Qorvo, Inc.

Okay, and now Corvo Inc. earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be a question and opportunity session. To ask a question, you may press drive-in one on your telephone keypad. To withdraw your questions, please press drive-in two. Please note this event is being recorded. I would now like to turn the conference over to Douglas DeLito, Vice President, Investor Relations. Please go ahead.

Thanks very much. Hello, everyone, and welcome to Corbeau's fiscal 2024 fourth quarter earnings call. This call will include forward-looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations. We encourage you to review the safe harbor statement contained in the earnings release published today and as well as the risk factors associated with our business in our annual report on Form 10-K filed with the SEC because these risk factors may affect our operations and financial results. In today's release and on today's call, we provide both GAAP and non-GAAP financial results. We provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact of certain non-cash expenses or other items that may obscure trends in our underlying performance. During our call, our comments and comparisons to income statement items will be based primarily on non-GAAP results. For complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today, available on our investor relations website at ir.corbo.com under financial releases. Joining us today are Bob Bruggerworth, President and CEO, Grant Brown, CFO, Dave Fullwood, Senior Vice President of Sales and Marketing, and other members of Corvo's management team. And with that, I'll turn the call over to Bob.

Thanks, Doug, and welcome, everyone, to Corvo's fiscal 2024 fourth quarter call. I'd like to begin by reminding our audience that we issued a press release last week announcing the date of our upcoming Corvo 2024 Investor Day. The event will be held June 11th. It will be webcast for all audiences, and it will begin at 8.30 a.m. Eastern. Our last Investor Day was in 2018, and we're very excited to discuss in detail our expanded opportunities and our enthusiasm for the future. Across our businesses, Corvo is at the forefront of global secular macro trends, including mobility, connectivity, electrification, and datification. These macro trends are enabling new applications and new user experiences, many of which are made accessible to you by the company's Corvo supplies and the devices we enable. Our customers continually seek to improve key performance parameters such as power out, current consumed, talk time, battery life, and time between charges. This is happening across our markets in aerospace and defense, automotive, consumer, infrastructure, industrial, and enterprise. It is increasing customer focus on power efficiency, throughput, functional density, form factor, and other areas where Corvo delivers a significant competitive advantage. Complementing this, legacy technologies are transitioning to more advanced technologies like active electronic scanning systems, advanced power management, force sensing touch sensors, RF MEMS, and a range of system-on-a-chip and system-in-a-package solutions to improve performance and enhance functionality. Also, new connectivity protocols are being adopted across our businesses, including 5G Advanced, DOCSIS 4.0, Wi-Fi 6, 6E, and 7, Matter, and Ultra Wideband. Corvo is driving innovation to enable these trends while expanding our capabilities and product offerings to target a growing set of opportunities. Now let's turn to the strategic highlights, beginning with HPA. HPA returned to year-over-year growth in the March quarter, supported by strong sequential growth in defense and aerospace, and continued improvement in end markets other than base station. In defense and aerospace, we're very pleased to have completed the acquisition of Nokia Wave in the March quarter. The Nokia Wave team brings robust capabilities and high-performance integrated silicon ICs for intelligent active array antennas. Their commercially proven portfolio includes silicon beamforming ICs and IF to RF conversion solutions, which are complementary to our transmit and receive RF front ends for SATCOM, DNA, 5G, and other beamforming applications. Record annual and March quarterly revenue in DNA was driven by large defense programs and SATCOM growth. The DNA content opportunity for Corvo is especially strong in phased arrays, where our solutions can enable transmit-receive elements. Phased array radars can contain hundreds, up to tens of thousands of transmit-receive elements per system, underscoring the multiplier effect for Corvo. Adding to this, we are developing more highly integrated placements that combine Anokia Wave solutions with our existing RF and power management IC portfolios. Design wins for the corridor span airborne and ship-borne radars, SATCOM applications, and solid-state PA products. We secured our first design win for ball-based filter bank solution that enables new architectures for large defense customers. and low Earth orbit SATCOM applications, we are engaged to supply multiple Corvo products, including LNA switches, mixers, and ball multiplexers to support ubiquitous non-terrestrial connectivity. Turning to power management, we are investing to expand our reach in markets where Corvo enjoys longstanding customer relationships, such as consumer, DNA, and mobile, while also targeting more fragmented and more diverse industrial markets. During the March quarter, we secured a motor control design win and a power tool platform with a leading manufacturer of residential and commercial lawn and garden products. We also secured new PMIC designs at new and existing solid state drive customers. Looking more closely at power management opportunities in mobile, there are increasing requirements for compute and processing power in the device that are creating new growth vectors for Corvo P-MIX. The opportunity is significant in both volume and content, and we are able to leverage our exceptional customer and ecosystem relationships. Corvo is a recognized leader delivering RF solutions addressing customer challenges related to efficiency, functional density, and power consumption. Our RF power management portfolio includes envelope tracking, Average power tracking. Beyond RF power management, there are incremental power management opportunities in the phone, where CORBO is leveraging our expertise to reduce current consumption, improve battery life, and better accommodate more data-intensive use cases. We have very strong power management IP that can be extended across markets, making our PMIC portfolio an engine for diversification, growth, and profitability. We are also extending our reach in broad markets by building up more ways to engage with existing and new customers, such as our recently launched QSPICE analog and mixed signal circuit design and simulation tool. QSPICE has gained quick traction with engineers by providing them measurable improvements in speed, functionality, and reliability of circuit simulation. Since its launch, QSPICE has surpassed 20,000 unique downloads. In power devices, customers continue to transition from silicon to silicon carbide, and the design activity for Corvo remains strong in our target markets. We continue to secure design wins for high density server power supplies and added a second tier one North American server OEM during the quarter. In infrastructure markets, Corvo is leading the transition from DOCSIS 3.1 to DOCSIS 4.0 with a broad portfolio of products. DOCSIS 4.0 will increase the efficiency of existing infrastructure and significantly enhance the user experience. DOCSIS 4.0 will support download speeds of up to 10 gigabits per second and increase upload speeds by four times compared to DOCSIS 3.1 to 6 gigabits per second. In our base station business, customers continue to award Corvo design wins. However, we expect the demand environment to remain weak. Longer term, we're very pleased to have been selected by a European-based OEM to support their 6G development efforts. Turning to CSG, we're supporting an increasing number of applications requiring the security and precision location awareness of our ultra-wideband solutions across mobile, consumer, automotive, and other markets. In mobile, our ultra-wideband placements were among many Corvo's solutions supplied to Samsung in support of their Galaxy S24 flagship brand. In consumer markets, recent wins include a robotic lawnmower that leverages Corvo's ultra wideband to provide the precision location accuracy required to enable this application. In automotive, customer engagements are expanding to enable a range of applications that leverage Corvo's ultra wideband radar capabilities. Automotive applications for ultra-wideband technology include secure access and digital key, as well as kick sensors, and the reliable detection of both intrusion and occupancy. During the quarter, customer activity included an ultra-wideband design win, enabling secure access for an EV manufacturer in North America. In other automotive applications, we were selected to supply automotive Wi-Fi 6E solutions in support of a different North American EV OEM. We were also selected to supply our VDAG solution for an automotive OEM in Europe on a platform ramping in calendar 25. For an EV OEM in Asia, Corvo was selected to enable their 5G network access device with six solutions, each of which contain our low band, mid high band, ultra high band, diversity receive, average power tracker, in high-performance BAW filtering. Production for this program begins this year, and the win is noteworthy as this 5G reference design will be marketed to additional automotive OEMs and Tier 1s. For Wi-Fi markets, we continue to roll out new technologies and solutions. We are migrating our newest and most advanced BAW technology across our Wi-Fi portfolio. We launched six gigahertz Wi-Fi 7 filters using our next-generation VAW, and we will soon launch Wi-Fi 7 iFEMs that combine our next-generation VAW with our PA, switch, and LNA content in a single placement. We also ramped our newest Wi-Fi 7 nonlinear FEMs for a Tier 1 network operator in the U.S., and we sampled next-generation high-efficiency Wi-Fi 7 FEMs aligning with a leading mobile Wi-Fi chipset. Connected home applications, we began sampling our next-generation Matter SoC, and we secured a design win with a leading network operator in the U.S. to supply our BLE ZigBee SoC to remote controls for home gateways. In force-sensing touch sensors, we expanded our engagements in trackpads and other consumer applications. In ACG, Corvo is unique in our opportunity to drive growth across major smartphone OEMs. Our largest opportunity remains dollar content gains at our largest customer. We have clearly invested to grow this account to represent a larger percentage of Corvo's revenue, and our continuing investments today reflect our confidence in our multi-year growth opportunity. Within the Android ecosystem, mass market smartphones are set to transition to 5G through the decade. We are the primary RF supplier to the Android ecosystem, and our strong roadmap and multi-year collaboration positions us to benefit as the Android ecosystem continues to transition to 5G. During the quarter, Corvo supported the Galaxy S24 launch with our low-band, mid-high-band, ultra-high-band, secondary transmit and receive, tuning, Wi-Fi, and ultra-wide-band solutions. This highlights the strength of our portfolio and the breadth of our opportunity at Samsung, and we are pleased to support them across their flagship and mass-market 5G smartphones. For mass-market Android 5G smartphones, we see strong pull for our recently launched low, mid, high-band path. Corvo's LMH solution reduces surface area by 40% by combining in one placement the low, mid, and high-band main path content traditionally offered in two placements. We have expanded customer engagement to include the top four China-based 5G Android OEMs, and volume shipments are set to commence this calendar year. To broadly support all customers with best-in-class portfolios, we continue to advance new technologies across our products. We are proliferating our next-generation VAW technology across high-performance discrete and integrated solutions, We also recently released a next generation LRT saw process to complement our advanced ball and saw processes in select bands. The first module combining our LRT saw and ball filters will support a flagship launch later this summer. In summary, the increasing emphasis on throughput, efficiency, and size in Corvo's markets is growing the content opportunity and demand for better performing, smaller, more highly integrated RF and power solutions. For customers in automotive, consumer, defense and aerospace, industrial and enterprise, and broad markets, we are leveraging core strengths, including our manufacturing scale, system level expertise, and advanced packaging capabilities to expand our RF and power product portfolios and deliver outsized growth. For customers in the mobile market, we're addressing new product categories and expanding our SAM across tiers, from the flagship tier to the mass market 5G tier, to capture a growing percentage of the total opportunity. And with that, I'll hand it off to Grant.

Thanks, Bob, and good afternoon, everyone. Revenue for the quarter was $941 million. Non-GAAP gross margin was 42.5%, and non-GAAP diluted EPS was $1.39, all exceeding the midpoint of our guidance range. Revenue for fiscal Q4 increased approximately 49% year-over-year. As communicated last quarter, improving customer demand in HPA supported a return to year-over-year growth. HPA revenue grew 24% year-over-year in the March quarter, driven by a stronger than anticipated performance in our defense business. In ACG, revenue grew 56% year-over-year in the March quarter, supported by strong content on multiple large customer platforms. In CSG, we delivered 50% year-over-year growth in our fourth consecutive quarter of sequential growth due to strength in Wi-Fi, automotive, and other areas. Consistent with our prior comments, Non-GAAP gross margin of 42.5% for the March quarter reflected a higher percentage of Android 5G mass market product, which was manufactured during periods of lower factory utilization. Non-GAAP operating expenses in the quarter were $253 million. We continue to invest in new product development to drive multi-year growth across our businesses. Alongside our growth-oriented investments, We're investing to upgrade the core systems and processes we use to run our business. This multi-year initiative is intended to extend our competitive advantage and enable us to scale growth in diverse dynamic markets. Our goal is to increase operational efficiency, unlock internal data to leverage new software capabilities, including AI, and support our broad-based growth objectives. We expect this initiative will span approximately three years, and we will present the spend in other operating expense on our non-GAAP P&L. As we progress through the project, we will provide related expense guidance on a quarterly basis. Turning to the cash flow statement, in fiscal Q4, we generated operating cash flow of $202 million, and capital expenditures for the period were $33 million. Notable cash flow items that occurred during the quarter included the closing of the Inoki Wave transaction recorded in investing cash flows and payment of the termination fee associated with a long-term silicon supply agreement recorded in operating cash flows. We repurchased approximately $100 million of stock at $112 per share in the quarter, which brought our total for fiscal 24 to $400 million at an average price of $101 per share. The rate and pace of our share repurchases considers several key factors, including our long-term financial outlook, free cash flow, debt maturities, alternative uses of cash, and other relevant strategic considerations. This approach ensures that our capital allocation strategy balances future growth with the return of capital and aligns with our underlying goal of delivering long-term shareholder value. On the balance sheet, as of quarter end, we had approximately $1.5 billion of long-term debt and over $1 billion of cash and equivalents. Regarding balance sheet presentation, the 2024 notes are classified as current and will mature in December. Subject to changes in the interest rate environment and other factors, we currently expect to retire these short-term notes later this year. In line with the expectations shared during our previous earnings call, we successfully reduced our net inventory balance over the period. We ended the quarter with a net inventory balance of $711 million, a sequential decrease of $16 million. For the full year, revenue was $3.8 billion, non-GAAP gross margin was 44.5%, and non-GAAP EPS was $6.21. In fiscal 24, we had two 10% customers. Our largest customer represented 46% of revenue, up from 37% in fiscal 23. And our second largest customer was consistent year over year at 12% of revenue. Turning to our current quarter outlook, we expect revenue of approximately $850 million, plus or minus $25 million, non-GAAP gross margin between 40% and 41%, and non-GAAP diluted EPS between $0.60 and $0.80. Relative to March, we expect June gross margins to reflect a higher percentage of Android 5G mass market product that was manufactured during periods of lower utilization. As these higher cost inventories sell through, it paves the way for future gross margins that reflect increasing levels of utilization. We expect gross margin in the June quarter to be the low point for the year, and improved substantially in the September quarter. We continue to expect full year gross margin to improve modestly year on year. We project non-GAAP operating expenses in the June quarter will be approximately $260 million with variability related to the timing of program development spend and other factors. Our OpEx guidance for this quarter includes approximately $5 million of other operating expense related to modernizing our core systems and business processes. During fiscal 25, we expect to record approximately $40 million of expense related to this project, with quarterly variability related to the achievement of progress-based milestones. Below the operating income line, non-operating expense is expected to be between $6 and $10 million. reflecting interest paid on our fixed rate debt offset by interest income earned on our cash balances, FX gains or losses, along with other items. Our non-GAAP tax rate for fiscal 25 is expected to be within a range of 10 to 12%. We project this will increase over time due to changes in tax legislation, such as the global minimum tax and other factors. Regarding the divestiture of our Beijing and Dazhou assembly and test facilities, we've made significant progress towards achieving operational readiness and completing other work required to close the transaction. This is a further step in our ongoing efforts to reduce capital intensity, and we continue to expect the transaction to close this quarter. We are efficiently managing a complex supply chain, including internal factories that are critical differentiators for each of our operating segments. and this will remain an ongoing focus. We'll leverage internal manufacturing where it uniquely differentiates our products and outsource production where we maintain a strong network of foundry and OSAT partners. Corvo is well-positioned to capitalize on multiple long-term growth drivers within each of our three operating segments. We're excited to share more during our upcoming Investor Day in June, and we look forward to your participation. At this time, please open the line for questions. Thank you.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up the handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. We do ask that you please limit yourself to one question and one follow-up today. At this time, we will pause momentarily to assemble our roster.

Your first question comes from Ruben Goy with Staffel.

Thank you very much. Grant, I wanted to see if you can... You had some commentary in the press release on sort of the guidance and how to think about the guidance for June, but I was wondering if you could provide a little bit more detail on kind of what's going on with ACG and the defense after the strong quarter you saw in March, and if you could maybe just walk us through the... the moving parts in the three segments as we think about the guidance for the June quarter?

Sure. Thanks for the question, Raymond. I'll start off with the June quarter guide overall, and then we can get into the segments. The sequential decline in the June quarter revenue guidance primarily reflects the ramp patterns that are our two largest customers at ACG. And then within HPA, the seasonal timing of large defense programs and a slower rollout of DOCSIS 4.0, as we've talked about previously. ACG is expected to decline. Just to break it down, ACG is expected to decline in the high single digits in June. HPA will decline in the low double digits, and CSG is expected to be approximately flat. Looking back at ACG, we don't break out customer percentages by quarter, but I mentioned in my prepared remarks that our largest customer represented approximately 46% of total fiscal 24 revenue, which was up from 37% in 23 and 33% in fiscal 22. So it follows that those increases there increase our revenue exposure to the seasonal ramp patterns we have with our largest customers, and that's impacting the June quarter. Looking at HPA, it's a similar Seasonal dynamic, we have successfully grown our revenue base in defense and aerospace, and this represents the largest percentage of HPA revenue and actually set a record in fiscal Q4. While we expect our D&A business to grow year on year in fiscal 25, program timing and seasonality is having an outsized impact on the sequential performance in the June quarter, just given the relative size within HPA. You know, looking at gross margin, we expect a substantial improvement in September as we sell through all the high-cost inventory or the vast majority of it, I should say, in June. And we continue to expect full-year fiscal 25 gross margin will improve modestly over 24. That's great.

Thank you, Grant, for that detail. And I guess as a follow-up in the press release also, you talk about – your view about modest growth, expecting modest growth, 25 over 24. And just wondering, I know you don't provide longer-term guidance in any meaningful detail, but 90 days into the new year, has anything changed with the way you're thinking about it? Because I think you said you were expecting it would be reasonable to expect growth in fiscal 25 over 24 last quarter. So just wondering if if there's been any changes in how you're viewing the growth or inventory levels or sell-through demand would be helpful. Thank you.

Sure. No change to our view on inventory, channel inventory, especially within the Android area, looks relatively clear. I think June will be the last quarter we'll really be talking about the high-cost inventory and the utilization and impact associated with that. So that's maybe one change that we haven't spoken to in the past as far as timing goes. In terms of fiscal 25 in general, it's a little early to provide any detailed quarterly guidance, but absent any macro-related disruptions, we do expect to grow both revenue and gross margin modestly in fiscal 25 on a year-over-year, full fiscal year basis. It's worth pointing out that given the timing of the content gains at our largest customer and the success of the defense market, as I mentioned earlier, our revenue seasonality will be more closely aligned to those annual ramp profiles. So that's clear in our Q1 guidance, but will also be included in our full fiscal year. In terms of the shape of revenue across fiscal 25, we do expect strong sequential growth in September, some modest sequential growth in December, and then that revenue profile will reflect the sequential growth in defense. That begins in September and is even stronger in December. So maybe slightly unlike fiscal 24, we'll have a bigger December than September is our current expectation because of the strength there in defense. On gross margins, we expect substantial improvement in September, as I mentioned, roughly flattish in December, and then down slightly in March. So, again, a similar seasonal profile. You know, we overall for the year probably implied a full fiscal year gross margin for fiscal 25 in the mid-40s.

So, our next question comes from Carl Ackerman with BNP Paragraphs.

Thank you. Grant, I want to follow up to the gross margin question that you just spoke about. I guess, is the lower gross margin guide driven by seasonally stronger Android sales in June? And then while gross margins increase in September, does that suggest Android is weaker in the second half? I ask because while your peer this evening said that China Android rose 40% year-over-year in the first half, there have been some conflicting data points on Android demand the second half. So if you could clarify that, that would be helpful.

Yeah, sure. So in terms of gross margin, I think, you know, in any given quarter, it's heavily dependent on mix, as you're pointing out, right? There's variability by end market and product category. But as I look at the manufacturing costs associated with what we're selling, any underutilization impact is going to be impacted by when the products were manufactured and where they were manufactured. So You know, for Corvo, when matters because the utilization rate at the time it's produced and the where matters because of where the products that contain higher content from external foundries or OSAPs are less impacted by our internal loadings. So, for June, our gross margin guidance really reflects, I guess, primarily three things. First, you know, we're actively selling through the higher cost inventories burdened by underutilization, and this is somewhat of an artifact of passed under utilization. The second is that we see the typical seasonal decline in our largest customers, as I mentioned, and those products contain higher levels of external content. And then third, we expect a seasonal decline in the defense programs. Like most of our high-mix, lower-volume businesses, these are accretive to gross margins. So it's heavily mix-dependent. I pointed out June will mark the low point as we actively sell through that remaining high-cost inventory. And again, that really reflects the inefficiencies caused by those underutilized fabs that were whipsawed by a massive inventory correction. We believe we're well past the worst of those utilization levels, and as we sell through the material, it'll pave the way for higher gross margins I commented on for the full fiscal year. color I talked about earlier. For September, if we pivot to that, we expect gross margin to improve substantially as those three headwinds reverse. The seasonal ramp will reflect more external content. The defense revenue is expected to grow sequentially, and the underutilization impact should fall to less than or around 100 basis points versus the, call it, 300 basis points that we experienced last quarter.

Yep, very clear. If I may just speak a quick one. And you mentioned about a recovery in defense. I was curious your thoughts on silicon carbide. I did not hear that, any comments in your prepared script. I know that the industrial market is going through a downturn. But any thoughts on recovery of the silicon carbide business or whether the macro has influenced your own success in silicon carbide, whether it's in industrial and or defense? Thank you.

Hey, Carl, this is Dave. I can take that one. So, Bob, you had commented on some of this, but we've had some good success there in data centers, and that part of the market actually looks quite good. We've talked in the past, too, about some of our success we've had in areas like solar. That's being heavily impacted by the interest rate environment, and so that market is extremely soft right now. So it's kind of a mixed bag when you look at our silicon carbide business. You know, it's still quite a small business, so we're growing into new markets. and so there's lots of opportunities there. The sales funnel is growing and strong, but the end markets are really dependent on some of the interest rate environment that we're experiencing.

Your next question comes from Edward Snyder with Charter Equity Research.

Edward? Yep, sorry about that, guys.

A couple of questions if I could. Last quarter we had some discussions about content growth and strength in the second half. I know you haven't guided that to this quarter at all. I just want to get an update if possible. Now that you've had a chance, most of those wins have been awarded and you're probably working on qualifying it. Any alteration at all in terms of how strong you think you'll be in the second half in terms of content? or a revenue growth without guiding and just trying to get a feel for if anything's changed.

Hi, Ed. It's Bob. Thanks for the question. And we're very confident in our outlook with our largest customer. We're confident, as I said last time, in gaining share this year and still very confident in our outlook for, again, FY25, gaining share, FY26, gaining share, growing revenue. Still feel real good about both of those.

Good. And then you closed the IncWave deal and But most folks, if you look at the product line, it's pretty much a carbon copy of everything you need for a millimeter wave to a mobile platform. And there's been some news recently that there seems to be a win with that. My impression was when that was first announced that it was going to be an infrastructure play. Does it have a mobile play to it? And how confident you are that it's going to? getting any traction given how weak Mill New Wave has been in the mobile business for a while?

Thanks, Ed. Good opportunity to clear that up. When we made the acquisition, our focus was actually on defense. The infrastructure market is pretty volatile, but we still think there's a play there. But it's primarily on the defense side. We don't have any plans at this time to bring it into the mobile part of our business.

Your next question comes from Srini Pajari with Raymond James.

Pardon me, your next question comes from Chris Caso with Wolf Research.

Yes, hi. The first question, I just wanted to clarify a comment that you made. You talked about revenue and gross margin up in fiscal 25, but you said modestly, and I just wanted to make sure that Was that modest comment meant for revenue and gross margin up modestly or just gross margin?

Thanks for the question, Chris. It was for both.

Okay. So both revenue and – so, okay. So that's clear. As a follow-up on that, I wanted to talk about the changes to capital intensity that that you were taking. You know, can you give a little more color on that and, you know, kind of where the targets might sit when you're done with that program and kind of what you're doing to achieve that?

Sure. So, from a capital intensity perspective, I still think that we'll be spending CapEx in and around that 5% target level. As we look out over time, it could vary based on capacity required to support customer demand, but that's our current target.

Your next question comes from Srini Pajeri with Raymond J. Thank you.

And your guidance for fiscal year revenue to be up modestly. Obviously, you said previously that you expect your largest customer to grow year on year this year. So the rest of the business, I'm just curious, given, I mean, we've been weak in broad market, not broad market, and non, I guess, smartphone segments for a while. They seem to be lumpy, but some of them are coming back. So I'm just curious as to You know, what's the outlook for the, you know, outside of your largest customer? What's causing you to be a bit more cautious here? It seems like, you know, you're kind of, you know, you're sounding a bit more cautious than last quarter. So I'm just trying to understand what's causing, what's giving you the pause.

Sure, let me take that one, and then Bob can fill in the latter part of your question. I think for fiscal 25, generally we're optimistic. We do expect to grow. We're going to expand gross margin as we currently see it. I think we're having success at our largest customers, and that's creating more seasonality, which you're seeing in June. But on the whole, the year will be up. It also – creates an opportunity for us to grow in our defense business, you know, where we're seeing some, you know, recent congressional budget approvals, as well as some of the foreign aid packages, which is driving our order activity there. So we're seeing a strong tailwind on the defense business in the fiscal second half. So that would, for us, begin in the December quarter and follow through into March again. You know, those are some of the drivers we see And I don't know, Bob, I think we missed the last part of your question. I think was it around confidence at our largest customer?

I was just wondering, you know, I guess last quarter you definitely sounded a bit more confident about, you know, the next year and two at your largest customer. It looks like that hasn't changed. And given your view, on your largest customer out of that, you know, the fiscal year guidance would be up more than just modestly. So I'm just trying to understand what's kind of giving you that pause outside of your largest customer.

We still believe we're going to grow in the Android ecosystem to be clear. So, you know, again, we didn't comment on the full year last time. The only comment I made was I wanted to correct some noise that was in the market about, uh, we had lost a socket potentially at our largest customer, and I wanted to make that clear. So I'm sure that came across clear. However, when we look out over the year, I mean, there's a lot of things to judge for the year. I think it's great that we're able to provide you some color, at least how we think of things today. But I'd say, if anything, we're being somewhat conservative just given what's going on. As you know, our Android market in China, quite honestly, it's going to be flat quarter over quarter to slightly up. But we're very cautious on China and the economy turning around there, where they're actually doing well is in some of the export markets. So just given everything that we see going on globally, interest rates, you see what's going on with the Fed in our own country and going around the world, I think it's prudent to take a conservative view when we give our outlook, whether it's the number of units that are our largest customer or what's going to happen to end demand with consumers. We're just being cautious, but we're confident we can grow. And I think that's how I'd leave that.

Thanks, Bob. If I may, you know, have a follow-up on gross margins. Brent, obviously, you know, you're talking about improving gross margin in the second half of the fiscal year. I guess, how do we go from, you know, I think you're exiting the fiscal year maybe in the high 40s, mid to high 40s. How do you go from mid to high 40s to the previous, I guess, peak levels of 50 to 53 percent? And what's the plan to, I mean, is it a function of revenue? Or are there any other initiatives that are in place to get us back to that gross margin level?

Sure. Thanks for the question. So utilization is obviously critical, and it's improving. And we've spoken quite a bit about it. But maybe just to put that into context, the utilization across our U.S. fabs is actually currently up 20 percentage points versus Q1 a year ago. So looking at just a simple average across our wafer fabs, the percent utilization went from the 40s to now the 60s, and all that hasn't flown into the P&L yet. So we still have meaningful opportunity to improve and reach more optimal levels, call it in the 80s or higher across the board. We've talked a bit, as a specific example, to our Wi-Fi business in CSG, which is facing the underutilization here in our North Carolina gas line. Each of those products is coupled to the fab that was designed and qualified in, so we can't move production overnight. But over time, we can optimize this. So load balancing across our factory network is always being evaluated, and it's a potential for opportunity there. But beyond just utilization, we are taking active steps to improve gross margin. If you look at it maybe by business or maybe from a manufacturing perspective, in ACG specifically, we're managing our portfolio to better match cost with the product tier. So to align Android's entry tier, our new low, mid, high integrated products are a great example. This is not a single product, but actually a family of products that are better optimized for that segment of the market. In HPA, we expect our high mix, lower volume businesses generally carry higher gross margins to be among our fastest growing opportunities. Defense is a good example. I've spoken to that, where we expect a strong fiscal second half. for growth to continue well beyond this fiscal year given the budget approvals and the order activity we're seeing. CSG, I just mentioned the Wi-Fi business, but it's our highest growth opportunities there are in products that run in high volume external silicon partners. So overall business mix will play a role in margin expansion over time. Those product lines will grow faster and they'll become a bigger portion of our revenue mix. less susceptible to underutilization, of course, because they're externally sourced. From an overall manufacturing perspective, we expect to benefit from continued dye size reductions, wafer size increases, and we can continue reducing our capital intensity. We're continuously looking at factory footprints for opportunities to optimize and consolidate our operations, and you've already seen us take steps there, such as divesting our farmers' branch facilities as well as our Beijing and Dazhou facilities. So we have a lot of opportunity to get there.

It's not simply utilization, but obviously that's a big part of it.

Your next question comes from Thomas O'Malley with Barclays.

Hey guys, thanks for taking my question. So on the last call you kind of talked about the shape of the year being very similar year over year if you look at fiscal year 24 and fiscal year 25. With June coming in a bit lighter, could you just update us on how you're seeing the shape of the year? Does that peak a bit higher in the September-December period just because Q1 was a bit weaker? Any color on what you're kind of seeing in terms of the shape of the year being similar or does that change at all with what we're looking at in June?

Sure. It's similar to fiscal 24. As I mentioned, we do expect, unlike fiscal 24, that we'll have a larger December than September and then down seasonally in March. So, you know, in that regard, it's slightly different than what we saw in fiscal 24. But generally speaking, the September and December quarters will be our largest within the fiscal year.

That's super helpful. And then just to put a nail in a coffin here, but just on the Android business into the June quarter. So you're talking about better China, but also you don't have a flagship launch in the June quarter from another large customer. When you net that out, you know, do you see the ability to grow kind of sequentially into the June quarter? It's just hard to know the various growth rates. I know you have some idea of size, but any color you could give there on the Android business, just June specifically.

June most likely for, hi, this is Bob. June most likely is going to be flapped off with the Android ecosystem. As you pointed out, you know, we're coming off a big flagship ramp at our second largest customer with tremendous content.

But we're offsetting that with growth outside of them.

So our next question comes from Christopher Rowland with Susquehanna.

Hey, guys. Yeah, just working through that gross margin thing, we're talking about like 500 or 600 basis points for September. Is that roughly the magnitude to get to that gross margin expansion we need?

I think you're in the right ballpark, Chris. I gave a rough estimate for the year, so I believe you backed into it properly. Okay.

Okay, great. And I have no other questions. Thanks.

Your next question comes from Peter Peng with JP Morgan.

Hey, good afternoon. Thanks for taking my question. Just want to go back to that modest revenue growth. Are you expecting growth across all segments or are you, you know, expecting some decline in certain segments?

For the full year, we are expecting growth across all segments.

Got it. Thanks for that. And then I think last quarter you talked about smartphone shipments, low single digits and 5Gs kind of in that 10% plus range. Has that view changed? And is that, I guess, the full regard, is it just more conservatism there? So maybe if you can answer.

Yeah, no change in the outlook. We're still thinking low single digits for the overall market. And like you said, 5G growing greater than 10%.

Your next question comes from Tim Akure with UBS.

Hi, this is Aman jumping in for Tim. We're hearing from some of your peers, some inventory built a largest customer in March. Are you seeing a similar trend? And then, you know, how should we think about growth a largest customer as we, you know, progress through this year? And do you have visibility in terms of content growth as we look into next calendar year?

This is Bob, and what I can tell you is that we don't see any channel inventory between us and our largest customer, and the reason is pretty straightforward. We ship directly to their manufacturers. So this has come up maybe a year or so ago and now come up now, and we don't see anything like that.

Thank you.

That concludes our question and answer session.

I would like to turn the conference back over to management for any closing remarks.

We want to thank everyone for joining us tonight. We appreciate your interest in Corvo, and we look forward to speaking with you during our Investor Day on June 11th and at upcoming investor events. Thank you, and I hope you have a great evening.

The conference has now concluded. Thank you for attending today's presentation.