MACOM Technology Solutions Holdings, Inc.

Welcome to MECOM's first fiscal quarter 2025 conference call. This call is being recorded today, Thursday, February 6, 2025. At this time, all participants are in a listen-only mode. I will now send a call to Mr. Steve Ferranti, MECOM's Vice President of Corporate Development and Investor Relations. Mr. Ferranti, please go ahead.

Thank you, Olivia. Good morning, and welcome to our call to discuss MECOM's financial results for the first fiscal quarter of 2025. I'd 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. And with that, I'll turn over the call to Steve Daley, President and CEO of Macon.

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 review our Q1 results for fiscal year 2025. When Jack is finished, I will provide revenue and earnings guidance for the second quarter of fiscal 25, and then we will be happy to take some questions. Revenue for the first quarter of fiscal 2025 was $218 million, and adjusted EPS was 79 cents per delivered share. We continue to execute our strategy, and we are pleased with our Q1 cash flow and increased earnings. Free cash flow for Q1 was approximately $63 million. At quarter end, we held approximately $657 million in cash in short-term investments on our balance sheet. Overall, Q1 was a great way to start our fiscal 2025. Revenues by end market were as follows. Industrial and defense was $97.4 million. Data center was $65.3 million. and telecom was $55.4 million. Data Center was up 16% sequentially, telecom was up 7% sequentially, and IND was up 5% sequentially. I'll note that both our IND and Data Center quarterly revenues were at record levels. Our Q1 book-to-bill ratio was 1.1 to 1, and new order activity was strong in certain areas of our business. While our backlog is at record levels, we do see pockets of both strength and weaknesses across our customer base. Our turns business, or orders booked and shipped within the quarter, was approximately 23% of total revenue. MACOM serves three large and diverse end markets, some of which have strong secular growth drivers. Our targeted end markets collectively represent approximately $7 to $8 billion serviceable addressable market, or SAM. Today, we have a small fraction of the market, and we continue to deploy a variety of strategies to gain market share. We intend to capture market share by leveraging our advanced IC design in semiconductor technologies, by expanding our portfolio with compelling new products, and by launching new product lines. all while focusing our investments in areas where our product performance will be a differentiator. Now turning to our three end markets. IND revenue is approaching $100 million per quarter, driven largely by growth in our defense business. The defense market is evolving rapidly in response to changes and new threats seen on the battlefield due to recent technology advancements. We are seeing an uptick in the design of novel and innovative radar and EW systems, many of which have increased RF and microwave semiconductor content. In some cases, these systems are being designed by new and well-funded defense startups with innovative technology and business models. MACOM plays an enabling role in the defense market, providing technology solutions to Tier 1 defense primes Tier 2 subsystem suppliers, and a long list of medium and small customers that service the industry. Most opportunities we address trend towards higher frequencies, higher power levels, wider bandwidths, and higher levels of integration, all of which plays to MACOM's strengths. In some cases, customers are focused on high-volume applications where they're looking for partners that can deliver complete system solutions and domestic manufacturing scale while meeting aggressive cost targets. The increased use of UAVs and low-cost drones has created a growing and urgent need for upgrades to legacy airborne and ground-based radar platforms, along with entirely new electronic warfare platforms to detect, identify, track, and eliminate threats. In addition, the DoD's need for ubiquitous anytime, anywhere access to high-speed broadband connectivity is driving new investments in DoD satellite programs. And finally, newer avionics, radar, and EW platforms are increasingly adopting analog and digital optical links to adapt to greater data transport requirements. Our strategy to service defense customers is built upon a few key differentiators. First, MACOM's industry-leading gallium arsenide and gallium nitride capabilities spanning both our RF power and MIMIC product portfolios. As an example of complexity, MACOM's products utilize nearly a dozen unique GaN semiconductor processes, which allow us to address a wide range of applications and technical requirements. And we now have design teams that specialize in both narrowband and wideband use cases for radar, EW, secure communications, and signal intelligence. Second, MACOM has broad expertise and comprehensive product portfolio for hardened optical solutions, including RF over fiber subsystems. RF over fiber utilizes linear photonics to transmit a radio signal directly over fiber without the need for digital conversion. The result is higher bandwidth, longer transmission distances, lower signal loss, and better immunity to interferences versus traditional coax cable. These solutions are typically used in phased array radar, remote antenna, and towed decoyed applications. RF over fiber can replace copper coax cable or high-speed digital cables. Third, MACOM has leading RF diode technologies, which are ideal for receiver protection, high-power switching, comb generators, and tunable filter applications. In some of these areas, MACOM is regarded as the gold standard in the industry. for performance and quality. Many customers within the A&D markets have been using Macom diodes in their platforms for decades. And the final differentiator is Macom's growing microwave system engineering capabilities. We've spent the last few years building our system engineering and applications engineering team with industry-leading veterans and technology experts across our core area of expertise. This team has enabled us to engage much earlier in our customer's project design cycles to present the full scope of MACOM's capabilities to help solve the customer's technical challenges. With the combination of our technology portfolio, along with our growing ability to support higher level system design, we are increasingly viewed as a partner of choice for many of our defense and space customers. To extend our reach and to gain market share, we plan to add new technologies to our portfolio in calendar 2025. We plan to announce two new product lines at upcoming trade shows in March and June in just a few months time. Additionally, we have an amazing pipeline of high performance products coming to market this year for our defense and space customers. Within the telecom market, there are also multiple areas where Macom's technology shines. Macom has a comprehensive portfolio of GaN on silicon carbide solutions for 5G applications. 5G base stations require medium and high power amplifiers, and this provides us a great growth opportunity. Our products use unique device structures, proprietary circuit architectures, and high performance packaging solutions. We believe that we are gaining market share in the macro base station segment of 5G, driven by the need for higher power multiband radios, where MACOM's products offer unique advantages over our competition. That said, we are not complacent, and we are developing new epitaxial solutions to improve our product's competitiveness and performance, especially for massive MIMO applications. Second, we have established a broad portfolio of products for low Earth orbit, or LEO, satellite-based broadband, and direct-to-cell applications. MACOM provides semiconductor and module solutions for satellite-to-satellite links, as well as satellite-to-ground links utilizing technology from our HPC, Diode, MIMIC, RF Power, LightWave, and Linearizer product lines. As an example, our Linear Modules and Subsystems team, or LMS, specializes in designing products and solutions that overcome non-linearity of RF, microwave, and millimeter wave signal transmission for space-based communication systems. In some cases, SATCOM links required linearization to boost the power efficiency and improve the quality of the connection. This team can leverage our European Space Agency space-qualified processes from our MACOM European Semiconductor Center when designing very high-frequency linearizers, SSPAs, or frequency converters. We also have a team that specializes in state-of-the-art linear photonic components and optical modules and systems for use in free space optics and ground system distribution networks. Other segments within the telecom market we focus on is front-haul, 132 gigabaud coherent systems and metro and long-haul deployments, pond, and cable infrastructure. We leverage the strength of our high-speed IC portfolio and our photonic products from our LightWave portfolio to address these markets. Our data center market revenue is on pace to have another strong growth year. There are favorable secular growth trends driven by cloud service providers accelerating capital expenditure to deploy next-generation data center architectures. Our broad-based expertise and high-speed signal integrity allows us to support the industry with our existing products. More importantly, we have aligned our product roadmaps with our customers' needs to deliver the right technology at the right time. We can differentiate in this market based on our IC and system design expertise, as well as our unique photonic materials and product expertise. Today, we are servicing customers with products that support from 100G to 1.6T applications. Our 100G per lane products support 400 and 800G systems And our 200G per lane products support 800G and 1.6T systems. As we look ahead, we are focused on designing 400G per lane products, which will eventually support 3.2T connectivity. Our ability to stay on the leading edge while supporting multiple generations of products across a wide customer base is a key differentiating factor. And as a reminder, our products support both retimed and linear PAMFOR architectures as well as non-DSP solutions using linear pluggable optics or LPO. Regardless of the technology or architectures selected by our customers, we lean in and we support them with best-in-class engineering and application support. We assist our customers whether they're designing active copper cables, pluggable modules, and active optical cables using DSPs or no DSPs. We also support customers that utilize silicon photonics in co-packaged optics or near-packaged optics. Our products for 400G and 800G, ZR and ZR Plus Coherent, are also well positioned within the market to support future growth. And finally, as we look ahead, we see new applications emerging with disaggregated computing, such as PCI-6 and PCI-7. In summary, our strategy is to build a unique, best-in-class, and diversified semiconductor portfolio that will enable MACOM to capture a larger share of the three markets we focus on. Our agility helps us address opportunities and ultimately beat our competitors that are often larger and have more resources. Before I pass the conversation to Jack, I would like to review two recent press releases. On January 14th, we issued a detailed press release summarizing our long-term wafer fab capital investment plan and the associated CHIPS Act and state funding. Our investment plan has two major tenets, which we believe will make Macom a more competitive company over the long term. First, we have plans to modernize our Lowell, Massachusetts fab and expand its technology base with advanced node GAN on silicon carbide. And second, we plan to expand the manufacturing capacity and capabilities at our North Carolina FAB. To enable faster execution of our strategy, we will seek to take advantage of the grants and tax benefits offered by federal and state programs. As of today, MACOM has only signed a non-binding preliminary memorandum of terms, or PMT, with the CHIPS program office. Over the coming weeks and months, we expect to finalize the terms of the definitive agreement. In the near term, there will be minimal or no impact to our P&L. In second, on February 5th, we issued a press release announcing that MACOM's European Semiconductor Center, or MESC, was awarded a mimic development project funded by the French government within the framework of the France 2030 program. We look forward to collaborating with our private and public sector partners to execute this exciting program. This award symbolizes recognition of our MESC team and facility as a supplier and partner to the French industrial base. It potentially opens the door for MESC to collaborate on larger French and European Union technology development and capital investment programs. Jack will now provide a more detailed review of our financial results.