It has been about a month since the last earnings report for M/A-Com (MTSI Quick QuoteMTSI - Free Report) . Shares have added about 0.2% in that time frame, underperforming the S&P 500.

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

MACOM's Q2 Earnings Beat, Revenues Fall Y/Y

MACOM Technology Solutions Holdings reported fiscal second-quarter 2020 non-GAAP earnings of 17 cents per share, beating the Zacks Consensus Estimate by 70%. Further, the bottom line improved significantly by 142.8% sequentially. Notably, the company had reported a loss of 7 cents per share in the year-ago quarter.

Revenues of $126.4 million surpassed the Zacks Consensus Estimate by 2.8%. Notably, the figure advanced 6.2% sequentially but declined 1.6%from the year-ago quarter.

Declining revenues in the industrial and defense market remained a concern. Further, supplier closures especially in Asia owing to the coronavirus-induced shutdown situation were a concern.

Nevertheless, the company witnessed strong growth in the data center and telecom market on a sequential basis, which remained a major positive despite coronavirus-induced economic disruptions.

Further, robust bookings across these two markets owing to solid demand contributed to the results. Also, momentum in demand during the fiscal second quarter, courtesy of supply chain disruptions caused by coronavirus that might lead to shortages in the near term, acted as a tailwind.

The company is benefiting from several U.S. defense programs that are aiding its performance in the industrial and defense market. Further, expanding data center traffic remains a tailwind. Moreover, MACOM’s high-performance analog components such as TIAs, CDRs and drivers, which are required in 100G deployment, are driving momentum in the data center space.

Additionally, the company remains optimistic about 5G related prospects. Thereby, it remains strongly focused on introduction of new products such as optical components, discreet RF components and high-performance analog and mixed signal ICs, to strengthen 5G portfolio.

End-Market in Details

Telecom Market: The company generated revenues of $51.6 million (41% of total revenues) from this market, up 13% sequentially. Strong demand for 5G products and growing momentum across 64-gigabaud metro long-haul product lines drove the top line.

Data Center Market: This market generated revenues of $26.7 million (21% of total revenues), which improved 16% from the prior quarter. The company’s robust 100G, 200G and 400G analog products helped in catering to the rising cloud data center demand during the reported quarter.

Industrial & Defense Market: MACOM generated revenues of $48.1 million (38% of total revenues), declining 5% on a sequential basis.

Operating Details

In second-quarter fiscal 2020, non-GAAP gross margin came in 54.5%, which expanded 300 basis points (bps) from the year-ago quarter.

Non-GAAP operating expenses came in 39% as a percentage of revenues, which contracted significantly from 49.3% in the prior-year quarter.

Consequently, the company’s non-GAAP operating margin was 15.5%, expanding from 2.2% in the year-ago quarter.

Adjusted EBITDA margin was 21.3%, expanding from 8.1% in the year-ago quarter.

Balance Sheet & Cash Flow

As of Apr 3, 2020, cash equivalents and short-term investments were $221.6 million, up from $210.1 million as of Jan 3, 2020. Inventories were $99.6 million, down from $106.9 million a year ago.

Long-term debt obligations, excluding current portion, were $653.7 million in the fiscal second quarter compared with $654.5 million in the previous quarter.

Cash generated from operations was $25.3 million compared with $37.7 million of cash utilized in operations in the last quarter. Further, the company’s free cash flow in the reported quarter came in $20.5 million compared with $33.4 million in the prior quarter.

Guidance

For third-quarter fiscal 2020, MACOM expects revenues between $129 million and $133 million. MACOM expects telecom, data center, and industrial and defense markets to show sequential improvements in the fiscal third quarter.
 
Further, the company’s adjusted earnings per share is anticipated to lie in a range of 19 cents to 23 cents.

Moreover, non-GAAP gross margin is anticipated to lie within the range of 54-56%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 2808.33% due to these changes.

VGM Scores

At this time, M/A-Com has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise M/A-Com has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.