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Why Is M/A-Com (MTSI) Down 0.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for M/A-Com (MTSI - Free Report) . Shares have lost about 0.2% in that time frame, outperforming 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 drivers.

MACOM Reports Loss in Q3, Revenues Fall Y/Y

MACOM Technology Solutions Holdings reported fiscal third-quarter 2019 non-GAAP loss of 42 cents per share, which came in line with the Zacks Consensus Estimate. Notably, the company reported earnings of 13 cents per share in the year-ago quarter. Further, the reported loss is wider than the loss of 18 cents per share in the previous quarter.

Adjusted revenues decreased 25.2% year over year and 10.8% on a sequential basis to $108.31 million, which missed the Zacks Consensus Estimate of $110 million.

The top-line decline can be attributed to weak performance of the company across all the end-markets, especially in the data center market. Further, the suspension of shipments to Huawei, which resulted in reduction in MACOM’s sales to not only Huawei but also its affiliates, remained a major concern during the reported quarter.

Additionally, lower shipments into the company’s distribution channel affected revenues.

End-Market in Details

Telecom Market: The company generated $43.9 million revenues (39% of total revenues) from this market, which were down 13.2% year over year.

Data Center Market: This market yielded $17.6 million revenues (19% of total revenues), which declined 54.8% year over year.

Industrial & Defense Market: MACOM generated $46.8 million revenues (42% of total revenues), which decreased 3.3% from the prior-year quarter.

Operating Details

In the fiscal third-quarter 2019, non-GAAP gross margin came in 39.4%, which contracted significantly from 56% in the year-ago quarter.

Non-GAAP operating expenses came in 59.9% as a percentage of revenues, which jumped up from 44.6% in the prior-year quarter.

The company reported adjusted operating loss of $22.3 million in the fiscal third quarter against the year-ago quarter’s income of $16.5 million.

Adjusted EBITDA was ($15) million against $24.1 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Jun 28, 2019, cash equivalents and short-term investments were $185.8 million compared with $192.4 million as of Mar 29, 2019. Inventories were $110.5 million, down from $119.9 million a year ago.

Long-term debt obligations, excluding current portion, were $656.05 million in the fiscal third quarter compared with $656.8 million in the previous quarter.

Cash flow from operations was $1.4 million, down from $23.9 million in the last quarter.

Further, the company’s free cash flow in the reported quarter came in ($7.9) million compared with $12.9 million in the previous quarter.

Guidance

For fiscal fourth-quarter 2019, MACOM expects revenues between $108 million and $112 million.

Further, the company’s adjusted loss per share is anticipated to lie in a range of $0.00-$0.04.

Moreover, non-GAAP gross margin is anticipated to lie within the range of 52-54%.

How Have Estimates Been Moving Since Then?

Estimates review followed an upward path over the past two months. The consensus estimate has shifted 67.05% due to these changes.

VGM Scores

At this time, M/A-Com has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

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

Outlook

M/A-Com has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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