MACOM Technology Solutions Holdings, Inc.

All participants are in the listening mode. I will now turn the call to Mr. Steve Ferranti, MAKOM's Vice President of Strategic Initiatives and Investor Relations. Mr. Ferranti, please go ahead.

Thank you, Shannon. Good morning, and welcome to MAKOM's conference call to discuss the financial results for our first fiscal quarter of 2021. I would like to remind everyone that our discussion today will contain forward-looking statements, which are subject to certain risks and uncertainties, as defined in the Safe Harbor for Forward-looking Statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. For a more detailed discussion of the risks and uncertainties that could result in those differences, we refer you to MACOM's filings with the SEC. Management statements during this call will also include discussion of certain adjusted non-GAAP financial information, a reconciliation of GAAP to adjusted non-GAAP results, are provided in the company's press release in related form 8K, which was filed with the SEC today. And with that, I'll turn over the call to Steve Daley, President and CEO of Macom.

Thank you and good morning. I will begin today's call with a general company update. After that, Jack Kober, our Chief Financial Officer, will provide a more in-depth review of our first quarter results for fiscal year 2021. When Jack is finished, I will provide revenue and earnings guidance for the second quarter of FY21, and then we will be happy to take some questions. Revenue for our first fiscal quarter was $148.5 million, and adjusted EPS was 46 cents per diluted share. Our book-to-bill ratio was 1.1 to 1, and our turns business was approximately 15 percent of our total revenue. Overall, we are pleased with the continued improvements in our financial results, which are made possible by the tremendous work of our dedicated employees. Our Q1 revenue by end market was generally as expected and included industrial and defense at $61.6 million, telecom at $51.5 million, and data center at $35.4 million. Industrial and defense was up 29% sequentially, Telecom was down 7% sequentially, and data center was down 20% sequentially. As indicated by our positive book-to-bill ratio, the demand for our products has strengthened. As we look forward, we believe that our IND business will continue to perform well, that our telecom business will begin to benefit when China's telecom carriers resume their 5G build-outs, and that our data center business will begin to steadily improve as cloud service providers and enterprise demand increases. Q1 was a positive start to our fiscal 2021, and we believe we are on plan to meet our financial and technical objectives. Our goals for the fiscal year include at least 10% year-over-year revenue growth, expanding our product and technology portfolio to drive long-term growth, improving our sales strategies to win market share, focusing on engineering excellence and ramping new product introductions, and optimizing the efficiency of our operations to improve profitability and cash flow. The semiconductor industry has recently seen a broad increase in demand. We believe this is causing higher than normal levels of utilization within some portions of our supply chain, particularly at external foundry partners, as well as our assembly and test suppliers in Asia. We do not expect this temporary tightening to have an impact on our ability to service customers. Our operations team does an excellent job working with our key suppliers to ensure our goals are met. We manufacture a portion of our semiconductor product portfolio internally. In fact, we believe our wafer foundries in Massachusetts and Michigan provide us a competitive advantage. These facilities manufacture differentiated compound semiconductor process technologies that are at the foundation of some portions of our broad product portfolio. Our long-term strategic plan includes continuous development of compelling semiconductor process technology and installing best-in-class infrastructure at each of our fabs. This strategy enables differentiation which ultimately supports the creation of unique products that can drive highly profitable growth. As part of our strategic review, we have concluded that a high-performance microwave and millimeter wave GaN on silicon carbide mimic process is a critical must-have technology. On Monday, we announced that MACOM has entered into a Cooperative Research and Development Agreement, or CRADA, with the United States Air Force's Research Laboratory, also known as AFRL. MACOM will collaborate with AFRL to transfer their production-ready 0.14 micron GaN on silicon carbide semiconductor process into our fab in Massachusetts. This production-ready process has exceptional performance and, as an example, the process achieves industry-leading power density. This technology is ideal for very high frequency, very high power amplifiers. We will use this process to develop unique products that target high-performance, non-commodity applications. Specifically, this new capability will enable us to expand our product offerings to customers in the aerospace and defense, test and instrumentation, and satellite communications industries. Based on customer engagements, competitive analysis, benchmarking, and industry reports, we believe the demand for this technology is rapidly expanding. This effort is expected to be additive to our SAM and complementary to our existing RF power and gas mimic growth strategies. Simply put, this effort establishes a new growth opportunity for MACOM based on a proven best-in-class millimeter wave GAN on silicon carbide mimic process. MACOM is already actively supporting this project and we expect to launch our first products in calendar 2022. Now turning to more specifics in our three end markets in Q1. Our industrial and defense end market revenue was driven in part by strengthening demand from a variety of U.S. defense programs. Over the past few quarters, we have implemented new strategies to initiate growth, including increased cross-selling of all our technologies into the market, improving our sales channels, refocusing on key accounts, and developing additional standard and custom products which will appeal directly to current and potential customers. As a reminder, this market consists of a variety of end applications, including long-term U.S. defense programs, satellite communication applications, MILCOM and public safety handheld radio applications, test and measurement equipment, and other industrial applications. We believe that it will take time to grow our business in IND given the long design and cycles in these markets, but we are pleased to see the early signs of traction in Q1. Based on program wins and backlog, we see our industrial and defense business remaining strong over the course of fiscal year 2021. Longer term, we view this end market as having tremendous growth potential for MACOM. Our telecom and market revenue was down in Q1 driven by softness in 5G, and we expect weakness to remain throughout Q2. We anticipate our telecom business will begin to improve when the China carriers begin their 2021 5G deployments. We believe we have a strong and expanding position in 5G with our high-performance analog ICs, front-end modules, and emerging laser portfolios. While we still have limited visibility as to the exact timing of the resumption of China's 5G deployments, current indications are that tender activity will start to pick up in March or April after Chinese New Year. Nevertheless, we feel the long-term secular growth opportunity in 5G remains intact as worldwide demand for improved connectivity at higher data rates will continue to grow. We continue to view global 5G infrastructure deployments as a key growth driver for MACOM revenue in the coming years. MACOM is present across the 5G network with wireless RF products in antenna systems, as well as high-performance analog products in front-haul and mid-haul, and coherent driver and TIAs in metro long-haul optical systems. Today, we are only delivering on a fraction of our potential, and we anticipate further expanding our current 5G portfolio with 25G FP and DFB lasers, 25G avalanche photodiodes, or APDs, and more discrete RF components and more high-performance analog and mixed signal ICs. Outside of 5G, certain portions of our telecom product portfolio performed well in Q1, including 2.5 GPON products, telecom mimics, and cross-point switches, which address sub-markets like cable TV and video broadcast. I will highlight that 10GPON is an area of focus for MACOM engineering, and in the future, we expect to offer more products for this application. Our data center and market revenue was down in Q1 as our customers continued to consume inventory following a period of multiple quarters of strong sequential revenue growth. We expect future growth to be supported by our 100G high-performance analog products and our emerging 400G analog products. I'll note that our international data center growth has been driven by Asia-based data center expansion, where we sell both 25G and 100G analog products. I would next like to update investors on our data center growth strategy. I'll start by noting that we typically target short-reach applications inside the data center, ranging from 50 meters to 5 kilometers. These applications are generally the highest volume applications, and we find that customers are very supportive of evaluating MACOM's high-performance analog solutions. Example applications include 100G CWDM4 and 100G SR4. We believe CWDM4 and SR4 production volumes will continue to grow over the next five years. Some industry reports predict 2024 volumes will be two to three times higher than today's volumes. Therefore, it is a priority to service these short-reach applications with current and new products. We also believe there is an opportunity to gain market share in CWDM4. Further, we note that short-reach 400G and 800G applications are now emerging. It will grow over the next five years. To participate, we are working on next-generation analog solutions, which, when combined together, can support these higher data rates. We have tremendous high-performance analog CDR design capability. However, there are other product areas which are generating growth potential for MACOM in the data center. First, we will continue to develop advanced high-speed TIA and laser driver products. I'll note some customers have expertise in DSP and or silicon photonics, and they seek to work with us to develop customized, best-in-class TIA and driver solutions, as we are a merchant supplier with leading TIA and driver technology. Second, we are developing a broad portfolio of laser products, including 25G DFB lasers for use in PAM4 applications. In addition, we will offer low, medium, and high-power CW lasers to customers who wish to use their own silicon photonics. Third, we will leverage our silicon photonic technology into the data center, first for 400G, DR1, and DR4, where today we have limited exposure. Our initial product launches will be photonic ICs. Fourth, we will continue to look for ways to gain market share and we seek new applications inside the data center. As an example, we see customers considering use of copper cables in very, very short-reach applications, which might be a new opportunity for MACOM. And last, we will continue to ramp production on our existing 100G PAM4 DSP, which is targeting DR1 applications. We believe our lead customer will continue to increase production volumes over the next few years. Aside from that program, we will pursue new opportunities to gain market share with our existing PRISM DSP. In summary, given our unique technology portfolio and design capability, we believe we have tremendous growth opportunities inside and around the data center. Jack will now provide a more detailed review of our financial results. Thank you, Steve.