MACOM Technology Solutions Holdings, Inc. — Form 10-Q
Reporting period: Fiscal second quarter and six months ended April 3, 2020. MACOM designs and manufactures semiconductor products for telecommunications, industrial and defense, and data center applications. Dollar amounts are in U.S. dollars.
Financial performance
| Metric | Three months ended Apr. 3, 2020 | Year-over-year | Six months ended Apr. 3, 2020 | Year-over-year |
|---|---|---|---|---|
| Revenue | $126.4 million | Down 1.6% | $245.5 million | Down 12.0% |
| Gross profit / margin | $63.4 million / 50.1% | Up from $57.3 million / 44.6% | $121.6 million / 49.5% | Down from $134.0 million / 48.0% |
| Operating loss | $5.3 million | Improved from $30.2 million | $15.8 million | Improved from $44.6 million |
| Net loss | $10.2 million | Improved from $46.2 million | $38.6 million | Improved from $69.6 million |
| Loss per share, basic / diluted | $(0.15) / $(0.28) | Basic was $(0.71) in prior-year quarter | $(0.58) / $(0.64) | Basic was $(1.06) in prior-year period |
For the quarter, revenue by market was Telecom $51.6 million, Industrial & Defense $48.1 million, and Data Center $26.7 million. Telecom grew 9.1% year over year, while Industrial & Defense declined 4.8% and Data Center declined 12.9%. For the six-month period, Data Center revenue fell 32.7%, Industrial & Defense fell 8.5%, and Telecom was nearly flat.
Six-month operating cash flow was $62.9 million, versus $26.8 million a year earlier. Investing used $9.0 million and financing used $8.2 million. Cash and cash equivalents were $120.7 million at quarter-end, alongside $100.8 million of short-term investments. Current assets were $418.0 million and current liabilities $93.0 million.
At April 3, 2020, term-loan principal was $669.5 million; the balance-sheet carrying amount was $660.6 million after discounts and deferred financing costs. The $160 million revolving facility was undrawn. The term loans mature in May 2024; the revolver matures in November 2021. Six-month capital expenditures were $9.0 million.
Changes, outlook and risks
- Quarterly revenue declined modestly, but gross margin improved 5.5 percentage points and operating loss narrowed, reflecting lower inventory-reserve and intangible-amortization costs and reduced operating expenses. Six-month revenue and gross profit remained below the prior year.
- Management attributed lower research and development and selling, general and administrative expenses largely to its 2019 restructuring plan. The plan targeted approximately 250 job reductions and closure of six development facilities; management expected about $50 million in annual expense savings once fully implemented and $0.1–$0.2 million of remaining restructuring costs through fiscal 2020.
- Management said COVID-19 had not materially affected supply, demand, or operating results through the quarter, but warned that effects on customers, suppliers, operations, liquidity, and demand were uncertain and could be material. It cited possible production delays, reduced customer purchasing, supply-chain disruption, and impairment or credit risks.
- Management believed cash, short-term investments, operating cash generation, and revolver availability would meet working-capital needs for at least 12 months. Borrowing above $50 million under the revolver would trigger specified financial covenants. The filing does not provide a specific revenue or earnings forecast.
- Other notable items: a $9.1 million six-month loss from the minority equity investment in Compute; a $1.4 million tax expense from the CARES Act-related NOL carryforward correction; and a $8.6 million quarterly noncash warrant-liability gain. U.S. deferred tax assets remained subject to a full valuation allowance.
Key investor checks
- Track Data Center demand and whether Telecom growth, including 5G-related sales, can offset declines in other markets.
- Verify realization and timing of the 2019 plan’s targeted $50 million annual savings, and any remaining restructuring costs.
- Monitor COVID-19 effects on orders, manufacturing continuity, suppliers, customer collections, and future impairment assessments.
- Assess the substantial term-loan balance, 2024 maturity concentration, variable-rate exposure, and conditions on revolver borrowing.
- Review the warrant accounting: its fair-value gain affects reported results, and diluted loss per share differs materially from basic loss per share.
- Consider customer concentration: the top ten customers generated 58% of quarterly and 59% of six-month revenue; one customer represented 23% of receivables at quarter-end.