MACOM Technology Solutions Holdings, Inc. — Q2 FY2021 Form 10-Q
Reporting period: Three and six months ended April 2, 2021. The company designs and manufactures semiconductors for telecommunications, Industrial & Defense (I&D), and data center markets. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions unless otherwise noted.
Financial performance and position
| Metric | Q2 FY2021 | Prior-year quarter | Six months FY2021 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $150.6 million | $126.4 million | $299.1 million | $245.5 million |
| Gross profit / margin | $84.1 million / 55.9% | $63.4 million / 50.1% | $164.4 million / 55.0% | $121.6 million / 49.5% |
| Operating income (loss) | $19.0 million | $(5.3) million | $31.0 million | $(15.8) million |
| Net income (loss) | $14.8 million | $(10.2) million | $5.8 million | $(38.6) million |
| Diluted earnings (loss) per share | $0.21 | $(0.28) | $0.08 | $(0.64) |
- Revenue mix: Q2 Telecom revenue was $42.3 million, down 18.2%; I&D was $72.1 million, up 50.0%; and Data Center was $36.2 million, up 35.6%. For the six-month period, the respective changes were down 3.5%, up 35.7%, and up 44.0%.
- Cash flow: Six-month operating cash flow was $62.7 million, compared with $62.9 million a year earlier. Capital expenditures were $7.3 million. Cash and cash equivalents decreased by $23.9 million to $105.5 million during the half-year.
- Liquidity: At April 2, cash and short-term investments totaled $268.1 million. The company had $160.0 million available under its revolving facility, including $50.0 million that could be borrowed without certain financial covenants. Management said available liquidity and expected operating cash generation should meet working-capital needs for at least 12 months.
- Debt: At April 2, reported long-term debt was $492.2 million; principal outstanding was $498.6 million, comprising a $170.1 million term loan and $400.0 million principal of 0.25% convertible notes due 2026. In the quarter, MACOM issued the notes and repaid $494.3 million of term loans, recognizing a $3.8 million non-cash debt-extinguishment loss. After quarter-end, it issued an additional $50.0 million of notes and used $49.3 million to reduce term-loan principal to $120.8 million; total note principal became $450.0 million.
- Margins and expenses: Higher sales, favorable mix, production efficiencies, and licensing revenue supported gross-margin expansion. Operating expenses were $65.1 million in Q2, down from $68.6 million; no restructuring charges were recorded in FY2021 Q2.
Material changes and notable items
- Q2 revenue grew 19.1% year over year and six-month revenue grew 21.8%. I&D and Data Center drove growth; Telecom declined, primarily reflecting lower carrier-based optical product sales, including products targeted at 5G applications.
- Prior-year six-month results include a 14-week first quarter, versus 13 weeks in FY2021, so the six-month comparison is not on identical fiscal-week bases.
- Quarterly net income included $6.5 million of income from the equity-method investment in Compute, including a $9.8 million non-cash gain related to changes in that investee’s equity. Six-month results also included $11.1 million of warrant-liability expense and the $3.8 million debt-extinguishment loss. All warrants had been exercised by April 2, 2021.
- Cash from operations was broadly unchanged despite the return to six-month profitability; a $22.4 million increase in accounts receivable was a significant use of operating cash.
- Top ten customers accounted for 52% of Q2 revenue and 53% for the six-month period. One customer represented 13% of revenue in both current periods and 17% of receivables at April 2.
Outlook, commentary, and risks
- The filing provides no specific numerical revenue or earnings guidance. Management identifies 5G and communications-equipment upgrades as Telecom drivers, product wins and portfolio expansion as I&D drivers, and adoption of higher-speed 100G-to-800G data-center interconnects as Data Center opportunities.
- Management reported no material operating-results impact from COVID-19 in the periods presented, but noted uncertainty around future demand, economic conditions, suppliers, customer collections, asset values, and liquidity.
- MACOM cautioned that debt service and potential cash settlement or repurchase obligations on the convertible notes could require additional financing or other actions. Note terms also include repurchase rights upon a defined fundamental change and could affect certain business combinations.
- Other exposures include variable-rate term debt, customer concentration, foreign exchange, and possible impairment of goodwill or long-lived assets. The company reported no material pending legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- How revenue growth and gross-margin improvement develop, particularly whether I&D and Data Center growth offsets continued Telecom weakness.
- Receivables, collections, and operating cash conversion after the six-month increase in accounts receivable.
- Post-quarter debt balances, interest expense, covenant headroom, and the potential cash or dilution effects of the $450.0 million convertible notes.
- The sustainability of reported earnings, given investment-related gains, warrant-liability fair-value changes, and debt-refinancing costs.
- Customer concentration and the extent to which COVID-19, supply conditions, and end-market demand affect future results.