MACOM Technology Solutions Holdings, Inc.

Welcome to MACOM's fourth fiscal quarter 2022 conference call. This call is being recorded today, Thursday, November 3rd, 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 investor relations. Mr. Ferranti, please go ahead.

Thank you, Livia. Good morning, and welcome to our call to discuss MACOM's financial results for the fourth 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 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 8-K, 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, and good morning.

I will begin today's call with a general company update. After that, Jack Kober, our Chief Financial Officer, We'll provide a more in-depth review of our fourth quarter and full year results for fiscal 2022. When Jack is finished, I will provide revenue and earnings guidance for the first fiscal quarter of 2023, and then we will be happy to take some questions. We finished our fiscal year with a solid financial performance. Revenue for Q4 was $178.1 million, and adjusted EPS was 77 cents per diluted share. For the full fiscal year ending September 30, 2022, revenue was $675 million and adjusted EPS was $2.82 per diluted share. This represents 11% year-over-year revenue growth and over 30% year-over-year growth in adjusted earnings per share. These results demonstrate the strength and leverage in our business models. Over the past four quarters, we have incrementally improved our gross margins in operating profits, resulting in improved cash flow. We finished the fiscal year with $587 million in cash in short-term investments on our balance sheet. FY22 was also a strong year for new product development, with our R&D teams launching nearly 150 new products, an increase of approximately 15% year-over-year. We believe many of these products will enable market share gains and support our near and long-term growth targets. There is a high level of excitement at MACOM because we have many new projects underway, a growing team of world-class IC designers, and unique manufacturing and packaging capabilities. We will continue to expand and build upon these competitive advantages in fiscal year 2023. In Q4, our book-to-bill ratio was 1.0 to 1, and our turns business was approximately 10% of total revenue. For the full fiscal year, our book-to-bill was 1.1 to 1. Our backlog remains at near record levels entering fiscal 2023, providing us with a strong position to achieve our growth goals for the upcoming year. To provide some additional context, over the last three years, our backlog is up 2.5 times, translating to a 36% CAGR. We believe our backlog growth over this timeframe is reflective of the market strength as well as Macom's market share gains due to new product adoption. However, to be clear, we do not believe our business will be immune from a global recession or market slowdown. In fact, recently, we have seen softness in order flow, and as a result, we are being cautious and believe our book-to-bill ratio could be at or below one this quarter. Despite this, we are optimistic about our prospects for fiscal year 2023 and beyond. More and more customers are viewing Macom as a strategic supplier of high-performance analog, RF, microwave, and lightweight semiconductor solutions. And we believe this is directly attributable to our strengthening product portfolio. Additionally, we see a tremendous opportunity to better address our $5 to $6 billion serviceable addressable market, or SAM, by continuing to expand our product lines and portfolio. As a reminder, we maintain a diverse revenue base with little to no consumer exposure, which we believe is a strength and a business advantage for the company. Our diversification spans product lines, customers, and end markets. In FY22, Our top 10 end customers represented 31% of our total revenue. We had no direct customers greater than 10% of revenue, and for the full year, no single product generated more than 2% of our total revenue. Turning to our end markets, fiscal Q4 revenue was generally as expected, with industrial and defense at 78.5 million, telecom at 62 million, and data center at $37.6 million. For the full fiscal year 2022, data center was flat, IMD was up 5%, and telecom was up 29%. Looking at the details for each end market, our industrial and defense end market performed well during Q4 and for the full fiscal year. Our goal is to sell all of our technologies into the IMD markets. is our business development and sales teams continue to find large opportunities to leverage our optical capabilities, RF subsystems and modules, GAN power transistors and mimics, KV caps, and filter technologies across a wide variety of ground, airborne, and ship-based programs. As an example, one of our U.S. defense customers has recently been awarded a large multi-year contract to manufacture and deliver tactical radios to the U.S. government. In fiscal 2023, our LOLFAB will support this production program with our unique technologies and customized seas. Defense customer requirements often push the limits of semiconductor performance because they're building systems at extreme frequencies, high data rates, and high RF or microwave transmit power levels. and these challenging requirements align perfectly with MACOM's core competencies. Our strategy is to further leverage these same technologies into the industrial markets to support test and measurement, medical, automation, commercial radars, and new automotive opportunities. Our telecom and market revenue was flat in Q4. During the quarter, softness in 5G was largely offset by strength in the broadband access segment. For the year, telecom had a very strong growth performance, growing 29% in FY22. The drive for higher data rates and faster connections across subsegments like 5G wireless, metro long haul, PON, hybrid fiber coax, SATCOM, and microwave networks plays directly into MACOM's strengths. Our exceptional growth in telecom in FY22 was broad-based and driven by these strong end-market dynamics. coupled with new product introductions and market share gains. Our data center and market revenue was up in Q4, but flat overall for FY22. As a reminder, our data center product portfolio includes our high-performance analog, or HPA, drivers and transimpedance amplifiers, or TIAs, for NRZ and PAM4, coherent drivers and TIAs for ZR, cross-point switch products, and legacy OTN mappers and framers, in addition to new product offerings, including our linear equalizers, direct drive solutions, and 25G DFB and 50G CW lasers. Today, we have a strong backlog in place for our cross-point switch solutions and OTN products, noting that these orders were impacted by supply constraints for the majority of FY22. In many cases, we are the sole source supplier for these products. Over the course of FY23, we expect new products to be the primary drivers for data center growth. For example, our sales and marketing efforts for our new 25G DFB lasers and 50G CW lasers is just beginning. Our linear equalizer products have started ramping during FY22 and will continue this year in support of high data rate applications, including backplane and active copper cables. We are also beginning to see the proliferation of coherent optics in the access market with low-cost, tunable 100G solutions. All of these products represent incremental growth drivers of Macom's business. As we have discussed in prior calls, today we engage selectively within the data center market, focusing on areas where we can leverage Macom's competitive advantage in technology portfolio, including high-performance analog ICs in optical semiconductors such as lasers and photo detectors. We are a small but broad-based supplier into the data center market. We will continue to pursue this targeted engagement strategy, and increasingly, we will focus on finding attractive new opportunities outside the data center, leveraging the same design resources and technologies. We had many engineering accomplishments in fiscal 2022, And I would like to recap a few of these today. We opened two new design centers located in Seoul, Korea, in Western Massachusetts, and staffed them with industry-leading talent. Our 0.14 GAN on silicon carbide MIMIC process is on schedule to be qualified and released to production at the beginning of next quarter. Our fab and device engineering teams have done remarkable work to meet schedule and to achieve these results. and we know our customers are waiting for the first wave of product introductions. Our HPA team launched Macom's PureDrive product line, comprising of linear drivers and transimpedance amplifiers that target single-mode and multi-mode 400G PAM4 architectures. This innovative chipset has been designed to support broad dynamic ranges, linear equalization, and low-noise amplification to enable direct connection to switch and server ASICs. Working together, these linear links can support leading-edge throughput while, at the same time, enable specialized functionality for each component in the data path such that power, cost, and latency can be minimized. We believe this is disruptive technology as it can eliminate the need for a DSP in certain applications. Our DIODES teams completed an important product qualification for a key automotive customer. We expect more design wins from this and other automotive customers in 2023, now that our Lowell Fab is automotive TS16949 certified. We continue to push the boundaries of compound semiconductor performance in high power RF applications. We expanded our Maycom pure carbide power amplifier product portfolio to include a seven kilowatt power amplifier, which we believe is the highest power part in the industry. The 7-kilowatt product is ideal for high-power and high-voltage aerospace and defense applications, including EMP, radar, and electronic warfare systems. This extremely high power level was achieved by combining novel high-voltage circuits apologies with advanced packaging materials for improved thermal management. Our LightWave team transitioned several customers from qualification status to production status on both photodetectors and 25G lasers. We have slow but steady market penetration. And notably, our LightWave engineering team's first measured results on our 100G EML products looks compelling. And last, we expanded our RF subsystems and module design capabilities for IND applications. Here, we will leverage our engineering expertise to provide customers with unique subsystem solutions based on MACOM's proprietary semiconductors. As we focus on fiscal year 2023, our priorities include taking market share in gallium arsenide and gallium GAN on silicon carbide mimics, diversifying our high performance analog IC business, maintaining our leadership position in coherent IC solutions for telecom and data center markets, continuing to gain content and market share in 10G XGS PON and other broadband access solutions for North American and European fiber-to-the-home markets and upgrade cycles, continuing to expand our RF and microwave module and subsystems capabilities and win more amplifier and microwave assembly business, executing on recently awarded radar development programs, strengthening our competitive advantage by introducing new products based on MACOM's proprietary semiconductor processes, working with federal, state, and local authorities on securing CHIPS Act funding to grow capabilities in our business, further optimizing the efficiency of our operations to improve profitability and cash flow, and continuing to develop our employees' careers so that they can grow with the company, as well as enhance our entire organization with attracting industry-leading talent. A central theme for fiscal year 23 is to move quickly and capture market share. In summary, MACOM has a wide range of products in production today, spanning dozens of different product lines, servicing thousands of customers. Many of these products have long life cycles and produce revenues for years after they've been introduced. We view this diversity of technology, products, and end market applications as an inherent strength of the company, helping to provide a broad and stable revenue base. Jack will now provide a more detailed review of our financial results.