MACOM(MTSI) - 2021 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements (Unaudited) MACOM reported a significant year-over-year revenue increase to $148.5 million, turning an operating loss into an income of $12.1 million, with net loss narrowing substantially to $9.0 million Condensed Consolidated Balance Sheets Total assets slightly increased to $1.154 billion, driven by short-term investments and accounts receivable, while total liabilities decreased to $824.2 million due to warrant liability settlement Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Jan 1, 2021 | Oct 2, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $128,728 | $129,441 | | Short-term investments | $226,044 | $203,711 | | Total current assets | $509,215 | $481,519 | | Total Assets | $1,153,682 | $1,146,428 | | Total current liabilities | $98,156 | $94,950 | | Long-term debt, less current portion | $650,931 | $652,172 | | Total Liabilities | $824,232 | $846,282 | | Total Stockholders' Equity | $329,450 | $300,146 | Condensed Consolidated Statements of Operations Revenue increased by 24.7% year-over-year to $148.5 million, resulting in an operating income of $12.1 million and a significantly narrowed net loss of $9.0 million Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 FY2021 (ended Jan 1, 2021) | Q1 FY2020 (ended Jan 3, 2020) | | :--- | :--- | :--- | | Revenue | $148,504 | $119,097 | | Gross Profit | $80,262 | $58,204 | | Income (loss) from operations | $12,074 | $(10,528) | | Net loss | $(8,968) | $(28,362) | | Loss per share - Diluted | $(0.13) | $(0.43) | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities was $34.8 million, while investing activities used $24.8 million, primarily for short-term investments, and financing activities used $11.5 million Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 FY2021 (ended Jan 1, 2021) | Q1 FY2020 (ended Jan 3, 2020) | | :--- | :--- | :--- | | Net cash provided by operating activities | $34,780 | $37,658 | | Net cash used in investing activities | $(24,769) | $(4,541) | | Net cash used in financing activities | $(11,479) | $(592) | | Net Change in Cash and Cash Equivalents | $(713) | $32,665 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, a 24.7% YoY revenue growth driven by all markets, $664.4 million in term loan debt, and the exercise of all outstanding common stock warrants Revenue by Market (in thousands) | Market | Q1 FY2021 | Q1 FY2020 | | :--- | :--- | :--- | | Telecommunications | $51,532 | $45,602 | | Industrial & Defense | $61,618 | $50,482 | | Data Center | $35,354 | $23,013 | | Total | $148,504 | $119,097 | - As of January 1, 2021, the company had $664.4 million in principal outstanding on its Term Loans, with an effective interest rate of 2.40%[52] - During the quarter, all outstanding warrants to purchase 1,281,358 shares of common stock were exercised on a cashless basis, resulting in the issuance of 857,631 shares[59][115] - One customer (Customer A) represented 14% of revenue for the quarter and 24% of accounts receivable at period end, with the top ten customers accounting for 55% of total revenue[82][83] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 24.7% year-over-year revenue growth to strong performance across all key markets, improved gross margin, and robust operating cash flow Results of Operations Revenue increased by $29.4 million (24.7%) YoY, driven by strong demand in all three primary markets, and gross margin expanded to 54.0% due to higher sales and favorable product mix Revenue Growth by Market (YoY) | Market | % Change YoY | | :--- | :--- | | Data Center | +53.6% | | Industrial & Defense | +22.1% | | Telecom | +13.0% | | Total | +24.7% | - Gross margin improved to 54.0% for the quarter, up from 48.9% in the prior-year period, primarily due to increased sales, favorable product mix, production efficiencies, and the recognition of licensing revenue[111] - Selling, general and administrative (SG&A) expenses decreased by 3.4% to $31.3 million, primarily due to lower payroll-related costs and professional fees, partially offset by higher share-based compensation[113] Liquidity and Capital Resources The company ended the quarter with a strong liquidity position, holding $128.7 million in cash and $226.0 million in short-term investments, and generated $34.8 million in cash from operations - As of January 1, 2021, the company held $128.7 million of cash and cash equivalents and $226.0 million of liquid short-term investments[126] - The company has $160.0 million in borrowing capacity under its Revolving Facility, of which up to $50.0 million can be borrowed without being subject to certain financial covenants[126] - Cash flow from operating activities was $34.8 million for the quarter, driven by non-cash charges like depreciation ($18.2 million), share-based compensation ($10.1 million), and warrant liability expense ($11.1 million), which offset the net loss[120] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate fluctuations affecting its $664.4 million variable-rate debt and foreign currency exchange rates, though the latter is considered limited - The company is exposed to interest rate risk on its $664.4 million of outstanding variable-rate debt, where a 1% change in the applicable annual interest rate would result in a $6.6 million change in annual interest expense[133] - Foreign currency risk is limited as most international customer agreements are denominated in U.S. dollars, with a 10% change in foreign currency exchange rates not expected to have a material impact[134] - As of January 1, 2021, no common stock warrants remain outstanding, eliminating the market risk associated with the warrant liability's fair value fluctuations[131] Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of January 1, 2021[135] - No changes occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[136] PART II—OTHER INFORMATION Legal Proceedings The company was not involved in any material pending legal proceedings during the fiscal quarter ended January 1, 2021 - The company was not involved in any material pending legal proceedings during the fiscal quarter ended January 1, 2021[62][140] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended October 2, 2020 - As of the date of this Quarterly Report, there have been no material changes in any of the risk factors described in the company's 2020 Annual Report on Form 10-K[141] Unregistered Sales of Equity Securities and Use of Proceeds During the quarter, the company withheld 297,447 shares for tax obligations and issued 857,631 shares from cashless warrant exercises, an unregistered sale exempt under Section 4(a)(2) - The company withheld 297,447 shares of its common stock to cover tax withholding obligations related to the vesting of employee equity awards[143] - The company issued 857,631 shares of common stock from the cashless exercise of warrants for 1,281,358 shares, which was considered an unregistered sale of equity securities[144] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications required under Sarbanes-Oxley Act and financial statements in Inline XBRL - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1) and financial data in Inline XBRL format (101)[146]