MACOM Technology Solutions Holdings, Inc.

Welcome to MACOM's Fourth Fiscal Quarter 2021 Conference Call. This call is being recorded today, Thursday, November 4th, 2021. At this time, all participants are on a listen-only mode. I will now turn the call to Mr. Steve Ferranti, MACOM's Vice President of Strategic Initiatives and Investor Relations. Mr. Ferranti, please go ahead.

Thank you, Livia. Good morning, and welcome to our call to discuss MACOM's fourth fiscal quarter and fiscal year 2021 financial results. 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 and related Form 8K, which was filed with the SEC today. With that, I'll turn over the call to Steve Daley, President and CEO of MACOM.

Thank you, Steve, 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 fourth quarter and full year results for fiscal 2021. When Jack is finished, I will provide revenue and earnings guidance for the first fiscal quarter of 2022, and then we will be happy to take some questions. Our fourth fiscal quarter financial results represent continued improvements in overall performance. Revenue for Q4 was $155.2 million, and adjusted EPS was $0.61 per diluted share. Notably, we exceeded 30% adjusted operating margin, which is an important milestone for the MACOM team. With another quarter of strong cash flow, we ended our fiscal year with $345 million in cash in short-term investments on our balance sheet. For the full fiscal year ending October 1, 2021, revenue was $607 million and adjusted EPS was $2.15 per diluted share. We are pleased to report 14.5% year-over-year revenue growth and 126% year-over-year earnings growth. Our financial results this year would not have been possible without the hard work and dedication of all our employees. In spite of certain supply chain challenges and COVID-19 headwinds, we met our internal corporate goals, our new product development schedules, and our revenue and earnings targets. I would like to thank the entire team for their extraordinary efforts and commitment. MACOM is fortunate to have such a hardworking and dedicated management team and employees. Our Q4 in full-year book-to-bill ratio was 1.2 to 1, and our terms business was approximately 13% of total revenue. We believe that the strong Q4 bookings reflect market share gains, a few large long-term IND orders, which will ship over multiple quarters, as well as orders being placed by customers one or two quarters ahead of required ship dates due to longer-than-normal manufacturing cycle times. Our strong bookings over the course of FY21 allows us to start FY22 with a higher than typical backlog. We continue to manage various supply-related interruptions and challenges due to COVID-19 and production capacity limitations with certain semiconductor, package, and substrate technologies. Our operations, planning, and logistics teams have done an excellent job managing through these industry dynamics and they are working around the clock to meet customer commitments. Fiscal Q4 revenue by end market was generally as expected, with industrial and defense at 75.1 million, telecom at 46.6 million, and data center at 33.5 million. IND was up 5% sequentially, telecom was down 3% sequentially, and data center was up around 1% sequentially. For fiscal year 2021, IND was up 44%, data center up 10%, and telecom down 10%. In FY21, our top 10 end customers represented 26.5% of our total revenue, and our revenue concentration on any one product was less than 1.6% of our total revenue. We maintain a diversified technology portfolio as well as a very diversified customer base with thousands of customers. Our industrial and defense end market performed well during fiscal Q4 and for the 2021 fiscal year. Our success in this end market is the result of the efforts that we began in 2019 within our engineering groups to revitalize our portfolio of RF and microwave products, including increasing the pace of new product introduction, expanding to fill in the gaps of our product lines, developing new innovative technologies, and reengaging major customers with a more focused sales and marketing effort. More recently, we also began ramping up efforts to cross-sell our optical and high-performance analog products to industrial and defense customers, which creates a sizable growth opportunity for us. Overall, I am pleased with the level of engagement our sales and business development teams have had at major defense OEMs over the last few quarters, involving a variety of ground, airborne, ship-based programs, including radar, electronic warfare, avionics, and RF and optical communication applications. These programs are typically long lifecycle programs, and we expect they will contribute to our growth in FY22 and beyond. Our telecom and market revenue was slightly down in Q4, primarily due to softness in the 5G market, which was offset by strong demand and broadband access in DOCSIS 3.1 cable TV infrastructure markets. MACOM has a broad CATV product portfolio, including single-ended and differential amplifiers, transformers, power dividers, combiners, couplers, and diplex filters. 5G represents a large growth opportunity for MACOM as worldwide demand for improved connectivity at higher data rates grows. In addition, we see growth opportunities in PON, CATV infrastructure, microwave radios, and SATCOM during FY22, primarily driven by strong end-market dynamics, new product introductions, and market share gains. Our data center and market revenue was essentially flat in Q4. Nevertheless, we believe data center remains a large growth opportunity for MACOM. We expect new product introductions will be the primary driver for growth for us in this market. Some examples include 25G DFB lasers and 50G CW lasers, photo detectors, laser drivers, and transimpedance amplifiers. I'll note that earlier this week, we announced a new linear equalizer product line, which will support high data rate applications, including active copper cables used inside the data center. We believe our strategy to collaborate with leading DSP chip suppliers allows MACOM to stay focused on designing and producing the industry's next generation high-speed TIAs and laser drivers. I'll note, with the ramp-up of 400G, ZR, and data center interconnects, we are seeing an increased interest in the development of coherent solutions for next-generation 800G and higher data rates for connections both between and within data centers. Coherent ZR technology typically utilizes silicon photonic optics along with a coherent DSP to transmit a quad-modulated optical signal on a single wavelength. MACOM is a leading merchant supplier of modulator drivers and linear TIAs for coherent modules, and we are currently in volume production with 32 gigabaud, 64 gigabaud, and 96 gigabaud product families. We are also beginning to see the proliferation of coherent optics into the access market with low-cost, tunable 100G solutions. As a merchant supplier, we are working with our module customers in the data center and enterprise markets to support their development of coherent optics with our existing product portfolio and our developing new products as the requirements for higher bandwidth continues to emerge across all market segments. We had many technical accomplishments in fiscal 2021, and I would like to highlight a few. First, we internally documented 43 new invention disclosures, We formally submitted 49 new patent applications to the U.S. Patent Office, and we were awarded 44 new patents. Innovation and invention is critical to our future success, and I would like to congratulate our engineering community for their excellent work in this area. Second, during the year, we introduced over 130 standard products, and we expect to grow product introductions in FY22 by an additional 35%. In addition, we had great success with our custom IC development activities, which complements the build-out of our standard product portfolio. During the year, we supported approximately 20 customer-funded major IC developments and many smaller unfunded projects. Further, I am pleased to provide a progress report on four important strategic technology developments. First, our 0.14 Ganon silicon carbide process transfer from AFRL is on plan, and our fab and device engineering teams have done remarkable work over the past 12 months. To date, we have verified the process's small signal performance, and more importantly, we have measured over 4.5 watts per millimeter at 25 volts at X-band frequencies. We believe this power density performance is extremely competitive. In the coming months, we will be optimizing the process with the goal to achieve even higher power levels. I'll note, we have recently designed a MIMIC power amplifier and processed it on both the AFRL and MACOM process, and with the exception of power levels, we have almost identical performance. During FY22, we plan to complete the installation of new backside process equipment, as well as installing atomic layer deposition, or ALD, capability for device passivations. We recognize we have a lot of work ahead. However, our engineering results to date are compelling, and we believe in time we will capture market share in the high-frequency GAN mimic market. Second, we are making excellent progress on our silicon photonics product development. As I reported last quarter, we are now working with our FAB partner on producibility and yields. Third, Our pure carbide high-power GaN amplifier product line continues to expand since its introduction over one year ago. Notably, we recently released three additional high-power products, including a 60-watt narrowband C-band product for radar and two general-purpose 15-watt broadband products operating at DC to 12 GHz and 30 MHz to 3.5 GHz. And last, as a reminder, our 1,000-volt chip capacitor product line, or KV-CAPS, is fully production released, and we are beginning to take orders and gain traction in the market. KV-CAPS are ideal for high-voltage applications where small size and reliability is critical. As we look ahead to fiscal year 2022, our priorities include further accelerating and streamlining our new product development process, gaining market share by staying focused on addressing customer needs and providing continuous engineering support, strengthening our competitive advantage by introducing new products based on MACOM's proprietary semiconductor processes, increasing our direct business with major OEMs, and further optimizing the efficiency of our operations to improve profitability and cash flows. Our organization has leaned and can move quickly to ensure we capture market share. We believe that making modest internal investments in our business can provide opportunities to achieve higher than average return on invested capital and therefore supports our goal of establishing best-in-class profitability. The risk-to-reward ratios on these internal investments can be compelling since they leverage existing assets that we already have in place. For example, we are investing in our Massachusetts and Michigan wafer fabs to modernize, develop new process technologies, improve quality, and expand capacity. We believe investments in new and existing process technologies, like 0.14 and 90 nanometer GaN on silicon carbide or high voltage capacitors, will enable differentiation across our RF and optical products. which ultimately supports our goals of very profitable growth. Related to our wafer fab investment, we are pleased to announce that our Lowell wafer fab recently achieved IATF 16949 certification for automotive quality management systems. As a reminder, this certification focuses on defect prevention, waste reduction, and supply chain management for the international automotive industry. We believe this certification will help to open new doors for us in the automotive industry. In particular, we believe our LightWave, RF and Microwave, KV Capacitor, and high-speed analog technologies are ideal for automotive applications such as sensors, LIDAR, under-the-hood power management, and autonomous driving applications. In addition to investing in our FAB facilities, we're also expanding our assembly, new product prototyping, and engineering test capabilities at some of our other facilities. For example, we anticipate that our Nashua, New Hampshire facility will expand its manufacturing operation space by 100% over the next 12 months. This facility supports a wide range of commercial and defense-related product development and production programs. In addition, we just opened a new state of the art product engineering and application lab at our Newport beach, California facility. All of these activities require strong and expanding workforces, and we have not been standing still in hiring. We are focused on expanding R and D with best in class talent. And as an example, in fiscal year 21, we hired over a dozen PhDs to join our already strong workforce. In summary, Macom has a wide range of products in production today, spanning dozens of different product lines, serving thousands of customers. Many of these products have long life cycles and produce revenue for years after they've been introduced. We view this diversity of technology, products, and market applications as an inherent strength of the company, helping to provide a broad revenue base. Jack will now provide a more detailed review of our financial results.