Episode Details

MACOM Technology Solutions Holdings, Inc. (MTSI) Q3 FY2026 — Revenue $342.2M UP 35.8% and UP 18.4% sequentially - above the Street AND above MACOM's own $331-339M guide. Adjusted EPS $1.40 vs $1.35. Adjusted gross margin 59.7%, adjusted operating margin 31.5%. Then the guide: fiscal Q4 revenue $415-425M vs a $364.1M consensus and adjusted EPS $1.97-$2.03 vs $1.49. Stock +11.0% to $292.54. MACOM beat the June quarter by five cents - $1.40 adjusted against $1.35. Then it guided September to $1.97-$2.03 against a $1.49 Street bar, on $415-425M of revenue against $364M. The guide, not the print, is the story, and it is the best MACOM has ever given. But GAAP EPS of $1.28 is one-third a $41.5M non-cash mark on MACOM's new IQE plc stake, and adjusted EPS adds back $24.5M of stock comp. At $292.54 the price already assumes ~20% free-cash-flow growth for a decade. THE CALL: AVOID (3/5, A SUPERB QUARTER AT OUR BULL-CASE PRICE) — base-case value ~$225.0 vs ~$292.54 today. KEY METRICS: - CALL: AVOID 3/5, fair value ~$225 vs the $292.54 tape (-23%) - and $75 BELOW the Street's $300 LOW target. Panel: 24 analysts, 15 Buy / 7 Hold / 2 Sell, $403.86 average (+38%); an independent 14-analyst panel says $400.92, same bounds. Base $225: FY27 revenue $2,100M, adjusted operating income $807M, less $120M stock comp, 12% cash tax, $158M capex, 32% growth fading to 5%, 10.0% discount. Bull $305, bear $115. - THE GUIDE IS THE STORY, NOT THE PRINT. Fiscal Q3 revenue $342.237M beat the Street's $335.5M by 2.0% and adjusted EPS $1.40 beat $1.35 by five cents - both also above MACOM's OWN May guide of $331-339M and $1.31-$1.37. Then fiscal Q4: revenue $415-425M against a $364.1M consensus (+15%) and adjusted EPS $1.97-$2.03 against $1.49 (+34%). The midpoint is +22.7% sequential and +60.8% on last September's $261.2M. - GAAP EPS OF $1.28 IS ONE-THIRD A NON-CASH MARK. Other income carries a $41.543M 'gain on investment fair value' - the mark on the IQE plc stake MACOM subscribed for on April 27, 2026 (GBP 30M of new ordinary shares, under 12% of IQE, plus GBP 15M of convertible loan notes), carried at $102.132M in long-term investments. That is a third of the $123.850M of pre-tax income. MACOM's adjusted $1.40 correctly excludes it. - THE OPERATING LEVERAGE IS REAL - AND SO IS THE STOCK COMP. Revenue +35.8% while adjusted opex grew 18.2% ($96.533M vs $81.682M, 28.2% of revenue from 32.4%). Adjusted EBITDA $116.735M, a 34.1% margin from 27.9%. The Q4 guide implies ~$96M of adjusted opex - flat - a 64% incremental margin. But adjusted EPS adds back $24.511M of stock comp (7.2% of revenue): expense it and $1.40 is ~$1.10 and the $2.00 guide is ~$1.69. - WHAT $292.54 REQUIRES. EV $22,899M (79.5M diluted shares, $358M net cash) = 19.7x trailing revenue, 13.6x the September guide annualised, 10.9x our FY27 revenue and 26.9x our FY27 adjusted EBITDA. Run the owner-earnings model backwards: $292.54 needs ~20% free-cash-flow growth for ten straight years, roughly $12.9B of revenue by FY2037 - about ten times the $1.32B MACOM will do this year. Our bull case is $305. - MIX AND CONCENTRATION (Q2 FY26 10-Q, the last disclosed): Industrial & Defense $120.652M (41.8%, +22.4%), Data Center $98.188M (34.0%, +36.0%), Telecom $70.115M (24.3%, +7.6%). Geography: China and Hong Kong $99.179M - 34.3% of revenue, +55% year on year. Top ten customers were 57% of revenue. Balance sheet: $663.0M cash and short-term investments, $340.5M short-term debt, 9M free cash flow ~$145.8M. What to watch: UP: a December quarter holding $420M or better, a Data Center line above $180M, or adjusted operating margin near 40%. BEAR: a December guide below the September level, inventories outgrowing revenue, or export-control action touching the 34.3% of revenue billed into China. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.