Business context and reporting period
MACOM Technology Solutions Holdings, Inc. designs and manufactures semiconductor products for telecommunications, industrial and defense (I&D), and data center applications. This unaudited Form 10-Q covers the fiscal quarter ended July 2, 2021 and the first nine months of fiscal 2021; comparisons are to the periods ended July 3, 2020.
Financial performance
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Three months ended July 2, 2021 | Prior-year quarter | Nine months ended July 2, 2021 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $152.6 | $137.3 | $451.7 | $382.8 |
| Gross profit / margin | $87.3 / 57.2% | $70.9 / 51.6% | $251.6 / 55.7% | $192.5 / 50.3% |
| Operating income (loss) / margin | $23.7 / 15.5% | $6.5 / 4.7% | $54.7 / 12.1% | ($9.3) / (2.4)% |
| Net income (loss) | $15.0 | ($25.0) | $20.8 | ($63.6) |
| Diluted EPS | $0.21 | ($0.37) | $0.30 | ($0.96) |
- Revenue rose 11.2% in the quarter and 18.0% over nine months. Quarterly growth was led by I&D; Telecom revenue declined.
- Nine-month operating cash flow was $107.6 million, compared with $97.0 million. Investing activities provided $26.3 million, while financing activities used $119.7 million. Capital expenditures were $12.9 million.
- At July 2, cash and cash equivalents were $144.1 million and short-term investments were $164.8 million. The company also had $160.0 million of available revolving credit capacity.
- Debt principal outstanding was $570.8 million: $120.8 million of term loans and $450.0 million of 0.25% convertible notes due 2026. Balance-sheet long-term debt, net of discounts and financing costs, was $488.0 million. No minimum term-loan principal payments are due until 2024.
Material changes versus the prior comparable periods
- Quarterly revenue by market: I&D increased 48.6% to $71.4 million; Telecom fell 15.5% to $48.0 million; Data Center increased 2.5% to $33.3 million. For the nine months, I&D rose 39.9%, Data Center rose 27.6%, and Telecom declined 8.0%.
- Management attributed stronger gross profit and margin primarily to higher sales, favorable revenue mix, production efficiencies, and lower depreciation and amortization.
- Operating expenses were lower as a share of revenue. No restructuring charges were recorded in fiscal 2021 periods presented.
- Nine-month interest expense declined to $15.1 million from $22.1 million, primarily reflecting lower term-loan balances and effective rates. The company issued $450 million of convertible notes and used proceeds, cash, and investment-sale proceeds to repay approximately $543.6 million of term-loan principal.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is provided. Management identifies 5G and communications upgrades, I&D program wins and product-line expansion, and higher-speed data center interconnects as potential revenue drivers.
- Management expects a 10% estimated annual effective tax rate for the fiscal year, subject to discrete tax items. U.S. deferred tax assets remain subject to a full valuation allowance.
- Management said COVID-19 had not materially affected results for the periods presented, but noted that future effects on demand, suppliers, collections, asset values, liquidity, and operations remain uncertain.
- The $160.0 million revolving facility was scheduled to mature in November 2021. Management believed cash, investments, operating cash generation, and borrowing availability would meet working-capital needs for at least 12 months.
- Revenue remains exposed to market, geographic, and customer concentration. The top ten customers accounted for 48% of quarterly revenue and 51% for the nine-month period. The United States and China generated $70.3 million and $44.5 million of quarterly revenue, respectively.
- Unusual items include $11.1 million of nine-month warrant-liability expense; all warrants were exercised and none remained outstanding at quarter-end. The company also recorded $4.4 million of nine-month debt-extinguishment losses. Its private-company investment in Ampere Computing is subject to a call option, with exercise and eventual liquidity uncertain.
- The filing reports no material pending legal proceedings and no material changes to risk factors beyond those previously disclosed. Disclosure controls were concluded to be effective.
Important facts for investors to verify
- Whether the revolving facility was renewed, refinanced, or repaid at its November 2021 maturity.
- Whether I&D growth and Data Center demand continued, and whether Telecom declines persisted.
- Cash conversion and receivables: accounts receivable increased $25.7 million over the nine-month period.
- Potential dilution and accounting effects from the $450 million convertible notes, including the $82.12 initial conversion price and the unamortized debt discount.
- The status, valuation, and potential exercise of the Ampere Computing investment call option, and the impact of customer concentration and COVID-19-related risks.