MACOM Technology Solutions Holdings, Inc. (Nasdaq: MTSI) (“MACOM”), a
leading supplier of high-performance RF, microwave, millimeterwave and
lightwave semiconductor products, today reported preliminary non-GAAP
financial results for the company’s second fiscal quarter ending March
29, 2019.
Non-GAAP revenue in the quarter is expected to be approximately $121
million, compared to guidance of $134 million to $142 million. Non-GAAP
gross margin is expected to be around 49%, which includes $8 million in
inventory reserves primarily associated with data center materials, or
roughly 600 basis point of gross margin impact. This compares to
non-GAAP gross margin guidance of 55% to 57%, which did not reflect the
inventory reserve. Non-GAAP earnings per share is expected to be a loss
of ($0.18), compared to guidance for adjusted earnings per share of
$0.04 to $0.12.
President and Chief Executive Officer, John Croteau commented, “We are
clearly disappointed with our preliminary fiscal Q2 results. There were
several contributing factors, the majority of which were rooted in the
acute inventory correction that is currently underway among Cloud Data
Center customers.
“Over the course of the quarter, demand across our Cloud Data Center
businesses deteriorated beyond our original forecasts due to the rapid
deceleration of this previously high-growth end market. The decline in
new orders from Cloud Service Providers caused component inventory
levels to grow more than we originally anticipated at many of our
transceiver customers. This resulted in lower product revenue and was
compounded by a corresponding impact across the supply chain as cloud
customers delayed the ramp of new products and new transceiver suppliers.
“As a result, we did not recognize certain solutions revenue from a new
customer in Q2, which we had originally anticipated in building our Q2
guidance. Moreover, the current demand environment drove cloud customers
to deprioritize qualifying new suppliers during the quarter, creating
added uncertainty in the timing of revenue from new players.
“Lastly, given light backlog and weak end market demand we recorded
inventory reserves associated with certain Data Center products that we
were ramping. The net result was a significantly larger decline in EPS
and margin relative to the associated decrease in product revenue.”
Mr. Croteau concluded, “We believe that fiscal Q2 represents the bottom
of the inventory correction in Data Center, as customer forecasts and
market reports remain bullish for the second half of the calendar year.
Given our leadership in 100G, 200G and 400G, CWDM and PAM-4 – across
analog, DSP, laser and L-PIC content – we believe that we remain well
positioned when orders turn back on. We will provide further commentary
and fiscal Q3 guidance at our regularly scheduled earnings call in early
May.”
Conference Call
MACOM will host a conference call on May 7, 2019 at 5:00 p.m. Eastern
Time to discuss its fiscal second quarter 2019 financial results and
business outlook. Investors and analysts may join the conference call by
dialing 1-877-837-3908 and providing the passcode 6194258.
International callers may join the teleconference by dialing
+1-973-872-3000 and entering the same passcode at the prompt. A
telephone replay of the call will be made available beginning two hours
after the call and will remain available for five business days. The
replay number is 1-855-859-2056 with a passcode of 6194258.
International callers should dial +1-404-537-3406 and enter the same
passcode at the prompt.
Additionally, this conference call will be broadcast live over the
Internet and can be accessed by all interested parties in the Investors
section of MACOM’s website at http://www.macom.com.
To listen to the live call, please go to the Investors section of
MACOM’s website and click on the conference call link at least fifteen
minutes prior to the start of the conference call. For those unable to
participate during the live broadcast, a replay will be available
shortly after the call and will remain available for approximately 30
days.
About MACOM
MACOM enables a better-connected and safer world by delivering
breakthrough semiconductor technologies for optical, wireless and
satellite networks that satisfy society’s insatiable demand for
information.
Today, MACOM powers the infrastructure that millions of lives and
livelihoods depend on every minute to communicate, transact business,
travel, stay informed and be entertained. Our technology increases the
speed and coverage of the mobile Internet and enables fiber optic
networks to carry previously unimaginable volumes of traffic to
businesses, homes and datacenters.
Keeping us all safe, MACOM technology enables next-generation radars for
air traffic control and weather forecasting, as well as mission success
on the modern networked battlefield.
MACOM is the partner of choice to the world’s leading communications
infrastructure, aerospace and defense companies, helping solve their
most complex challenges in areas including network capacity, signal
coverage, energy efficiency and field reliability, through its
best-in-class team and broad portfolio of RF, microwave, millimeterwave
and lightwave semiconductor products.
MACOM is a pillar of the semiconductor industry, thriving for more than
60 years of daring to change the world for the better, through bold
technological strokes that deliver true competitive advantage to
customers and superior value to investors.
Headquartered in Lowell, Massachusetts, MACOM is certified to the
ISO9001 international quality standard and ISO14001 environmental
management standard. MACOM has design centers and sales offices
throughout North America, Europe and Asia.
MACOM, M/A-COM, M/A-COM Technology Solutions, M/A-COM Tech, Partners in
RF & Microwave and related logos are trademarks of MACOM. All other
trademarks are the property of their respective owners. For more
information about MACOM, please visit www.macom.com follow @MACOMtweets on
Twitter, join MACOM on LinkedIn
and Facebook
or visit the MACOM YouTube
Channel.
Special Note Regarding Forward-Looking Statements
This press release and our commentary in our conference call held today
each contain forward-looking statements based on MACOM management’s
beliefs and assumptions and on information currently available to our
management. Forward-looking statements include, among others,
information concerning our estimated financial results for our fiscal
second quarter, our stated business outlook and future results of
operations, our expectations concerning our plans to follow through on
investments in support of critical customers and program ramps, our
expectations for business and market conditions, positioning and growth
aspirations in our various markets, our expectations for the launch and
success of our Data Center solutions business model, statements
regarding market and geographic cycles and downturns for MACOM in terms
of revenue and demand, our expectations regarding growth in the second
half of the calendar year and any other statements regarding future
trends, business strategies, competitive position, industry conditions,
acquisitions and market opportunities. Forward-looking statements
include all statements that are not historical facts and generally may
be identified by terms such as “anticipates,” “believes,” “could,”
“estimates,” “expects,” “intends,” “may,” “plans,” “potential,”
“predicts,” “projects,” “seeks,” “should,” “will,” “would” or similar
expressions and the negatives of those terms.
These forward-looking statements reflect MACOM’s current views about
future events and are subject to risks, uncertainties, assumptions and
changes in circumstances that may cause those events or our actual
activities or results to differ materially from those expressed in any
forward-looking statement. Although MACOM believes that the expectations
reflected in the forward-looking statements are reasonable, it cannot
and does not guarantee future events, results, actions, levels of
activity, performance or achievements. Readers are cautioned not to
place undue reliance on these forward-looking statements. A number of
important factors could cause actual results to differ materially from
those indicated by the forward-looking statements, including the
potential that we are unable to identify and timely enter into new
markets for our products, such as our publicly-announced market
opportunities in Cloud Data Centers, 100G optical networks, 10G PON, 25G
lasers, L-PICs, Active and Security Radar Antennas and our AlGaAs,
heterolithic microwave ICs (HMIC), Indium Phosphide (InP) etched facet
laser and GaN technologies, the potential that we are unable to timely
deliver the quantities of our products targeting these or other
applications at the right price point due to design challenges,
manufacturing bottlenecks, supply shortages, yield issues or otherwise,
the potential that the expected rollout of Cloud Data Center build-outs,
5G network upgrades, fiber-to-the-home network technology or other new
optical or other network technology deployments in the U.S., China,
Japan and other geographies fails to occur, occurs more slowly than we
expect or does not result in the amount or type of new business we
anticipate, lower than expected demand in the Cloud Data Center market,
the optical network infrastructure market or any or all of our primary
end markets or from any or all of our large OEM customers based on
seasonal effects, regulatory action (such as the ZTE export ban or
ongoing Huawei investigation and resulting charges or other denial
orders prohibiting sales to Chinese customers) or inaction, technology
shifts, standards changes, macro-economic weakness or otherwise, and
other events and trends on a national, regional and global scale,
including those of a political, economic, business, competitive,
intellectual property and regulatory nature, the potential for greater
than expected pricing pressure and average selling price erosion based
on attempts to win or maintain market share, competitive factors,
technology shifts or otherwise, the impact of international trade
agreements, including new or potential increases in existing trade
tariffs, on our business, our suppliers, or our customers, our potential
inability to ramp key new products into volume production with
acceptable manufacturing yields to satisfy key customer demand in a
timely fashion, the potential for inventory obsolescence and related
write-offs, a delay or failure to efficiently transition the activities
from our Ithaca facility to our headquarters, the expense, business
disruption or other impact of any current or future investigations,
administrative actions, litigation or enforcement proceedings we may be
involved in, the potential loss of access to any in-licensed
intellectual property or inability to license technology we may require
on reasonable terms, the impact of any claims of intellectual property
infringement or misappropriation, which could require us to pay
substantial damages for infringement, expend significant resources in
prosecuting or defending such matters or developing non-infringing
technology, incur material liability for royalty or license payments, or
prevent us from selling certain of our products, greater than expected
dilutive effect on earnings of our equity issuances, outstanding
indebtedness and related interest expense and other costs, our failure
to realize the expected economies of scale, lowered production cost,
increased customer penetration and other anticipated benefits of our
previously announced GaN intellectual property licensing program or
supply chain build-out initiatives, the potential for defense spending
cuts, program delays, cancellations or sequestration, failures or delays
by any customer in winning business or to make purchases from us in
support of such business, lack of adoption or delayed adoption by
customers and industries we serve of Cloud Data Centers, MACsec,
single-Lambda PAM4, MMICs, L-PICs, Active and Security Antennas, SPAR
tiles, GaN, InP lasers, AlGaAs HMIC, or other solutions offered by us,
failures or delays in porting and qualifying GaN or InP process
technology to our fabrication facilities or third party facilities and
achieving anticipated manufacturing economies of scale, lower than
expected utilization and absorption in our manufacturing facilities,
lack of success or slower than expected success in our new product
development or new product introduction efforts, loss of key personnel
to competitors or otherwise, failure of any announced transaction to
close in accordance with its terms, failure to successfully integrate
acquired companies, technologies or products or realize synergies
associated with acquisitions, the potential that we will experience
difficulties in managing the personnel and operations associated with
our acquisitions, loss of business due to competitive factors, product
or technology obsolescence, customer program shifts or otherwise, the
potential for a shift in the mix of products sold in any period toward
lower-margin products or a shift in the geographical mix of our
revenues, the impact of any executed or abandoned acquisition,
divestiture, joint venture, financing or restructuring activity, the
impact of supply shortages or other disruptions in our internal or
outsourced supply chain, the impact of changes in export, environmental
or other laws applicable to us, the relative success of our cost-savings
initiatives, as well as those factors described in “Risk Factors” in
MACOM’s filings with the Securities and Exchange Commission, including
its Annual Report on Form 10-K for the fiscal year ended September 28,
2018, as filed on November 16, 2018 and its Quarterly Report on Form
10-Q for the fiscal quarter ended December 28, 2018, as filed on
February 6, 2019. Except as required by law, MACOM undertakes no
obligation to publicly update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
Discussion Regarding the Use of Historical and Forward-Looking
Non-GAAP Financial Measures
In addition to GAAP reporting, MACOM provides investors with financial
measures that have not been calculated in accordance with United States
Generally Accepted Accounting Principles (“GAAP”), such as: non-GAAP
gross profit and gross margin, non-GAAP income from operations and
operating margin, non-GAAP operating expenses, non-GAAP net income,
non-GAAP diluted earnings per share, adjusted EBITDA and Free Cash Flow.
From time to time in this release or elsewhere, we may alternatively
refer to such non-GAAP measures as “adjusted” measures. This non-GAAP
information excludes the effect, where applicable, of discontinued
operations, intangible amortization expense, share-based compensation
costs, impairment and restructuring charges, changes in common stock
warrant liability, financing and litigation costs, acquisition and
integration related costs, equity investment gains and losses, divested
business losses, other costs and the tax effect of each adjustment.
Management believes that these excluded items are not reflective of our
underlying performance. Management uses these non-GAAP financial
measures to: evaluate our ongoing operating performance and compare it
against prior periods, make operating decisions, forecast future
periods, evaluate potential acquisitions, compare our operating
performance against peer companies and assess certain compensation
programs. The exclusion of these and other similar items from our
non-GAAP financial results should not be interpreted as implying that
these items are non-recurring, infrequent or unusual. We believe this
non-GAAP financial information provides additional insight into our
ongoing performance and have therefore chosen to provide this
information to investors for a more consistent basis of comparison and
to help them evaluate the results of our ongoing operations and enable
more meaningful period-to-period comparisons. These non-GAAP measures
are provided in addition to, and not as a substitute for, or superior
to, measures of financial performance prepared in accordance with GAAP.
Investors are cautioned against placing undue reliance on these non-GAAP
financial measures and are urged to review and consider carefully the
adjustments made by management to the most directly comparable GAAP
financial measures to arrive at these non-GAAP financial measures.
Non-GAAP financial measures may have limited value as analytical tools
because they may exclude certain expenses that some investors consider
important in evaluating our operating performance or ongoing business
performance. Further, non-GAAP financial measures may have limited value
for purposes of drawing comparisons between companies because different
companies may calculate similarly titled non-GAAP financial measures in
different ways because non-GAAP measures are not based on any
comprehensive set of accounting rules or principles.
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