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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 28, 2019
or
|
| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-35451
MACOM Technology Solutions Holdings, Inc.
(Exact name of registrant as specified in its charter)
|
| | |
Delaware | | 27-0306875 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
100 Chelmsford Street
Lowell, MA 01851
(Address of principal executive offices and zip code)
(978) 656-2500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
| | |
Title of each class | Trading Symbol(s) | Name of exchange on which registered |
Common Stock, par value $0.001 per share | MTSI | Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|
| | | | | |
Large accelerated filer | ☒ |
| | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | | Smaller reporting company | ☐ |
| | | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 2, 2019, there were 66,051,693 shares of the registrant’s common stock outstanding.
MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
FORM 10-Q
TABLE OF CONTENTS
|
| | | |
| | | Page No. |
|
Item 1. | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
|
Item 1. | | |
Item1A. | | |
Item 2. | | |
Item 6. | | |
| |
PART I—FINANCIAL INFORMATION
|
| |
ITEM 1. | FINANCIAL STATEMENTS |
MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
|
| | | | | | | |
| June 28, 2019 | | September 28, 2018 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 85,265 |
| | $ | 94,676 |
|
Short-term investments | 100,520 |
| | 98,221 |
|
Accounts receivable (less allowances of $4,919 and $6,795, respectively) | 68,084 |
| | 97,375 |
|
Inventories | 110,546 |
| | 122,837 |
|
Income tax receivable | 16,778 |
| | 17,601 |
|
Assets held for sale | 5,050 |
| | 4,840 |
|
Prepaid and other current assets | 26,846 |
| | 23,311 |
|
Total current assets | $ | 413,089 |
| | $ | 458,861 |
|
Property and equipment, net | 139,380 |
| | 149,923 |
|
Goodwill | 314,687 |
| | 314,076 |
|
Intangible assets, net | 193,758 |
| | 512,785 |
|
Deferred income taxes | 2,303 |
| | 2,272 |
|
Other investments | 27,157 |
| | 31,094 |
|
Other long-term assets | 13,953 |
| | 13,484 |
|
TOTAL ASSETS | $ | 1,104,327 |
| | $ | 1,482,495 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Current liabilities: | | | |
Current portion of lease payable | $ | 1,219 |
| | $ | 467 |
|
Current portion of long-term debt | 6,885 |
| | 6,885 |
|
Accounts payable | 38,849 |
| | 41,951 |
|
Accrued liabilities | 45,303 |
| | 49,945 |
|
Deferred revenue | 2,355 |
| | 7,757 |
|
Total current liabilities | $ | 94,611 |
|
| $ | 107,005 |
|
Lease payable, less current portion | 28,848 |
| | 29,023 |
|
Long-term debt, less current portion | 656,046 |
| | 658,372 |
|
Warrant liability | 7,341 |
| | 13,129 |
|
Deferred income taxes | 455 |
| | 389 |
|
Other long-term liabilities | 18,031 |
| | 5,902 |
|
Total liabilities | $ | 805,332 |
|
| $ | 813,820 |
|
Stockholders’ equity: | | | |
Common stock | 66 |
| | 65 |
|
Treasury stock, at cost | (330 | ) | | (330 | ) |
Accumulated other comprehensive income | 4,899 |
| | 2,188 |
|
Additional paid-in capital | 1,096,650 |
| | 1,074,728 |
|
Accumulated deficit | (802,290 | ) | | (407,976 | ) |
Total stockholders’ equity | $ | 298,995 |
|
| $ | 668,675 |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,104,327 |
| | $ | 1,482,495 |
|
See notes to condensed consolidated financial statements.
MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| June 28, 2019 | | June 29, 2018 | | June 28, 2019 | | June 29, 2018 |
Revenue | $ | 108,306 |
| | $ | 137,872 |
| | $ | 387,460 |
| | $ | 419,210 |
|
Cost of revenue | 74,478 |
| | 89,703 |
| | 219,678 |
| | 244,486 |
|
Gross profit | 33,828 |
| | 48,169 |
| | 167,782 |
| | 174,724 |
|
Operating expenses: | | | | | | | |
Research and development | 42,708 |
| | 48,240 |
| | 128,593 |
| | 131,487 |
|
Selling, general and administrative | 41,920 |
| | 42,471 |
| | 126,437 |
| | 119,393 |
|
Impairment charges | 264,086 |
| | — |
| | 264,086 |
| | 6,575 |
|
Restructuring charges | 8,887 |
| | 102 |
| | 17,047 |
| | 6,302 |
|
Total operating expenses | 357,601 |
| | 90,813 |
| | 536,163 |
| | 263,757 |
|
Loss from operations | (323,773 | ) | | (42,644 | ) | | (368,381 | ) | | (89,033 | ) |
Other (expense) income | | | | | | | |
Warrant liability gain (expense) | 1,927 |
| | (6,728 | ) | | 5,788 |
| | 24,895 |
|
Interest expense, net | (8,967 | ) | | (8,039 | ) | | (27,142 | ) | | (23,249 | ) |
Other income (expense) | 4,777 |
| | (37,281 | ) | | (4,233 | ) | | (41,413 | ) |
Total other expense, net | (2,263 | ) | | (52,048 | ) | | (25,587 | ) | | (39,767 | ) |
Loss before income taxes | (326,036 | ) | | (94,692 | ) | | (393,968 | ) | | (128,800 | ) |
Income tax (benefit) expense | (1,322 | ) | | (9,482 | ) | | 346 |
| | (11,153 | ) |
Loss from continuing operations | (324,714 | ) | | (85,210 | ) | | (394,314 | ) | | (117,647 | ) |
Loss from discontinued operations | — |
| | (220 | ) | | — |
| | (5,837 | ) |
Net loss | $ | (324,714 | ) | | $ | (85,430 | ) | | $ | (394,314 | ) | | $ | (123,484 | ) |
| | | | | | | |
Net loss per share: | | | | | | | |
Basic loss per share: | | | | | | | |
Loss from continuing operations | $ | (4.93 | ) | | $ | (1.31 | ) | | $ | (6.01 | ) | | $ | (1.82 | ) |
Loss from discontinued operations | — |
| | 0.00 |
| | — |
| | (0.09 | ) |
Loss per share - basic | $ | (4.93 | ) | | $ | (1.32 | ) | | $ | (6.01 | ) | | $ | (1.91 | ) |
Diluted loss per share: | | | | | | | |
Loss from continuing operations | $ | (4.95 | ) | | $ | (1.31 | ) | | $ | (6.09 | ) | | $ | (2.19 | ) |
Loss from discontinued operations | — |
| | 0.00 |
| | — |
| | (0.09 | ) |
Loss per share - diluted | $ | (4.95 | ) | | $ | (1.32 | ) | | $ | (6.09 | ) | | $ | (2.28 | ) |
Shares used: | | | | | | | |
Basic | 65,858 |
| | 64,920 |
| | 65,555 |
| | 64,598 |
|
Diluted | 65,945 |
| | 64,920 |
| | 65,722 |
| | 65,198 |
|
See notes to condensed consolidated financial statements.
MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| June 28, 2019 | | June 29, 2018 | | June 28, 2019 | | June 29, 2018 |
Net loss | $ | (324,714 | ) | | $ | (85,430 | ) | | $ | (394,314 | ) | | $ | (123,484 | ) |
Unrealized gain (loss) on short-term investments, net of tax | 105 |
| | 59 |
| | 455 |
| | (455 | ) |
Foreign currency translation gain (loss), net of tax | 996 |
| | (3,475 | ) | | 2,256 |
| | 1,235 |
|
Other comprehensive income (loss), net of tax | 1,101 |
| | (3,416 | ) | | 2,711 |
| | 780 |
|
Total comprehensive loss | $ | (323,613 | ) | | $ | (88,846 | ) | | $ | (391,603 | ) | | $ | (122,704 | ) |
See notes to condensed consolidated financial statements.
MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Three Months Ended |
| | | | | Accumulated Other Comprehensive Income | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders’ Equity |
| Common Stock | | Treasury Stock |
| Shares | | Amount | | Shares | | Amount |
Balance at March 29, 2019 | 65,723 |
| | $ | 66 |
| | (23 | ) | | $ | (330 | ) | | $ | 3,798 |
| | $ | 1,091,067 |
| | $ | (477,576 | ) | | $ | 617,025 |
|
Stock options exercises | 11 |
| | — |
| | — |
| | — |
| | — |
| | 22 |
| | — |
| | 22 |
|
Vesting of restricted common stock and units | 87 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Issuance of common stock pursuant to employee stock purchase plan | 265 |
| | — |
| | — |
| | — |
| | — |
| | 3,193 |
| | — |
| | 3,193 |
|
Shares repurchased for tax withholdings on equity awards | (31 | ) | | — |
| | — |
| | — |
| | — |
| | (446 | ) | | — |
| | (446 | ) |
Share-based compensation | — |
| | — |
| | — |
| | — |
| | — |
| | 2,814 |
| | — |
| | 2,814 |
|
Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | 1,101 |
| | — |
| | — |
| | 1,101 |
|
Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (324,714 | ) | | (324,714 | ) |
Balance at June 28, 2019 | 66,055 |
| | $ | 66 |
| | (23 | ) | | $ | (330 | ) | | $ | 4,899 |
| | $ | 1,096,650 |
| | $ | (802,290 | ) | | $ | 298,995 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended |
| | | | | Accumulated Other Comprehensive Income | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders’ Equity |
| Common Stock | | Treasury Stock |
| Shares | | Amount | | Shares | | Amount |
Balance at September 28, 2018 | 65,202 |
| | $ | 65 |
| | (23 | ) | | $ | (330 | ) | | $ | 2,188 |
| | $ | 1,074,728 |
| | $ | (407,976 | ) | | $ | 668,675 |
|
Stock options exercises | 23 |
| | — |
| | — |
| | — |
| | — |
| | 46 |
| |
|
| | 46 |
|
Vesting of restricted common stock and units | 632 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
Issuance of common stock pursuant to employee stock purchase plan | 421 |
| | — |
| | — |
| | — |
| | — |
| | 5,585 |
| | — |
| | 5,585 |
|
Shares repurchased for tax withholdings on equity awards | (223 | ) | | — |
| | — |
| | — |
| | — |
| | (3,872 | ) | | — |
| | (3,872 | ) |
Share-based compensation | — |
| | — |
| | — |
| | — |
| | — |
| | 20,163 |
| | — |
| | 20,163 |
|
Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | 2,711 |
| | — |
| | — |
| | 2,711 |
|
Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (394,314 | ) | | (394,314 | ) |
Balance at June 28, 2019 | 66,055 |
| | $ | 66 |
| | (23 | ) | | $ | (330 | ) | | $ | 4,899 |
| | $ | 1,096,650 |
| | $ | (802,290 | ) | | $ | 298,995 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Three Months Ended |
| | | | | Accumulated Other Comprehensive Income | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders’ Equity |
| Common Stock | | Treasury Stock |
| Shares | | Amount | | Shares | | Amount |
Balance at March 30, 2018 | 64,728 |
| | $ | 65 |
| | (23 | ) | | $ | (330 | ) | | $ | 7,173 |
| | $ | 1,057,410 |
| | $ | (306,053 | ) | | $ | 758,265 |
|
Stock option exercises | 2 |
| | — |
| | — |
| | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
Vesting of restricted common stock and units | 383 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Issuance of common stock pursuant to employee stock purchase plan | 191 |
| | — |
| | — |
| | — |
| | — |
| | 3,684 |
| | — |
| | 3,684 |
|
Shares repurchased for tax withholdings on equity awards | (122 | ) | | — |
| | — |
| | — |
| | — |
| | (2,827 | ) | | — |
| | (2,827 | ) |
Share-based compensation | — |
| | — |
| | — |
| | — |
| | — |
| | 8,754 |
| | — |
| | 8,754 |
|
Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | (3,416 | ) | | — |
| | — |
| | (3,416 | ) |
Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (85,430 | ) | | (85,430 | ) |
Balance at June 29, 2018 | 65,182 |
| | $ | 65 |
| | (23 | ) | | $ | (330 | ) | | $ | 3,757 |
| | $ | 1,067,028 |
| | $ | (391,483 | ) | | $ | 679,037 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended |
| | | | | Accumulated Other Comprehensive Income | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders’ Equity |
| Common Stock | | Treasury Stock |
| Shares | | Amount | | Shares | | Amount |
Balance at September 29, 2017 | 64,279 |
| | $ | 64 |
| | (23 | ) | | $ | (330 | ) | | $ | 2,977 |
| | $ | 1,041,644 |
| | $ | (266,981 | ) | | $ | 777,374 |
|
Cumulative effect of ASU 2016-09 | — |
| | — |
| | — |
| | — |
| | — |
| | 1,018 |
| | (1,018 | ) | | — |
|
Stock option exercises | 22 |
| | — |
| | — |
| | — |
| | — |
| | 65 |
| | | | 65 |
|
Vesting of restricted common stock and units | 883 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
Issuance of common stock pursuant to employee stock purchase plan | 305 |
| | — |
| | — |
| | — |
| | — |
| | 6,879 |
| | — |
| | 6,879 |
|
Shares repurchased for tax withholdings on equity awards | (307 | ) | | — |
| | — |
| | — |
| | — |
| | (6,673 | ) | | — |
| | (6,673 | ) |
Share-based compensation | — |
| | — |
| | — |
| | — |
| | — |
| | 24,095 |
| | — |
| | 24,095 |
|
Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | 780 |
| | — |
| | — |
| | 780 |
|
Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (123,484 | ) | | (123,484 | ) |
Balance at June 29, 2018 | 65,182 |
| | $ | 65 |
| | (23 | ) | | $ | (330 | ) | | $ | 3,757 |
| | $ | 1,067,028 |
| | $ | (391,483 | ) | | $ | 679,037 |
|
See notes to condensed consolidated financial statements.
MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| | | | | | | |
| Nine Months Ended |
| June 28, 2019 | | June 29, 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net loss | $ | (394,314 | ) | | $ | (123,484 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Depreciation and intangibles amortization | 84,612 |
| | 83,695 |
|
Share-based compensation | 20,163 |
| | 24,095 |
|
Warrant liability gain | (5,788 | ) | | (24,895 | ) |
Acquired inventory step-up amortization | — |
| | 224 |
|
Deferred financing cost amortization | 3,046 |
| | 3,572 |
|
Loss on disposition of business | — |
| | 34,046 |
|
Deferred income taxes | 59 |
| | (8,502 | ) |
Restructuring and impairment related charges | 272,873 |
| | 9,143 |
|
Loss on minority equity investment | 3,937 |
| | 7,241 |
|
Changes in assets held for sale from discontinued operations | — |
| | (6,266 | ) |
Other adjustments, net | 395 |
| | 936 |
|
Change in operating assets and liabilities: | | | |
Accounts receivable | 29,291 |
| | 34,769 |
|
Inventories | 12,298 |
| | (1,617 | ) |
Prepaid expenses and other assets | 1,350 |
| | (3,682 | ) |
Accounts payable | (3,888 | ) | | (11,049 | ) |
Accrued and other liabilities | 3,164 |
| | (1,952 | ) |
Income taxes | 1,079 |
| | (5,058 | ) |
Net cash provided by operating activities | 28,277 |
| | 11,216 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Acquisition of businesses, net | (375 | ) | | — |
|
Purchases of property and equipment | (31,905 | ) | | (39,443 | ) |
Proceeds from sales and maturities of short-term investments | 155,281 |
| | 85,422 |
|
Purchases of short-term investments | (156,061 | ) | | (99,363 | ) |
Purchases of other investments | — |
| | (5,000 | ) |
Sale of business and assets | — |
| | 5,000 |
|
Proceeds associated with discontinued operations | — |
| | (263 | ) |
Net cash used in investing activities | (33,060 | ) | | (53,647 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Payments of financing costs | — |
| | (505 | ) |
Proceeds from stock option exercises and employee stock purchases | 5,631 |
| | 6,944 |
|
Payments on notes payable | (5,163 | ) | | (5,163 | ) |
Payments of capital leases and assumed debt | (809 | ) | | (571 | ) |
Repurchase of common stock - tax withholdings on equity awards | (3,872 | ) | | (6,673 | ) |
Proceeds from financing obligation | — |
| | 4,000 |
|
Payments of contingent consideration and other | (579 | ) | | (478 | ) |
Net cash used in financing activities | (4,792 | ) | | (2,446 | ) |
| | | |
Foreign currency effect on cash | 164 |
| | 41 |
|
| | | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | (9,411 | ) | | (44,836 | ) |
CASH AND CASH EQUIVALENTS — Beginning of period | $ | 94,676 |
| | $ | 130,104 |
|
CASH AND CASH EQUIVALENTS — End of period | $ | 85,265 |
| | $ | 85,268 |
|
| | | |
See notes to condensed consolidated financial statements.
MACOM TECHNOLOGY SOLUTIONS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| |
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Unaudited Interim Financial Information—The accompanying unaudited, condensed consolidated financial statements have been prepared according to the rules and regulations of the United States (the “U.S.”) Securities and Exchange Commission (the “SEC”) and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the condensed consolidated balance sheets, condensed consolidated statements of operations, condensed consolidated statement of comprehensive loss, condensed consolidated statements of stockholders' equity and condensed consolidated statements of cash flows of MACOM Technology Solutions Holdings, Inc. (“MACOM”, the “Company”, “us”, “we” or “our”) for the periods presented. We prepare our interim financial information using the same accounting principles we use for our annual audited consolidated financial statements. Certain information and note disclosures normally included in the annual audited consolidated financial statements have been condensed or omitted in accordance with prescribed SEC rules. We believe that the disclosures made in our condensed consolidated financial statements and the accompanying notes are adequate to make the information presented not misleading.
The consolidated balance sheet at September 28, 2018 is as reported in our audited consolidated financial statements as of that date. Our accounting policies are described in the notes to our September 28, 2018 consolidated financial statements, which were included in our Annual Report on Form 10-K for our fiscal year ended September 28, 2018 filed with the SEC on November 16, 2018. We recommend that the financial statements included in this Quarterly Report on Form 10-Q be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for our fiscal year ended September 28, 2018.
Principles of Consolidation—We have one reportable segment, semiconductors and modules. The accompanying consolidated financial statements include our accounts and the accounts of our majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
We have a 52- or 53-week fiscal year ending on the Friday closest to the last day of September. The fiscal years 2019 and 2018 include 52 weeks. To offset the effect of holidays, for fiscal years in which there are 53 weeks, we include the extra week arising in such fiscal years in the first quarter.
Use of Estimates—The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities during the reporting periods, the reported amounts of revenue and expenses during the reporting periods, and the disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, we base estimates and assumptions on historical experience, currently available information and various other factors that management believes to be reasonable under the circumstances. Actual results may differ materially from these estimates and assumptions.
Revenue Recognition—Substantially all of our revenue is derived from sales of high-performance radio frequency ("RF"), microwave, millimeterwave and lightwave semiconductor solutions into three primary markets: Telecom, Data Centers and Industrial and Defense ("I&D"). Revenue is recognized when a customer obtains control of products or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements within the scope of Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, we perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) we satisfy performance obligations. Sales, value add and other taxes collected on behalf of third parties are excluded from revenue. Our revenue arrangements do not contain significant financing components.
Contracts with our customers principally contain only one distinct performance obligation, which is the sale of products. However, due to multiple products potentially being sold on a single order, we are required to allocate consideration based on the estimated relative standalone selling prices of the promised products.
Periodically, we enter into non-product development and license contracts with certain customers. We generally recognize revenue from these contracts as services are provided based on the terms of the contract. Revenue is deferred for amounts billed or received prior to delivery of the services. Certain contracts may contain multiple performance obligations for which we allocate revenue to each performance obligation on a relative stand-alone selling price.
Our product revenue is recognized when the customer obtains control of the product or services, which generally occurs at a point in time, and is based on the contractual shipping terms of a contract. Non-product revenue is generally recognized over time. For each contract, the promise to transfer the control of the products or services, each of which is individually distinct, is considered to be the identified performance obligation. We provide an assurance type warranty which is not sold separately and does not
represent a separate performance obligation. Therefore, we account for such warranties under ASC 460, Guarantees, and the estimated costs of warranty claims are generally accrued as cost of revenue in the period the related revenue is recorded.
We have agreements with certain customers which may include certain rights of return and pricing programs, including returns for aged inventory, stock rotation and price protection which affect the transaction price. Sales to these customers and programs offered are in accordance with terms set forth in written agreements, which require us to assess the potential revenue effects of this variable consideration utilizing the expected value method. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. As such, revenue on sales to customers that include rights of return and pricing programs are recorded net of estimated variable consideration, utilizing the expected value method based on historical sales data. We believe that the judgments and estimates we utilize are reasonable based upon current facts and circumstances, however utilizing different judgments and estimates could result in different amounts.
Practical Expedients and Elections—ASC 606 requires that we disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of the reporting periods presented. The guidance provides certain practical expedients that limit this requirement and, therefore, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which revenue is recognized at the amount to which we have the right to invoice for services performed. We have elected not to disclose the aggregate amount of transaction prices associated with unsatisfied or partially unsatisfied performance obligations for contracts where these criteria are met.
Our policy is to capitalize any incremental costs incurred to obtain a customer contract, only to the extent that the benefit associated with the costs is expected to be longer than one year. Capitalizable contract costs were not significant both at the date of adoption and as of June 28, 2019.
We account for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. When shipping and handling costs are incurred after a customer obtains control of the products, we have elected to account for these as costs to fulfill the promise and not as a separate performance obligation. Shipping and handling costs associated with the distribution of products to customers are recorded in costs of revenue generally when the related product is shipped to the customer.
Recent Accounting Pronouncements—Our Recent Accounting Pronouncements are described in the notes to our September 28, 2018 consolidated financial statements, which were included in our Annual Report on Form 10-K for our fiscal year ended September 28, 2018.
Pronouncements Adopted in Fiscal Year 2019
We adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, on September 29, 2018. The FASB subsequently issued several amendments and updates to the new revenue standard. We refer to ASU 2014-09 and its related ASUs as "ASC 606". We applied ASC 606 using the modified retrospective method and elected to apply this initial application of the standard only to contracts that are not completed at the date of initial application. We have analyzed this effect and found the adoption of the new guidance did not have a material impact on our consolidated financial statements as of the adoption date. The reported results for our fiscal year 2019 reflect the application of ASC 606 guidance while the reported results for our fiscal year 2018 were prepared under the guidance of ASC 605, Revenue Recognition.
We adopted ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, on September 29, 2018. In February 2018, the FASB issued further amendments to this guidance. This update made amendments to the guidance in GAAP on the classification and measurement of financial instruments. The new standard significantly revised an entity's accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amended certain disclosure requirements associated with the fair value of financial instruments. The adoption of this update did not have a material impact on our consolidated financial statements and related disclosures.
We adopted ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, on September 29, 2018. This update addressed debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows and application of the predominance principle. The adoption of this update did not have a material impact on our consolidated financial statements and related disclosures.
We adopted ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, on September 29, 2018. This update amended the guidance on recognizing the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendment eliminated the exception for an intra entity transfer of an asset other than
inventory. The adoption of this updated standard did not have a material impact on our consolidated financial statements and related disclosures.
Pronouncements for Adoption in Subsequent Periods
In February 2016, the FASB issued ASU 2016-02, Leases ("ASC 842"). The FASB subsequently issued several amendments and updates to the new leasing standard. The new standard increases transparency and comparability among organizations by recognizing right-of-use assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under ASC 842, leases are classified as either operating or finance, based on criteria similar to current lease accounting, but without explicit bright lines. ASC 842 is effective for us as of September 28, 2019, and we intend to apply ASC 842 using the cumulative-effect adjustment on this date, with comparative periods presented in accordance with the previous guidance in ASC 840, Leases ("ASC 840"). We intend to use certain targeted transitional approaches that are intended to provide relief in implementing the new standards. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases under ASC 840. We are currently evaluating the impact that the adoption of ASC 842 will have on our consolidated financial statements. This evaluation process includes reviewing all forms of leases and performing a completeness assessment over our lease population to identify any embedded leases with our vendors. We anticipate that due to this new accounting standard, we will recognize additional liabilities and corresponding assets related to our operating leases on our consolidated balance sheet.
2. REVENUE
Disaggregation of Revenue
We disaggregate revenue from contracts with customers by markets and geography, as we believe it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
The following tables present our revenue disaggregated by markets and geography (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 6/28/2019 | | 6/29/2018 | | 6/28/2019 | | 6/29/2018 |
Revenue by Market: | | | | | | | |
Industrial & Defense | $ | 46,809 |
| | $ | 48,399 |
| | $ | 154,563 |
| | $ | 132,994 |
|
Data Center | 17,614 |
| | 38,911 |
| | 91,518 |
| | 116,269 |
|
Telecom | 43,883 |
| | 50,562 |
| | 141,379 |
| | 169,947 |
|
Total | $ | 108,306 |
| | $ | 137,872 |
| | $ | 387,460 |
| | $ | 419,210 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 6/28/2019 | | 6/29/2018 | | 6/28/2019 | | 6/29/2018 |
Revenue by Geographic Region: | | | | | | | |
United States | $ | 52,340 |
| | $ | 67,861 |
| | $ | 185,172 |
| | $ | 197,540 |
|
China | 27,451 |
| | 39,016 |
| | 104,491 |
| | 115,068 |
|
Asia Pacific, excluding China (1) | 16,371 |
| | 17,795 |
| | 60,384 |
| | 64,028 |
|
Other Countries (2) | 12,144 |
| | 13,200 |
| | 37,413 |
| | 42,574 |
|
Total | $ | 108,306 |
| | $ | 137,872 |
| | $ | 387,460 |
| | $ | 419,210 |
|
| |
(1) | Asia Pacific represents Taiwan, Japan, Singapore, India, Thailand, South Korea, Australia, Malaysia, New Zealand and the Philippines. |
| |
(2) | No international country or region represented greater than 10% of the total revenue as of the dates presented, other than China and the Asia Pacific region as presented above. |
Contract Balances
We record contract assets or contract liabilities depending on the timing of revenue recognition, billings and cash collections on a contract-by-contract basis. Our contract liabilities primarily relate to deferred revenue, including advance consideration received from customers for contracts prior to the transfer of control to the customer, and therefore revenue is recognized upon delivery of products and services.
The following table presents the changes in contract liabilities during the nine months ended June 28, 2019 (in thousands):
|
| | | | | | | | | | | | | | |
| June 28, 2019 | | September 28, 2018 | | $ Change | | % Change |
Contract liabilities | $ | 10,685 |
| | $ | 7,757 |
| | $ | 2,928 |
| | 38 | % |
As of June 28, 2019, approximately $8.3 million of our contract liabilities were recorded as other long-term liabilities on our balance sheet with the remainder recorded as deferred revenue. The increase in contract liabilities during the nine months ended June 28, 2019 was primarily from the deferral of revenue for funds received prior to when certain of our customers obtain control of the product or services, partially offset by the March 29, 2019 recognition of $7.0 million associated with a license contract.
During the three and nine months ended June 28, 2019, we recognized the following net sales as a result of changes in the contract liabilities balance (in thousands):
|
| | | | | | | |
| Three Months Ended | | Nine Months Ended |
| June 28, 2019 | | June 28, 2019 |
Net revenue recognized in the period from: | | | |
Amounts included in contract liabilities at the beginning of the period | $ | 59 |
| | $ | 7,640 |
|
3. DIVESTED BUSINESS AND DISCONTINUED OPERATIONS
Divested Business
On May 10, 2018, we completed the sale and transfer of certain assets associated with our Japan-based long-range optical subassembly business (the “LR4 Business”), pursuant to an Asset Purchase and Intellectual Property License Agreement, dated April 30, 2018 (the “LR4 Agreement”). The LR4 Agreement provided that the buyer would pay us $5.0 million within 30 days following the closing of the transactions contemplated by the LR4 Agreement, provide us with the opportunity to supply components and pay us further amounts to be determined for inventory and fixed assets within 60 days of receipt of required Chinese government approvals. As of September 28, 2018, $7.4 million had been recorded as other current assets and $4.8 million had been recorded as assets held for sale, as the assets had not been transferred to the buyer as of September 28, 2018.
As a result of the transaction, during fiscal year 2018 we recorded a loss on disposal of $34.3 million associated with the LR4 Business as other expense, comprised of expected proceeds of $17.2 million, subject to receipt of required Chinese government approvals, less the carrying value of assets sold, primarily including customer relationship intangible assets of $27.7 million, inventory of $13.7 million, fixed assets of $7.6 million and goodwill of $2.6 million. The transaction did not meet the criteria of discontinued operations. We also entered into a transition services agreement (the "LR4 TSA") with the buyer, pursuant to which we agreed to incur up to $2.0 million of operating expenses for certain ongoing administrative services to support the buyer for up to six months after the closing of the transaction. During the three and nine months ended June 28, 2019, we have incurred no expenses associated with the LR4 TSA. During the three and nine months ended June 29, 2018, we incurred $0.4 million of expenses associated with the LR4 TSA.
As of June 28, 2019, we have $14.0 million of receivables, net of a $0.3 million reserve, associated with the LR4 Agreement recorded as other current assets, which includes $11.9 million of additional consideration, net of tax, and $1.5 million associated with the LR4 TSA.
Discontinued Operations
On October 27, 2017, we entered into a purchase agreement to sell the Compute business. In consideration for the transfer and sale of the Compute business, we received an equity interest in the buyer, a privately held limited liability company ("Compute"), valued at approximately $36.5 million, and representing less than 20.0% of Compute's total outstanding equity. The operations of the Compute business were accounted for as discontinued operations through the date of divestiture.
We also entered into a transition services agreement (the "Compute TSA"), pursuant to which we agreed to perform certain primarily general and administrative functions on Compute's behalf during a migration period and for which we are reimbursed for costs incurred. During the three months ended June 28, 2019, we received no reimbursements under the Compute TSA. During the nine months ended June 28, 2019, we received $0.1 million of reimbursements under the Compute TSA, which was recorded as a reduction of our general and administrative expenses. During the three and nine months ended June 29, 2018, we received $1.0 million and $3.5 million, respectively, of reimbursements under the Compute TSA.
The accompanying consolidated statements of operations include the following operating results related to these discontinued operations (in thousands):
|
| | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | June 29, 2018 | | June 29, 2018 |
Revenue | | $ | — |
| | $ | — |
|
Cost of revenue | | — |
| | (596 | ) |
Gross profit | | — |
| | 596 |
|
Operating expenses: | | | | |
Research and development | | 175 |
| | 4,873 |
|
Selling, general and administrative | | 45 |
| | 1,560 |
|
Total operating expenses | | 220 |
| | 6,433 |
|
Loss from operations | | (220 | ) | | (5,837 | ) |
Loss before income taxes | | (220 | ) | | (5,837 | ) |
Income tax provision | | — |
| | — |
|
Loss from discontinued operations | | $ | (220 | ) | | $ | (5,837 | ) |
| | | | |
Cash flow from operating activities | | (29 | ) | | (10,356 | ) |
4. INVESTMENTS
Our short-term investments are invested in corporate bonds and commercial paper, and are classified as available-for-sale. The amortized cost, gross unrealized holding gains or losses, and fair value of our investments by major investment type as of June 28, 2019 and September 28, 2018 are summarized in the tables below (in thousands):
|
| | | | | | | | | | | | | | | |
| June 28, 2019 |
| Amortized Cost | | Gross Unrealized Holding Gains | | Gross Unrealized Holding Losses | | Aggregate Fair Value |
Corporate bonds | $ | 29,235 |
| | $ | 128 |
| | $ | (120 | ) | | $ | 29,243 |
|
Commercial paper | 71,306 |
| | 4 |
| | (33 | ) | | 71,277 |
|
Total short-term investments | $ | 100,541 |
| | $ | 132 |
| | $ | (153 | ) | | $ | 100,520 |
|
|
| | | | | | | | | | | | | | | |
| September 28, 2018 |
| Amortized Cost | | Gross Unrealized Holding Gains | | Gross Unrealized Holding Losses | | Aggregate Fair Value |
Corporate bonds | $ | 28,731 |
| | $ | — |
| | $ | (460 | ) | | $ | 28,271 |
|
Commercial paper | 69,966 |
| | — |
| | (16 | ) | | 69,950 |
|
Total short-term investments | $ | 98,697 |
| | $ | — |
| |