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'Very Challenging' Q4 For Macom

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Hard pause in network infrastructure demand in China, impacted the entire range of networks businesses

Macom Technology Solutions, a supplier of high-performance RF, microwave and lightwave semiconductor products, has announced its financial results for its fiscal fourth quarter and fiscal year ended September 29, 2017.

"As expected, fiscal Q4 was a very challenging quarter, as we navigated through a hard pause in network infrastructure demand in China, impacting our entire range of Networks businesses," remarked John Croteau, president and CEO of Macom. "Networks was down 25 percent sequentially, though it still grew 3 percent year on year. Somewhat offsetting the decline in Networks, we had a very strong quarter in our A&D and multi-market businesses, which grew 32 percent and 16 percent year-over-year, respectively."

Fiscal Year 2017 GAAP Results

Revenue was $698.8 million, an increase of 28.4 percent, compared to $544.3 million in fiscal year 2016; gross profit was $326.9 million, an increase of 16.1 percent, compared to $281.6 million in fiscal year 2016; fiscal year 2017 gross margin was 46.8 percent, compared to 51.7 percent in fiscal year 2016; operating loss was $16.1 million, compared to operating income of $13.2 million in fiscal year 2016; and fully diluted net loss from continuing operations was $2.48 per share, compared to a net loss per fully diluted share from continuing operations of $0.07 per share in fiscal year 2016.

Fiscal Year 2017 Non- GAAP Results

Adjusted gross margin was 58.1 percent, compared to 58.1 percent in fiscal year 2016; operating income was $180.5 million, or 25.8 percent of revenue, compared to $133.3 million, or 24.5 percent of revenue, in fiscal year 2016; net income was $145.5 million, or $2.32 per diluted share, compared to adjusted net income of $105.5 million, or $1.91 per diluted share in fiscal year 2016, growing 37.9 percent; and

Adjusted EBITDA was $213.9 million, compared to $159.6 million in fiscal year 2016, growing 34 percent.

Q4 GAAP Results

Revenue was $166.4 million, an increase of 9.0 percent, compared to $152.7 million in the previous year fiscal fourth quarter and a decrease of 14.5 percent compared to $194.6 million in the prior fiscal quarter; gross profit was $86.9 million, an increase of 6.2 percent compared to $81.8 million in the previous year fiscal fourth quarter, and a decrease of 6.2 percent compared to $92.6 million in the prior fiscal quarter;

Gross margin was 52.2 percent, compared to 53.6 percent in the previous year fiscal fourth quarter and 47.6 percent in the prior fiscal quarter;

Operating income was $0.3 million, compared to operating income of $10.1 million in the previous year fiscal fourth quarter and an operating income of $6.6 million in the prior fiscal quarter; and

Net loss from continuing operations was $1,000, or $0.21 loss per diluted share, compared to net income from continuing operations of $3.9 million, or $0.07 income per diluted share, in the previous year fiscal fourth quarter and net loss from continuing operations of $14.0 million, or $0.22 loss per diluted share, in the prior fiscal quarter.

Q4 Non-GAAP Results

Adjusted gross margin was 58.1 percent, compared to 58.5 percent in the previous year fiscal fourth quarter and 58.5 percent in the prior fiscal quarter;

Adjusted operating income was $38.0 million, or 22.8 percent of revenue, compared to $38.3 million, or 25.1 percent of revenue, in the previous year fiscal fourth quarter and $52.9 million, or 27.2 percent of revenue, in the prior fiscal quarter;

Adjusted net income was $30.3 million, or $0.46 per diluted share, compared to adjusted net income of $30.1 million, or $0.54 per diluted share, in the previous year fiscal fourth quarter and adjusted net income of $43.9 million, or $0.67 per diluted share, in the prior fiscal quarter; and

Adjusted EBITDA was $47.3 million, compared to $44.9 million for the previous year fiscal fourth quarter and $61.6 million for the prior fiscal quarter.

Business Outlook

"In the December quarter, we expect Networks demand to remain soft, and the A&D and Multi-market businesses to return to more normalized levels. We expect the December quarter will be the bottom of the down-cycle in network infrastructure, which appears to be on the verge of turning, " said Crotea

"We see 2018 providing a more positive environment. In addition to expecting a cyclical recovery in Telecom networks, we've expanded our customer footprint, and several of our secular growth drivers look to be approaching major inflection points as we secure deals with industry franchise players. We believe we are poised to be a major beneficiary of the upgrade from 40G to 100G CWDM that's well underway inside the Data Center."

Croteau concluded, "While the near-term environment remains challenging, we believe we have the design wins and customer commitments to support market share growth in areas of existing strength as well as across new growth engines. When global demand recovers from the temporary pause in China, Macom will return to our long track record of outperformance over the course of 2018."

For the fiscal first quarter ending December 29, 2017, Macom expects revenue to be in the range of $130 million to $136 million. Adjusted gross margin is expected to be between 55 percent and 58 percent, and adjusted earnings per share between $0.10 and $0.16, on an anticipated 66.5 million fully diluted shares outstanding.

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