MACOM Technology Solutions Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended July 3, 2020; comparisons are to the periods ended June 28, 2019. MACOM designs and manufactures semiconductor products for telecommunications, industrial and defense, and data center applications. Financial amounts below are in millions except per-share data.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $137.3 | $108.3 | $382.8 | $387.5 |
| Gross profit / margin | $70.9 / 51.6% | $33.8 / 31.2% | $192.5 / 50.3% | $167.8 / 43.3% |
| Operating income (loss) | $6.5 | $(323.8) | $(9.3) | $(368.4) |
| Net loss | $(25.0) | $(324.7) | $(63.6) | $(394.3) |
| Net loss per diluted share | $(0.37) | $(4.95) | $(0.96) | $(6.09) |
- Q3 revenue rose 26.7% year over year; nine-month revenue declined 1.2%.
- Q3 operating expenses were $64.4 million versus $357.6 million in the prior-year quarter, which included $264.1 million of impairment charges. No impairment charges were recorded in the 2020 periods shown.
- Nine-month operating cash flow was $97.0 million, compared with $28.3 million. Capital expenditures were $12.7 million; investing cash outflow was $32.0 million and financing cash outflow was $8.5 million. Cash and cash equivalents increased $56.4 million to $131.9 million.
- At July 3, cash and cash equivalents were $131.9 million and short-term investments were $133.2 million. Current assets were $450.3 million and current liabilities $95.0 million.
- Term-loan principal outstanding was $667.8 million; carrying value was $659.8 million. The term loans mature in May 2024, with $645.4 million of principal scheduled for 2024. The $160 million revolving facility was undrawn; up to $50 million could be borrowed without certain financial covenants.
Market trends and changes
- Q3 revenue by market: Telecom $56.8 million, up 29.4%; Industrial & Defense $48.0 million, up 2.6%; Data Center $32.4 million, up 84.1%. Management attributed Telecom growth mainly to carrier optical products, including 5G-targeted products, and Data Center growth to high-performance analog products.
- For the nine months, Telecom revenue rose 9.0%, while Industrial & Defense declined 5.2% and Data Center declined 10.2%. The latter included comparison against $7.0 million of licensing revenue in the prior-year period.
- Management attributed improved gross profit and lower R&D and SG&A expenses primarily to the 2019 strategic realignment, including lower compensation costs and intangible amortization. The nine-month comparison also reflects the prior-year impairment charges.
Outlook, risks and unusual items
- Management expects approximately $50 million of annual expense savings once the 2019 restructuring plan is fully implemented and anticipated up to $0.2 million of additional restructuring costs through fiscal 2020. The plan included an approximately 250-employee reduction and exits from six development facilities.
- Management stated that cash, short-term investments, operating cash generation and revolving-credit availability should be sufficient for working capital needs for at least the next 12 months. No specific revenue or earnings guidance was provided in the filing text.
- COVID-19 had not materially affected consolidated operating results through the reported nine months, but management cited substantial uncertainty around future demand, operations, suppliers, credit collectability, asset values and liquidity.
- Q3 included a $19.5 million warrant-liability expense, versus a $1.9 million gain a year earlier; the liability is remeasured based partly on MACOM’s share price. The warrants expire December 21, 2020. The warrant liability was $27.3 million at quarter-end.
- A minority equity-method investment generated a $4.6 million Q3 loss and $13.6 million nine-month loss; its carrying value fell to $5.0 million from $18.6 million at fiscal year-end.
- Revenue concentration increased: the top ten customers represented 66% of Q3 revenue, versus 54% in the prior-year quarter. Three customers each accounted for 13%–14% of Q3 revenue.
- MACOM reported no material pending legal proceedings and no material changes to the previously disclosed risk factors beyond those described in earlier 2020 quarterly filings. The U.S. deferred tax asset remained subject to a full valuation allowance.
Investor verification points
- Assess whether the Q3 revenue rebound, particularly in Data Center and Telecom, is sustained and how nine-month softness in Industrial & Defense and Data Center develops.
- Verify the durability and realization timing of the planned $50 million annual restructuring savings and any remaining implementation costs.
- Review debt repayment and refinancing exposure, especially the large scheduled 2024 term-loan maturity and variable-rate sensitivity; the filing estimates a 1% rate change would alter annual interest expense by $6.7 million at constant debt.
- Monitor warrant remeasurement and expiration, customer concentration, COVID-19 effects, and further losses or impairment risk related to investments and long-lived assets.
- Reconcile operating cash flow quality, including its dependence on working-capital releases and non-cash adjustments.