MACOM Technology Solutions Holdings, Inc.

Welcome to MECOM's first fiscal quarter 2022 conference call. This call is being recorded today, Thursday, January 27th, 2022. At this time, all participants sign the listen-only mode. I will now turn the call to Mr. Steve Ferranti, MECOM's Vice President of Strategic Initiatives and Investor Relations. Mr. Ferranti, please go ahead.

Thank you, Olivia. Good morning and welcome to our call to discuss NACOM's financial results for the first fiscal quarter of 2022. 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 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 discussions 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 will turn over the call to Steve Daly, 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 review our Q1 results. When Jack is finished, I will provide revenue and earnings guidance for fiscal Q2, and then we will be happy to take some questions. Q1 was a good start to our fiscal year. Revenue for the quarter was $159.6 million and adjusted EPS was 64 cents per diluted share. We made incremental progress in profitability, achieving gross margins above 61% and operating margins above 30%. Our financial performance reflects the numerous improvements that we're making across all aspects of the business. Over the last couple of years, our management team and employees have worked hard on numerous continuous improvement projects that have spanned the company. We are focused on execution, whether it involves developing and launching new products, meeting customer delivery requests, improving our operational efficiency, or improving internal business development processes, to name a few. I would like to thank all Macon employees for their continued dedication and hard work. Overall demand for our products has been increasing. Our book-to-bill ratio for the quarter was 1.1 to 1, representing the fifth consecutive quarter of a book to bill ratio being greater than one. Today's near record backlog is helpful as we plan Q2 and beyond. Similar to prior quarters, we believe that our Q1 bookings activity reflects a combination of market share gain and or long lead orders, which are being placed well ahead of required ship dates due to extended industry cycle times. Our turns business was approximately 14% of our total revenue during the quarter, which was in line with expectations. Our operations, planning, and logistics teams continue to do an excellent job managing the variety of day-to-day challenges, whether supply chain shortages of key components, temporary interruptions from offshore assembly and test, or production capacity limitations within our supply base. The team continues to outperform, which has allowed us to meet our near-term revenue goals. The revenue breakdown by end market for Q1 was as follows. Industrial and defense was 73.1 million. Telecom was 55.8 million. And data center was 30.7 million. Industrial and defense was down 2.7% sequentially. Telecom was up 20% sequentially. and data center was down 8.4% sequentially. All these figures were in line with our expectations. Our industrial and defense market, following several quarters of strong sequential growth, was down slightly in Q1. Our current backlog is strong, and we are well positioned for future growth in this market. I'll also highlight the test and measurement segment is trending up, mostly supported by standard products. The defense market is a focus for MACOM, and we believe there is a significant opportunity to expand our market share over the next few years. Today, we are working to strengthen relationships with major aerospace and defense primes, introducing them to the full scope of MACOM's capabilities and technology. We believe that this work is leading to a growing pipeline of meaningful opportunities. I would like to highlight to investors how MACOM plans to further differentiate itself in the defense markets. We will offer low-frequency but extremely high-power amplifier solutions, typically at multi-kilowatt power levels. We will support advanced high-frequency radar applications using our GaN MIMIC technology and solutions. We will introduce advanced high data rate transmitter and receiver solutions, which combine our proven optical semiconductors with advanced package technology. And lastly, we are improving our microwave system engineering design capabilities to enhance our competitiveness with microwave assemblies, which we believe will maximize the value of our semiconductor content. Our telecom and market revenue increased in Q1. As a reminder, telecom is a very broad and diverse end market for MACOM, spanning numerous network architectures and topologies. These include wireless systems, metro long-haul optical backbone deployments, fiber to the home, cable television infrastructure, broadband satellite networks, wireless backhaul, 5G wireless, and broadcast video. During Q1, we experienced broad strength across various telecom applications. Today, we believe we are only delivering on a fraction of our potential for this market, and we anticipate further expanding our portfolio to more fully address these markets. Our data center and market revenue was down in Q1, primarily driven by reduced shipments to low data rate short-reach 25G AOC applications, and 100G CWDM4 pluggable module applications. I'll note our long-term growth vectors remain intact and include supporting 100G to 800G platforms with market-leading analog CDR solutions, TIAs, and drivers. Additionally, we are also expanding our data center product offerings to now include equalizers, photo detectors, and lasers. And lastly, we are seeing growing interest in Macom's linear drive solutions, which will compete with DSPs in certain applications and interconnect architectures. Technology development and portfolio expansion to better address our 3N markets are among the key growth drivers for Macom. Our long-term growth strategy is built upon offering our customers unique products based on our compelling semiconductor process technologies, innovative analog and mixed signal designs, which will use world-class silicon semiconductor processes, and offering solutions to customers which utilize advanced packaging and proprietary subsystem designs. We envision that the end result of this strategy is the creation of unique solutions that help solve complex technical challenges for our customers while driving highly profitable growth for MAKOF. An important element of our strategy is to leverage our innovative new semiconductor technologies to expand our market opportunities. For example, we estimate the market opportunity for MACOM and high-frequency GaN mimics to be around 300 million. We expect our 0.14 micron GaN on silicon carbide mimic process will enable us to enter this market within the next 12 months. Additionally, we estimate our opportunity for high-voltage capacitors to be around 100 million. We have only recently entered the market with our new MECOM KV-CAPS. We believe that our KV-CAPS technology provides compelling advantages to our customers, and we expect to grow share over time. And lastly, over the past two and a half years, we have made significant progress bringing to market our Indian Phosphite 25G FP and DFB laser product lines. These products are early in their life cycle, and they represent a large growth opportunity for us. Our team has done a great job developing and improving our laser semiconductor processes, and we are very excited to execute our laser technology roadmap. I would now like to provide an update on some recent key activities. This month, we received an aerospace quality management systems certification for our facilities in Lowell, Massachusetts, Nashua, New Hampshire, in Arbor, Michigan, and Mooresville, North Carolina. AS9100D is an internationally recognized quality management system, or QMS, standard for aviation, space, and defense organizations. This certification demonstrates MACOM's continued commitment to ensuring the highest level of operations and production standards for aerospace customers. Last quarter, we announced the release of our new high-performance linear equalizer product line for use in backplane and data center applications that require high-speed data paths over short distances. Customer response has been very positive. Our initial products include two-channel and four-channel PAM4 equalizers running at 56 and 112 gigabits per lane, respectively. These products consume very low power and have extremely low latency. MACOM linear equalizers can double the reach of existing passive cables in short reach 200G, 400G, and 800G applications. Our wafer fab and engineering teams driving our 0.14 micron GaN on silicon carbide mimic process continues to make excellent progress. I am pleased to report that earlier this month, we achieved our power density performance goal of 6 watts per millimeter at 25 volts at X-band frequencies. We believe this power density will provide us with a competitive advantage because, simply put, our MIMIC amplifiers will be smaller in size and capable of transmitting more power than our competition. Smaller chip size also means our designers can push performance to higher frequencies. Our plan is to install new backside process equipment as well as atomic layer deposition or ALD capability. Our goal is to enter the market in late calendar 2022. Although I'm pleased we already have engaged with select customers who may want to be early adopters of our GAN. Our team is planning to attend the Optical Fiber Conference or OFC in March. ACOM has a broad portfolio of optical and high-speed analog mixed signal solutions that we will be highlighting during the conference. Demo examples include our low-power 2-chip analog PAM4 solution supporting 200G and 400G short-reach applications. We believe this chipset can provide comparable performance to DSP-based PAM4 solutions at lower cost, lower power, and lower latency for short-reach multimode applications. We will also be demoing our industry-leading transimpedance amplifiers and laser drivers supporting 400G and 800G applications. We plan to have more than 10 product demonstrations at OFC, and we look forward to announcing more details on these demos prior to the conference. We continue to strengthen our engineering and sales applications and operations teams with very talented new hires at all levels of the organization. Our highly skilled global workforce is critical for us to meet our future R&D and revenue growth objectives. Further, adding employees with different skills, experiences, and backgrounds helps to further create a diverse and inclusive workforce, which makes MAKOM stronger. Before turning it over to Jack, I would like to make a few final remarks. Our product strategy will continue to utilize both internal and external wafer foundries. Some of our product lines, like diodes, mimics, and lasers, rely on our internal process technology to provide a competitive advantage. Other product lines like CDRs, network products, and cross-point switches rely solely on our industry-leading high-speed analog and mixed-signal circuit design capabilities to differentiate. Our internal semiconductor processes combined with best-in-class analog and mixed-signal chip design capability allows us to address a wide range of applications within our target markets. In aggregate, we believe our SAM today now exceeds $5 billion, which provides us with a significant opportunity to create stockholder value. Our long-term goal is to reach $1 billion in revenue in our fiscal year 2025. Going forward, we will seek not only to maximize our revenue opportunities in the market segments I've discussed, but we will also add new market segments where we will have the ability to leverage MACOM's engineering excellence to drive growth. Jack will now provide a more detailed review of our financial results.