MACOM Technology Solutions Holdings, Inc.

Welcome to MACOM's second fiscal quarter 2025 conference call. This call is being recorded today, Thursday, May 8, 2025. At this time, all participants are in listen-only mode. I will now turn the call over to Mr. Steve Ferranti, MACOM's Vice President of Corporate Development and Investor Relations. Mr. Ferranti, please go ahead.

Thank you, Livia. Good morning, and welcome to our call today to discuss MACOM's financial results for the second fiscal quarter of 2025. I would like to remind everyone that our discussion will include 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 is 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, and good morning. I will begin today's call with the general company update. After that, Jack Kober, our Chief Financial Officer, We'll review our Q2 results for fiscal year 2025. When Jack is finished, I will provide revenue and earnings guidance for the third quarter of fiscal 25, and then we will be happy to take some questions. Revenue for the second quarter of fiscal 2025 was $235.9 million, and adjusted EPS was 85 cents per diluted share. We ended the quarter with approximately $682 million in cash in short-term investments on our balance sheet. The diversity of MACOM's end markets, product portfolio, and global customer base continues to provide us with great opportunities for growth. Revenue by end market were as follows. Industrial and defense was $98.5 million. Data center was $72.2 million. and telecom was 65.2 million. Telecom was up 18% sequentially, data center was up 11% sequentially, and IND was up 1% sequentially. Our IND and data center quarterly revenues achieved record levels. Our Q2 book to bill ratio was 1.1 to 1. Notably, this was the fifth consecutive quarter of strong bookings, and we are pleased our backlog is at a record level. Our turns business, or orders booked and shipped within the quarter, was around 20% of total revenue. We believe our growth is driven by our new products gaining market share, as well as positive secular trends in certain segments of our three major end markets. Now turning to the end markets. First, industrial and defense demand continues to grow, driven by the U.S. and international DoD system upgrades in radar, EW, and communication systems. The need for higher frequencies, higher power levels, and higher levels of integration within the defense electronics sector plays directly to MECOM's strengths and enhances our addressable opportunities. Outside of the aerospace and defense business, demand in our traditional industrial and multi-markets area, which includes automotive, factory automation, and medical, was unremarkable. Second, Telecom order trends have been improving, specifically in 5G infrastructure, broadband access, and metro long haul. The most active areas of the telecom market is our SATCOM segment, where we continue to secure design wins in ground and space-based systems, supporting broadband connectivity and direct-to-sell applications. Third, data center business is strong, continue with demand from domestic and international cloud service providers, we see an accelerated pace of new technology deployments in this market, as well as rapid shifts in demand between various platforms and production. Our data center business is on pace to have a strong growth year, although we always like to remind investors that this market is our most volatile end market. During Q2, MACOM had exhibits at two significant industry trade shows, including the Satellite 2025 Conference in Washington, D.C., and the Optical Fiber Conference, or OFC, in San Francisco, California. These large industry events were great venues to demonstrate the full breadth of our technology offerings and to introduce new product lines to our customers. So I'll take a moment to highlight some key products we displayed. At Satellite 2025, we introduced our new OptoAmp product line. Our flagship product is capable of producing up to 40 watts of optical power. Our opto-amp is an all-optical amplifier and has been developed to support free space optic applications, including satellite-to-satellite links and gateways-to-satellite links. This new product line leverages MACOM's command and experience with optical amplification, our knowledge and relationships in the space and SATCOM industry, as well as our RF over fiber, photonics, and material science expertise. OptoAmp utilizes advanced materials like erbium and terbium to achieve high output power and efficiencies. Because of our engineering capabilities and manufacturing scale, I believe this new product line can rapidly gain market share over the next few years. At OFC, MACOM had a total of 17 product and technology demonstrations. One of the major themes at OFC was the maturity of the linear pluggable optics or LPO ecosystem. MACOM's booth featured a full ecosystem demonstrating at 100 gig per lane consisting of switches from two different vendors, three different servers, and 400 and 800 G modules from 12 different module vendors. The multimode and single mode fiber optic link demonstrations ran seamlessly during the show. with bit error rates well below required thresholds. One of the applications for LPO that appears to be gaining traction is server-to-switch links at 100G and 200G per lane. These high-volume short-reach links, which typically involve active optical cables, require very low power consumption. We also unveiled our chip-stacked TIA and photo detector for 800G and 1.6T applications. This solution utilizes four of MACOM's new 200G photo detectors, which are die-stacked onto a MACOM 800G transimpedance amplifier. This solution leverages MACOM's expertise in high-speed signal integrity, ICs, photonics, system design, and advanced packaging. As we have just passed the midpoint of our fiscal year, I would like to update and remind everyone of our long-term strategy. Simply put, we are focused on designing semiconductor-based products and platforms to support the highest power, highest frequency, and highest data rate applications within our three core markets. We estimate our SAM is approximately $7 to $8 billion. I'll take a moment to discuss a few fundamental themes of our strategy. First, highest power. Our strategy is to build a best-in-class semiconductor portfolio that will enable commercial and defense systems to operate at the highest possible RF and microwave power levels. Our portfolio is underpinned by an array of leading proprietary 3-5 semiconductor process technologies, and we continue to focus on innovation in these areas. Differentiated semiconductor process performance is a critical factor in our product's competitive advantage, and therefore, advanced process development is an important part of our strategic plan. Today's development efforts may not impact our revenue for three or four years, but they are the lifeblood of the future growth of the company. When we think about high power, we don't just think about amplifiers, but a wide range of products like control products, kilovolt capacitors, 50-watt to 7-kilowatt transistors, filters, power combiners, TWT linearizers, and receiver protector limiters, just to mention a few. And as I just discussed, we have added high-power optical amplifiers to the portfolio, which will be a new growth vector for us. As we focus on future requirements for commercial systems, I'll also highlight that our team is making great progress on the development of our fourth-generation GaN on silicon carbide RF power process, also known as GaN4. We expect this new process will ensure MACOM's next-generation cellular infrastructure products support customers' demands of higher power, better efficiency, and improved linearity. Second is highest frequency. Our strategy is to develop differentiating gas and GaN high-frequency processes to support our core three markets. As a reminder, in 2021, we announced a Cooperative Research Development Agreement, or CRADA, with the Air Force Research Labs on the topic of millimeter wave GaN on silicon carbide. This CRADA led to the release of our first-generation 140-nanometer GAN process, which is in production. Since then, we have been awarded numerous government contracts to support development of advanced millimeter wave GAN. This work has been underpinned by a recently signed second CRADA with the Air Force Research Labs, which focuses on sub-100-nanometer GAN technology. Associated with these efforts, we recently completed the installation of a new molecular beam epitaxy, or MBE, reactor at our Lowell wafer fab that gives us the ability to perform advanced semiconductor processing steps, including developing new ways to reduce ohmic contact resistance. A lower resistance equates to higher frequency operation, higher gain, and higher power efficiencies, especially at sub-140 nanometer gate lengths. The reactor is installed and operational, and our team is already developing proprietary processes to create industry-leading OMIC contact performance. I'll note the reactor will also be used on other product lines besides GAN, including X-band BAW filter technology, which is currently in development. Installing and qualifying the MBE is a major undertaking, and our fab, equipment, and technology teams have done a great job executing this project on time, and in budget. These U.S.-based activities are complemented with efforts to expand our presence in Europe at MACOM's European Semiconductor Center, or MESC, which has expertise in epigrowth, compound semiconductor wafer processing, and IC design. MESC offers leading-edge, high-performance hemp and HBT processes in gallium arsenide as well as gallium nitride. ideal for microwave and millimeter wave applications. We are seeing an increase in customer adoption of MESC's core products and technologies, and we are gaining market share across Europe and the U.S. Customers are pleased to see MACOM revitalize and scale MESC's capabilities. Our efforts to transfer the current processes from 3-inch to 6-inch production tooling are on plan and should be completed within the next few quarters. Once the transfers are complete, we will initiate an exciting technology development roadmap with the goal of becoming Europe's leading 3-5 foundry for gas and gas and silicon carbide. In parallel, we expect to expand our European engineering and hybrid manufacturing capabilities to support a wide range of growing European industries. Third is high performance connectivity. Our strategy in high-performance connectivity revolves around high-speed data transfer over copper and optical fiber. While we often say our solutions are analog-based, in fact, many of our ICs contain significant proprietary mixed signal and digital IP to support complex functionality and performance modes as required by the applications. Our growing team of analog, mixed signal, and digital IC designers have a rich history of advanced circuit design and innovation. Our strategy is to focus on customers building systems for data center and telecom optical networking, emulation and prototyping, broadcast video, and semiconductor testing. In addition, we look to diversify our product portfolio and customer base. We are fluent in NRZ, PAM4, and coherent modulation schemes, and multiple protocols, including Ethernet, fiber channel, InfiniBand, and PCIE, as well as multiple automotive and industrial standards. For the data center, we focus on using advanced high-performance silicon processes and leverage our design techniques to address requirements at 800G, 1.6T, and 3.2T data rates to achieve best-in-class performance in support of next-generation data center deployments. Our experienced designers collaborate across multiple design centers to support a single mission to provide advanced, highly integrated analog and mixed signal IC solutions to help customers solve complex signal integrity problems while moving high speed data. In summary, our long-term growth strategy revolves around developing high performance solutions using a wide range of semiconductor technologies and circuit design expertise. We seek to deploy our expertise to provide our customers standard and customized IC solutions that achieve the highest speeds, lowest noise, best distortion, and highest power. Our diverse portfolio is unique to the industry, and we remain focused on growing our business in a differentiated way. Next, I would like to provide an update on the status of Wolfspeed RF Business FAB conveyance to MACOM. As a reminder, MACOM acquired Wolfspeed's RF business in December of 2023, and it was estimated it would take Wolfspeed approximately 24 months to prepare the RTP North Carolina FAB for transition to MACOM. Our respective teams remain focused on meeting or beating the original timeline. Three specific current events to highlight regarding the FAB. First, we believe the transition activities are on or ahead of schedule, and it is possible that we may elect to transfer the FAB before December 2025. Second, due to increasing demand, the FAB is experiencing high equipment utilization and in some cases bottlenecks. To reduce execution risks and expand capacity, we are developing plans to increase the current four-inch capacity by up to 30% over the next 12 to 15 months. We see an opportunity to increase four-inch capacity with a modest investment by purchasing and installing a short list of used equipment. And third, as part of the original RF business transaction, we established the right of first refusal to acquire the real estate associated with the RTP site. We have exercised our right and we are facilitating a real estate transaction in which our current landlord of our Lowell location would purchase the RTP real estate and then lease it to MACOM. This real estate exchange will have no material impact on our P&L. To summarize, we are focused on ensuring a smooth transfer of the FAB and enabling further growth of the RF business. Before I pass the discussion to Jack, I would like to review a few recent customer engagements which exemplify the diversity and span of our portfolio. We recently received a supplier award from BAE in recognition of our quality and delivery performance. Congratulations to our linear module systems team for this well-deserved recognition. Our LightWave BU's new 200G photo detector products are gaining traction in the market for next-generation data center applications. Our sales, engineering, and operation teams have been collaborating to achieve major wins, and we are in the midst of ramping up volume production. And finally, we received pilot production orders from a leading European radar manufacturer to support its new large ground-based radar program. Jack will now provide a more detailed review of our financial results.