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, including through the RF Business Acquisition and the ENGIN-IC acquisition, industry trends, our strategic investment plan, including negotiation and finalization of a definitive agreement with, and receipt of funding from the Federal and State governments, 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.

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, including through the RF Business Acquisition and the ENGIN-IC acquisition, risks related to any weakening of global economic conditions, including as a result of the evolving impacts from tariffs, sanctions or other trade tensions (including implementation of new tariffs or retaliatory trade measures), industry trends, our strategic investment plan, including negotiation and finalization of a definitive agreement with, and receipt of funding from the Federal and State governments, 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,”

Previous wording

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 2024 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

“should,” “targets,” “will,” “would” or similar expressions or variations or the negatives of those terms. 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 2024 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

(2) The three months ended January 3, 2025 and December 29, 2023 include less than $0.1 million and $8.4 million, respectively, of acquisition-related transaction costs.

Current wording

(2) There were no acquisition-related transaction costs for the three months ended April 4, 2025. The three months ended March 29, 2024 include $0.7 million of acquisition-related transaction costs. The six months ended April 4, 2025 and March 29, 2024 include less than $0.1 million and $7.7 million, respectively, of acquisition-related transaction costs.

Previous wording

Comparison of the Three Months Ended January 3, 2025 to the Three Months Ended December 29, 2023

Current wording

Comparison of the Three and Six Months Ended April 4, 2025 to the Three and Six Months Ended March 29, 2024

Previous wording

Revenue. Our revenue increased by $61.0 million, or 38.8%, to $218.1 million for the three months ended January 3, 2025, from $157.1 million for the three months ended December 29, 2023. The increase in revenue in the three months ended January 3, 2025 is described by end market in the following paragraphs.

Current wording

Revenue. Our revenue increased by $54.7 million, or 30.2%, to $235.9 million for the three months ended April 4, 2025, from $181.2 million for the three months ended March 29, 2024, and our revenue increased by $115.6 million, or 34.2%, to $454.0 million for the six months ended April 4, 2025, from $338.4 million for the six months ended March 29, 2024. The increase in revenue in the three and six months ended April 4, 2025 is described by end market in the following paragraphs.

Previous wording

In the three months ended January 3, 2025, our I&D market revenue increased by $20.4 million, or 26.5%, compared to the three months ended December 29, 2023. The increase in the three months ended January 3, 2025 was primarily driven by incremental revenue from the RF Business Acquisition, partially offset by lower sales of legacy products for industrial markets.

Current wording

In the three months ended April 4, 2025, our I&D market revenue increased by $7.7 million, or 8.4%, compared to the three months ended March 29, 2024. In the six months ended April 4, 2025, our I&D market revenue increased by $28.1 million, or 16.7%, compared to the six months ended March 29, 2024. The increase in the three months ended April 4, 2025 was primarily driven by an increase in defense program revenue, partially offset by lower sales of legacy products for industrial markets. The increase in the six months ended April 4, 2025 was primarily driven by incremental revenue from the RF Business Acquisition, partially offset by lower sales of legacy products for industrial markets.

Previous wording

In the three months ended January 3, 2025, our Data Center market revenue increased by $15.8 million, or 31.9%, compared to the three months ended December 29, 2023. The increase in the three months ended January 3, 2025 was primarily driven by an increase in sales of high-performance analog Data Center products, including legacy 100G as well as high speed 400G, 800G and 1.6T data rates.

Current wording

In the three months ended April 4, 2025, our Data Center market revenue increased by $29.0 million, or 67.3%, compared to the three months ended March 29, 2024. In the six months ended April 4, 2025, our Data Center market revenue increased by $44.8 million, or 48.4%, compared to the six months ended March 29, 2024. The increase in the three and six months ended April 4, 2025 was primarily driven by an increase in sales of high-performance analog Data Center products primarily supporting high speed data rates from 100G up to 1.6T.

Previous wording

In the three months ended January 3, 2025, our Telecom market revenue increased by $24.8 million, or 80.9%, compared to the three months ended December 29, 2023. The increase in the three months ended January 3, 2025 was primarily driven by an increase in sales in 5G applications, primarily driven by incremental revenue from recent acquisitions, and SATCOM.

Current wording

In the three months ended April 4, 2025, our Telecom market revenue increased by $18.0 million, or 38.1%, compared to the three months ended March 29, 2024. In the six months ended April 4, 2025, our Telecom market revenue increased by $42.8 million, or 54.9%, compared to the six months ended March 29, 2024. The increase in the three months ended April 4, 2025 was primarily driven by an increase in sales of products for 5G and Satcom applications. The increase in the six months ended April 4, 2025 was primarily driven by an increase in sales of products for 5G and Satcom applications and recent acquisitions.

Previous wording

Certain sectors of our end markets continue to be negatively impacted by macroeconomic and geopolitical conditions, which we expect may result in weaker near-term demand for our products across all three of our primary markets.

Current wording

Certain sectors of our end markets continue to be negatively impacted by macroeconomic and geopolitical conditions, which we expect may result in weaker near-term demand for our products across all three of our primary markets. In addition, we could be negatively affected by any weakening of global economic conditions, including as result of the evolving impacts from tariffs, sanctions or other trade tensions (including implementation of new tariffs or retaliatory trade measures).

Previous wording

Gross profit. Gross margin was 53.7% and 55.6% for the three months ended January 3, 2025 and December 29, 2023, respectively. Gross profit was $117.1 million and $87.3 million for the three months ended January 3, 2025 and December 29, 2023, respectively. Gross profit increased for the three months ended January 3, 2025 as compared to the three months ended December 29, 2023 primarily as a result of higher sales from the RF Business Acquisition, partially offset by increases in employee-related costs, product mix, higher intangible asset amortization and share-based compensation expense.

Current wording

Gross profit. Gross margin was 55.2% and 52.5% for the three months ended April 4, 2025 and March 29, 2024, respectively, and 54.5% and 53.9% for the six months ended April 4, 2025 and March 29, 2024, respectively. Gross profit was $130.2 million and $95.2 million for the three months ended April 4, 2025 and March 29, 2024, respectively, and $247.3 million and $182.5 million for the six months ended April 4, 2025 and March 29, 2024, respectively. Gross profit increased for the three months ended April 4, 2025 as compared to the three months ended March 29, 2024 primarily as a result of higher sales, decreases in production supplies and lower intangible asset amortization, partially offset by increases in employee-related costs. Gross profit increased for the six months ended April 4, 2025 as compared to the six months ended March 29, 2024 primarily as a result of higher sales and decreases in production supplies, partially offset by increases in employee-related costs and share-based compensation.

Previous wording

Research and development. Research and development expense increased by $21.0 million, or 53.2%, to $60.4 million, or 27.7% of our revenue, for the three months ended January 3, 2025, compared to $39.4 million, or 25.1% of our revenue, for the three months ended December 29, 2023. Research and development expense increased in the three months ended January 3, 2025 primarily as a result of increases in employee-related costs due to acquisitions, higher share-based compensation expense and supplies expense.

Current wording

Research and development. Research and development expense increased by $12.2 million, or 26.8%, to $57.8 million, or 24.5% of our revenue, for the three months ended April 4, 2025, compared to $45.6 million, or 25.2% of our revenue, for the three months ended March 29, 2024. Research and development expense increased by $33.2 million, 39.0%, to $118.2 million, or 26.0% of our revenue, for the six months ended April 4, 2025, compared to $85.0 million, or 25.1% of our revenue, for the six months ended March 29, 2024. Research and development expense increased in the three and six months ended April 4, 2025 primarily as a result of higher employee-related costs due to acquisitions and increases in share-based compensation expense and supply costs.

Previous wording

Selling, general and administrative. Selling, general and administrative expense increased by $2.3 million, or 6.3%, to $39.2 million, or 18.0% of our revenue, for the three months ended January 3, 2025, compared to $36.9 million, or 23.5% of our revenue, for the three months ended December 29, 2023. Selling, general and administrative expense increased in the three months ended January 3, 2025 primarily due to an increase in employee-related costs and share-based compensation, partially offset by decreases in acquisition-related transaction costs and intangible asset amortization.

Current wording

Selling, general and administrative. Selling, general and administrative expense increased by $3.3 million, or 9.6%, to $37.4 million, or 15.9% of our revenue, for the three months ended April 4, 2025, compared to $34.2 million, or 18.9% of our revenue, for the three months ended March 29, 2024. Selling, general and administrative expense increased by $5.6 million, or 7.9%, to $76.7 million, or 16.9% of our revenue, for the six months ended April 4, 2025, compared to $71.1 million, or 21.0% of our revenue, for the six months ended March 29, 2024. Selling, general and administrative expense increased in the three months ended April 4, 2025 primarily due to an increase in employee-related costs and share-based compensation, partially offset by lower intangible asset amortization. Selling, general and administrative expense increased in the six months ended April 4, 2025 primarily due to an increase in employee-related costs and share-based compensation, partially offset by decreases in acquisition-related transaction costs and intangible asset amortization.

Previous wording

Interest income. In the three months ended January 3, 2025, interest income was $7.0 million, compared to $5.6 million for the three months ended December 29, 2023. The increase for the three months ended January 3, 2025 is primarily due to the increase in our short-term investments.

Current wording

Interest income. In the three months ended April 4, 2025, interest income was $7.2 million, compared to $5.4 million for the three months ended March 29, 2024. In the six months ended April 4, 2025, interest income was $14.2 million, compared to $10.9 million for the six months ended March 29, 2024. The increase for the three and six months ended April 4, 2025 is primarily due to an increase in short-term investments and associated interest income.

Previous wording

Loss on extinguishment of debt. In the three months ended January 3, 2025, we recognized a $193.1 million loss on exchange of our 2026 Convertible Notes. See Note 9 - Debt to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for additional information.

Current wording

Loss on extinguishment of debt. In the six months ended April 4, 2025, we recognized a $193.1 million loss on exchange of our 2026 Convertible Notes. See Note 9 - Debt to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for additional information.

Previous wording

The primary driver for the rate reduction for the three months ended January 3, 2025 as compared to the three months ended December 29, 2023 is the non-deductibility of the loss on extinguishment of debt.

Current wording

The primary driver for the rate reduction for the three months ended April 4, 2025 as compared to the three months ended March 29, 2024 is the removal of a taxable income limitation on GILTI and foreign derived intangible income benefits. The primary driver for the rate reduction for the six months ended April 4, 2025 as compared to the six months ended March 29, 2024 is the non-deductibility of the loss on extinguishment of debt.

Previous wording

Our estimated annual effective tax rate for the year ending October 3, 2025 is expected to be approximately 16%, adjusted for discrete taxation matters arising during the interim periods, primarily the removal of the loss on extinguishment of debt of $193.1 million.

Current wording

Our estimated annual effective tax rate for the fiscal year ending October 3, 2025 is expected to be approximately 17%, adjusted for discrete taxation matters arising during the interim periods, primarily the removal of the loss on extinguishment of debt of $193.1 million.

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 April 4, 2025 of $105.3 million consisted of a net loss of $135.9 million plus adjustments of $263.1 million, to reconcile our net loss to cash provided by operating activities, less cash used in operating assets and liabilities of $21.9 million. Adjustments to reconcile our net loss to cash provided by operating activities primarily included loss on extinguishment of debt of $193.1 million, share-based compensation expense of $44.3 million and depreciation and intangible amortization expense of $30.8 million. In addition, cash used in operating assets and liabilities was $21.9 million for the six months ended April 4, 2025, primarily driven by an increase in accounts receivables of $24.7 million, an increase in inventories of $15.0 million, partially offset by an increase in accounts payable of $14.8 million.

Previous wording

Our cash flow from operating activities for the three months ended January 3, 2025 of $66.7 million consisted of a net loss of $167.5 million plus adjustments of $225.3 million, to reconcile our net loss to cash provided by operating activities, less cash provided by operating assets and liabilities of $8.9 million. Adjustments to reconcile our net loss to cash provided by operating activities primarily included loss on extinguishment of debt of $193.1 million, share-based compensation expense of $25.5 million and depreciation and intangible amortization expense of $16.0 million. In addition, cash provided by operating assets and liabilities was $8.9 million for the three months ended January 3, 2025, primarily driven by a decrease in accounts receivables of $14.9 million, partially offset by an increase in inventories of $4.6 million. The decrease in accounts receivable is primarily due to improved revenue linearity during the three months ended January 3, 2025.

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 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 - Acquisitions to 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 April 4, 2025 of $167.1 million consisted primarily of cash paid for acquisitions, net of cash acquired of $12.7 million, capital expenditures of $13.5 million and purchases of $320.5 million of short-term investments and other investing activities of $8.0 million, offset by proceeds of $187.6 million for the sale and maturity of short-term investments.

Previous wording

Our cash flow used in investing activities for the three months ended January 3, 2025 of $10.2 million consisted primarily of cash paid for acquisitions, net of cash acquired of $12.5 million for acquisitions, capital expenditures of $5.3 million and purchases of $61.4 million of short-term investments and other investing activities of $3.4 million, offset by proceeds of $72.4 million for the sale and maturity of short-term investments. For additional information on the consideration 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, 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

During the three months ended January 3, 2025, our cash provided by financing activities of $30.1 million was primarily related to $86.6 million of proceeds from convertible notes and $4.5 million of proceeds from stock option exercises and employee stock purchases, partially offset by $37.9 million of common stock withheld associated with employee taxes on vested equity awards and $22.9 million of fees for the convertible note exchange and payments for debt issuance costs.

Current wording

During the six months ended April 4, 2025, our cash provided by financing activities of $26.3 million was primarily related to $86.6 million of proceeds from convertible notes and $4.5 million of proceeds from stock option exercises and employee stock purchases, partially offset by $41.3 million of common stock withheld associated with employee taxes on vested equity awards and $23.1 million of fees for the convertible note exchange and payments for debt issuance costs.

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 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.

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

As of January 3, 2025, we held $232.7 million of cash and cash equivalents, primarily deposited with financial institutions, as well as $423.8 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 January 3, 2025, cash held by our indefinitely reinvested foreign subsidiaries was $9.0 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 April 4, 2025, we held $110.9 million of cash and cash equivalents, primarily deposited with financial institutions, as well as $570.6 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 April 4, 2025, cash held by our indefinitely reinvested foreign subsidiaries was $10.2 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.

Previous wording

During the fiscal quarter ended January 3, 2025, our common stock price for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending January 3, 2025 was greater than $106.76 on each applicable trading day. Therefore, holders of our 2026 Convertible Notes may convert their notes at their option at any time during thesubsequent second fiscal quarter ended April 4, 2025 in multiples of $1,000 principal amount. For additional information on the 2026 Convertible Notes, see Note 9 - Debt to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Current wording

During the fiscal quarter ended April 4, 2025, our common stock price was less than $106.76 during the period of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending April 4, 2025. Therefore, holders of our 2026 Convertible Notes cannot convert their notes at their option at any time during the subsequent third fiscal quarter ended July 4, 2025 in multiples of $1,000 principal amount. For additional information on the 2026 Convertible Notes, see Note 9 - Debt to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.