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MACOM (MTSI) Misses Earnings and Revenue Estimates in Q3

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MACOM Technology Solutions Holdings, Inc. (MTSI - Free Report) delivered fiscal third-quarter 2018 non-GAAP earnings of 13 cents per share, surpassing the Zacks Consensus Estimate by a cent and also came within management’s guided range. The figure remained flat on a sequential basis but declined drastically by 80.6% from the year-ago quarter.

Adjusted revenues decreased 25.5% year over year and 3.7% on a sequential basis to $144.9 million, missing the Zacks Consensus Estimate of $146.2 million. However, the figure came within the guided range.

This significant decline was owing to missing contributions from LR4 subassembly business which got divested during the reported quarter. Further, lower-than-projected shipment of OSAs led to fall in revenues.

Notably, shares of MACOM have lost 35.1% on a year-to-date basis compared with the industry’s decline of 0.3%.

Nevertheless, MACOM witnessed improving demand for its products which was being affected by cyclicality in the end markets since the last year.


End-Market in Details

Telecom Market: The company generated $51 million revenues (35% of total revenues) from this market, down 45% year over year and 21% from the previous quarter. This was mainly due to divestiture of LR4 subassembly business which contributed well in the second quarter. Further, ban on ZTE shipments imposed by U.S. Government led to slowing in telecom spending by Chinese operators.

Data Center Market: This market yielded $45.9 million revenues (31.6% of total revenues), declining 21% year over year but improved 8% sequentially. The quarter-over-quarter improvement can be attributed to improved performance of 100-gig connectivity during the quarter. Additionally, yield improvements in 25-gig lasers aided the results. Further, rising CapEx by cloud service provides in North America remained positive.

Industrial & Defense Market: MACOM generated $48.4 million revenues (33.4% of total revenues), increasing 9% from the prior-year quarter and 10% sequentially. The company experienced rising demand for its products in this market which can be primarily attributed to technical advancement in the areas of radar and threat protection.

Operating Details

In the fiscal third-quarter 2018, non-GAAP gross margin came in 56%, contracting 250 basis points (bps) on a year-over-year basis but expanded 440 bps sequentially.

Non-GAAP operating expenses came in 44.6% as a percentage of revenues which expanded 1340 bps from the prior-year quarter and 340 bps from the last quarter.

Adjusted operating margin came to 11.4%, which expanded 90 bps from the last quarter but contracted 1580 bps from the prior-year quarter.

Adjusted EBITDA was $24 million down from $61.5 million in the year-ago quarter.  However, the figure was up from $23.4 million in reported the previous quarter.

Balance Sheet & Cash Flows

As of Jun 29, 2018, cash equivalents and short-term investments were $182.9 million, compared with $190.1 million as of Mar 30, 2018. Inventories were $122.9 million, down from $143.9 million.

Cash flow from operations was $0.059 million, significantly down from $10.6 million in the last quarter.

Further, capital expenditure was around $12.9 million, up from $12.7 million sequentially. Consequently, the company’s free cash flow in the quarter under review came in ($12.8) million.


For fiscal fourth-quarter 2018, MACOM expects adjusted revenues to be between $149 million and $155 million. The Zacks Consensus Estimate for revenues is pegged at $152.8 million.

Further, the company’s earnings are anticipated to lie in a range of 15-17 cents per share. The Zacks Consensus Estimate is pegged at 16 cents per share.

Further, non-GAAP gross margin is anticipated to lie within the range of 55-57%.

Zacks Rank and Stocks to Consider

MACOM carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Adobe Systems (ADBE - Free Report) , Verint Systems (VRNT - Free Report) and Micron Technology (MU - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Adobe Systems, Verint and Micron is pegged at 16.2%, 10% and 8.18%, respectively.

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