MACOM(MTSI) - 2022 Q4 - Annual Report

Part I Item 1: Business MACOM designs and manufactures high-performance analog semiconductor products for Telecom, Industrial & Defense, and Data Center markets - MACOM's business is centered on designing and manufacturing semiconductor products for three primary markets: Telecom, Industrial & Defense (I&D), and Data Center[15] - The company operates a hybrid manufacturing model, utilizing both internal semiconductor fabrication facilities in the U.S. (including a "Trusted Foundry" for defense contracts) and external foundry partners, providing control over proprietary processes and supply, while also offering flexibility and access to additional capacity[17][18][19] - Growth drivers are expected to come from 5G deployments in Telecom, expansion of the product portfolio for military and industrial applications in I&D, and the upgrade of data center architectures to higher speeds (100G to 800G)[25] - As of September 30, 2022, the company employed approximately 1,200 people, with 71% in North America, and the voluntary attrition rate for fiscal year 2022 was about 11%[60][63] - Sales through distributors accounted for 30.9% of revenue in fiscal 2022, a decrease from 35.0% in 2021 and 45.3% in 2020[39] Item 1A: Risk Factors The company faces risks from industry cyclicality, customer concentration, supply chain vulnerabilities, international operations, and intense competition - The semiconductor industry is highly cyclical, subject to significant downturns, rapid technological change, and price erosion, which has impacted the company's revenue and profitability in the past[79] - A significant portion of revenue comes from a limited number of customers, with the top 10 direct and distribution customers accounting for 48.2% of revenue in fiscal 2022, where the loss of a major customer could materially harm revenue[92] - International sales represent a major part of the business, accounting for 53.3% of revenue in fiscal 2022, exposing the company to geopolitical risks, trade disputes, and regulatory changes, particularly concerning China, which accounted for 26% of total sales[107] - The company faces intense competition from large, established semiconductor firms such as ADI, Broadcom, Qorvo, and Skyworks, which may have greater financial and technical resources[140][142] - The company's debt, including a term loan of $120.8 million and convertible notes, is secured by company assets and includes restrictive covenants that could limit operational flexibility[100][101] Item 1B: Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[160] Item 2: Properties The company's principal executive offices and primary manufacturing facilities are in Lowell, Massachusetts, with other key leased facilities globally Principal Leased Facilities | Site | Major Activity | Square Footage | Lease Expiration | | :--- | :--- | :--- | :--- | | Lowell, Massachusetts | A, P&F, T&A, AE, S&M and RT | 281,700 | October 2038 | | Newport Beach, California | R&D, AE and S&M | 57,412 | December 2029 | | Ann Arbor, Michigan | P&F, R&D and T&A, RT | 50,335 | May 2026 | | Nashua, New Hampshire | R&D, T&A, P&F and RT | 33,750 | December 2024 | | Hsinchu, Taiwan | P&F, T&A and RT | 24,282 | December 2022 | Item 3: Legal Proceedings The company is not involved in any material pending legal proceedings as of the filing date - The company is not involved in any material pending legal proceedings as of the filing date of the report[164] Item 4: Mine Safety Disclosures This item is not applicable to the company - Not applicable[166] Part II Item 5: Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities MACOM's common stock is listed on Nasdaq, with a performance graph and details on minor share purchases for employee tax obligations - The company's common stock trades on the Nasdaq Global Select Market under the symbol "MTSI"[167] - A stock performance graph shows the cumulative total return of the company's stock compared to the NASDAQ Composite Index and the PHLX Semiconductor Index for the five years ending September 30, 2022[168][170] - During the fourth quarter of fiscal 2022, the company withheld 1,215 shares of common stock from employees to cover tax obligations related to the vesting of restricted stock awards, which were not part of a publicly announced repurchase program[171][172] Item 6: [Reserved] This item is reserved and contains no information Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2022 revenue increased, gross margin improved, and net income surged due to a tax benefit and investment gain Fiscal Year Revenue by Market (in thousands) | Market | FY 2022 | FY 2021 | % Change | | :--- | :--- | :--- | :--- | | Telecom | $242,702 | $188,391 | 28.8% | | Industrial & Defense | $294,341 | $280,221 | 5.0% | | Data Center | $138,127 | $138,308 | (0.1)% | | Total | $675,170 | $606,920 | 11.3% | Key Financial Results (in thousands) | Metric | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Revenue | $675,170 | $606,920 | $530,037 | | Gross Profit | $406,181 | $341,855 | $270,166 | | Gross Margin | 60.2% | 56.3% | 51.0% | | Income from Operations | $132,674 | $81,002 | $3,388 | | Net Income (Loss) | $439,955 | $37,973 | $(46,078) | - The significant increase in net income for FY 2022 was primarily driven by a non-cash income tax benefit of $202.8 million from the partial release of a valuation allowance and a gain of $118.2 million on the sale of an equity method investment[196][206][207] - Net cash provided by operating activities was $177.0 million in fiscal 2022, an increase from $148.4 million in fiscal 2021[219][220] - As of September 30, 2022, the company had $120.0 million in cash and cash equivalents and $466.6 million in short-term investments[226] Item 7A: Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate and foreign currency, with limited foreign currency exposure due to USD-denominated sales - The company is exposed to interest rate risk on its cash, short-term investments, and variable-rate debt, where a 1% change in interest rates on its $120.8 million of outstanding variable-rate debt would result in a $1.2 million change in annual interest expense as of September 30, 2022[232][234] - Foreign currency risk is limited as most international customer agreements are denominated in U.S. dollars, and the company believes a 10% change in foreign currency exchange rates would not have a material impact[235] Item 8: Financial Statements and Supplementary Data This section presents audited consolidated financial statements and the auditor's unqualified opinion on financial statements and internal controls Consolidated Balance Sheet Highlights (in thousands) | | Sep 30, 2022 | Oct 1, 2021 | | :--- | :--- | :--- | | Total Assets | $1,571,817 | $1,134,145 | | Total Current Assets | $813,083 | $521,536 | | Total Liabilities | $729,069 | $662,409 | | Long-term Debt | $565,920 | $492,097 | | Total Stockholders' Equity | $842,748 | $471,736 | Consolidated Statement of Operations Highlights (in thousands) | | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Revenue | $675,170 | $606,920 | | Gross Profit | $406,181 | $341,855 | | Income from Operations | $132,674 | $81,002 | | Net Income | $439,955 | $37,973 | Consolidated Statement of Cash Flows Highlights (in thousands) | | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $176,982 | $148,412 | | Net cash used in investing activities | $(182,861) | $(2,583) | | Net cash used in financing activities | $(28,908) | $(119,095) | | Net change in cash | $(36,585) | $27,096 | - The independent auditor, Deloitte & Touche LLP, identified the reserve for excess and obsolete inventory as a critical audit matter due to the significant management estimates and judgments involved[246][247] Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting or financial disclosure matters - None[411] Item 9A: Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective, with an unqualified auditor's opinion - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[413] - Management assessed internal control over financial reporting using the COSO 2013 framework and concluded it was effective as of September 30, 2022[416] - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[417][421] - There were no material changes in the company's internal control over financial reporting during the fourth fiscal quarter of 2022[418] Item 9B: Other Information The company reports no other information for this item - None[428] Item 9C: Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[429] Part III Item 10: Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 proxy statement - The required information is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[431] - The company has a written code of business conduct and ethics available on its website, www.macom.com[432](index=432&type=chunk) Item 11: Executive Compensation Information regarding executive compensation is incorporated by reference from the 2023 proxy statement - The required information is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[433] Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference, with details on equity compensation plan securities available for issuance - Certain required information is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[434] Equity Compensation Plan Information as of September 30, 2022 | Plan Category | Securities to be issued upon exercise (a) | Weighted-average exercise price (b) | Securities available for future issuance (c) | | :--- | :--- | :--- | :--- | | Equity Compensation Plans Approved by Security Holders | 15,000 | $16.06 | 6,702,343 | Item 13: Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference - The required information is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[437] Item 14: Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference - The required information is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[438] Part IV Item 15: Exhibits, Financial Statement Schedules This section lists financial statements from Item 8 and provides a comprehensive list of exhibits, including corporate governance and debt agreements - Lists the financial statements filed with the report, which are located in Item 8[440] - Provides a detailed list of all exhibits filed, including the company's certificate of incorporation, bylaws, debt agreements (Credit Agreement and Indenture for Convertible Notes), and various equity incentive plan documents[442][443][444] - Includes required certifications from the Principal Executive Officer and Principal Financial Officer under Sarbanes-Oxley Act Sections 302 and 906[444] Item 16: Form 10-K Summary The company reports no Form 10-K summary for this item - None[445]