MACOM Technology Solutions Holdings Inc

Previous wording

This Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and other sections of this Quarterly Report on Form 10-Q contain “forward-looking statements.” In addition, we may make other written and oral communications from time to time that contain such statements. Forward-looking statements include statements regarding our business outlook, strategic plans and priorities, expectations, anticipated drivers of future revenue growth, our ability to develop new products, achieve market acceptance of those products and better address certain markets, expand our capabilities and extend our product offerings through the Linearizer Acquisition, the MESC Acquisition and the RF Business Acquisition, industry trends, the potential impacts of COVID-19 on our future operations and results, our estimated annual effective tax rate, our plans for use of our cash and cash equivalents and short-term investments, interest rate and foreign currency risks, our ability to meet working capital requirements, estimates and objectives for future operations, our future results of operations and our financial position, including liquidity, and other matters that do not relate strictly to historical facts. Forward-looking statements generally may be identified by terms such as “anticipates,” “believes,” “could,” “continue,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “targets,” “will,” “would” or similar expressions or variations or the negatives of those terms. These statements are based on management's beliefs and assumptions as of the date of this Quarterly Report on Form 10-Q, based on information currently available to us. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, among others, the risks described in the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q and the 2023 Annual Report on Form 10-K. We caution the reader to carefully consider such factors. Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Current wording

This Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and other sections of this Quarterly Report on Form 10-Q contain “forward-looking statements.” In addition, we may make other written and oral communications from time to time that contain such statements. Forward-looking statements include statements regarding our business outlook, strategic plans and priorities, expectations, anticipated drivers of future revenue growth, our ability to develop new products, achieve market acceptance of those products and better address certain markets, expand our capabilities and extend our product offerings through the Linearizer Acquisition, the MESC Acquisition and the RF Business Acquisition, industry trends, our estimated annual effective tax rate, our plans for use of our cash and cash equivalents and short-term investments, interest rate and foreign currency risks, our ability to meet working capital requirements, estimates and objectives for future operations, our future results of operations and our financial position, including liquidity, and other matters that do not relate strictly to historical facts. Forward-looking statements generally may be identified by terms such as “anticipates,” “believes,” “could,” “continue,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “targets,” “will,” “would” or similar expressions or variations or the negatives of those terms. These statements are based on management's beliefs and assumptions as of the date of this Quarterly Report on Form 10-Q, based on information currently available to us. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, among others, the risks described in the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q and the 2023 Annual Report on Form 10-K. We caution the reader to carefully consider such factors. Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Previous wording

Comparison of the Three Months Ended December 29, 2023 to the Three Months Ended December 30, 2022

Current wording

Comparison of the Three and Six Months Ended March 29, 2024 to the Three and Six Months Ended March 31, 2023

Previous wording

Revenue. Our revenue decreased by $23.0 million, or 12.7%, to $157.1 million for the three months ended December 29, 2023, from $180.1 million for the three months ended December 30, 2022. The decrease in revenue in the three months ended December 29, 2023 is described by end market in the following paragraphs.

Current wording

Revenue. Our revenue increased by $11.8 million, or 7.0%, to $181.2 million for the three months ended March 29, 2024, from $169.4 million for the three months ended March 31, 2023, and our revenue decreased by $11.1 million, or 3.2%, to $338.4 million for the six months ended March 29, 2024, from $349.5 million for the six months ended March 31, 2023. The increase in revenue in the three months ended March 29, 2024 and the decrease in revenue in the six months ended March 29, 2024 is described by end market in the following paragraphs.

Previous wording

In the three months ended December 29, 2023, our I&D market revenue decreased by $0.2 million, or 0.2%, compared to the three months ended December 30, 2022. The decrease in the three months ended December 29, 2023 was primarily driven by lower sales of legacy products for industrial markets, partially offset by incremental revenue from recent acquisitions and an increase in defense program shipments.

Current wording

In the three months ended March 29, 2024, our I&D market revenue increased by $13.7 million, or 17.7%, compared to the three months ended March 31, 2023. In the six months ended March 29, 2024, our I&D market revenue increased by $13.5 million, or 8.8%, compared to the six months ended March 31, 2023. The increase in the three and six months ended March 29, 2024 was primarily driven by revenue from recent acquisitions, partially offset by lower sales of legacy products for industrial markets and timing of defense program shipments.

Previous wording

In the three months ended December 29, 2023, our Data Center market revenue increased by $8.0 million, or 19.3%, compared to the three months ended December 30, 2022. The increase in the three months ended December 29, 2023 was primarily driven by an increase in sales of 400G and 800G high-performance analog Data Center products, partially offset by a decrease in sales of our legacy connectivity products.

Current wording

In the three months ended March 29, 2024, our Data Center market revenue increased by $4.8 million, or 12.6%, compared to the three months ended March 31, 2023. In the six months ended March 29, 2024, our Data Center market revenue increased by $12.8 million, or 16.1%, compared to the six months ended March 31, 2023. The increase in the three and six months ended March 29, 2024 was primarily driven by an increase in sales of 400G and 800G high-performance analog Data Center products, partially offset by a decrease in sales of our legacy connectivity products.

Previous wording

In the three months ended December 29, 2023, our Telecom market revenue decreased by $30.8 million, or 50.1%, compared to the three months ended December 30, 2022. The decrease for the three months ended December 29, 2023 was primarily driven by a decrease in sales of carrier-based optical semiconductor products, a decrease in sales of RF and microwave products for broadband access and a decrease in sales of legacy products, partially offset by incremental revenue from recent acquisitions.

Current wording

In the three months ended March 29, 2024, our Telecom market revenue decreased by $6.7 million, or 12.4%, compared to the three months ended March 31, 2023. In the six months ended March 29, 2024, our Telecom market revenue decreased by $37.5 million, or 32.5%, compared to the six months ended March 31, 2023. The decrease for the three and six months ended March 29, 2024 was primarily driven by a decrease in sales of RF and microwave products for broadband access and a decrease in sales of carrier-based optical semiconductor products, partially offset by incremental revenue from recent acquisitions.

Previous wording

Gross profit. Gross margin was 55.6% and 61.3% for the three months ended December 29, 2023 and December 30, 2022, respectively. Gross profit was $87.3 million and $110.4 million for the three months ended December 29, 2023 and December 30, 2022, respectively. Gross profit decreased for the three months ended December 29, 2023 as compared to the three months ended December 30, 2022 primarily as a result of lower sales, increases in employee headcount associated with acquisitions, higher intangible asset amortization and depreciation expense, partially offset by decreases in production supplies.

Current wording

Gross profit. Gross margin was 52.5% and 60.6% for the three months ended March 29, 2024 and March 31, 2023, respectively, and 53.9% and 61.0% for the six months ended March 29, 2024 and March 31, 2023. Gross profit was $95.2 million and $102.7 million for the three months ended March 29, 2024 and March 31, 2023, respectively, and $182.5 million and $213.0 million for the six months ended March 29, 2024 and March 31, 2023. Gross profit decreased for the three months ended March 29, 2024 as compared to the three months ended March 31, 2023 primarily as a result of increased employee headcount associated with acquisitions, product mix and under absorbed production costs, partially offset by higher sales primarily driven by the RF Business Acquisition. Gross profit decreased for the six months ended March 29, 2024 as compared to the six months ended March 31, 2023 primarily as a result of lower sales, product mix, increased employee headcount associated with acquisitions, higher intangible asset amortization and depreciation expense.

Previous wording

Research and development. Research and development expense increased by $0.6 million, or 1.5%, to $39.4 million, or 25.1% of our revenue, for the three months ended December 29, 2023, compared to $38.8 million, or 21.6% of our revenue, for the three months ended December 30, 2022. Research and development expense increased in the three months ended December 29, 2023 primarily as a result of increases in employee headcount due to acquisitions, design software costs and supplies expense, partially offset primarily by decreases in development foundry costs and share-based compensation expense.

Current wording

Research and development. Research and development expense increased by $10.1 million, or 28.4%, to $45.6 million, or 25.2% of our revenue, for the three months ended March 29, 2024, compared to $35.5 million, or 21.0% of our revenue, for the three months ended March 31, 2023. Research and development expense increased by $10.7 million, 14.3%, to $85.0 million, or 25.1% of our revenue, for the six months ended March 29, 2024, compared to $74.4 million, or 21.3% of our revenue, for the six months ended March 31, 2023. Research and development expense increased in the three months ended March 29, 2024 primarily as a result of increases in employee-related costs, driven by higher headcount due to acquisitions, and share-based compensation expense. Research and development expense increased in the six months ended March 29, 2024 primarily as a result of increased employee headcount due to acquisitions.

Previous wording

Selling, general and administrative. Selling, general and administrative expense increased by $3.9 million, or 12.0%, to $36.9 million, or 23.5% of our revenue, for the three months ended December 29, 2023, compared to $32.9 million, or 18.3% of our revenue, for the three months ended December 30, 2022. Selling, general and administrative expense increased in the three months ended December 29, 2023 primarily due to an increase in acquisition-related costs and employee headcount due to acquisitions, partially offset primarily by lower intangible amortization and share-based compensation expense.

Current wording

18.4% of our revenue, for the six months ended March 31, 2023. Selling, general and administrative expense increased in the three months ended March 29, 2024 primarily due to an increase in employee headcount due to acquisitions. Selling, general and administrative expense increased in the six months ended March 29, 2024 primarily due to an increase in employee headcount due to acquisitions and an increase in acquisition-related costs, partially offset by lower intangible amortization.

Previous wording

Interest income. In the three months ended December 29, 2023, interest income was $5.6 million, compared to $3.7 million for the three months ended December 30, 2022. The increase for the three months ended December 29, 2023 is primarily due to the general increase in interest rates on both our short-term investments and our money market balances.

Current wording

Interest income. In the three months ended March 29, 2024, interest income was $5.4 million, compared to $5.1 million for the three months ended March 31, 2023. In the six months ended March 29, 2024, interest income was $10.9 million, compared to $8.7 million for the six months ended March 31, 2023. The increase for the three and six months ended March 29, 2024 is primarily due to the general increase in interest rates on our short-term investments.

Previous wording

Interest expense. In the three months ended December 29, 2023, interest expense was $1.3 million, compared to $3.1 million for the three months ended December 30, 2022. The decrease for the three months ended December 29, 2023 is primarily due to the August 2023 payment of the total outstanding principal balance of the Term Loans.

Current wording

Interest expense. In the three months ended March 29, 2024, interest expense was $1.3 million, compared to $3.4 million for the three months ended March 31, 2023. In the six months ended March 29, 2024, interest expense was $2.6 million, compared to $6.5 million for the six months ended March 31, 2023. The decrease for the three and six months ended March 29, 2024 is primarily due to the August 2023 payment of the total outstanding principal balance of the Term Loans.

Previous wording

Provision for income taxes. In the three months ended December 29, 2023, income tax expense was $2.8 million, compared to $9.6 million for the three months ended December 30, 2022. In the three months ended December 29, 2023, the effective income tax rate was 18.0%, compared to 24.6% for the three months ended December 30, 2022. The difference between the U.S. federal statutory income tax rate of 21% and our effective income tax rate for the three months ended December 29, 2023 was primarily driven by favorable stock based compensation and R&D tax credits, partially offset by foreign withholding taxes and GILTI. The difference between the U.S. federal statutory income tax rate of 21% and our effective income tax rate for the three months ended December 30, 2022, was primarily driven by tax on GILTI and non-deductible compensation, partially offset by R&D tax credits. Our estimated annual effective tax rate for the year ending September 27, 2024 is expected to be approximately 23%, adjusted for discrete taxation matters arising during the interim periods.

Current wording

The difference between the U.S. federal statutory income tax rate of 21% and our effective income tax rate for the three and six months ended March 29, 2024 was primarily driven by favorable stock based compensation and R&D tax credits, partially offset by GILTI. The difference between the U.S. federal statutory income tax rate of 21% and our effective income tax rate for the three and six months ended March 31, 2023, was primarily driven by tax on GILTI, including the required capitalization of R&D expenses, non-deductible compensation and state income taxes partially offset by income taxed in foreign jurisdictions generally at lower tax rates, and R&D tax credits.

Previous wording

Our cash flow from operating activities for the three months ended December 29, 2023 of $33.1 million consisted of a net income of $12.5 million plus adjustments of $21.5 million, to reconcile our net income to cash provided by operating activities, less cash used in operating assets and liabilities of $0.9 million. Adjustments to reconcile our net income to cash provided by operating activities primarily included depreciation and intangible amortization expense of $14.3 million and share-based compensation expense of $8.7 million. In addition, cash used in operating assets and liabilities was $0.9 million for the three months ended December 29, 2023, primarily driven by an increase in accounts receivables of $12.2 million, partially offset by an increase of $6.6 million in accrued and other liabilities, an increase of $2.1 million in accounts payable and a decrease in inventories of $1.6 million.

Current wording

Our cash flow from operating activities for the six months ended March 29, 2024 of $51.3 million consisted of a net income of $27.5 million plus adjustments of $54.4 million, to reconcile our net income to cash provided by operating activities, less cash used in operating assets and liabilities of $30.6 million. Adjustments to reconcile our net income to cash provided by operating activities primarily included depreciation and intangible amortization expense of $31.5 million and share-based compensation expense of $20.7 million. In addition, cash used in operating assets and liabilities was $30.6 million for the six months ended March 29, 2024, primarily driven by an increase in accounts receivables of $31.3 million, an increase in inventories of $12.3 million, partially offset by an increase of $19.2 million in accounts payable. The increases in accounts receivable and accounts payable were primarily a result of the integration of the RF Business during the three months ended March 29, 2024.

Previous wording

Our cash flow from operating activities for the three months ended December 30, 2022 of $38.3 million consisted of a net income of $29.5 million plus adjustments of $32.6 million, to reconcile our net income to cash provided by operating activities less cash used in operating assets and liabilities of $23.8 million. Adjustments to reconcile our net income to cash provided by operating activities primarily included depreciation and intangible amortization expense of $12.9 million, share-based compensation expense of $11.0 million, and deferred income tax expense of $9.1 million. In addition, cash used in operating assets and liabilities was $23.8 million for the three months ended December 30, 2022, primarily driven by an increase in accounts receivable of $10.5 million, an increase in inventories of $6.4 million and a decrease of $10.3 million in accrued and other liabilities, partially offset by an increase in accounts payable of $3.7 million.

Current wording

Our cash flow from operating activities for the six months ended March 31, 2023 of $70.7 million consisted of a net income of $55.3 million plus adjustments of $63.3 million, to reconcile our net income to cash provided by operating activities less cash used in operating assets and liabilities of $47.8 million. Adjustments to reconcile our net income to cash provided by operating activities primarily included depreciation and intangible amortization expense of $25.4 million, share-based compensation expense of $20.5 million and deferred income tax expense of $20.2 million. In addition, cash used in operating assets and liabilities was $47.8 million for the six months ended March 31, 2023, primarily driven by a decrease of $17.5 million in accrued and other liabilities, an increase in accounts receivable of $18.3 million, and an increase in inventories of $8.2 million.

Previous wording

Our cash flow used in investing activities for the three months ended December 29, 2023 of $34.8 million consisted primarily of $75.0 million for acquisitions, capital expenditures of $4.7 million and purchases of $55.4 million of short-term investments, offset by proceeds of $100.3 million for the sale and maturity of short-term investments. For additional information on the cash paid for our acquisitions, see Note 3 - Acquisitionsto our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Current wording

Our cash flow used in investing activities for the six months ended March 29, 2024 of $100.1 million consisted primarily of cash paid for acquisitions, net of cash acquired of $74.8 million for acquisitions, capital expenditures of $9.8 million and purchases of $230.6 million of short-term investments, offset by proceeds of $215.1 million for the sale and maturity of short-term investments. For additional information on the cash paid for our acquisitions, see Note 3 - Acquisitionsto our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Previous wording

Our cash flow used in investing activities for the three months ended December 30, 2022 of $8.0 million consisted primarily of purchases of $145.3 million of short-term investments and capital expenditures of $9.6 million, offset by proceeds of $147.0 million for the sale and maturity of short-term investments.

Current wording

Our cash flow used in investing activities for the six months ended March 31, 2023 of $25.0 million consisted primarily of cash paid for the Linearizer Acquisition, net of cash acquired of $50.8 million, capital expenditures of $15.6 million and purchases of $228.2 million of short-term investments, offset by proceeds of $261.6 million for the sale and maturity of short-term investments and proceeds from the sale of equipment of$8.0 million.

Previous wording

During the three months ended December 29, 2023, our cash used in financing activities of $9.1 million was primarily related to $11.6 million of repurchases of common stock associated with employee tax withholdings on vested equity awards, partially offset by $2.8 million of proceeds from stock option exercises and employee stock purchases.

Current wording

During the six months ended March 29, 2024, our cash used in financing activities of $10.4 million was primarily related to $12.5 million of common stock withheld associated with employee taxes on vested equity awards, partially offset by $2.8 million of proceeds from stock option exercises and employee stock purchases.

Previous wording

During the three months ended December 30, 2022, our cash used in financing activities of $24.3 million was primarily related to $26.4 million of repurchases of common stock associated with employee tax withholdings on vested equity awards, partially offset by $2.3 million of proceeds from employee stock purchases.

Current wording

During the six months ended March 31, 2023, our cash used in financing activities of $29.5 million was primarily related to $31.3 million of common stock withheld associated with employee taxes on vested equity awards, partially offset by $2.3 million of proceeds from employee stock purchases.

Previous wording

As of December 29, 2023, we held $163.6 million of cash and cash equivalents, primarily deposited with financial institutions, as well as $299.7 million of liquid short-term investments. The undistributed earnings of certain foreign subsidiaries are considered indefinitely reinvested for the periods presented and we do not intend to repatriate such earnings. We believe the decision to reinvest these earnings will not have a significant impact on our liquidity. As of December 29, 2023, cash held by our indefinitely reinvested foreign subsidiaries was $7.3 million, which, along with cash generated from foreign operations, is expected to be used in the support of international growth and working capital requirements as well as the repayment of certain intercompany loans.

Current wording

As of March 29, 2024, we held $115.0 million of cash and cash equivalents, primarily deposited with financial institutions, as well as $361.4 million of liquid short-term investments. The undistributed earnings of certain foreign subsidiaries are considered indefinitely reinvested for the periods presented and we do not intend to repatriate such earnings. We believe the decision to reinvest these earnings will not have a significant impact on our liquidity. As of March 29, 2024, cash held by our indefinitely reinvested foreign subsidiaries was $7.4 million, which, along with cash generated from foreign operations, is expected to be used in the support of international growth and working capital requirements as well as the repayment of certain intercompany loans.