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Why Is M/A-Com (MTSI) Down 4% Since Last Earnings Report?

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A month has gone by since the last earnings report for M/A-Com (MTSI - Free Report) . Shares have lost about 4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is M/A-Com due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

MACOM Reports Loss in Q2, Revenues Fall Y/Y

MACOM Technology Solutions Holdings reported fiscal second-quarter 2019 non-GAAP loss of 18 cents per share, which was wider than the Zacks Consensus Estimate of a loss of 16 cents. Notably, the company reported earnings of 13 cents and 20 cents per share in the year-ago quarter and previous quarter, respectively.

Adjusted revenues decreased 19.2% year over year and 19.4% on a sequential basis to $121.5 million, which came slightly ahead of the Zacks Consensus Estimate of $121 million.

This huge decline in the company’s results was due to inventory correction in the datacenter business of the company. Further, dim prospects across the customers of MACOM’s white box solutions owing to the cloud operators’ lack of initiatives toward improvement of new module suppliers remained an overhang.

The ongoing macro-economic headwinds in China affected the results further. Moreover, weak performance in the telecom market impacted the top line negatively.

End-Market in Details

Telecom Market: The company generated $47 million revenues (39% of total revenues) from this market, which were down 26% year over year.

Data Center Market: This market yielded $24 million revenues (19% of total revenues), which declined 44% year over year.

Industrial & Defense Market: MACOM generated $50 million revenues (42% of total revenues) which increased 15% from the prior-year quarter.

Operating Details

In the fiscal second-quarter 2019, non-GAAP gross margin came in 48.7%, which contracted 290 bps on a year-over-year basis.

Non-GAAP operating expenses came in 52.1% as a percentage of revenues expanded 1090 bps from the prior-year quarter.

The company reported adjusted operating loss of $4.2 million in the quarter against the year-ago quarter’s income of $15.7 million.

Adjusted EBITDA was $3.3 million down from $23.4 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Mar 29, 2019, cash equivalents and short-term investments were $192.4 million compared with $185.8 million as of Dec 28, 2018. Inventories were $119.9 million, down from $120.9 million a year ago.

Long-term debt obligations, excluding current portion, were $656.8 million in the fiscal second quarter compared with $659.3 million in the previous quarter.

Cash flow from operations was $23.9 million, up from $2.9 million in the last quarter.

Further, the company’s free cash flow in the quarter came in $12.9 million which compares favorably with the free cash outflow of $8.6 million in the previous quarter.

Guidance

For fiscal third-quarter 2018, MACOM expects revenues between $120 million and $124 million.

Further, the company’s adjusted loss is anticipated to lie in a range of 8-4 cents per share.

Moreover, non-GAAP gross margin is anticipated to lie within the range of 53-55%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -12.79% due to these changes.

VGM Scores

At this time, M/A-Com has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise M/A-Com has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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