Restructuring charges	8,887		3,182		102		17,047		6,302
Total operating expenses	357,601		87,541		90,813		536,163		263,757
Loss from operations	(323,773)		(30,211)		(42,644)		(368,381)		(89,033)
Other (expense) income:
Warrant liability gain (expense)	1,927		(1,607)		(6,728)		5,788		24,895
Interest expense, net	(8,967)		(9,402)		(8,039)		(27,142)		(23,249)
Other expense, net	4,777		(4,440)		(37,281)		(4,233)		(41,413)
Total other expense	(2,263)		(15,449)		(52,048)		(25,587)		(39,767)

Loss before income taxes	(326,036)		(45,660)		(94,692)		(393,968)		(128,800)
Income tax (benefit) expense	(1,322)		544		(9,482)		346		(11,153)
Loss from continuing operations	(324,714)		(46,204)		(85,210)		(394,314)		(117,647)
Loss from discontinued operations	—		—		(220)		—		(5,837)
Net loss	$	(324,714)	$	(46,204)	$	(85,430)	$	(394,314)	$	(123,484)

Net loss per share:
Basic:
Loss from continuing operations	$	(4.93)	$	(0.71)	$	(1.31)	$	(6.01)	$	(1.82)
Loss from discontinued operations	—		—		—		—		(0.09)
Loss per share - basic	$	(4.93)	$	(0.71)	$	(1.32)	$	(6.01)	$	(1.91)

Diluted:
Loss from continuing operations	$	(4.95)	$	(0.71)	$	(1.31)	$	(6.09)	$	(2.19)
Loss from discontinued operations	—		—		—		—		(0.09)
Loss per share - diluted	$	(4.95)	$	(0.71)	$	(1.32)	$	(6.09)	$	(2.28)

Shares - Basic	65,858		65,531		64,920		65,555.397		64,598
Shares - Diluted	65,945		65,531		64,920		65,722		65,198


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited and in thousands)
	June 28, 2019		September 28, 2018

ASSETS
Current assets:
Cash and cash equivalents	$	85,265	$	94,676
Short term investments	100,520		98,221
Accounts receivable, net	68,084		97,375
Inventories	110,546		122,837
Income tax receivable	16,778		17,601
Assets held for sale, current	5,050		4,840
Prepaids and other current assets	26,846		23,311
Total current assets	413,089		458,861
Property and equipment, net	139,380		149,923
Goodwill and intangible assets, net	508,445		826,861
Deferred income taxes	2,303		2,272
Other investments	27,157		31,094
Other long-term assets	13,953		13,484
TOTAL ASSETS	$	1,104,327	$	1,482,495

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of lease payable	$	1,219	$	467
Current portion of long-term debt	6,885		6,885
Accounts payable	38,849		41,951
Accrued liabilities	45,303		49,945
Deferred revenue	2,355		7,757
Total current liabilities	94,611		107,005
Lease payable, less current portion	28,848		29,023
Long-term debt obligations, less current portion	656,046		658,372
Common stock warrant liability	7,341		13,129
Deferred income taxes	455		389
Other long-term liabilities	18,031		5,902
Total liabilities	805,332		813,820
Stockholders' equity	298,995		668,675
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,104,327	$	1,482,495


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited and in thousands)
	Nine Months Ended
	June 28, 2019		June 29, 2018


CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(394,314)	$	(123,484)
Depreciation and amortization	84,612		83,695
Share based compensation	20,163		24,095
Warrant liability gain	(5,788)		(24,895)
Acquired inventory step-up amortization	—		224
Loss on disposition of business	—		34,046
Deferred income taxes	59		(8,502)
Loss on minority equity investment	3,937		7,241
Restructuring and impairment related charges	272,873		9,143
Other adjustments to reconcile loss to net operating cash	3,441		(1,758)
Inventories	12,298		(1,617)
Accounts receivable	29,291		34,769
Change in other operating assets and liabilities	1,705		(21,741)
Net cash provided by operating activities	28,277		11,216
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net	(375)		—
Sales, purchases and maturities of investments	(780)		(13,941)
Purchases of other investments	—		(5,000)
Proceeds associated with discontinued operations	—		(263)
Sale of businesses and assets	—		5,000
Purchases of property and equipment	(31,905)		(39,443)
Net cash used in investing activities	(33,060)		(53,647)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of financing costs	—		(505)
Proceeds from corporate facility financing obligation	—		4,000
Payments of notes payable and assumed debt	(5,972)		(5,734)
Proceeds from stock option exercises and employee stock purchases	5,631		6,944
Repurchase of common stock	(3,872)		(6,673)
Other adjustments	(579)		(478)
Net cash used in financing activities	(4,792)		(2,446)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	164		41
NET CHANGE IN CASH AND CASH EQUIVALENTS	(9,411)		(44,836)
CASH AND CASH EQUIVALENTS — Beginning of period	94,676		130,104
CASH AND CASH EQUIVALENTS — End of period	$	85,265	$	85,268

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 28, 2019	March 29, 2019	June 29, 2018	June 28, 2019	June 29, 2018
	Amount	Amount	Amount	Amount	Amount
Revenue - GAAP	$108,306	$128,465	$137,872	$387,460	$419,210
Deferred revenue	—	(7,000)	7,000	—	7,000
Adjusted revenue (Non-GAAP)	$108,306	$121,465	$144,872	$387,460	$426,210

	Three Months Ended						Nine Months Ended
	June 28, 2019		March 29, 2019		June 29, 2018		June 28, 2019		June 29, 2018
	Amount	% Revenue	Amount	% Revenue	Amount	% Revenue	Amount	% Revenue	Amount	% Revenue
Gross profit - GAAP	$33,828	31.2	$57,330	44.6	$48,169	34.9	$167,782	43.3	$174,724	41.7
Amortization expense	8,149	7.5	7,872	6.5	8,593	5.9	24,074	6.2	24,913	5.8
Share-based and non-cash compensation	662	0.6	942	0.8	1,059	0.7	2,137	0.6	2,938	0.7
Impairment related charges	—	—	—	—	—	—	(991)	(0.3)	2,568	0.6
Acquisition, integration and restructuring related costs	—	—	—	—	93	0.1	547	0.1	790	0.2
Production and product line exits	—	—	—	—	16,165	11.2		—	16,165	3.8
Deferred revenue	—	—	(7,000)	(5.8)	7,000	4.8	(7,000)	(1.8)	7,000	1.6
Adjusted gross profit (Non-GAAP)	$42,639	39.4	$59,144	48.7	$81,079	56.0	$186,549	48.1	$229,098	53.8

	Three Months Ended						Nine Months Ended
	June 28, 2019		March 29, 2019		June 29, 2018		June 28, 2019		June 29, 2018
	Amount	% Revenue	Amount	% Revenue	Amount	% Revenue	Amount	% Revenue	Amount	% Revenue
Operating expenses - GAAP	$357,601	330.2	$87,541	68.1	$90,813	65.9	$536,163	138.4	$263,757	62.9
Amortization expense	(13,713)	(12.7)	(11,883)	(9.8)	(13,083)	(9.0)	(38,115)	(9.8)	(35,828)	(8.4)
Share-based and non-cash compensation	(2,383)	(2.2)	(8,279)	(6.8)	(8,657)	(6.0)	(19,191)	(5.0)	(20,630)	(4.8)
Impairment and restructuring charges	(272,973)	(252.0)	(3,182)	(2.6)	(102)	(0.1)	(281,133)	(72.6)	(12,877)	(3.0)
Litigation costs	—	—	(16)	—	(997)	(0.7)	(167)	—	(2,525)	(0.6)
Acquisition, integration and restructuring related costs	(3,612)	(3.3)	(848)	(0.7)	(1,763)	(1.2)	(6,433)	(1.7)	(6,831)	(1.6)
Production and product line exits	—	—	—	—	(1,589)	(1.1)	—	—	(1,589)	(0.4)
Adjusted operating expenses (Non-GAAP)	$64,920	59.9	$63,333	52.1	$64,622	44.6	$191,124	49.3	$183,477	43.0

	Three Months Ended						Nine Months Ended
	June 28, 2019		March 29, 2019		June 29, 2018		June 28, 2019		June 29, 2018
	Amount	% Revenue	Amount	% Revenue	Amount	% Revenue	Amount	% Revenue	Amount	% Revenue
Loss from operations - GAAP	($323,773)	(298.9)	($30,211)	(23.5)	($42,644)	(30.9)	($368,381)	(95.1)	($89,033)	(21.2)
Amortization expense	21,862	20.2	19,756	16.3	21,676	15.0	62,189	16.1	60,741	14.3
Share-based and non-cash compensation	3,045	2.8	9,190	7.6	9,716	6.7	21,298	5.5	23,567	5.5
Impairment and restructuring charges	272,973	252.0	3,182	2.6	102	0.1	280,142	72.3	15,444	3.6
Litigation costs	—	—	16	—	997	0.7	167	—	2,525	0.6
Acquisition, integration and restructuring related costs	3,612	3.3	879	0.7	1,856	1.3	7,011	1.8	7,621	1.8
Production and product line exits	—	—	—	—	17,753	12.3	—	—	17,753	4.2
Deferred revenue	—	—	(7,000)	(5.8)	7,000	4.8	(7,000)	(1.8)	7,000	1.6
Adjusted (loss) income from operations (Non-GAAP)	($22,281)	(20.6)	($4,188)	(3.4)	$16,456	11.4	($4,574)	(1.2)	$45,618	10.7

Depreciation expense	7,272	6.7	7,539	6.2	7,597	5.2	22,423	5.8	22,685	5.3
Adjusted EBITDA (Non-GAAP)	($15,009)	(13.9)	$3,351	2.8	$24,053	16.6	$17,849	4.6	$68,303	16.0

	Three Months Ended						Nine Months Ended
	June 28, 2019		March 29, 2019		June 29, 2018		June 28, 2019		June 29, 2018
	Amount	% Revenue	Amount	% Revenue	Amount	% Revenue	Amount	% Revenue	Amount	% Revenue
Net loss - GAAP	($324,714)	(299.8)	($46,204)	(36.0)	($85,430)	(62.0)	($394,314)	(101.8)	($123,484)	(29.5)
Amortization expense	21,862	20.2	19,756	16.3	21,676	15.0	62,189	16.1	60,741	14.3
Share-based and non-cash compensation	3,075	2.8	9,190	7.6	9,716	6.7	21,328	5.5	23,567	5.5
Impairment and restructuring charges	272,973	252.0	3,182	2.6	102	0.1	280,142	72.3	15,444	3.6
Warrant liability (gain) expense	(1,927)	(1.8)	1,607	1.3	6,728	4.6	(5,788)	(1.5)	(24,895)	(5.8)
Non-cash interest, net	1,015	0.9	1,015	0.8	1,036	0.7	3,046	0.8	3,572	0.8
Litigation costs	—	—	16	—	997	0.7	167	—	2,525	0.6
Acquisition, integration and restructuring related costs	3,582	3.3	879	0.7	1,856	1.3	6,980	1.8	7,621	1.8
Production and product line exits	—	—	—	—	17,753	12.3	—	—	17,753	4.2
Discontinued operations	—	—	—	—	220	0.2	—	—	5,837	1.4
Equity investment and sale of business (gains) losses	(4,705)	(4.3)	4,415	3.6	37,202	25.7	4,155	1.1	41,287	9.7
Deferred revenue	—	—	(7,000)	(5.8)	7,000	4.8	(7,000)	(1.8)	7,000	1.6
Tax effect of non-GAAP adjustments	1,091	1.0	1,552	1.3	(10,232)	(7.1)	2,646	0.7	(13,218)	(3.1)
Adjusted net (loss) income (Non-GAAP)	($27,748)	(25.6)	($11,592)	(9.5)	$8,624	6.0	($26,449)	(6.8)	$23,750	5.6

	Three Months Ended						Nine Months Ended
	June 28, 2019		March 29, 2019		June 29, 2018		June 28, 2019		June 29, 2018
	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 - GAAP	($324,714)		($46,204)		($85,430)		($394,314)		($123,484)
Warrant liability gain	(1,927)		—		—		(5,788)		(24,895)
Net loss - diluted	($326,641)	($4.95)	($46,204)	($0.71)	($85,430)	($1.32)	($400,102)	($6.09)	($148,379)	($2.28)

Adjusted net (loss) income (Non-GAAP)	($27,748)	($0.42)	($11,592)	($0.18)	$8,624	$0.13	($26,449)	($0.40)	$23,750	$0.36

	Three Months Ended			Nine Months Ended
	June 28, 2019	March 29, 2019	June 29, 2018	June 28, 2019	June 29, 2018
	Shares	Shares	Shares	Shares	Shares
Diluted shares - GAAP	65,945	65,531	64,920	65,722	65,198
Incremental shares	80	425	725	130	423
Adjusted diluted shares (Non-GAAP)	66,025	65,956	65,645	65,852	65,621

	Three Months Ended						Nine Months Ended
	June 28, 2019		March 29, 2019		June 29, 2018		June 28, 2019		June 29, 2018
	Amount	% Revenue	Amount	% Revenue	Amount	% Revenue	Amount	% Revenue	Amount	% Revenue
Interest expense, net - GAAP	$8,967	8.3	$9,402	7.3	$8,039	5.8	$27,142	7.0	$23,249	5.5
Non-cash interest expense	(1,015)	(0.9)	(1,016)	(0.8)	(1,036)	(0.7)	(3,046)	(0.8)	(3,573)	(0.8)
Adjusted Interest Expense (Non-GAAP)	$7,952	7.3	$8,386	6.9	$7,003	4.8	$24,096	6.2	$19,676	4.6

	Three Months Ended									Nine Months Ended
	June 28, 2019			March 29, 2019			June 29, 2018			June 28, 2019			June 29, 2018
	Amount		% Revenue	Amount		% Revenue	Amount		% Revenue	Amount		% Revenue	Amount		% Revenue
Cash flow from operations	$1,439		1.3	$23,929		18.6	$59		—	$28,277		7.3	$11,216		2.7
Capital expenditures	(9,305)		(8.6)	(11,079)		(9.1)	(12,863)		(8.9)	(31,905)		(8.2)	(39,443)		(9.3)
Free cash flow (Non-GAAP)	($7,866)		(7.3)	$12,850		10.6	($12,804)		(8.8)	($3,628)		(0.9)	($28,227)		(6.6)
Free cash flow as a percentage of Adjusted net income	(28)	%		111	%		(148)	%		(14)	%		(119)	%

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