MACOM Reports Third Quarter 2016 Financial Results

⁽¹⁾During the second quarter of fiscal 2016, we early-adopted Accounting Standards Update (ASU) No. 2015-17, Balance Sheet Classification of Deferred Taxes, and applied ASU 2015-17 on a prospective basis. This standard requires that all deferred tax assets and liabilities, and any related valuation allowance, be classified as noncurrent on the balance sheet. As of the second quarter of fiscal 2016, we included $31.4 million of current deferred income tax assets with our noncurrent deferred income tax assets; no adjustments were made to deferred tax liabilities.


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited and in thousands)

	Nine Months Ended
	July 1, 2016			July 3, 2015

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,668	)	$	(5,817	)
Adjustments to reconcile loss to net operating cash		91,282			86,208
Change in operating assets and liabilities		(33,267	)		(52,196	)
Net cash from operating activities		54,347			28,195
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net		(85,516	)		(208,352	)
Purchases, sales and maturities of investments		15,412			(250	)
Gain on disposition of business		3,750			—
Strategic investments		—			1,500
Purchases of property and equipment		(24,100	)		(32,488	)
Acquisition of intellectual property		(777	)		(2,483	)
Net cash used in investing activities		(91,231	)		(242,073	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable		(12,178	)		(3,997	)
Proceeds from stock offering		—			127,697
Proceeds from stock option exercises and employee stock purchases		5,336			5,329
Repurchase of common stock		(9,966	)		(7,919	)
Borrowings on revolving facility		—			100,000
Payments on revolving facility		—			(100,000	)
Other financing activities		(1,195	)		(39	)
Net cash from financing activities		(18,003	)		121,071
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(583	)		(401	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(55,470	)		(93,208	)
CASH AND CASH EQUIVALENTS — Beginning of period		122,312			173,895
CASH AND CASH EQUIVALENTS — End of period	$	66,842		$	80,687


MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC. RECONCILIATION OF GAAP TO NON-GAAP RESULTS (unaudited and in thousands, except per share data)

	Three Months Ended																		Nine Months Ended
	July 1, 2016						April 1, 2016						July 3, 2015						July 1, 2016						July 3, 2015
	Amount			% Revenue			Amount			% Revenue			Amount			% Revenue			Amount			% Revenue			Amount			% Revenue
Gross profit - GAAP	$	73,962			52.0		$	65,525			49.1		$	52,496			48.1		$	199,805			51.0		$	146,629			47.6
Amortization expense		6,440			4.5			6,642			5.0			6,932			6.4			20,249			5.2			19,638			6.4
Share-based and non-cash compensation		685			0.5			691			0.5			512			0.5			1,918			0.5			1,668			0.5
Impairment and restructuring charges		—			—			1,950			1.5			—			—			1,950			0.5			—			—
Acquisition and integration related costs		422			0.3			2,748			2.1			2,951			2.7			3,102			0.8			7,676			2.5
Other		—			—			—			—			396			0.4			—			—			1,625			0.5
Adjusted gross profit (NonGAAP)	$	81,509			57.3		$	77,556			58.1		$	63,287			58.0		$	227,024			58.0		$	177,236			57.5

	Three Months Ended																		Nine Months Ended
	July 1, 2016						April 1, 2016						July 3, 2015						July 1, 2016						July 3, 2015
	Amount			% Revenue			Amount			% Revenue			Amount			% Revenue			Amount			% Revenue			Amount			% Revenue
Operating expenses - GAAP	$	63,782			44.8		$	72,676			54.4		$	48,115			44.1		$	196,623			50.2		$	141,224			45.8
Amortization expense		(6,415	)		(4.5	)		(6,304	)		(4.7	)		(3,201	)		(2.9	)		(17,142	)		(4.4	)		(7,350	)		(2.4	)
Share-based and non-cash compensation		(6,206	)		(4.4	)		(7,717	)		(5.8	)		(6,704	)		(6.1	)		(24,806	)		(6.3	)		(21,231	)		(6.9	)
Impairment and restructuring charges		(1,852	)		(1.3	)		(11,856	)		(8.9	)		(558	)		(0.5	)		(13,865	)		(3.5	)		(971	)		(0.3	)
Litigation costs		(818	)		(0.6	)		(232	)		(0.2	)		21			—			(1,159	)		(0.3	)		(745	)		(0.2	)
Acquisition and integration related costs		(1,911	)		(1.3	)		(1,413	)		(1.1	)		(171	)		(0.2	)		(7,637	)		(2.0	)		(4,398	)		(1.4	)
Adjusted operating expenses (NonGAAP)	$	46,580			32.7		$	45,154			33.8		$	37,502			34.4		$	132,015			33.7		$	106,529			34.6

	Three Months Ended																		Nine Months Ended
	July 1, 2016						April 1, 2016						July 3, 2015						July 1, 2016						July 3, 2015
	Amount			% Revenue			Amount			% Revenue			Amount			% Revenue			Amount			% Revenue			Amount			% Revenue
Income (loss) from operations - GAAP	$	10,180			7.2		$	(7,151	)		(5.4	)	$	4,381			4.0		$	3,182			0.8		$	5,405			1.8
Amortization expense		12,855			9.0			12,946			9.7			10,133			9.3			37,391			9.5			26,991			8.8
Share-based and non-cash compensation		6,891			4.8			8,409			6.3			7,216			6.6			26,723			6.8			22,899			7.4
Impairment and restructuring charges		1,852			1.3			13,806			10.3			558			0.5			15,815			4.0			971			0.3
Litigation costs		817			0.6			232			0.2			(21	)		—			1,157			0.3			745			0.2
Acquisition and integration related costs		2,334			1.6			4,160			3.1			3,518			3.2			10,740			2.7			13,696			4.4
Adjusted income from operations (NonGAAP)	$	34,929			24.5		$	32,402			24.3		$	25,785			23.6		$	95,008			24.3		$	70,707			23.0
Depreciation expense		5,278			3.7			4,840			3.6			3,253			3.0			14,021			3.6			10,342			3.4
Other income (expense), net		1,890			1.3			1,792			1.3			—			—			5,637			1.4			—			—
Adjusted EBITDA	$	42,097			29.6		$	39,034			29.2		$	29,038			26.6		$	114,666			29.3		$	81,049			26.3

	Three Months Ended																		Nine Months Ended
	July 1, 2016						April 1, 2016						July 3, 2015						July 1, 2016						July 3, 2015
	Amount			% Revenue			Amount			% Revenue			Amount			% Revenue			Amount			% Revenue			Amount			% Revenue
Net income (loss) - GAAP	$	22,552			15.8		$	(10,649	)		(8.0	)	$	8,027			7.4		$	(3,668	)		(0.9	)	$	(5,817	)		(1.9	)
Amortization expense		12,855			9.0			12,946			9.7			10,133			9.3			37,391			9.5			26,991			8.8
Share-based and non-cash compensation		6,891			4.8			8,409			6.3			7,216			6.6			26,723			6.8			22,899			7.4
Impairment and restructuring charges		1,852			1.3			13,806			10.3			558			0.5			15,815			4.0			971			0.3
Warrant liability expense (gain)		(15,339	)		(10.8	)		4,201			3.1			(546	)		(0.5	)		3,741			1.0			15,671			5.1
Non-cash interest		405			0.3			425			0.3			405			0.4			1,228			0.3			1,247			0.4
Litigation costs		817			0.6			232			0.2			(21	)		—			1,157			0.3			745			0.2
Acquisition and integration related costs		2,334			1.6			4,158			3.1			3,518			3.2			10,717			2.7			11,696			3.8
Discontinued operations		676			0.5			479			0.4			(6,271	)		(5.8	)		1,831			0.4			(13,567	)		(4.4	)
Other		—			—			—			—			225			0.2			—			—			3,226			1.0
Tax effect of non-GAAP adjustments		(5,111	)		(3.6	)		(8,327	)		(6.2	)		(4,812	)		(4.4	)		(19,491	)		(5.0	)		(14,760	)		(4.8	)
Adjusted net income (NonGAAP)	$	27,932			19.6		$	25,680			19.2		$	18,432			16.9		$	75,445			19.3		$	49,302			16.0

	Three Months Ended																		Nine Months Ended
	July 1, 2016						April 1, 2016						July 3, 2015						July 1, 2016						July 3, 2015
	Net Income (Loss)			Income (loss) per diluted share			Net Income (Loss)			Income (loss) per diluted share			Net Income (Loss)			Income (loss) per diluted share			Net Income (Loss)			Income (loss) per diluted share			Net Income (Loss)			Income (loss) per diluted share
Net income (loss) - GAAP		22,552						(10,649	)					8,027						(3,668	)					(5,817	)
Warrant liability gain		(15,339	)					—						(546	)					—						—
Net income (loss) - diluted	$	7,213		$	0.13		$	(10,649	)	$	(0.20	)	$	7,481		$	0.14		$	(3,668	)	$	(0.07	)	$	(5,817	)	$	(0.12	)
Adjusted (NonGAAP)	$	27,932		$	0.51		$	25,680		$	0.46		$	18,432		$	0.33		$	75,445		$	1.37		$	49,302		$	0.94

	Three Months Ended																		Nine Months Ended
	July 1, 2016						April 1, 2016						July 3, 2015						July 1, 2016						July 3, 2015
	Shares						Shares						Shares						Shares						Shares
Diluted shares - GAAP		53,516						53,228						53,098						53,253						50,433
Incremental shares		1,772						2,139						2,076						2,007						2,127
Adjusted diluted shares (NonGAAP)		55,288						55,367						55,174						55,260						52,560

	Three Months Ended																		Nine Months Ended
	July 1, 2016						April 1, 2016						July 3, 2015						July 1, 2016						July 3, 2015
	Amount			% Revenue			Amount			% Revenue			Amount			% Revenue			Amount			% Revenue			Amount			% Revenue
Interest expense- GAAP		4,477			3.1			4,478			3.4			4,505			4.1			13,430			3.4			13,951			4.5
Non-cash interest expense		(405	)		(0.3	)		(425	)		(0.3	)		(405	)		(0.4	)		(1,228	)		(0.3	)		(1,247	)		(0.4	)
Adjusted Interest Expense (NonGAAP)	$	4,072			2.9		$	4,053			3.0		$	4,100			3.8		$	12,202			3.1		$	12,704			4.1

	Three Months Ended																		Nine Months Ended
	July 1, 2016						April 1, 2016						July 3, 2015						July 1, 2016						July 3, 2015
	Amount			% Revenue			Amount			% Revenue			Amount			% Revenue			Amount			% Revenue			Amount			% Revenue
Cash flow from operations		19,249			13.5			19,584			14.7			26,763			24.5			54,347			13.9			28,195			9.2
Capital expenditures		(7,138	)		(5.0	)		(11,033	)		(8.3	)		(19,348	)		(17.7	)		(24,877	)		(6.4	)		(34,971	)		(11.4	)
Free cash flow	$	12,111			8.5		$	8,551			6.4		$	7,415			6.8		$	29,470			7.5		$	(6,776	)		(2.2	)

	Three Months Ended
	July 1, 2016			April 1, 2016			January 1, 2016
	Amount			Amount			Amount
Revenue - GAAP		142,288			133,579			115,774
FiBest and Aeroflex/Metelics revenue		20,052			18,780			4,577
Adjusted revenue - excluding acquisitions (NonGAAP)		122,236			114,799			111,197

Sequential growth %		85	%		20	%

Adjusted gross profit (NonGAAP)		81,509			77,556			67,959
FiBest and Aeroflex/Metelics gross profit		6,195			3,605			1,234
Adjusted gross profit - excluding acquisitions (NonGAAP)		75,314			73,951			66,725
Adjusted gross margin (NonGAAP)		62	%		64	%		60	%

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