MACOM Technology Solutions Holdings, Inc. — Q1 FY2021 Form 10-Q
Reporting period: 13 weeks ended January 1, 2021. The comparable quarter ended January 3, 2020 included 14 weeks, so year-over-year comparisons are affected by the extra week in the prior period. MACOM designs and sells semiconductor products for Telecommunications, Industrial & Defense, and Data Center applications.
Financial performance
| Metric | Q1 FY2021 | Prior-year quarter |
|---|---|---|
| Revenue | $148.5 million | $119.1 million |
| Gross profit / margin | $80.3 million / 54.0% | $58.2 million / 48.9% |
| Operating income (loss) | $12.1 million | $(10.5) million |
| Net loss | $(9.0) million; $(0.13) per diluted share | $(28.4) million; $(0.43) per diluted share |
| Cash from operations | $34.8 million | $37.7 million |
| Cash and cash equivalents at period end | $128.7 million | $108.2 million |
Revenue increased 24.7%. Gross margin improved 5.1 percentage points; management attributed the improvement to higher sales, favorable mix, production efficiencies, and licensing revenue. Operating expenses were $68.2 million, down from $68.7 million, with no restructuring charges in the quarter.
Revenue by market: Telecom $51.5 million, up 13.0%; Industrial & Defense $61.6 million, up 22.1%; Data Center $35.4 million, up 53.6%. Data Center’s share of revenue rose to 23.8% from 19.3%. Telecom growth reflected legacy products, fiber-to-the-home products, and licensing, partly offset by lower carrier-based optical products, including 5G-targeted products. Industrial & Defense growth reflected new program wins and expanded RF and microwave product lines; Data Center growth reflected higher sales of high-performance analog products.
Cash, debt, and liquidity
Cash, cash equivalents, and short-term investments totaled $354.8 million at January 1, 2021. Current assets were $509.2 million and current liabilities were $98.2 million. Term-loan principal was $664.4 million; the balance-sheet carrying amount, net of discount and financing costs, was $657.8 million. The loans bear a 2.40% effective rate at period end and mature in May 2024, with most principal due at maturity. Quarterly principal installments are approximately $1.7 million.
The revolving facility had $160.0 million of available capacity, with up to $50.0 million borrowable without certain financial covenants; it matures in November 2021. Management said available cash, investments, operating cash generation, and revolver capacity should meet working-capital needs for at least 12 months. Operating cash flow was lower than the prior-year quarter, while investing cash use was $24.8 million, primarily reflecting net purchases of short-term investments and $2.9 million of capital expenditures. Financing cash use was $11.5 million, including $11.8 million of shares withheld for employee tax obligations.
Material changes, outlook, and risks
- Net loss narrowed despite positive operating income, largely because operating performance improved. Other expense included an $11.1 million warrant-liability remeasurement charge and a $4.8 million loss on a minority equity-method investment. All warrants were cashlessly exercised during the quarter, issuing 857,631 shares; MACOM received no proceeds and no warrants remained outstanding at quarter end.
- Interest expense declined to $4.7 million from $8.6 million year over year. A 1% change in interest rates on debt, assuming balances remain constant for a year, would change annual interest expense by approximately $6.6 million.
- Management identified 5G deployment and communications-equipment upgrades, broader Industrial & Defense applications, and higher-speed Data Center interconnect upgrades as potential revenue drivers. The filing provides no specific numerical revenue or earnings guidance.
- COVID-19 had no material impact on reported results, according to management, but future demand and supply-chain, customer-collection, and operating effects remained uncertain. The company also cited risks from market conditions, foreign exchange, and possible asset impairments.
- Customer concentration is notable: the largest customer generated 14% of quarterly revenue and represented 24% of receivables; the top ten customers generated 55% of revenue. No material pending legal proceedings were reported. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Key facts for investors to verify
- Assess comparability of year-over-year growth given the prior-year quarter’s extra week.
- Determine whether improved gross margin and revenue growth are sustainable, particularly across markets and product mix.
- Monitor warrant-related dilution, share-based compensation, and the recurring minority-investment loss.
- Review the debt maturity profile, especially the November 2021 revolver maturity and the large term-loan payment due in 2024.
- Track customer concentration, receivables collection, and any further effects of COVID-19 on customers, suppliers, and demand.