MACOM Technology Solutions Holdings, Inc.

Welcome to MACOM's second fiscal quarter 2022 conference call. This call is being recorded today, Thursday, April 28, 2022. 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 Investment Relations. Mr. Ferranti, please go ahead.

Thank you, Lydia. Good morning. Good morning. and welcome to our call to discuss MACOM's financial results for the second 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 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 it over to call 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 fiscal Q2 results. When Jack is finished, I will provide revenue and earnings guidance for fiscal Q3, and then we will be happy to take some questions. Revenue for the second quarter was $165.1 million in adjusted EPS with 68 cents per diluted share. We continue to improve the quality of our earnings as both gross and operating margins increased sequentially. We also generated strong cash flow, ending the quarter with over $500 million in cash in short-term investments, which is a record level. Our financial performance reflects the numerous improvements that we have made across many aspects of the business. Overall demand for our products continues to increase. Our book-to-bill ratio for the quarter was 1.2 to 1, representing the sixth consecutive quarter above 1. Our backlog is, again, at record levels, which is helpful as we plan the remainder of fiscal 2022. We believe that the strong Q2 bookings reflects market share gains, market traction from our new products, as well as long lead orders, which are being placed well ahead of the required ship dates. Our turns business was up slightly to approximately 19% of our total revenue during the quarter. The business metrics for our new products shows favorable performance. In aggregate, as a percentage of total revenue, products less than three years old are contributing more to revenue today than in the past and with gross margins that are higher than our current corporate average. These trends are in line with our strategy to build a diversified and highly profitable product portfolio. Our team continues to work effectively to accelerate product and technology developments. To meet our future goals, we are investing in new HR programs and benefits for our existing employees, as well as expanding our workforce with additional design, operations, and sales staff. I am pleased with how our team has been performing, and with the amazing new talent we are attracting to the company across all functions of our organization. Revenue breakdown by end market for Q2 was as follows. Industrial and defense was 67.1 million. Telecom was 62.9 million. And data center was 35.1 million. Data center and telecom revenues achieved strong double-digit sequential growth which was offset by a decline in IND revenues due to timing of shipments. Additionally, we expect our top line growth in the second half to be slightly higher than in the first half of our fiscal year. Now moving to our three end markets. The industrial and defense markets have been a focus area for MACOM because we believe these markets have the potential for significant revenue growth over the next few years. Customers in these markets typically produce products with long life cycles, which can create an annuity-like revenue stream for MACOM. In part, our strategy is focused around strengthening and expanding our high-performance product portfolio to better address the highest frequency, highest power, and highest data rate opportunities across these markets. IND customers are performance-driven, and they look to adopt new technologies. we will engage this market with our proprietary semiconductor technologies, our IC design capability, and our growing subsystem design capabilities. Our continued focus on this market is uncovering numerous large opportunities in which our technology is a perfect match for the customer's needs. We see opportunities with our new 0.14 micron Ghana silicon carbide MIMIC process, our pure carbide high power amplifiers, our analog and mixed signal ICs, and our specialty optical and RF subsystem products. Our new products are creating a growing pipeline of meaningful opportunities involving a variety of ground, airborne, and ship-based programs, including radar, electronic warfare, avionics, and microwave communication applications. And I am pleased that we are now engaged with some of our largest customers in to insert optical connectivity technology in their applications. I'll note, we maintain a long-term perspective in this market because most defense programs take a long time to transition to production. However, the programs have long life cycles, and we are able to stack up multiple programs with high dollar content, which makes the financial returns compelling. I am pleased to announce that in Q2, we were awarded a multimillion dollar two year development contract to produce a 45 kilowatt transmitter utilizing our gallium nitride amplifier and phased array antenna technology. This government contract with the Navy validates that our GAN amplifier and phased array technologies are best in class. Congratulations to the CAPTURE team for this award. Our telecom and market revenue increased sequentially in Q2, following a strong Q1. We continue to experience broad strength in demand across various telecom applications, including 5G, metro long haul, broadband access, and broadcast video. As a reminder, telecom is a very broad and diverse end market for MACOM, spanning numerous communication protocols, network architectures, and topologies. Today, we are only delivering a fraction of the overall opportunity for this market. Our primary long-term growth drivers across these market opportunities will be new product introductions. As an example, we recently announced availability of our 128 gigabaud transimpedance amplifiers and modulator drivers for coherent networking applications. These new products improve upon MACOM's already strong competitive position in these markets by supporting long-haul, metropolitan, and data center interconnect, or DCI, applications. This new product family includes high bandwidth, low noise, and low power consumption dual channel and quad channel TIAs and quad channel drivers that are designed to enable coherent transmit and receive systems that operate from 800 gigabits to 1.6 terabits per second. Additionally, Over the last several quarters, we have been gaining traction with 5G OEMs and O-RAN equipment manufacturers for our RF portfolio of front-end modules, high-power switches, and amplifiers. A number of our customers have recently moved programs to low-rate initial production using our power amplifier products. Here, we are providing 100-watt, 220-watt, and 450-watt peak power GaN on silicon carbide amplifiers for small cell and macro base stations for both U.S. and international deployments. The base station power amplifier market is large and comprised of numerous opportunities spanning different customers, frequencies, and power levels. We are just beginning to penetrate this market. Demand for our LightWave products for telecom and access application also continues to grow, especially for our 25G DFB lasers. We have multiple 5G front-haul customers in low-rate production with our lasers, primarily for CWDM6 modulation schemes. Our expectation is that production volumes will increase over the next 6 to 12 months. Finally, our data center and market revenue was up in Q2 based on incremental demand from our high-performance analog solutions, which include CDRs, TIAs, and driver products. In March, we attended the 2022 Optical Fiber Conference, or OFC, in San Diego, where we had more than 10 product demonstrations to showcase our latest products. For example, one of the demos included a single chip laser array with eight CW lasers, each operating at different wavelengths. The laser array utilized MACOM's etched facet technology and is ideal for co-packaged optics. This laser array was developed to work alongside one of our customers' chipsets to enable connectivity at speeds as high as 2 terabits, making it ideal for AI or high-speed chip-to-chip connectivity. MACOM is currently engaged with several customers to enable data center interconnect requirements at 800G and 1.6 terabits with our next-generation linear driver and TIAs. In some instances, we will support a linear interface architecture, also known as direct drive, to optimize performance of the entire signal path from host switch ASIC to the optical interface. One of the first expected deployments will be for applications addressing deep learning and AI for high-performance computing utilizing low-latency InfiniBand networks. And last, Macom is pleased with the customer interest level in our recently introduced linear equalizers, and we see growth opportunities in active copper table applications at both 200G and 400G data rates for high-performance computing platforms. The foundation of our growth strategy revolves around introducing new product lines, new technologies, and raising the bar on semiconductor performance in areas where we choose to compete. We often use trade shows as a venue for product announcements and for our teams to drive deadlines associated with these events. IMS, or International Microwave Symposium, which supports the RF and microwave industry, is less than two months away. During this event, we plan to unveil some of our latest products, technologies, and product lines. At this year's event, we plan to demonstrate our highest power level amplifier, a GaN power amplifier which delivers 4.5 kilowatts of RF power, almost 1.7 times higher than our 2.6 kilowatt device we introduced last year. Our first 8 watt and 10 watt 5G massive MIMO GaN on sick power amplifier modules, or PAMPs, which include driver stage, CMOS power management ICs, and a Doherty output stage. We'll introduce the first GaN MIMIC products from our internal AFRL 0.14 micron GAN on silicon carbide process, specifically a 10 watt KA band mimic chip. We will also introduce our first wave guide package products, specifically an E band power amplifier module, which combines 16 of our 80 gigahertz mimics using a novel wave guide combiner. And last, while we've been utilizing SOI technology in our 5G RF modules for some time, we are launching our first SLI standard product, a DC to 67 gigahertz switch, for test and measurement and IND customers. Perhaps most notably at IMS, we plan to demonstrate our first BAW, or bulk acoustic wave, product. BAW technology is a passive silicon crystal filter technology used in most handset and wireless applications to filter unwanted signals. We are not targeting commercial wireless applications or consumer electronic markets, but rather high performance industrial and defense electronics. In addition, our team plans to implement novel semiconductor processing techniques to push the frequency performance of BAU technology. Today's BAU technology is limited to about six gigahertz, and we plan to push our technology through 15 gigahertz. IND customers have a growing need to filter out high frequency signals in their microwave systems. Our goal is to enable solutions with filters based on our proprietary semiconductor processing techniques. At IMS, our chip-scale packaged BOP product will be showcased in two applications, a two-channel switch filter bank and alongside a MACOM comb generator to select the desired frequency. It is difficult to estimate the size of this market, but we conservatively estimate the opportunity exceeds 100 million, and we believe customers will be willing to pay a premium for our technology. Before Jack reviews our financials, I would like to highlight that in March, we celebrated our 10th anniversary as a public company. Today, Macon is recognized as a trusted partner, and I congratulate our entire team for their hard work and significant contributions to both our customers and the industries we serve. To mark the anniversary, our marketing team updated and launched a new website with a modern look and feel which better organizes information and improves product navigation so our customers can quickly find the information they need. In summary, we have many compelling new processes underway, world-class IC designers, and unique manufacturing and packaging capabilities. I am confident we can continue to push the boundaries of semiconductor engineering. Jack will now provide a more detailed review of our financial results. Thank you, Steve, and good morning to everyone.