MACOM Technology Solutions Holdings, Inc. Aktie

Welcome to MACOM's Second Fiscal Quarter 2026 Conference Call. This call is being recorded today, Thursday, May 7, 2026. [Operator Instructions]

I will now turn the call to Mr. Steve Ferranti, MACOM's Senior 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 MACOM's financial results for the second fiscal quarter of 2026.

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's statements during this call will also include a 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 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 Q2 results for fiscal year 2026. When Jack is finished, I will provide revenue and earnings guidance for the third quarter of FY '26, and then we will be happy to take some questions.

Revenue for the second quarter of fiscal 2026 was $289 million, and adjusted EPS was $1.09 per diluted share. Demand for our products is strong across our 3 end markets, and our backlog continues to build. Our sequential financial performance improved across most key metrics in Q2, including gross and operating margins. Our Q2 book-to-bill ratio was 1.5:1 and orders booked and shipped within the quarter was 18% of total revenue. All 3 end markets had exceptional bookings with notable outperformance in the Data Center. Our backlog remains at a record level, and we believe this strength reflects that we are in the right markets with the right products at the right time.

Turning to recent market trends. Q2 revenue performance by end market was as expected, with all end markets growing sequentially. Industrial and Defense was $120.7 million, Data Center was $98.2 million,and Telecom was $70.1 million. Data Center was up approximately 14.5% sequentially, Telecom was up 3% sequentially and I&D was up 2.5% sequentially. Both I&D and Data Center revenues are at record levels.

As we look to the second half of our fiscal year, we expect Data Center and I&D revenues to continue to lead our growth. With the exceptional first half bookings, we are positioned for a strong second half. Additionally, we expect to see momentum from our Telecom segment as we enter our fiscal 2027 due to the anticipated timing of LEO space production programs and associated revenues. We believe our growth strategy of strengthening our core technologies and expanding our product portfolio around 3 central themes: Highest power, highest frequency and highest data rate, is working. We believe we are establishing ourselves as a differentiated strategic supplier to our customers.

Next, I'll quickly summarize progress on our 5 goals for FY '26, which we outlined on our last call. First, taking advantage of the data center opportunity. We continue to enhance our design and manufacturing capabilities to support our customers in this market. And we are pleased to raise our Data Center FY '26 revenue growth base case from 35% to 40% to over 60%.

Second, expanding our 5G market share. We have developed 2 new process technologies, which will provide us with both performance and cost benefits. GaN 4 is our next-generation process for high-power linear amplifiers for 5G base stations, and we expect our new IPD processes will enable us to in-source these components while achieving better electrical performance at a lower cost. Our technology teams have done a great job making these processes a reality.

Third, extending our leadership in I&D. I am pleased that we recently received a Defense Manufacturing Technology Achievement Award sponsored by the Joint Defense Manufacturing Technology panel. The panel includes members from various armed services and the Office of the Secretary of Defense. This award reflects our progress to increase manufacturability of advanced GaN technology. Our team continues to innovate, and we look forward to introducing a wide range of advanced GaN MMIC products in the next 12 to 18 months.

Fourth, continued development of advanced III-V semiconductor technologies. We continue to strengthen our semiconductor processing expertise and capabilities. As an example, our team has done amazing work on OMMIC regrowth for advanced high-efficiency GaN amplifiers. In addition, we are developing advanced indium phosphide epitaxial stacks for our next-generation optical products for the data center.

And last, management of our capital and investments. As we discussed last quarter, we have numerous strategic investment activities that we believe will support our fiscal 2027 and 2028 revenue growth objectives. We take a disciplined approach to managing capital investments for near- and long-term success.

Next, I'll take a moment to review each of our 3 core markets in more depth. Data Center. Based on customer engagements and general market trends, we expect 1.6T deployments inside the Data Center to continue to be strong throughout calendar 2026. Today, our revenue growth is primarily being driven by increased pluggable optical modules and optical cable production volumes using our 800 and 1.6T PAM4 products. As a reminder, our portfolio is highly diversified, supporting NRZ, PAM4 and coherent modulations across EML, silicon photonics and VCSEL-based architectures. We are also seeing modest growth from our lower data rate 100G single-mode and multimode products.

Demand for our 200 gig per lane photodetectors continues to grow, supporting 800G and 1.6T optical connectivity. Part of our near-term and long-term growth strategy is to expand our photonics portfolio with both higher-speed photodetectors and CW lasers.

We are seeing growing interest in coherent light solutions as coherent modulation can enable higher bandwidth performance with significantly improved power efficiency, especially in shorter-reach applications. We believe coherent light solutions will expand, and we are well positioned to support this trend. We continue to promote linear equalizer products to help extend the reach of copper interconnects at 800G and 1.6T. We are working closely with customers to address their specific program requirements and various use cases.

In many cases, our newest products are designed for co-packaged and highly integrated architectures like CPO and NPO. We can differentiate in this market based on our strong customer relationships, IC and system design expertise as well as our unique photonic materials.

In summary, as we look ahead, we see many new large opportunities in the Data Center. We believe our SAM is increasing due to the combination of AI-driven market growth, combined with our product portfolio expansion. Our strategy is to collaborate with the leaders in the industry and support their connectivity needs, whether it's scale up, scale out or scale across.

Turning to our I&D business. We are seeing many growth opportunities across the Industrial and Defense markets, primarily in the Defense segment. Comparing our first half results of FY '26 with the first half of FY '25, our I&D business grew by 22%. Overall demand remains healthy and notably, we expect revenues from our top 25 defense customers to significantly increase from FY '25 to FY '26. Our Defense customer base is large and very broad, and we typically support radar systems, missile and missile defense systems, drone and drone defense systems, communication systems and wideband electronic warfare systems.

Today, we support a wide range of production programs across a diverse range of applications. We are also involved with redesigns and upgrades of existing platforms to improve performance against new threats and to improve overall system performance with more capable and modern electronics.

Finally, the DoD is pushing our customers for rapid design and deployment of new systems and capabilities, spanning from modern radars to better electronic warfare systems, new space-based sensors and even more secure communications. These systems are typically using higher frequencies, higher RF or microwave power levels and higher levels of integration. In some cases, high-performance optical systems are deployed such as RF over fiber for remote antenna systems.

The pace of innovation in the Defense market is accelerating by both the traditional defense primes and the newer, more nimble defense companies. These demanding requirements play directly to MACOM's strengths, and we offer our customers turnkey support from custom chip design to subsystem solutions. All of this is driving incremental semiconductor content growth opportunities and opening up new design win opportunities.

MACOM has numerous competitive advantages within the I&D market. At the heart of these is MACOM's deep expertise in high-performance IC design capabilities spanning RF, microwave, millimeter wave and optical domains. We have a growing team of system designers with architectural knowledge, which enable us to engage much earlier in our customers' project design cycles, and we present the full scope of MACOM's capabilities to help solve the customers' technical challenges.

MACOM also offers European and U.S.-based wafer fab and U.S.-based hybrid manufacturing capabilities at scale with proven technology, reliability and long-term supply assurance, factors that are increasingly important as defense customers prioritize domestic sourcing and supply chain security.

Within the Telecom end market, satellite-based broadband access and direct-to-device, or D2D, opportunities remain robust with numerous LEO networks in the planning and production stages. The number of LEO satellites planned to be launched continues to grow as more companies compete to provide commercial broadband data, voice and video communications by satellite. These networks typically use microwave or millimeter wave frequencies and free space optics or FSO communications for satellite-to-satellite or satellite-to-ground communications.

Today, we are supporting LEO broadband constellations and D2D programs that are either in development, low rate initial production, or LRIP, or full production. LEO and MEO constellations have many key areas where MACOM can contribute, including large phase array antennas with active beam steering, D2D links operating at UHF or S-bands, data center-like electronics with high-speed optical links transferring data within or across the satellite, free space optics for satellite-to-satellite communications and ground terminal and gateway linearization for high-power transmitters.

I'll note the backhaul networks for these constellations continues to move higher in frequencies. The 40-nanometer GaN technology, which MACOM recently licensed from Hughes Research Lab, HRL, is being transferred to MACOM's fab. This technology will enable high-capacity satellite links using E-band, W-Band and D-band.

Ground stations and gateways are also a key part of the LEO networks. MACOM specializes in designing products and solutions that overcome nonlinearity of RF, microwave and millimeter wave signal transmission for satellite communication systems. In many cases, ground-to-satellite links prefer linearization of SSPAs or TWTAs to boost the linear power efficiency of the link.

Turning towards the 5G segment of Telecom. Our global team continues to secure new business and macro base stations, driven by the need for high-performance amplifiers and multiband radios. Our RF power team is now sampling our new GaN 4 products to customers, which we believe will further improve our competitiveness. We expect the global RAN market will be flat in 2026 with some regional variations. However, for MACOM, we expect our future 5G growth will be driven by content and market share gains as we have; one, recently added new resources; two, roll out new products and technologies like GaN 4, SOI control products and power amplifier modules or PAMS; and three, gain market share in high and low-power macro and MIMO amplifiers. We are making good progress improving the overall performance and competitiveness of our base station portfolio, especially in the 2.7 to 3.5 gigahertz bands.

And last, we believe the cable TV infrastructure market segment is also improving. We have been releasing new products and working with customers on design wins to support the upgrades from DOCSIS 3.1 to DOCSIS 4.0.

Before turning it over to Jack, I would like to quickly highlight how teamwork across the organization directly impacts our financial results with operations and engineering being a great example. Our North Carolina fab has been increasing wafer production while simultaneously improving yields and lowering cycle times. This performance is driving improved customer satisfaction and contributing to new business and enabling us to win new customers.

Our Massachusetts fab has been installing complex processing equipment to support production ramps in some areas while maintaining production continuity in other areas. Seamlessly adding this capacity is enabling us to gain market share from our competitors. Our global planning team continues to partner with key suppliers and partners to ensure that customers are getting the deliveries they need on time. This results in brand loyalty and enables us to fully leverage our entire technology portfolio into the market and capture market share. These examples illustrate how dedication, commitment to excellence, teamwork and coordination of our manufacturing, engineering and planning community is directly leading to market share gains and revenue growth.

In summary, our strategy is to continue to build a best-in-class diversified semiconductor portfolio that will enable MACOM to capture a larger share of the 3 markets we focus on. Our agility and strong teamwork across our organization helps us address opportunities and ultimately beat the competition that are often larger and have more resources.

Jack will now provide a more detailed review of our financial results.

Thanks, Steve, and good morning to everyone. The results from our second quarter improved from Q1, and MACOM again achieved multiple new quarterly records associated with our financial performance. We have seen operational improvements across the organization, which is driving increased revenue growth and profitability.

Fiscal Q2 revenue was $289 million, up 6.4% sequentially and up over 22% year-on-year, driven by growth across all 3 of our end markets, with Data Center leading followed by I&D and Telecom. The strong bookings across all our end markets resulted in a book-to-bill of 1.5:1. This was the largest quarterly bookings in the company's history.

Adjusted gross profit for fiscal Q2 was $169 million or 58.5% of revenue. This represents a gross margin increase of 90 basis points over the prior quarter. We continue to make solid progress to increase our capacity and improve product yields, and we expect to see ongoing incremental progress across our fab operations during the remainder of fiscal 2026.

The increase in product demand across the business have resulted in improved utilization of our operations and supported the recent gross margin improvement. As we move forward, we expect ongoing sequential gross margin improvements through the remainder of fiscal 2026.

Total adjusted operating expense for our second quarter was $88.6 million, consisting of research and development expense of $59.1 million and selling, general and administrative expenses of $29.5 million. The anticipated sequential increase in adjusted operating expense compared to Q1 was primarily driven by ongoing R&D investments and employee-related costs.

As our business expands, we expect associated OpEx growth will be primarily related to increased R&D investments and higher variable costs. Consistent with past practice, we will remain very focused on managing our OpEx to balance long-term revenue growth and profitability with continued investment in the business to support all of our end markets.

Depreciation expense for fiscal Q2 2026 remained relatively stable at $9 million, slightly above the prior quarter. Adjusted operating income in fiscal Q2 was another record coming in at $80.5 million, up 8.8% sequentially from $74 million in fiscal Q1 2026 and up 34.5% year-over-year.

I would like to note that our Q2 adjusted operating margin was 27.8% and has increased over the last 3 fiscal quarters. We expect our adjusted operating margin to be approximately 30% next quarter, highlighting the leverage in our financial operating model.

For fiscal Q2, we had adjusted net interest income of $6.5 million, a decrease of approximately $200,000 sequentially from $6.7 million in Q1. The slight decrease was primarily due to the planned repayment of $161 million of our 2026 convertible notes during the quarter. We are pleased to have been able to retire this debt and further delever our balance sheet.

Our adjusted income tax rate in fiscal Q2 was 3% and resulted in an expense of approximately $2.6 million. We expect our adjusted income tax rate to remain at 3% for the remainder of fiscal 2026. As of April 3, 2026, our deferred tax asset balances were $202 million. We anticipate further utilizing our deferred tax asset balances, including R&D tax credits through the remainder of fiscal 2026 and beyond. Depending on the jurisdictional mix of our income, we expect the U.S. government's recent tax legislation to support a low to mid-single-digit adjusted tax rate for the next few fiscal years.

Fiscal Q2 adjusted net income increased approximately 7.8% to $84.3 million compared to $78.2 million in fiscal Q1 2026. Adjusted earnings per fully diluted share was $1.09, utilizing a share count of 77.6 million shares compared to $1.02 of adjusted earnings per share in fiscal Q1 2026. We continue to optimize the business' performance, which has contributed to sequential increases in our adjusted operating income and EPS over the past 11 quarters.

Now on to operational balance sheet and cash flow items. Our Q2 accounts receivable balance was $160 million, consistent with our Q1 2026 balance. Our days sales outstanding averaged 50 days compared to the previous quarter at 54 days. Inventories were $252.2 million at quarter end, up sequentially from $238.9 million, largely driven by additional work-in-process inventory at our fabs as well as higher balances to support increasing demand across the business. Inventory turns remained steady at 1.9x, the same level as the preceding quarter.

Fiscal Q2 cash flow from operations was approximately $78.7 million, up $35.8 million sequentially. The sequential change was primarily due to the typical timing of supplier payments and other changes in working capital balances. We expect that our Q3 cash flow from operations will be in excess of $80 million.

As our business continues to grow, there will be variations in cash flow from quarter-to-quarter. MACOM's business model has demonstrated strong cash flow from operations over the past few years. As an example, our cash flow from operations was $163 million in fiscal year 2024, $235 million in fiscal year 2025, and we believe we are on track for our cash flow from operations to exceed $300 million for fiscal year 2026.

Capital expenditures totaled $13.2 million for fiscal Q2. We estimate fiscal year 2026 CapEx to be in the range of $55 million to $65 million as we expand capacity to meet demand requirements across our end markets and also upgrade and enhance our production and engineering equipment as well as our facilities.

Next, moving on to other balance sheet items. Cash, cash equivalents and short-term investments as of the end of the second fiscal quarter were $664.9 million. We view our cash balance as a strategic asset that can be used to help fund ongoing investments to support our growing business. We are in a net cash position of approximately $325 million as of April 3, 2026, when comparing our cash and short-term investments to the book value of our remaining $340 million of convertible notes, which mature in December 2029.

Our strategy has been to focus on growing our profitability and managing our operating asset base, which has supported an improved return on invested capital over the past several years, demonstrating our goal of building long-term financial strength for the company.

During the first 2 fiscal quarters of 2026, the entire MACOM team has contributed to helping achieve these record financial results. This hard work has established a strong foundation for us to build upon, and I look forward to the second half of our fiscal 2026.

I will now turn the discussion back over to Steve.

Thank you, Jack. MACOM expects revenue in fiscal Q3 ending July 3, 2026, to be in the range of $331 million to $339 million. Adjusted gross margin is expected to be in the range of 59% to 60% and adjusted earnings per share is expected to be between $1.31 and $1.37 based on 78.5 million fully diluted shares.

We expect sequential revenue growth in each of our 3 end markets. We expect that Data Center will achieve approximately 35% sequential growth, and we expect Industrial and Defense to achieve growth approaching 10% and Telecom to achieve low single-digit sequential growth.

As Jack highlighted, we are excited to deliver more growth and profitability during the second half of FY '26. As we continue to scale the business, we expect to see increased operating margins and profitability.

I would now like to ask the operator to take any questions.

[Operator Instructions] Our first question coming from the line of Blayne Curtis with Jefferies.

Great results. Maybe I want to start on gross margin. Obviously, there's a lot of revenue drivers, but 100 basis points in the quarter. Can you just talk about volume and then mix? And obviously, Data Center is outperforming, so that must be a driver. I just want to see how to think about it, particularly as you go through the rest of the calendar year.

Yes. Thank you for the question, Blayne. So certainly, volume is contributing to the improvements in the gross margins. We are seeing that our Lowell fab as well as our North Carolina fab have been increasing outputs, and so that's certainly having a positive effect on gross margins.

The other thing I'll add is you're correct to notice that our Data Center revenue as a total percentage of our revenue is increasing. In some instances, that's contributing to the improvements in gross margins. And in other areas, it isn't. So we -- in all of our market segments, we have a normal distribution of gross margins.

But generally speaking, the team has been very focused on yield enhancement, efficiencies, cost reductions as we're scaling across a whole wide range of technologies, some of which I talked about in the prepared remarks. So generally speaking, a lot of great work. As Jack mentioned in his commentary, we expect continued improvements in gross margin. A few quarters ago, we had said publicly, we were setting a target to exit the year around 59%. And I think today, we're updating that number to be most likely closer to 60%. And Jack, maybe you can comment further.

I think you covered off on it, Steve. There's definitely multiple factors that are helping to drive our gross margin improvements that we've seen here in the March quarter, where we were up 90 basis points. And then if you look to the midpoint of the guide being up 100 basis points. It does become a bit more challenging as the gross margins go up to squeeze more savings out of it, but our teams are continuing to work hard. And as Steve had mentioned, we expect to see further gross margin improvements as we work our way through this year and into next year.

And then I wanted to ask, you mentioned coherent light. There's a lot of talk about scale across these days. Kind of just curious your thoughts on how that market is developing? And then maybe a silly question, is it in Data Center or Telecom?

So we would put coherent light in the Data Center category. And as you know, historically, we have put the metro/long haul, which is more DCI in the Telecom segment. So we are definitely focused on that, and this is an area where MACOM has really nice differentiation. And so historically, there's been more ZR type platforms, and now they're moving to really higher data rate, higher gigabaud data rates. And just in the last 3 years, you've seen platforms go from 64 gigabaud all the way up to 128 gigabaud. Now even people are talking as high as 192 gigabaud.

So this is an area of strength for MACOM. And depending on what hyperscalers do in terms of deploying coherent light, we want to participate. So we are in a very good position. It does touch a number of our product lines where we really have differentiated technology.

Our next question coming from the line of Tom O'Malley with Barclays.

My first is on the SATCOM business in LEO. Through the earnings period here, you've heard companies talk about 7,000 to 10,000 launches over the next 3 years. Would you agree with that number?

And then maybe if you could spend some time talking on the content per satellite, if that's possible. You mentioned a lot of the different products, the phase array antennas, optical electronics, et cetera. But just some framework for thinking about the upside that could offer you.

And then on the timing of that, it looks like Telecom is up low single digits in June, but you mentioned it improves in the back half of the fiscal year. Do you see a substantial step-up in the September quarter there?

Thanks for those questions, Tom. There's a lot there. Let me try to address as many as I can. I think it's important to put in perspective that MACOM has been servicing the space market for decades. And so we are a known entity, not only on the defense side, but more and more so on the commercial side. I think you're correct to highlight that there's growth in terms of the pure number of LEOs being launched, and these are typically smaller satellites going on affordable launch vehicles and whether it's servicing broadband, direct to sell or even future talk about data centers in space, we want to participate in those.

So we don't necessarily want to comment on what the absolute quantities are. I think there's a lot of information in the market about how much this market is growing. So I think there's good information out there that's probably more accurate than ours. But I would just highlight that we are absolutely engaged with the major players across the market. And as I mentioned in my commentary, it really plays to our strengths. So yes, there's certainly huge demand, and we're trying to focus on getting wins as best we can.

In terms of the timing of our various programs, I would just say that we have active LEO production programs today. We have more that are in the sort of LRIP phase. One of the larger programs that we've talked about in the past is in the phase of delivering what we call EM modules. So basically, our customers sort of finalizing their system design. And we do expect that to go into full rate production later this year or early next year, which is consistent with what we've said in the past.

I don't think you should expect a step-up. You're going to see a ramp-up, and that will happen during the course of calendar 2027.

And just as a reminder to everybody, we're involved in really 3 pieces of the puzzle for these networks. The first is on the satellite, what people refer to as the payload. The second is the gateways. And then the third is that we are seeing opportunities in the terminals with some of our components. And so a very exciting time for MACOM to be participating across so many different customers and our module and our chip design team is very busy satisfying the requirements in this market.

Our next question coming from the line of Tore Svanberg with Stifel.

Congratulations on the strong results. I had a question on the Data Center growth now basically targeting more than 60%. Just curious, above and beyond just higher CapEx from some of your end customers, what's some of the delta here, some of the new revenue that's layering in?

Very much the expansion of our product portfolio. And we have talked about really over the last 12 months, the ramp-up of some of our optical components. And so that has certainly helped drive some of the growth. But I would say, generally speaking, our focus is on 1.6T, 800 gig. These are areas where we're seeing a lot of strength. We expect that strength to continue. And in fact, we're seeing more and more demand as we sort of enter our second half.

In terms of the new revenue or the new categories of revenue for our fiscal '27, certainly, the higher data rates, so 3.2T, possibly some coherent light ramp-ups. And also depending on the work that we're doing with our laser portfolio, we may be able to add some revenue to our fiscal '27 or even fiscal '28 on CW lasers.

So a lot of good activity there. We have been also, as everybody knows, engaged with people that are deploying copper and providing equalizers not only onboard the PC boards, but also cable-based. So very excited about those opportunities as well.

Very good. And as my follow-up, Steve, you talked more than usual on this call about team collaboration, making sure capacity is in place. It sounds like your operations execution is allowing you to gain some share. Just curious why you brought that up on this particular call. Are you seeing competitors perhaps not have enough capacity and not good planning to keep up? Or is there something else that's driving that inflection point?

Well, I think Jack and I are just privileged to be able to represent our employees. And so I think it's important to highlight the work that they're doing in collaborating to make these results happen. And so as you know, last year, the company grew by over 30%. And this year, we're on a path certainly to be in that range or higher. And we have a lot of different technologies ramping at the same time. And that absolutely requires coordination, collaboration, good, clean discussions with customers to set proper expectations. So we just wanted to highlight that.

In terms of sort of opportunities, I'll just note that because there is certainly some constraints within the Data Center market, we believe that's opening up interesting opportunities for MACOM, including, by the way, what I would consider the legacy class of lasers as med customers are, and competitors, are pivoting to more, let's say, the higher power or CW lasers to support silicon photonics, that's creating a little bit of a gap in DFB lasers. And we have a very strong broad DFB laser portfolio that can support what I would consider legacy data center 100-gig modules. And so that could be a great business for us over the next 1 to 2 years, and those products are ready today.

And Our next question in queue coming from the line of Quinn Bolton with Needham & Company.

Steve, I just wanted to follow up on the laser question. I think in the past, you said you had a couple of customers that were evaluating your CW lasers. You thought it would still sort of be a 6- to 12-month eval process. But could you give us any update on how you're feeling about the CW laser opportunity? Are you more confident that those could ramp and contribute to fiscal '27 growth?

Yes. I don't think too much has changed in the last 3 months. We have excellent optical performance of our 75-milliwatt class lasers. Customers have tested and validated performance. What our fab is doing today is dialing in a process of record. That work is not complete. So we continue to tweak the process to optimize really reliability. It's all about reliability. Typically in these systems, the weakest link is the laser. And so you need to make sure you have a very robust laser.

So there's a lot of qual work running in parallel with developing a process of record. And so that work continues, and that's all MACOM internal work. When we're ready and we feel like we have a reliable product, then we'll start working with module customers so that they can start their module quals. And then after that comes the hyperscaler qualification.

So when you add all that up and look at the time line, you're really talking about potentially, and this is assuming everything goes well and oftentimes it doesn't, a fiscal '27 or '28 time frame of contribution. We are absolutely getting pull from the market. We know there's demand. And so we just have a lot of work to do to convince ourselves that we're ready to ramp this kind of a product into high volume.

So I would, at this stage, not put your CW laser in your models, certainly not for fiscal '26 or I would say even '27. I think there's going to be a lot of other great things happening that will allow us to perhaps not only do as well as we've done this year in terms of growth, but maybe even exceed it next year because we have a lot of other irons in the fire.

And then I guess I wanted to come back on the utilization rates. I think over the past couple of years, you had mentioned the Lowell utilization rate was sort of suffering from some puts and takes in a couple of the larger defense programs and I think lower demand on the industrial side, MRI in particular. Has that utilization rate come back with the I&D business recovering? Or do you still feel like there's further room for improvement in the utilization rates of Lowell and obviously, that could be a margin tailwind as utilization increases.

I think you're correct in those comments, and we are seeing increased utilization on our traditional Lowell-based defense business. And our Defense business this year is trending to certainly over 20% full year growth. And that -- much of that, not all of it, but much of it is coming out of our Lowell fab. So that is beneficial to the sort of gross and operating margins.

Your commentary about our MRI business, which we categorize as industrial, is also improving. And we have a very strong franchise for high-voltage, nonmagnetic really kilovolt level diodes that are used in these MRI coils. We are seeing positive trends on that business, and we expect those trends to continue. So yes, those 2 things are definitely helping the Lowell utilization.

There's 2 other important things going on in our Lowell fab as well. The first is developing the advanced GaN that I talked about in my prepared remarks. And the second is the ramping up of our optical product line within the Lowell, which is an indium phosphide-based product.

Our next question coming from the line of Sean O'Loughlin with TD Cowen.

Congrats on the really solid results and momentum. First question, I just wanted to get maybe an update or offer you the opportunity to update some of your comments on the fiscal '26 segment growth other than datacom. We got the 60% growth, but I think last quarter, we talked about high teens growth in I&D. You kind of just alluded to maybe over 20% and high single digits in Telecom. Any updated thoughts there? Is that still what we should be thinking about?

Yes. I'll make some comments and then maybe Jack can also talk about sort of P&L-related items. So I do think we have a solid plan for 2026. As I mentioned, our revenue growth is going to be driven by Data Center and Defense. Today, we're definitely trending towards top line in that sort of 30% range. I can tell you that last year, we did about 32%, and it would be nice to beat that. And we also ideally would like to exit the year with at least 60% margin. We're not sure if that's going to happen. We still have a lot of wood to chop between now and the end of September, which is the end of our fiscal year. But we do see a path to having strong revenue and earnings growth. Earnings growth should be quite nice this year, certainly coming from the second half.

In terms of your commentary specifically about I&D and Telecom, I think we're thinking above 20% today for I&D, and we're going to try to push Telecom to be low double digit.

I think the only other item I would add, and obviously, the Defense piece has been quite strong for us over the past year plus. Industrial, we've been working our way through that. We touched upon the medical piece of Industrial with the last question. But more broadly, within Industrial, it is a fairly broad category. We have seen a bit of an uptick there that's helping out with our Lowell utilization. It's also driving some of that revenue or top line improvement that we see in that combined Industrial and Defense end market.

And really, as we look at filling out the rest of the P&L with some of that revenue growth, we are very much focused on improving those earnings and improving the leverage and the drop-through from an operating income and also from an EPS perspective as we work our way through the remainder of '26 and then focus more on '27 as well.

That's helpful color. A quick follow-up. Just on the input side, I know that indium phosphide is one of the materials that you use. And so I don't want to over-index to these comments, but we've had some comments from public substrate suppliers about price increases and just maybe generally across your manufacturing footprint, is that something that you're either having to absorb and there's a timing mismatch? Or is the pricing environment for a lot of these products such that you're able to sort of pass those through? Or is that not really something that you're seeing outside of the indium phosphide?

I'm not sure we want to get into the cost basis of any materials we buy. We're constantly buying gases, precious metals, gold, indium phosphide substrates, silicon carbide substrates, and we have a very strong supply chain that works very closely with our partners to make sure we're getting what we want when we need it at a fair price.

Although I will mention maybe one thing. You may have seen recently where MACOM announced a small investment in a company called IQE. We put out a press release on April 27, and this is sort of somewhat related to your question. And people may not be familiar with IQE. So they are a U.K.-based company that provides epitaxial services, and they went through a -- recently, they went through a fundraising event where MACOM participated. They raised GBP 80 million. We participated with a GBP 45 million investment.

And just to break that out very quickly, it was GBP 30 million in equity for about 11% ownership and a GBP 15 million convertible note. And ultimately, what we did as part of this transaction is put in place a long-term supply agreement to make sure that we have adequate supply of the technologies that we're currently acquiring from them and from others. And so the why we did it really revolves around your question, which is what is MACOM doing to ensure we have strong supply chain security and resiliency. And I think this is a great example of a strategic transaction, which is going to shore up not only our business regarding indium phosphide, but also the silicon carbide.

And so where we stand right now with that is it's going through regulatory approval. There will be a shareholder vote, and it's expected to close in the next 30 to 60 days. And so this is sort of an example of MACOM proactively looking at risk and retiring risk. And so this will backstop our expected growth, not only as it relates to indium phosphide-based products, but also silicon carbide-based products and some other technologies as well.

And our next question coming from the line of Will Stein with Truist Securities.

Congrats on the very strong outlook. The main thing I wanted to ask about was, Steve, in your prepared remarks, you talked about addressing the user terminal market within the LEO satellite industry. And this is, I believe, a pretty big change in strategy, at least relative to what I've heard the company talk about. We had the message previously that your focus was going to be essentially in infrastructure, the satellites and the gateways. User terminals, of course, look more like it's customer premise equipment, right, and sort of the consumer market. That's sort of uncharacteristic for you. So can you talk about what changed? What makes you want to address that market? What products you're selling and sort of timing to ramp there?

Yes. I think that's a great question. And to be clear, when we look at that market, we're looking to be opportunistic. And so we are seeing some AESA technology basically using a wide range of control products, which would fit very nicely into our AlGaAs diode-based portfolio. So you're correct to conclude we're not chasing SoCs or receivers or highly-integrated customized chips for user terminals. That is not the case. But we are seeing inbound requests for some of our control products. And so we will opportunistically look at that.

Great. And then as a follow-up, I guess, the big-picture question is you had a huge book-to-bill this quarter. Obviously, that's not all for delivery in fiscal Q3. Can you talk about the spread across end markets and the duration of that? What's changing there?

Well, certainly, as I mentioned, the strongest portion of our new orders was in the Data Center. But I will say that all 3 markets had a very strong booking event. Typically, these orders will be spread out over multiple quarters. And so I don't really want to get into any more detail than that.

We typically, just as a practice, only recognize bookings that are within a 12-month period as well. So this 1.5 book-to-bill really reflects orders that would be delivered within 12 months.

And our next question in queue coming from the line of Christopher Rolland with Susquehanna.

Congrats. I wanted to drill down on Data Center, particularly in June. So it's just absolutely inflecting. I don't think we've seen this kind of growth before. And so my question is, why now? It sounds like a lot of it is optical. When it comes to discrete components, I'm just trying to figure out kind of why the inflection? Is it just a units play? Is there something here like new DSPs that don't contain TIAs and drivers? Or is it really this move to 1.6? What's really driving that over $30 million inflection in Data Center sequentially? Why now?

Yes. Thank you for the question. And so if we pull back and look at the general trends of our Data Center business over the last 3 years, in 2024, we grew our Data Center business by 35%. In 2025, we grew it by 48% and now we're, in '26, forecasting over 60%. So the trend is there to see in terms of the long-term growth. And clearly, we're investing in a variety of technologies that would be suitable for this market. We tend to gravitate towards the highest data rate type products. We were one of the early suppliers to the 1.6T rollout, and that is paying big dividends right now as that use case expands across the data center and various hyperscalers. And so we're able to solidify strong positions there.

And of course, we're overlaying our optical components. We talked about the PDs, the photodetectors. We're working on the lasers. They're not quite there yet. So I don't know that there's an inflection point rather than a trend. And the trend is that our portfolio is broad in nature, and we're gaining traction at a wide range of customers selling a variety of functions.

And as part of our strategy, we want to be diversified. So as you know, we don't sell DSPs just for the record, but we want to support module manufacturers that are, for example, using LPO or if a particular customer wants to electrify copper or maybe they want to experiment with coherent or coherent light.

So these are all things that we're very focused on. These are long-term activities that are now starting to pay dividends. So it's not really an inflection point. I would say it's consistent with really the unit growth within the market as well. And so we're just trying to keep up with the growth, and that's some SAM expansion as well as portfolio expansion.

The only other item I would add, Steve, is, yes, the higher speeds are definitely helping to contribute to the growth that we've seen, but also some of the lower speeds, 100G and below has continued to hang in there over the past number of quarters and would expect that trend to continue as well.

Excellent. Perhaps as a follow-up on copper this time. If you could talk about engagements, particularly on kind of large-scale architectures, whether they're trending towards ACC or LE and kind of your outlook for this market? Do you think this is kind of the next big thing? Or this is, at this point, a little bit more of a TBD?

Yes. I would put it in the category of a TBD, and we are seeing real demand, real hardware, real production ramps on the optical side. And that is certainly the vast majority of our revenue today. So the electrified cable is a great opportunity for us and will be additive in the future. And of course, as I mentioned, we are going after equalizers not only for sort of traditional high-speed 1.6T, but also PCIe and other applications that are closer to compute, let's say.

So we are very active with our equalizer portfolio at various accounts, and there is a wide range of use cases that we're chasing.

And our next question coming from the line of Timothy Savageaux with Northland Capital Markets.

And I'll add my congrats on that guide, pretty spectacular. My question or at least first is just trying to understand more about the size of your photonics or optical device business, which we're talking about more and more here. And I don't know what kind of color you're able to provide. Does that business get to 10% of Data Center revenue in any one of these quarters in the second half? That seems possible? Or is it already there? Or as you look at your sequential growth here in Q3 and heading into the second half of the year, is that a meaningful proportion coming from the optical device side? And then I'll follow up.

Great. Thanks for the question. And just to highlight that we don't typically break out revenue by product line, and that would be a very -- mainly for competitive reasons. And that -- so that would -- what you're asking is a very specific question that we would prefer to not answer so directly.

I will say that we have a very strong product. I think our PD has definite advantages over what we're seeing in the market in terms of our ability to mass produce these with industry-leading dark currents, [indiscernible] chips, lens integrated onto the device. We have developed in our Ann Arbor fab, a very strong epi recipe that is providing the industry with very high levels of sensitivity. So all of those things are certainly playing into some of the successes we're having with the PDs.

The other thing I'll note is we demonstrated, I think, a year ago at OFC, the idea of stacking the PDs on our TIAs. And so that has certainly been beneficial in terms of supporting not only TIA growth, but also PD growth.

But we do have a diversified portfolio. We're not going to break out how much is concentrated on any one product at any one time because it's constantly changing.

Okay. But it sounds like it's getting to be material. Maybe we can get a binary answer on that. But either way, I do have a follow-up about kind of the inflection. And the question is about within Data Center, customer diversification, right? I mean you have a very big customer in China is doing extremely well, and that could be a lot of it. But could you address maybe your reach throughout other major module suppliers in other places? And to what extent is that a big factor versus growth in your current major module customers?

Right. And I think embedded in that question is really what's your exposure to the hyperscalers because that -- and so it really starts there in understanding what their needs are and understanding who they're using within their supply chain, and then we try to align ourselves with both. And depending on the hyperscaler, the platforms, the technology they're working, we try to align ourselves either directly to their road maps or to their vendors' road maps.

I will say that from maybe a year or 2 years ago, our diversity today is far stronger. And so we see revenue today in scale up, scale out and scale across. So we are actively positioned in each one of these different areas. And that exposure varies by the module manufacturers, certainly varies by the hyperscaler. But at the end of the day, a lot of this is 1.6T. That is sort of the main event. Today, it's going to continue, as I mentioned, throughout the course of our fiscal '26, calendar '26 and even into '27. And if we pull back and we look at the work that we're doing there, as I mentioned earlier, I think we have potential to do really well in our fiscal '27, where obviously, we'll have to wait and see how things go. But we are getting large orders that go out in time that support real production programs.

And our next question coming from the line of Karl Ackerman with BNP Paribas.

I have two, if I may. Steve, your book-to-bill of 1.5 appears to be a record, certainly multiyear record anyway. Should we expect meaningful capital investments in fabs to support this backlog? Or do you have the necessary capacity and assurance of supply to address this growth?

So we are investing in our fabs, and that's -- I think that's a very interesting question to ask, and let me just very briefly talk about that. So about a year ago, we talked about increasing the wafer production capacity in our North Carolina fab by 30%. We said that would take 15 months. That work should be done by the end of this calendar year. And so we invested less than $20 million. That was about $15 million to $16 million. We had the opportunity to buy heavily discounted fab equipment from the market. So that's baked into our numbers and the capital numbers.

When you look at our Massachusetts fab, we are investing in equipment for advanced GaN. We're investing in equipment to expand indium phosphide capacity and production, and we're doing general modernization. And then in our French fab, we're moving the entire product line from 3-inch to 6-inch. That equipment is already in place. There's been very little money spent to do that. However, we are installing a new MOCVD reactor in France to support some of the volumes that we anticipate in the next couple of years.

So there is definitely moderate investments. As we think about our business and being diversified, you will not see us greenfielding -- building a new fab, building a new factory. We think -- we have a target. Now that we hit $1 billion of revenue, we want to hit $2 billion. And we don't need to buy a fab or build a fab to do it. What we need to do is expand incrementally capacity within the walls of our existing facilities.

And that's a very -- and that's why, as Jack mentioned in his commentary, you're going to start to see tremendous earnings growth. Capital should be in that 4% to 5% of revenue range, and we have no major big investments planned. Do you want to add to that, Jack?

That's correct. So we're -- I think the guide that we put out for the remainder of our fiscal year '26 was $55 million to $65 million, depending on the timing of the completion of some of these items and when the capital was purchased. But we've been very disciplined and don't expect the CapEx number to exceed that 5% of revenue. And I think history has demonstrated that we'll be very prudent with what we're doing, but also opportunistic to make sure we can meet the capacity requirements that are out there.

Yes. Very clear. For my follow-up, last quarter, you spoke about how one of your competitors had exited the RF power game market. Do you believe that remains a tailwind for you throughout the second half of this year? Or has the benefit now largely been realized?

So the benefit has not been realized, and it won't -- if there is a benefit, right? If there is -- so it won't -- it hasn't been realized yet. It won't happen in '26. The revenue will start to shine through in '27. And the reason for that is as we see some of the customers pivot and engage MACOM on new platforms, it takes time for those design wins to translate into revenue. So it's really, I would say, best case, a back half of '27 contribution.

And as that competitor exited the market, they put in place last time buys, they built inventory for customers. They're doing it very responsibly. So really, what we're intersecting is new programs and new opportunities as opposed to existing programs that are in flight or in production.

And our next question coming from the line of Vivek Arya with Bank of America Securities.

This is [indiscernible] on behalf of Vivek. Congrats on the results as well. A follow-up on earlier gross margin question. And clearly, you said you're investing a lot in incremental capacity. At the same time, you're really scaling a lot in volume and you're improving yields. So I just wanted to know the puts and takes into what really goes inside gross margin medium to long term as you're already kind of at that target model level?

Yes. Not sure if we've put a target model out there, but definitely been working to try and improve our gross margin. As I've stated previously, there's a lot of moving pieces that contribute to the gross margin, right? We've got some of the normal costs that are out there, including labor, facility costs, equipment depreciation, those types of things as well as material costs that's all working its way through our gross margin.

So yes, we've been pleased with the progress we've made over the past few quarters. And as we look out to the remainder of '26, look for continuing improvements on gross margin and also as we work our way through 2027.

Got it. And then more of a longer-term question. So obviously, fiscal '26 is really looking exceptional. As we look into '27, and I think a lot of the same drivers should relatively remain. So the 1.6T transition, the 200G PDs and et cetera. So do you see any other potential risks that would lead to results otherwise? So for example, I think an earlier question to supply availability, maybe some component cost increase or any quarterly lumpiness or just your customer exposure mix. Any help in understanding how next year should traject should be helpful.

Thank you. And I think, yes, to all of those elements that you described, that those are things we deal with on a regular basis. And that's also why we're always hesitant to talk about long-term targets and growth because there's a lot of variables that are outside of our control.

But that said, we are in a position where we have -- as I mentioned on my script, we're in the right place at the right time with a great product portfolio, and we have a lot of interest across the 3 markets. So we do expect our fiscal '27 to be a strong year. And we don't think that this growth we're seeing in this quarter is sort of a onetime event. We expect to see solid growth in 2027.

I think it's the normal list of risks that you brought up. There's always geopolitical, supply chain type issues that you have to deal with, and we think we do that reasonably well. So that's also, of course, offset by new growth opportunities. And the Defense market right now is very active, not only here in the U.S., but also overseas. We have a growing customer base in Europe. When we were looking at our recent growth rates, between North American and European Defense customers, they're both growing at the same rate, and we are very pleased to see that. So the Europeans are spending more money on electronics and defense systems, and we're participating in that. So that's certainly going to help next year.

The Data Center, we're not expecting a slowdown. The hyperscalers continue to invest. That's clear. And on the Telecom side, we're well positioned in SATCOM to have a very strong year in our fiscal '27.

Thank you. And there are no further questions in the queue at this time. I will now turn the call back over to Mr. Daly for any closing comments.

Thank you. In closing, I would like to thank all of our dedicated and talented employees who made these results possible. Have a nice day.

That does conclude our conference for today. Thank you for your participation, and you may now disconnect.

Welcome to MACOM's First Fiscal Quarter 2026 Conference Call. This call is being recorded today, the Thursday, February 5th 2026. [Operator Instructions] I will now turn the call to Mr. Steve Ferranti, MACOM's Senior 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 MACOM's financial results for the first fiscal quarter of 2026. 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 result in those differences, we refer you to MACOM's filings with the SEC. Management's statements during this call will also include a 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 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 Q1 results for fiscal year 2026. When Jack is finished, I will provide revenue and earnings guidance for the second quarter of FY '26, and then we will be happy to take some questions.

Revenue for the first quarter of fiscal 2026 was $271.6 million and adjusted EPS was $1.02 per diluted share. Demand for our products is strong across our 3 end markets, and our backlog continues to build. Our financial performance improved across most key metrics in Q1. At quarter end, we held approximately $768 million in cash and short-term investments on our balance sheet.

Our Q1 book-to-bill ratio was 1.3:1, and orders booked and shipped within the quarter was 23% of total revenue. Our Q1 turns business was higher than recent quarters due to strong early quarter bookings. Our current backlog remains at record level. Turning to other recent trends. Q1 revenue performance by end market was as expected and all end markets grew sequentially.

Industrial and Defense was $117.7 million. Data center was $85.8 million, and telecom was $68.1 million. Data center was up approximately 8% sequentially, Telecom was up 3% sequentially and IND was up 2% sequentially. Both IND and data center revenues were at record levels. As we review our full fiscal year forecast, we are gaining confidence that our data center revenue could achieve 35% to 40% year-over-year growth.

Hyperscalers capital investments are robust, which is driving demand for our 800 and 1.6T optical and high-speed analog products. To capitalize on this opportunity, we have been expanding, and we will continue to expand our data center product portfolio. As a reminder, our portfolio currently supports NRZ and PAM4 in coherent modulations and we provide products that support VCSEL, EML and silicon photonic-based optical transmission technologies as well as electrical connectivity solutions over copper.

Revenue growth inside the data center is robust, primarily in pluggable optical modules and optical cables with our 800G and 1.6T PAM-4 products. We support our customers DSP, LPO and LRO module architectures. We also support customer requirements for coherent DCI hardware, including ZR and ZR Light. MACOM's coherent light solutions designed for shorter-reach coherent applications enable higher bandwidth performance with significantly improved power efficiency compared to traditional coherent systems.

Interest in LPO continues to spread, and we are further supporting customers as they leverage the benefits of a low-power and low latency 400G and 800G optical interconnect solution. In addition, we see interest in enabling a similar value proposition at 1.6T using LRO or LPO implementations.

In this case, a 200 gig per lane solution would be used. We're also supporting LPO use in PCIe and NPO implementations as the industry strives to optimize interconnects for both scale up and scale out. And notably, we are starting to see interest in LPO from telecom fronthaul applications. Demand for our 200 gig per lane photodetectors continues to grow supporting 800G and 1.6T connectivity.

As I highlighted on our last earnings call, we are adding manufacturing capacity to keep up with our customers' forecasted demand. We have indications that demand will remain strong in calendar 2027 into calendar 2027. Further, MACOM is positioning itself to support next-generation optical receiver platforms at speeds beyond 200 gig per lane.

Part of our near-term and long-term growth strategy is to expand our photonics portfolio with higher speed photodetectors and new CW lasers. We are also seeing renewed interest in our linear Equalizer products that help extend the reach of copper interconnects in 800G and 1.6T.

Linear equalizers enable longer reach active copper cables or ACCs, and can enhance signal integrity when used in backplane applications. We are working closely with multiple customers to address their program-specific requirements and various use cases. MACOM's road map extends to 3.2G technologies and we have aligned our product road maps and resources with our customers' needs to ensure we deliver the right technology at the right time.

Our future products are increasingly optimized for co-packaged and highly integrated architectures like CPO and NPO. We can differentiate in this market based on our strong customer relationships, IC and system design expertise as well as our unique photonic materials and product design expertise. And finally, we have successfully launched a PCIe 6 optical chipset that supports sideband data streams over fiber, and we have expanded the portfolio with a new PCIe 7 equalizer.

These ICs provide new exposure to the compute side of the data center network. These products and associated solutions will be on display at the design can show in Santa Clara, California later this month. Similar to the data center, we see many growth opportunities across the industrial and defense markets, but primarily in the Defense segment.

Advanced radars, electronic warfare and new communication systems are using higher frequencies, higher RF or microwave power levels and higher levels of integration. These requirements play to our strengths, and we offer our customers turnkey support from custom chip design to subsystem solutions. We are a supplier of choice among many of the large U.S. defense OEMs and we continue to work to expand MACOM's presence and brand in Europe. The pace of innovation in the defense market is accelerating by both the traditional defense primes and the newer, more nimble defense companies.

As an example, new risks from drone attacks are driving the need for an entirely new platform to detect, identify, track and respond to these threats. MACOM has a portfolio of products and system engineering capabilities to support our customers' fast design and manufacturing time lines. Our defense customer base is large and very broad, and we typically support radar systems, missile and missile defense systems, drone and drone defense systems and wideband electronic warfare systems.

I'll illustrate 4 examples where our products have a competitive advantage in the defense market. MACOM has developed a family of industry-leading, high-efficient wideband game mimic amplifiers that significantly reduce the transmitters heat dissipation. This is critical for small form factor applications.

Our GaN technology supports directed RF energy solutions, our 7-kilowatt devices lead the industry. Our RF over fiber products enabled distribution of RF and microwave signals over long distances using linear photonics. Our products are typically used in phased array radars, remote antennas and tow decoy applications.

And when it comes to receiver protection diodes, whether in a radio or a radar, MACOM is the golden standard in the industry for performance and quality. We like to combine our proprietary core technologies with microwave systems engineering capabilities. This enables us to engage much earlier in our customers' project design cycles and presents the full scope of MACOM's capabilities to help solve the customers' technical challenges.

Within the telecom end market, satellite-based broadband access and direct to sell opportunities remain robust with numerous LEO networks in the planning stages. The number of LEO satellites planned to be launched continues to grow as more companies compete to provide commercial broadband data, voice and video communications by satellite.

These networks typically use microwave or millimeter wave frequencies and free space optics or FSO, communications for satellite to satellite or satellite to ground communications. LEO and MEO constellations have many key areas where MACOM can contribute, including large phased array antennas with active beam steering, direct-to-device links operating at UHF or S-band, backhaul links operating at Ka, CV and E-band data center-like electronics with high-speed optical links transferring data within or across the satellite, free-space optics for satellite to satellite communications and ground terminal and gateway linearization for high-power transmitters.

Ground stations and gateways are a key part of the LEO networks. MACOM specializes in designing products and solutions that overcome nonlinearity of RF, microwave and millimeter wave signal transmission for satellite communication systems. In many cases, ground to satellite links prefer linearization of SSPAs or TWTAs to boost the linear power efficiency of the link. I would like to update investors on the status of our $55 million satellite contract that we were awarded and announced previously.

Production is planned to start in the second half of calendar 2026. The schedule delay is primarily driven by satellite system changes flow down from our customer, which impact the design of the hardware we deliver. Overall, we view this as a positive because the system changes can add new functionality, which broadens the application space for the Constellation.

Turning towards the 5G segment we serve. Our global team continues to secure new business in the macro base station market, driven by the need for high-performance amplifiers and multi-band radios. We are making good progress improving the overall performance and competitiveness of our base station portfolio with major improvements in the 2.7 and 3.5 gigahertz bands.

Our RF power team is sampling products using our new GaN 4 technology, which will further improve our competitiveness. We recognize the 2 major European base station OEMs expect global -- the global RAN market to be flat in 2026 with regional variations. Both companies recently commented on a significant potential upside from the EU's high-risk vendor replacement initiative, and this might provide MACOM upside growth over the long term.

Future base station demand is supported by additional 5G rollouts, growing AI-driven connectivity needs and emerging mission-critical defense markets. We believe the cable infrastructure market segment is also improving. Cable Networks are in transition from DOCSIS 3.1 to DOCSIS 4.0, and we have been releasing new products and working with customers on design wins to support this upgrade. We expect the cable TV market will be a modest contributor to our telecom revenue growth in FY '26.

Next, I'll quickly summarize progress on our 5 goals for FY '26 and which we outlined on our last earnings call. First, take advantage of the data center opportunity. We continue to enhance our design teams and expand our presence in the data center and we are raising our data center year-over-year revenue growth base case from 20% to 35% to 40%. Second, to expand our 5G market share.

We are excited to be sampling our next-generation GaN 4 products to our customers. In addition, we see that one of our competitors is exiting the 5G RF power GaN market, and we hope to benefit from this competitive landscape shift. Related to this event, we recently hired a team of experienced engineers to complement our existing RF power team. Third, extend leadership in A&D.

Our defense business continues to grow, and our team continues to win large IC module and subsystem programs. Fourth, continue to develop advanced 35 semiconductor technologies. Our technology teams are making progress developing advanced GaN on silicon processes while also installing new equipment to modernize and expand manufacturing capabilities. And last, to manage our capital and investments.

As Jack will note, our return on capital metrics and trends continue to improve, and we plan to manage investments to achieve superior returns. In summary, our strategy is to continue to build a best-in-class and diversified semiconductor portfolio that will enable MACOM to capture a larger share of the 3 markets we focus on.

Our agility and strong teamwork across our organization helps us address opportunities and ultimately beat our competitors that are often larger and have more resources. Jack will now provide a more detailed review of our financial results.

Thanks, Steve, and good morning, everyone. The results from our first quarter were solid and MACOM achieved a few new quarterly records associated with our financial performance. Our teams continue to focus on executing our strategic plan and driving increased revenue and profitability. Fiscal Q1 revenue was $271.6 million, up 4% sequentially and up 24.5% year-over-year, driven by growth across all 3 of our end markets. .

We have seen continued strong bookings across all of our end markets, resulting in a book-to-bill which increased to 1.3:1. This was one of our strongest quarterly bookings in the company's history and our highest quarterly book-to-bill ratio since Q3 2021. On a geographic basis, revenue from U.S. domestic customers represented approximately 45.6% of our fiscal Q1 results.

A slight increase over both the prior quarter and Q1 of fiscal year 2025. Adjusted gross profit for fiscal Q1 was $156.5 million or 57.6% of revenue. Through the diligent and consistent hard work of our dedicated operations team, we have continued to increase our capacity and improve yields and we expect to see ongoing incremental progress across all 4 of our fab operations during fiscal 2026.

The increase in product demand across our internal fabs has resulted in improving utilization and associated incremental gross margin improvement. As a result, we continue to expect sequential quarterly gross margin improvements of between 25 to 50 basis points as we move through the remainder of fiscal 2026. These improvements include any potential offsets to cost increases, such as gold and other precious metals, depreciation and labor costs.

Total adjusted operating expense for our first quarter was $82.5 million, consisting of research and development expense of $55.8 million and selling, general and administrative expense of $26.7 million. The anticipated sequential increase in adjusted operating expense compared to Q4 was primarily driven by ongoing R&D investments and employee-related costs.

As our business continues to grow, we expect associated OpEx growth, primarily related to higher R&D and higher variable costs. Consistent with our practice, we will remain very focused on managing our OpEx to balance long-term revenue growth and profitability with continued investment in the business.

Depreciation expense for fiscal Q1 2026 remained stable at $8.7 million, the same as the prior quarter. Adjusted operating income in fiscal Q1 was another record coming in at $74 million, up 10.4% sequentially from $67 million in fiscal Q4 2025 and up 33.5% year-over-year. For fiscal Q1, we had adjusted net interest income of $6.7 million, a slight decrease of less than $100,000 sequentially from $6.6 million in Q4.

Our adjusted income tax rate in fiscal Q1 was 3% and resulted in an expense of approximately $2.4 million. As of January 2, 2026, our deferred tax asset balances remained at $208 million. We anticipate further utilizing our deferred tax asset balances, including R&D tax credits, through fiscal 2026 and beyond, helping to keep our cash tax payments relatively low over these periods.

We expect our adjusted income tax rate to remain at 3% as we continue through fiscal 2026. Depending on the jurisdictional mix of our income, we expect the U.S. government's recent tax legislation to support a low to mid-single-digit adjusted tax rate for the next few fiscal years.

Fiscal Q1 adjusted net income increased approximately 9.6% to $78.2 million compared to $71.4 million in fiscal Q4 2025. Adjusted earnings per fully diluted share was $1.02, utilizing a share count of 76.7 million shares compared to $0.94 of adjusted earnings per share in fiscal Q4 2025. I'll note, exceeding $1 per share of quarterly EPS is a milestone for the company.

Our team continues to optimize the business' performance which has resulted in sequential increases in our adjusted operating income and EPS over the past 10 quarters. Now on to operational balance sheet and cash flow items.

Our Q1 accounts receivable balance was $160 million, up from $148.6 million in fiscal Q4 2025. The increase in our accounts receivable balance was driven by sequential quarterly revenue growth as well as timing of customer shipments and payments.

Our days sales outstanding averaged 54 days compared to the previous quarter at 52 days. Inventories were $238.9 million at quarter end, up sequentially from $237.8 million, largely driven by additional work in process inventory at the RTP and [indiscernible] as well as higher balances to support anticipated future demand across the business.

Inventory turns remained steady at 1.9x the same level as the preceding quarter. Fiscal Q1 cash flow from operations was approximately $42.9 million, down $26.7 million sequentially. The sequential decrease was primarily due to the typical timing of supplier and employee-related payments as well as other changes in working capital balances during the quarter.

We expect that our Q2 cash flow from operations will be in excess of $60 million. Capital expenditures totaled $12.9 million for fiscal Q1. We continue to estimate fiscal year 2026 CapEx to be in the range of $50 million to $55 million as we upgrade and enhance our production and engineering equipment, facilities and expand capacity where needed.

Moving on to other balance sheet items. Cash, cash equivalents and short-term investments for the first fiscal quarter were $768 million. We are in a net cash position of more than $268 million as of January 2, 2026, when comparing our cash and short-term investments to the book value of our convertible notes.

In mid-March, we anticipate retiring our 2021 convertible notes by paying out $161 million of principal value in cash and settling any conversion premium with shares of our common stock. Shares associated with this settlement have been included in our fully diluted share count as well as our guidance for Q2. Our remaining debt balance is approximately $340 million of convertible notes, which mature in December 2029. I would like to highlight that over the past several years, we have been focused on growing our profitability and carefully managing our operating asset base, resulting in an improving return on invested capital.

We feel this ROIC improvement demonstrates the effectiveness of our business strategy and furthers our goal of building long-term financial strength for the company. Thanks to the entire MACOM team for their contributions to help make this another quarter which included the achievement of additional record results. Now back over to Steve.

Thank you, Jack. MACOM expects revenue in fiscal Q2 ending April 3, 2026 to be in the range of $281 million to $289 million. Adjusted gross margin is expected to be in the range of 57% to 59%, and adjusted earnings per share is expected to be between $1.05 and $1.09 based on 77.7 million fully diluted shares. .

We expect sequential revenue growth in each of our 3 end markets. We expect that data center will achieve low to mid-teens sequential growth, and we expect telecom and industrial and defense will achieve low single-digit sequential growth.

As Jack highlighted, we expect to make incremental progress improving our profitability and financial performance in Q2. And last, I would like to welcome Brian Ingram, who joined our Board of Directors on January 12. Brian's industry experience and strategic acumen managing large, multibillion-dollar businesses will be an asset to our management team and the Board.

I would now like to ask the operator to take any questions.

[Operator Instructions]

First question coming from the line of Quinn Bolton with Needham & Company.

Congratulations on the nice results. Steve, I wanted to ask, obviously, a nice uptick in your annual outlook for the data center business from 20% to $35 million to 40% this year. I wonder if you could just spend a minute talking what gives you the confidence to raise that outlook? Is it just sort of the rising tide you now have better visibility as orders have filled in? Is it driven by share gains? What's driving the improved outlook in data center?

Thanks, Quinn for the question. And to some degree, it's a little bit of all of the above for your question. But the key underlying driver is 1.6T. That's where we see the most activity, the most design wins transitioning into production runs. So I would just highlight 1.6T is really the long term or near -- I would say the long-term trend that will be very favorable to MACOM and you're correct that as we look at our data center business today, we have a very healthy backlog.

We think our second half will be stronger than our first half. In terms of the overall absolute dollars of revenue shifted. So we are in a very good position. We have programs that are ramping that gives us confidence to -- as a base case hit 35% to 40%. There is also upside to that number, which is a bit unquantifiable right now.

And we'll update everybody certainly on our next call as to more specific guidance for Q3 and Q4.

Excellent. And Steve, you mentioned -- I mean, there's been a lot of talk about CPO in the past couple of weeks and months, I guess. You mentioned NPO maybe even CPO in your prepared script, but maybe just spend a minute talking about how MACOM could benefit to the extent we start to see a shift more towards either near packaged or co-packaged optics.

Yes. And the product set that we would sell into a CPO or NPO platform is very similar to what we sell into pluggable modules. So it's the same drivers, TIAs, photodetectors and possibly lasers. I will highlight that a lot of these platforms are moving quickly to silicon photonic-based solutions, which is putting heavy demand on the optic -- certainly the CW laser and the photo detector optical chips.

And so we have a very competitive photo detector today. It's ramping in production, primarily for pluggables and we're making very quick progress on our CW lasers. We now have 2 customers that have confirmed that our CW lasers are meeting their requirements electrically.

And so now we are going through a qualification phase, which will last some number of months and also looking at the production readiness of our fab. These are 75-milliwatt lasers. These are not what I would consider the higher power 400-milliwatt class lasers. Those are not the type of lasers that we make today.

But we do think that the CPO and the sort of transition is a benefit to MACOM. I'll also add that from an overall architecture, you see many, many channels in a smaller form factor. So a lot of the traditional chips that we sold into pluggables are becoming more complex for NPO and CPO.

There's far more channels per chip. And this is a change that we have a lot of strength and in terms of a design capability. And then the last thing I'll add is some of these systems are actually moving towards coherent modulation and coherent light specifically.

And so in this case, we have a very strong design capability given the history with our metro long-haul chips that we've been shipping for years.

Next question coming from the line of Vivek Arya with Bank of America Securities.

See, you were nice enough to give us the prospects for data center growth this year. I was hoping you could give us kind of some similar growth potential in your other 2 segments also.

And I'm particularly interested in the telecom side because of this RF power exit that NXP announced, I think they had close to $300 million or so business last year, which is larger than your entire telecom segment. So I'm curious, when do you think you can start to gain some share? When does it start to really become accretive to your base telecom business?

Yes. So it was certainly a fortunate stroke of serendipity that one of our competitors is exiting the business. I can't really comment on how much market share this will translate to, I think it will take 1 or 2 years for that to play out.

And so our goal is to strengthen our design team, accelerate product development, go to the market with more intensity to try to maximize the opportunity. But I think it's sort of premature today to put a dollar value on that. I think the 5G market space is a relatively slow-moving market where it might take 1 year to get a design win and then after that, you have a ramp.

And so we want to basically engage the same customer base that we have today with more intensity. And we also want to let them know that we're going to be there not only for the current 5G generation, but also the next-generation platforms.

And as they move to different architectures, some of which will include more fiber right up to the remote radio unit, we want to be there and offer the full suite of products and so we do find this to be sort of a very exciting time to be addressing the market. Now with that said, the market is flat, as I mentioned in our -- my prepared remarks, so the overall number of radios being manufactured per year is relatively flat, but we believe we can grow through share gains.

And so that is certainly front of mind for us. The other important area that we focus on in the telecom space is SATCOM. And as I mentioned, we have a very large backlog. We have a LEO program moving into production in the second half of calendar '26 and we have many, I would say, significant opportunities that we're working on, which will really provide growth in our 2027 and beyond time frame.

And what we basically see is an incredible amount of investment going into LEO constellations for direct-to-device applications. And we think that there's certain structural reasons why the market wants space-based direct-to cell connectivity.

And we want to make sure that we offer the full suite of products to these different satellite systems. And every customer is doing something a little different. Our content varies dramatically from customer to customer, but we have just a really rich treasure trove of technology we can offer our customers here.

And anything on the overall segment growth for this year? And if I could just kind of squeeze in my second question there on the gross margins. If your mix shifts to data center and more optical components, several of your peers tend to have somewhat lower margins, but I don't know what is the right way to do apples-to-apples margin comparison between several of your optical there because they sell complete transceivers and modules as well, which you don't -- so I'm just curious if the mix shifts to data center, what that does to gross margins and if Steve, if you could help us with just kind of the overall growth prospects for IND this year.

Sure. And why don't I start with the first part of that question, and then Jack can address the second part. So we don't give full year guidance, and I think you're sort of asking what is the rest of our fiscal '26 look like. And as you know, last year, we grew by 32% and in fact, that was driven a lot in part by our telecom business that grew over 40% last year.

This year, we don't expect the same level of growth. It's more likely going to be high single digit, maybe low double digit, but we'll have to wait and see on the timing of some of the programs that I've talked about. But it is growing, as I talked about, the market opportunities for us not only in 5G, but also the SATCOM and of course, cable improving is providing us with those growth opportunities.

And then the last segment, just for completeness, I'll talk about is our IND. IND last year also did very well, close to 20% year-over-year growth. And as we look out into the second half of the year and our look at the tea leaves, again, we probably are unlikely to hit 20% growth.

It's probably somewhere between 15% and 20% if we sort of look at our backlog and all the different moving parts. So collectively, MACOM should grow and we have internal targets that put us somewhere in the 20% range, plus or minus.

But of course, all of this is dependent on booking orders, ramping successfully, executing on various programs. But there are fundamental growth opportunities that are intact, the movement to higher data rates inside the data center, the movement to more optics in the data center. This is a tailwind for us.

And our IND more and more again on silicon carbide, and we're providing more modules and subsystems to our customers. And then in the telecom space, as I talked about, we see opportunities with LEO in 5G. So these are really the primary pieces that we get excited about. And then on the profitability side and [indiscernible] further.

And back to the root of your question, Vivek, with regard to our profitability versus some of our other peers. We're going to be different in terms of how those peers may look, whether it's within the data center end market or within IND and telecom.

So the mix of fabs that we have versus things that are maybe fab externally, may create a different answer. As Steve had mentioned that 25 to 50 basis points of sequential quarterly increases on the gross margin side, is comprised of a number of different items that we've got, which we think are working in our favor, including some volume increases as well as some new product introductions across the business that is supporting that expected gross margin improvement as we work our way through the remainder of the year.

Our next question coming from the line of Tom O'Malley with Barclays.

I just wanted to dive a little bit more on the gross margin line. You pulled in the RTP fab in-house. You talked previously about bringing more products into that fab that they can use to run externally. Can you maybe give us an update on how that's going so far? And then you've guided that 25 to 50 basis points of incremental improvement.

Over time, do you think that RTP could contribute a little bit more to the upside on that gross margin profile? Any update there would be helpful.

Thanks for the question, Tom. Just to highlight, since we closed that acquisition of the RTP fab, our team in North Carolina has been incrementally improving the profitability ever since we purchased the fab. So almost every quarter, we have seen positive movement in terms of cost of manufacturing, improving yields, lowering the scrap improving overall efficiencies throughout the building and removing costs.

And so the team has done a phenomenal job there. The improvements that we're seeing this year and going into next year for gross margins, well, I think, primarily revolve around improving the utilization of our Massachusetts-based fab and to some degree, our French-based fab. We do see increased demand, and that is improving the overall gross margin and operating margin models.

And that's being driven by the market. I will say that there's significant more work to do at our North Carolina fab. One of the primary goals there is to increase output. We have a very aggressive plan to increase output by 30%. We have bought some amount of equipment to support that. But a big part of that added capacity will be reducing the cycle times. That is that site's #1 corporate priority is to speed up not only development wafers but also production wafers. And that just has so many benefits to the business.

So that is a key focus for that particular fab. As it relates to in-sourcing some of the components that we currently outsource, those benefits have not hit the P&L. They won't those items will really come on, most likely into 2027 and beyond because you're talking about taking IPDs or capacitors from a third-party vendor and replacing it in new products with MACOM content.

And so that has to go through a design cycle and those benefits will come on incrementally over time. It's not -- you're not seeing that shine through today. The last thing I'll highlight is our French fab is doing a phenomenal job with the transition of their technology from a 3-inch wafer to a 6-inch wafer.

And we are just about ready to wrap up that work and release to production all of the different processes. We sort of have a goal of -- by June of 2026. Everything will be fully qualified and released to production. And so as we go into 2017, that will also provide a benefit, not only from a quality point of view and efficiency point of view, but just -- we're also seeing improved performance of some of our chips in the processes as we migrate to newer equipment.

In our low fab, I'll just add one other item. It's a high mix fabs. So we're running gas, and silicon, indium phosphide. And we continue to -- the team here does a phenomenal job balancing all of the different technologies so you're starting to see that come through now, Tom, is a conclusion. And Jack I know that was a long-winded answer. Do you want to add to that?

I think the short answer, Tom, is it's not any one specific item that we have that's helping to drive the improvement that we see in front of us. It's a combination of a lot of things happening across the entire organization, where we're looking to take out costs where it makes sense, try and be more efficient, work with our suppliers.

So there's a lot of contributing factors to this as we go forward from a gross margin standpoint.

Super helpful. Just as a follow-up, I'm going to cheat here and kind of ask 2 at once, but 2 growth drivers where people are really focused this year, SATCOM and then also ACCs. It's difficult to get the relative sizing of these given they live within larger buckets historically, you haven't really broken that out.

But any help on the relative sizing of those 2 drivers? And then as you look into the out year, I think you talked about strong telco growth and pointed to SATCOM specifically. You spent most of your time on the data center talking about modules and optical side, maybe a little bit on the ACC market and how that can contribute to data center growth as well.

Sure. And certainly, I tried to address the ACC question in my prepared remarks. I'll just add to that, that as we look at our revenue for Q1, there was no ACC revenue in there. In terms of the SATCOM market, it is a growth market, not only on the commercial side, I'll add, but also on the military side and the DoD side. And so we do expect our SATCOM business to grow very nicely as we move into 2027.

We have multiple SATCOM LEO programs in the design phase today. And by the way, I'll also highlight that the telecom revenue last year, growing by 40%. One of the drivers, not the only, but one of the drivers was some of our LEO business. We don't -- and then last time, we don't typically size product lines or market segments. We have our own -- I mean, we do it internally, but we don't typically share that externally. I know there's certainly a lot of very good information in the industry about sort of peeling the onion back on those market sizes, and we would deflect the answer to maybe having you look at those -- that other information. But we don't typically give out Sam's by product line or market segment.

Our next question coming from the line of Karl Ackerman with BNP Paribas.

Yes. Two for me as well, please. Steve, going back to SATCOM, if I could, for a moment. You indicated that satellite system changes can support more functionality than before. Is it fair to assume the size of the satellite program is the same or larger than your previous view? And as you address that, could you also speak to the breadth of seat programs that you are engaged on.

So we think that if you're referring to the large contract that I mentioned, we believe our customers adding functionality that will bring new customers to that constellation, which is a positive for the long-term prospects of that platform.

And so I hope I answered that particular question. And what was the second part -- second question?

Just the breadth of satellite programs that you have engaged on?

Yes. So we have multiple, as I mentioned. We are addressing not only on the microwave side, which would be either a backhaul link ground to satellite. Also, we're engaged with satellite to satellite communications.

We're engaged with optics we're pretty much -- it's probably fair to say that we are engaged at some level with all of the major LEO constellations today. Some of that is narrow support, maybe it's direct-to-device or direct to sell circuitry or electronics. Some of it's on the optics side. Some of it is on the microwave side.

Some of it is on the ground station side. But it's fair to say that we have blanketed the major players as well as the up and coming companies that are trying to produce their first satellites. So it's a strategic focus for the company. we have a lot to offer.

And I think over time, the business will grow. And just maybe more specifically on that larger contract. I think we said previously it was a $55 million contract with the potential of an additional $25 million add-on. And in our minds, what we think will happen is once we're in steady-state production, will be turned on for additional orders that will dovetail onto the back end of the contract.

And our next question, coming from the line of David Williams with the Benchmark Company.

Let me add my congratulations to a really solid progress and demand here. I guess maybe first gentlemen, thinking about your demand across the data center. Is there a way to kind of think about that from a regional perspective? And are there transitions or maybe the pace of transition that's happening in terms of the speeds between the different regions you service?

There is. There is certainly a geographic spread, but I would highlight maybe more one area that we focus on and the way we look at the data is also by data rate. And so a significant portion of our data center revenue is 400 gig and above with the fastest-growing portion of the market being the 1.6T applications.

Now we do, as you know, still service a lot of the other traditional older-style data centers. For example, we still sell today 25 gig per lane NRZ chips with CDRs. That business is hanging in there and doing reasonably well. our 50 gig per lane PAM-4 business is also, I would say, sort of flat, not really growing.

Our traditional 100 gig per lane PAM4 business is solid, both in multimode and single mode fiber. And then, of course, the real actions at 200 gig per lane PAM4 and also some of the next-generation coherent systems is an area of intense focus for us. I would also just add that it's fair to say that we are supporting all of the hyperscalers here in the U.S. as well as international hyperscalers.

So we typically find our products being sold into people building modules, AOCs or cables, and they are disseminated across the various hyperscalers.

Great. And then maybe just secondly, in terms of shortages and pricing environment. Can you talk maybe about just what you're seeing in terms of your supply on the IMP side? And anything that's impacting there? And is pricing -- how is the pricing environment as we kind of think about going through the rest of the year? .

Yes. I think on the pricing side, I think our competitors in MACOM are being rational. So I don't think there's any news there. It's certainly -- all of our markets are very competitive. The customers are price sensitive.

We try to balance our pricing with the value we're offering. But I would say we're in an environment where there is scarcity in some areas. And in that case, one would generally not be lowering their prices, but that's not always the case.

And then on the supply side, we are absolutely in ramp mode in various programs, and there's always stress on the supply chain as well as on the execution side and our global supply chain management team does an outstanding job making sure we have what we need when we need it. So it's certainly a key area of focus, especially as it relates to, as you mentioned, indium phosphide, but also other exotic materials. We're always keeping an eye on availability and potential constraints around those areas.

Our next question coming from the line of Harsh Kumar with Piper Sandler.

Congratulations on very good results and possibly even better guidance. Maybe, Jack, one for you, housekeeping, and then I'll ask my real question. the 1.3 book-to-bill is very strong. I think you mentioned, Steve, that it's the strongest probably in the last 4, 5 years. Is that primarily driven by data center? Or are there other components that you're seeing within that?

And then I wanted to kind of -- for my main question, I wanted to go back to the one that Vivek asked about gross margins on the data center business. Is it fair for me to assume that your margins on the data center business are below your corporate goal of 60%.

Yes. Thanks for the question, Harsh. And with regard to the book-to-bill we generally don't break it out by end market. But obviously, based on the guide that we put out there and some of the other items, we did see a fair amount of strength within the December quarter as it relates to the data center book-to-bill.

So things are definitely going in the right direction there. In terms of the data center margin profile, as I said, we manage a portfolio of products and gross margins will vary across the business. And Steve, I don't know if there's any other commentary that you'd like to add on that.

That's a perfect answer, Jack.

Okay. Great. And maybe one thing that you can get touched upon on the call is the LPO business. So I think you -- you mentioned in one of the earlier quarters that you were expecting revenues, I think, maybe last quarter already. If you can just update if you already have commercial revenues? And then also, I wanted to ask about kind of how you're thinking about the OPO business.

You talked about it in your commentary. It seems like a lot of exciting things going on. what kind of market size do you think LPO can deserve for your company or TAM or however you want to scope it in the next 2 to 3 years?

Thanks for the question. So we are very bullish on LPO. In fact, we now have 3 hyperscalers embracing LPO and we are in various phases of production with those 3 hyperscalers. Just to remind everybody, these are typically or in all cases, 100-gig per lane for generally 800 gig modules.

And so we also see that LPO will evolve to NPL and CPO or XPO, if you want to include everything. And so we're following that trail into different form factors. So we like to -- we're finally getting success here I think it's still a small part of the market and some -- we get various data points from various resources about how big the market could be.

But I think today, it's small, I would expect it will remain relatively small in the next 1 to 2 years and maybe over time, it grows. But it is a -- you have to be careful with the use case it is certainly compelling. The power savings that you're getting with LPO is compelling for the end users.

But we, again, as I mentioned earlier, we're a little hesitant to size the market because we really have to wait and see. But we do have a full suite of products here and the fact that we have 3 hyperscalers in production or at various stages is great. And I think the one thing maybe that I should highlight in my answer is -- we're also seeing our customers investigate LRO at 1.6T using 200 gig per lane chips. And so that is exciting for us, and that is an area of focus currently.

Our next question coming from the line of Blayne Curtis with Jeffrey.

I just want to go back to the strength in the data center. Obviously, 1.6T is ramping. The market is very strong. I'm just kind of curious for you, in particular, whether there's a share aspect as well to the growth you're seeing in 1.60T for the analog components, which I'm assuming is the bulk of that growth.

I'm not sure it's so much share growth per se. I mean, as we look at our dashboards and where we have content and where we don't have content, we see competitors on all sides. And so I wouldn't necessarily say that this is a share gain.

I think it's -- the market's growing. We're winning designs. We always go up against the same competitors. And it's -- it's a combination of timing and support and having new products. I mean, one of the key growth drivers for MACOM, of course, is the 200 gig per lane portfolio, but also on the optics side. And we do see significant opportunities with our photodiodes. And as I mentioned, we have I think, arguably one of the best 200-gig PDs in the market today, and we are working on higher speed PDs to support higher data rates.

And then last, as I mentioned, we have 2 customers that are very excited about our CW lasers for their silicon photonics solutions, and this would certainly be picking up market share because today, we don't sell lasers into 1.6T applications.

Perfect. And then maybe just some housekeeping with Jack. I just want to understand the impacts, I would say modeling converts. So when you look at March, and maybe just comment on -- I think you said the shares to settle are already in the share count.

What's the impact positive or negative on OI&E? Just trying to triangulate kind of how the rest of the P&L and OpEx is guided. And then -- maybe you could just also talk about capital returns. I think you had signaled maybe you'd do some share buybacks, but I'm assuming the debt retirement takes precedent in March. How are you thinking about it for the rest of the year?

Yes. Thanks for the question, Blayne. Yes, with regard to the share count, yes, there's a number of factors that can contribute to share count as we go forward.

Part of it is just our normal employee equity that's awarded, and we've kept pretty well control over that in terms of adding to our outstanding share count over the past number of years. And then the convert is another piece. And we've been adding some of the additional shares to the share count as we work our way through the year and leading up to the final settlement, which we expect to be in mid-March.

And then with regard to your capital allocation question. Yes, I think our primary focus is getting through this debt repayment, which is $161 million in the mid-March time period.

And I'll just add to that, that -- as it relates to share buybacks, that is not something that we're contemplating, and you should not expect that in the future.

Next question coming from the line of Tore Svanberg with Stifel.

Congrats on the record results. Steve, I wanted to come back to a comment you made on growth in telecom for this year? I mean, I know it wasn't guidance per se, but it just feels like high single digit, low double digit for telecom growth this year. Seems quite conservative, especially given your position in SATCOM, 5G coming back and so on and so forth. So I mean, is that kind of just like a really base case number? Anything you can add that would be great.

Yes. I think also keeping in perspective that last year, we had about 40% growth. So we're coming off a pretty high base there. I highlighted that the RAN market is sort of relatively flat with us having potential to pick up market share.

We have a great position in the SATCOM market. And these are generally long design cycle complex builds that take time and a lot of the growth in SatCom, I would say, is more of a late '26 early '27, which makes it difficult for us today to sort of settle in on, let's say, a best case number. So I think thinking below 10% is a good way to think about it today.

That's fair. And then as my follow-up, I believe last year at OFC, you guys were sampling a 1.6T LPO solution. Now when you talk about LP with 1.6%, there's more references to LRO. So I'm just curious, based on your conversations -- are we going to see 1.6T LPO? Or is the thinking now that LRO is probably the better way to go specifically for 1.6.

Yes, I would have to go back and check on that. I know we certainly were demonstrating 1.6T ACCs and AOCs, but I have to go back, Tore and check on the at the LPO version of that. Certainly, we were demonstrating 400 and 800 gig modules in the booth from our customers.

I think that the answer to your question is the customers are evaluating both right now, but there's significant benefits even with LRO, and it gets down to the specifics around really the DSP, the power budget, the link length.

And so it's really TBD. And so there's a higher probability of LRO working than LPO working because there's just more capability from the ASIC itself, let's say, to support the interface. So we would -- from a probability point of view, I would say LRO is more likely to happen first. and then LPO and there's still more work that needs to be done there. But we see that work happening at our customers.

Our next question coming from the line of Sean O'Loughlin with TD Cowen.

Congrats on a nice set of results. I had a quick question about the CW laser customer commentary. Just wanted to clear up, are those customers if you're able to disclosed. Are we talking about module maker customers? Or was that a reference to more hyperscale-type customers?

Yes. I mean I would say that we're engaging with more of the former. So it's really the module customers that are our first line of entry. So we want to make sure that they are able to use our laser. They're getting good module level results.

The next step is to collect a large body of reliability data and when our customer is happy with that data set, then they go to the hyperscalers and run through a PCN process to get us on the approved vendor list, let's say. And so we're early in that phase.

But it is a watershed moment because 6 months ago, we were not in a position where we had compliant laser today we do. And so that -- we're excited about that. Now we also recognize there's a process to get into production, and it's -- we're in the early stages of that.

Great. Yes, it's great to hear on the progress there. And then just sort of a blue sky question, I was interested to hear you mentioned front haul as an application for LPO as you've often reminded us that LPO is typically suited for short-reach applications within the data center. .

Typically, I don't think of front haul as a short-reach applications. So I'd love to hear just any more details on that application potential for a linear pluggable option?

Yes. And I think your question speaks to the fact that the -- our customers are critically looking at the network connections and where they use optics. For their next-generation systems and how do they reduce cost and complexity. And LPO in brings that benefit.

So we have to -- so yes, we are going through design and trials with various customers to see if it works in system. The benefit they see, quite frankly, is that it is a low latency solution. So there's it's more of a real-time transmission, let's say, than a retime solution.

So we'll have to wait and see as AI starts to creep into the networks and as things move towards the edge a lot of the optical interconnect becomes more relevant. And then the other sort of tangent I'll add is we are engaged also to help customers rearchitect remote radios where you bring fiber right to the radio, and we want to be involved in that part of the network as well.

Our next question coming from the line Christopher Rolland pollen with Susquehanna.

I guess my question here is around linear equalizers. I think on PCB, which you mentioned in your prepared remarks, if you could talk a little bit more about that, the growing interest there. Do you think this could be a bigger product than ACCs, linear equalizers and ACC and what is that -- what do the economics here look like for you versus the ACC approach?

Yes. So adding the linear equalizers to various back planes is of interest to lots of customers, not only in not only, let's say, in the traditional sort of AI construct but also closer to the -- as you get into the compute, we see opportunities to eliminate retimers and various compute connections. That's number one.

Number two, as things move to 400 gig per lane having equalization on these boards is going to be very important. And so customers recognize there's trace losses and interface issues, and they're going to need something to compensate.

And so the use case at a 400 gig lane speed is compelling. Today, though, with our 200-gig per lane, you're looking to augment passive DAC is something we're looking at. But I don't think all of those things combined will be as big as the ACC opportunity where it becomes architectural and there's lots of cables, and we just see that as sort of a bigger growth opportunity.

So the volumes that some talked about on the ACC side are quite large compared to, let's say, the back plane applications. And then the last thing I'll add is we also have customers looking at AECs and asking themselves, do I can I convert this to an AC and we're trying to help them with those -- answer that question as well.

Very helpful. And then I was wondering if maybe you could just provide kind of a big picture answer here. You have such a diverse product set. You also have new products coming on to your road map. What are the -- in your opinion, like biggest needle-moving new offerings that you think is really going to make a difference on the top line for MACOM over the next couple of years.

Well, I think that's a great question. And I'll just highlight that this management team in about 6 years has doubled the size of the company. Our fundamental focus has been on high power, high frequency and high data rate. When we look ahead, we want to double the size of this company and not take 6 years. We want to do it faster. So we're trying to execute our strategic plan that gets us to $2 billion with a reasonable CAGR, and we want to double the share price. The earnings per share.

And so -- that is our focus, and that means noncommodity differentiated products stay with the large growing markets, but also diversify and that is a big part of our story here, and that differentiates us, I think, from a lot of the companies that are very focused on, let's say, indium phosphide components for the data center.

These are structural organizations that do not have diversity. And our approach to these large opportunities is to bring the diversity. So when you look at our fabs, as an example, they're running lots of different technologies, and there'll be periods where some technologies grow very quickly in periods where they don't.

So fundamental to our business model is diversification in product lines and geography end markets.

Our next question will come from the line of Tim Savageaux with Northland Capital Markets.

Congrats on the results and good timing here given you just mentioned indium phosphide. That's my question. Actually, as you mentioned capacity addition. I wondered -- I'm really looking for kind of magnitude and timing for that capacity addition, say, from the beginning to the end of the fiscal year, what are you targeting there?

And as a quick follow-up, how material are those optical devices within the overall data center unit right now? And where do you expect that to go?

Thank you. So we're not going to really disclose the amount of capacity we're adding for competitive reasons. I can tell you that our Indium phosphide PD business is growing rapidly. It's primarily focused on 200 gig per lay. But we -- I don't really want to sort of talk about the number of wafer starts or where we started the fiscal year, and we will end the year. I will say that there's -- it's a major focus to bring on capacity, and we've been doing that. .

And so the results of that will be reflected in the guide in our general comments. In terms of -- and again, akin to that, the materiality of that business, we really don't disclose the revenue by product line or by technology.

Again, I would just highlight that we -- as I just mentioned, we do have a diversified business. And when we look at our data center revenue, today, it consists of TIAs, drivers, combo chips that are basically TIAs and CDRs. We've now added photo diodes or photodetectors.

The next step is to add lasers. We also have in the back room, we're working on EML lasers, and we have various versions of that in test right now. So I think you should think of our data center business as diversified by end customer by data rate and by product family, both on the optical side and on the electrical side.

And we do recognize, as an example, there's opportunities for us on the compute side of the network, and we're investigating and designing products for things like PCIe 6 that will also add new growth vectors.

Our last question will come from the line of William Stein with Truth Securities.

Great. Two quick questions. First, on the LEO satellite business. Can you talk about average dollar content per satellite and the duration between your rev rec and the satellite launch. Is that like a quarter or like a year? Any color there would help.

Sure. Well, we recognize the revenue when we ship our products to the customer. It's hardware deliverable. So that it's a hardware shipment. We don't wait for the customer to launch the satellite to take our revenue. And then in terms of the dollar content per satellite, it varies quite a bit. .

As I mentioned, there's a lot of variation in the construct of these satellites. Some of them have very large beam steer to raise. Some of them have very complex optics. Some of them have data center-centric electronics, so moving high-speed data across the bus of the satellite.

Some are using linear risers to communicate back to the ground. So it would be very difficult to put a dollar value on that. So it varies quite a bit. And I'll also argue that as I mentioned earlier, we're dealing with all the major constellations in different ways.

Some -- as an example, some customers want to buy wafers from us. They want to be a foundry customer. And we have other customers that want us to design an entire subsystem. So we have the full gamut.

To clarify the first part of my question, I fully understand that you rev rec when you ship, but we don't necessarily get alerts to that, whereas we do get alerts as to launches. And so I'm just trying to line up when we see a launch happen what that relates to in terms of your revenue.

Is that revenue that you would have recognized a quarter ago, a month ago, a year ago so we can try to sort of align the parts of the market that are visible to us with your revenue generation?

Yes. I mean, I think those are dots that it would be difficult for us to connect here on the call, but I understand. Certainly, it's measured in many months. And beyond that, we would have to do work, and it would be very situational. Jack, did you want to add to that?

Even though it will be situational probably wouldn't be accurate either just based on the ebbs and flows of this end market.

And I'm showing no further questions at this time. I will now turn the call back over to Mr. Steve Daly for any closing remarks.

Thank you. In closing, I would like to thank all of our employees for their continued hard work and dedication which has made these results possible. Have a nice day.

This concludes conference call. Thank you for your participation. You may now disconnect.

Welcome to MACOM's Fourth Fiscal Quarter 2025 Conference Call. This call is being recorded today, Thursday, November 6, 2025 I will now turn the call over to Mr. Stephen Ferranti, MACOM's Vice President of Corporate Development and Investor Relations Mr. Ferranti, please go ahead.

Thank you, Olivia. Good morning, and welcome to our call today to discuss MACOM's fourth quarter and year-end financial results for fiscal year 2025. 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's 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 8-K, which was filed with the SEC today.

With that, I'll turn over the call to 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 Q4 and full year results for fiscal 2025. When Jack is finished, I will provide revenue and earnings guidance for the first quarter of fiscal 2026, and then we will be happy to take some questions.

Revenue for the fourth quarter of fiscal 2025 was $261.2 million and adjusted EPS was $0.94 per diluted share. For the full year, FY '25 revenue was $967 million, more than a 32% increase year-over-year; and EPS was $3.47, more than a 35% increase year-over-year. We generated $193 million in free cash flow, and we finished the year with approximately $786 million in cash and short-term investments on our balance sheet.

Q4 book-to-bill ratio was just over 1.0:1. In our turns business, or orders booked and shipped within the quarter was 14.5% of total revenue. For the full fiscal year 2025, our book-to-bill was 1.1:1, and our current backlog remains at a record level.

Turning to our recent booking trends and end markets. Q4 revenue performance by end market was as expected, with industrial and defense at $115.6 million, telecom at $66 million and data center at $79.6 million. For the quarter, IND was up approximately 7% sequentially, data center was up approximately 5% sequentially, and telecom was slightly down sequentially. Both IND and data center revenues were annual and quarterly records.

A few years ago, we set a goal to achieve $1 billion in annual revenues. And I'm pleased to report that with our Q1 2016 guidance, we expect to achieve this goal based on trailing 12-month performance. Congratulations to all our employees as we near this milestone and more importantly, for building upon our strong foundation to enable continued growth and improved profitability.

New products are the lifeblood of future growth. In FY '25, we launched over 200 new products, which was a record. In addition, we executed numerous custom-designed projects across our 3 core markets.

Our ability to provide competitive new products in a timely manner, ultimately drives our financial performance. Metrics show our new product introductions or products less than 3 years old as a group, have outpaced MACOM's overall revenue growth and are accretive to MACOM's gross margins.

We continue to focus on technology and product differentiation across our portfolio, which often leads us to the development of IC products that operate at the highest frequency, highest power or highest data rates. The secular growth trends across our end markets coupled with our expertise in IC design and manufacturing, are driving an increased number of revenue opportunities.

To capitalize on this, we have been increasing R&D spending, hiring more engineers in acquiring companies that have specialized complementary design capabilities. In keeping with this trend, over the next couple of months, we plan to open 2 additional IC design centers, one in Southern California and the other in Central Europe, where we were able to secure specialized talent and teams.

Hiring best-in-class engineers with complementary skills will help enable us to increase our SAM and execute on the growth opportunities ahead. I'll note that we prioritize recruiting designers with advanced silicon design expertise and experience.

On Tuesday, we announced an agreement with HRL, or Hughes Research Laboratories, to transfer their 40-nanometer GaN on silicon carbide process known as T3L to MACOM. As part of this agreement, MACOM will be an exclusive licensee with rights to manufacture the T3L process.

T3L is an industry-leading high-frequency GaN on silicon carbide process, and it was developed with DARPA, DoD and HRL funding. T3 was engineered to achieve exceptional high-power performance at very high frequencies. HRL recently completed long-term reliability studies and qualified the process, and it is now ready to transition to production.

The T3L 40-nanometer process perfectly complements our existing GaN portfolio because it allows us to address applications at higher frequencies than our 140-nanometer GaN process. We anticipate that licensing this technology will also accelerate our ability to launch other sub 100-nanometer GaN processes, including 90-nanometer.

We believe this transaction is a win-win because HRL, primarily a research organization, will be able to commercialize the process technology they spent years developing. And MACOM can industrialize and ramp the process into production.

Many of our mutual customers in the defense and space markets want to see T3L process in production -- in a production wafer fab in order to address their volume needs. This strategic transaction supports one of our core tenets, which is to produce the industry's highest frequency semiconductors. We believe this part of the GaN mimic market is growing and we are seeing new requirements at Q, v, E, and W band driven by both commercial and defense applications. We believe the T3L process will help us capture significant market share over time.

And finally, related to GaN on silicon carbide, over the past few quarters, we were awarded several new and add-on development programs for advanced GaN on silicon carbide process technologies. Across the DoD agencies, MACOM is recognized as a leader in developing advanced compound semiconductors and our pipeline of funded technology development contracts is growing.

I'll note, in the defense radar and electronic warfare markets, our GaN-based components and products experienced over 50% year-over-year revenue growth. This growth leverages our high-power GaN portfolio, where we maintain a competitive position in low- and mid-band applications. Our goal is to expand into the higher-frequency airborne radar market where we believe share gain opportunities exist.

To support this strategy, we recently upgraded the RTP fab G28-V5 115-nanometer GaN on silicon carbide process to include atomic layer deposition, passivation or ALD, ALD is a hermetic coating process that enables mimic products to pass moisture and has tests. This process is one of the most reliable and rugged processes in the market, and it is ideal for ground-based radar systems and Satcom links and is now ready for airborne radars.

Across the defense market, the trend for new systems is toward higher frequencies, higher power levels, wider bandwidth and higher levels of integrations; factors that all play to MACOM strengths.

We collaborate with most major U.S. defense contractors across a wide range of applications. For example, we have been collaborating with a customer that produces a drone defense system, and we look forward to their expected production ramp-up in 2026, utilizing our high-power GaN technology.

We also continue to build new relationships with major European defense contractors, who are increasingly focused on securing a European supply of critical semiconductors for their systems. We believe our manufacturing facility in France can play an important role in enabling MACOM to win market share with these customers.

Generally speaking, the industrial markets are stable and beginning to improve, although we do not expect significant growth in the near term compared to the data center, defense, 5G and Satcom sectors.

Within the telecom end market, satellite-based broadband access and direct-to-sell opportunities remain robust with numerous LEO networks in the planning or development stages. These networks typically use microwave or millimeter wave frequencies and free space optics, or FSO, communications for satellite-to-satellite or satellite-to-ground communication links. In some cases, the satellite transmitters require analog microwave linearization to boost the transmitted signal and improve Link margin.

I'll note the number of LEO constellations continues to grow, and more companies compete to provide commercial data, voice and video communications by satellite or defense intelligence and functionality. Almost a dozen different companies are now planning to launch LEO Constellations supporting direct-to-sell or direct-to-device communications.

Again, these LEO constellations have many areas where MACOM can contribute including direct-to-device links operating at UHF or S-band, backhaul links operating a Ka, QV and E-band, high-speed optical links transferring data within the satellite and free space optics for satellite-to-satellite communications and gateway linearization for high-power transmitters.

Depending on the customer preferences and capabilities, we position ourselves to support them at any level in the supply chain from foundry services, custom IC design, standard products and even full module and subsystem design and manufacturing.

Demand from our cable TV infrastructure market is also improving. Cable networks are in the early days of a transition from DOCSIS 3.1 to DOCSIS 4.0. We've spent the last 2 years releasing new products and working with customers on design wins to support this upgrade.

We are beginning to see new orders on our DOCSIS 4.0 products. Our portfolio today includes amplifiers, balance, couplers and filters for line amplifiers and nodes in these new deployments. We expect the cable TV market to be 1 of the contributors to our telecom revenue growth in fiscal year '26.

We continue to see strong demand from our data center portfolio, particularly within 800G and 1.6 T applications. We expect the ramp of 1.6 T optical solutions to continue to support both scale up and scale out interconnects, and we believe demand is growing rapidly. Within these solutions, MACOM provides drivers and TIAs that support EML and silicon photonic architectures.

In addition, over the course of FY '26, we expect year-on-year demand for our photonic semiconductor products to significantly increase. As an example, we are pleased with the growing traction of our 200 gig per lane photo detector products that support advanced 800 and 1.6 T optical

connectivity. MACOM's 200-gig PD has industry-leading sensitivity and dark current performance, enabling our customers to achieve better manufacturing margin and optical receiver sensitivity performance.

We believe we have had a breakthrough where our cloud customers and their supply chain recognize the strategic value of MACOM's proprietary indium phosphide technology and high-volume manufacturing capabilities to produce photonic products. We are pleased to have PD design wins at all major module manufacturers supporting 800G and/or 1.6T applications.

A few quarters ago, we initiated a transfer of the 200-gig PD process from our smaller Michigan fab to our larger Massachusetts fab to ensure we could support the forecasted demand. Today, our [ Ann Arbor ] fab is approaching maximum capacity, and our Massachusetts fab is qualified and ramping volume production.

In addition to our focus on ramping PDs, we have intensified our CW laser development efforts as customers and the industry look for strategic suppliers that have CW laser technology and high-volume manufacturing capabilities. We also see a steady adoption of single-mode LPO 100-gig per lane solutions. Today, we have multiple customers in production, and we expect to transition more customers into production in fiscal '26.

Additionally, we continue to support new architectures, including near packaged optics or NPO, utilizing non-retimed LPO solutions.

As data centers continue to disaggregate memory and compute, we believe the adoption of PCIe 6 solutions will create an opportunity for MACOM. At this year's ECOC trade show in September, we demonstrated our latest linear optical PCIe chipset, consisting of a VCSEL driver in TIA that support sideband data streams over fiber.

We also continue to expand our portfolio in the area of electrical high-speed connectivity. As data speeds move to 200 gig per lane and beyond, copper-based solutions such as direct-attach cables begin to reach their functional limit. MACOM provides a family of linear equalizer products that can help extend the reach of copper interconnects at 1.6T.

Over the course of FY '26, as 1.6T deployments expand, we believe these solutions will be of interest to some of the major cloud vendors who are deploying next-generation solutions. Additionally, we are seeing opportunities for these products in backplane applications to enhance onboard signal integrity.

As we turn our attention to FY '26, our priorities include: first, taking full advantage of the data center growth opportunity in servicing our customers with differentiated solutions. This includes expanding our portfolio into new product areas such as PDs and lasers, where we can add value.

In the near term, we will seek to increase market share in 800G and 1.6T high-speed analog solutions, expand our customer base for linear equalizers and PCIe solutions, ramp photonic products and support customer LPO launches. We will also continue the design work to establish a leadership position in 300 and 400 gig per lane connectivity ICs and for future 1.6 and 3.2T systems.

Second, we will seek to expand our market share in 5G applications by leveraging our new and improved GaN process. Our next-generation base station products will be updated with in-sourced IPD and matching circuits to: one, improved performance; and two, lower our manufacturing costs.

Third, extending our leadership in A&D and winning market share in microwave and optical RF over fiber applications across all major accounts in the U.S. and working to expand our business across Europe and support new defense and space programs like Iris Squared.

Fourth, continue to develop advanced semiconductor technologies for high-frequency mimics, high-power diodes and high-speed optical semiconductors. Our goal in FY '26 is to make meaningful progress on [ Hut via ], flip chip, bump technologies like copper pillar to enable MACOM to lead the industry in advanced chip scale package solutions.

Fifth, carefully managing our capital expenses and prioritizing investments that, one, expand our existing manufacturing capabilities; and two, support new technology developments. As an example, we intend to purchase and install a modern MOCVD epi reactor in our European Semiconductor Center, or MSC. This reactor will support our 6-inch production transition and the growing volumes of GaN on silicon and other gas processes.

In summary, our strategy is to build a diversified semiconductor portfolio that enables MACOM to capture a larger share of the markets we serve. Our strong organizational foundation along with our speed and agility, help us win opportunities and ultimately beat our competitors that are often larger and have more resources.

Jack will now provide a more detailed review of our financial results.

Thank you, Steve, and good morning, everyone. Before getting into our fourth quarter results, I would like to summarize a few items regarding our full fiscal year, which ended on October 3, 2025.

We achieved record revenue of $967 million, which grew more than 32% over fiscal 2024. Our annual adjusted operating margin grew by 140 basis points to 25.4%. Adjusted earnings per share grew by more than 35% to $3.47. Cash flow from operations continued to strengthen and increased by 45% to $235.4 million. We refinanced and extended the maturity of the majority of our convertible note debt at favorable rates.

Our workforce, which now totals approximately 2,000 employees, grew by 17% over the past year as we have expanded our research and development and production employees to support our growing business.

Now on to fourth quarter results as well as some additional commentary on the full fiscal year 2025 and outlook on fiscal year 2026.

Q4 revenue again reached record levels with strong financial performance across all 3 end markets and record revenue across data center and industrial and defense. This sustains a trend of consistent revenue growth, improving operating income and ongoing cash generation.

Fiscal Q4 revenue was a new quarterly record of $261.2 million, up 3.6% sequentially and up 30.1% year-over-year, driven by growth across all 3 of our end markets. Our overall book-to-bill for Q4 was 1:1.

On a geographic basis, revenue from U.S. domestic customers represented approximately 43% of our fiscal Q4 results. Our full fiscal year 2025 U.S.-based revenue was approximately 44%. Adjusted gross profit for fiscal Q4 was $149.1 million or 57.1% of revenue. Through the hard work and our dedicated operations team, we have continued to increase capacity and improve yields, and we expect to see ongoing incremental progress across all 4 of our fab operations.

I'll note, we are seeing an improvement in product demand across our internal fabs, which is driving higher production volumes and associated utilization. As a result, we expect sequential quarterly gross margin improvements between 25 to 50 basis points as we move through fiscal 2026. These gross margin improvements include any offsets to cost increases, such as gold and other precious metals, depreciation and labor costs.

Total adjusted operating expense for our fourth quarter was $82.1 million, consisting of research and development expense of $55.6 million and selling, general and administrative expenses of $26.6 million. The sequential increase in adjusted operating expenses compared to Q3 was primarily driven by ongoing R&D investments and employee-related costs.

As we continue to grow our revenue, we will remain very focused on managing our OpEx. Depreciation expense for fiscal Q4 2025 was $8.7 million compared to $6.9 million in Q3 2025. The increase was primarily due to taking control of the RTP fab during the quarter.

As a reminder, since we have taken control of the RTP fab, we have shifted from purchasing wafers from a third party to manufacturing wafers, resulting in MACOM now incurring all of the associated manufacturing costs, including labor, facilities and depreciation, to mention a few.

Adjusted operating income in fiscal Q4 was $67 million, up 5.5% sequentially from $63.5 million in fiscal Q3 2025 and up 32.1% year-over-year. For fiscal Q4, we had adjusted net interest income of $6.6 million, a net decrease of $200,000 sequentially from $6.8 million in Q3, primarily driven by lower interest rates and interest expense associated with new leases.

Our adjusted income tax rate in fiscal Q4 was 3% and resulted in an expense of approximately $2.2 million. As of October 3, 2025, our deferred tax asset balances, which includes R&D tax credits, were $208 million as compared to $212 million at the end of fiscal 2024.

We anticipate further utilizing our deferred tax asset balances through fiscal 2026 and beyond, helping to keep our cash tax payments relatively low over these periods. We expect our adjusted income tax rate to remain at 3% as we enter fiscal 2026.

Depending on the jurisdictional mix of our income, we expect the U.S. government's recent tax legislation to support a low to mid-single-digit adjusted tax rate for the next few fiscal years.

Fiscal Q4 adjusted net income increased approximately 4.7% to $71.4 million compared to $68.2 million in fiscal Q3 2025. Adjusted earnings per fully diluted share was $0.94, utilizing a share count of 76.2 million shares compared to $0.90 of adjusted earnings per share in fiscal Q3 2025. Our team continues to optimize the business' performance, which has resulted in sequential increases in our adjusted operating income and EPS over the past 9 quarters.

Before moving on to balance sheet items, I would like to note that during the fourth fiscal quarter, in connection with the RTP fab transfer, we recorded a $10.1 million gain on acquired assets, which is recorded below operating income on our income statement. This gain, which has been excluded from our adjusted operating results, primarily represents the difference between the fair value of inventory we received from the prior fab owner on July fifth 2025 as compared to the estimated value we established in December 2023 at the time of the RF business acquisition.

Now on to operational balance sheet and cash flow items. Our Q4 accounts receivable balance was $148.6 million, up from $129.5 million in fiscal Q3 2025. The increase in our accounts receivable balance was driven by revenue growth as well as the timing of customer shipments and payments. Our day sales outstanding averaged 52 days as compared to our previous quarter at 47 days.

Inventories were $237.8 million at quarter end, up sequentially from $215.4 million, largely driven by additional work-in-process inventory at the RTP fab as well as higher balances to support anticipated future demand across the business. Inventory turns decreased to 1.9x from 2.0x in the preceding quarter.

Our fiscal Q4 cash flow from operations was approximately $69.6 million, up $9.2 million sequentially and an increase of more than $7.3 million over fiscal Q4 2024. The sequential increase was primarily due to increased net income combined with fluctuations in working capital.

Capital expenditures totaled $20.2 million for fiscal Q4, up $11.5 million sequentially. The major driver of this increase was the anticipated purchase of $12 million of surplus equipment at the RTP fab from the previous owner. We anticipate that the installation of this and other equipment will allow us to expand our RTP fab capacity and capabilities by up to 30% over the next 12 to 18 months.

Our fiscal year 2025 CapEx was $42.6 million, and we estimate fiscal year 2026 CapEx to be $50 million to $55 million as we upgrade and enhance our production equipment, facilities and expand capacity where needed.

Next, moving on to other balance sheet items. Cash, cash equivalents and short-term investments for the fourth fiscal quarter were $786 million, up $50.7 million from Q3. We are in a net cash position of more than $285 million as of October 3, 2025, when comparing our cash and short-term investments to the book value of our convertible notes.

Over the next couple of quarters, we anticipate paying off the $161 million of principal value of our remaining March 2026 notes as they become due under the terms of the original agreement from 2021.

And finally, I'd like to recognize that the results we have achieved during fiscal year 2025 would not have been possible without the contributions from the entire MACOM team. We remain committed to investing in our employees through annual merit increases promotions, bonuses and stock awards as well as offering competitive healthcare, retirement and other benefits.

I will now turn the conversation back over to Steve.

Thank you, Jack. MACOM expects revenue in fiscal Q1 ending January 2, 2026, to be in the range of $265 million to $273 million. Adjusted gross margin is expected to be in the range of 56.5% to 58.5%, and adjusted earnings per share is expected to be between $0.98 and $1.02, based on 76.6 million fully diluted shares.

We expect sequential revenue growth in all our end markets. Data center will lead with approximately 5% sequential growth, followed by telecom and industrial and defense with low single-digit sequential growth.

As Jack mentioned, we expect to see increased operating leverage over the course of fiscal '20 and through a combination of top line growth and improving gross margins due to increased fab utilization and launching more profitable products. We will maintain operating discipline even as we continue to invest in the growth of the business.

Given our talented and experienced team, our core technologies and the secular growth trends in our market, we are confident we will achieve our goals.

I would now like to ask the operator to take any questions.

[Operator Instructions] Our first question coming from the line of Tom O'Malley with Barclays.

This is Kyle Busen on for Tom O'Malley. I just wanted to start off with the telecom business. I think through earnings, you've seen a couple of companies point to traditional telecom being better.

So I just wanted to kind of get your sense of how you think about that business through the fiscal year kind of the biggest pull factors you're seeing there?

Thank you for the question. The two main pull factors for MACOM this year will be 5G continuing to grow, and that's a core business for MACOM. And second would be the satellite communications and LEO business.

If you're referring to the RF-related telecom part of the market, if you're talking about the metro long-haul piece, we are seeing continued growth in that business, and we expect that trend to continue during the year.

And then just for my follow-up, last quarter, I think you talked about broadening some of the ACC engagements. Can we kind of get an update on how that's been progressing over the past 90 days? Have you seen any of those engagements or the customers? And just how we should kind of think about that business through the next fiscal year?

Yes, we continue to be engaged across the industry with all different product lines, including the chipset we put inside the ACC product line. I would say, generally speaking, we have great engagements with the major hyperscalers, and we're certainly excited about some of the potential within that product set. And we'll see how that plays out as we move into the course of the year.

We don't generally comment on, let's say, pre-revenue topics. We would always talk about our successes retrospectively, and that would be our approach here as well.

Our next question coming from the line of David Williams with the Benchmark Company.

Congrats on the $1 billion run rate. Let me first -- just kind of the transition and the demand pool between the 100G and 200 gig moves that next genome of solution, how are you seeing that? And maybe [indiscernible] developing as you would have expected or maybe accelerated a bit.?

Thank you for the question. So our core 100G business, last year, was very stable and actually grew quite nicely. And as we look out into our fiscal '26, we would expect the 100G growth trend to continue.

However, the massive growth is really at the higher data rates. So that would be 200 gig per lane servicing primarily 1.6T. And we are very early in the cycle of the rollout of those interconnects. And so that is one of the fastest-growing parts of our data center business. It was last year, and we believe it will be as well again in fiscal '26.

Great. And then just maybe on some of the new capabilities you talked about acquisition in the quarter, just any color there around the magnitude of that and really the capabilities you can see that range? And you talked about some of them. But just the additional color, I think, would be helpful.

Yes. You were referring to the HRL IP license agreement. Is that right?

Yes, yes, I'm sorry. That's correct.

Yes. So thank you for the question. Very interesting technology. as I highlighted in the script, it very much complements what we're doing with our -- what we call our GSIC140 process, which we launched a couple of years ago. And we're continuing to improve that process even today.

The HRL technology was a combination of U.S. government and HRL funding to really develop a technology that would be able to operate at higher power levels at the highest frequency. So this is a technology that really begins to shine above 40 gigahertz.

And why we felt this transaction would be important is it allows us to service the higher-frequency Satcom bands, which are becoming more and more critical for the LEO constellations. And there will be a transition from, what I would consider, PHM gas technology at these frequencies to GaN technology, and we will be leading that transition.

And the reason why you would want to make that transition is a GaN amplifier on this process will have a higher power density, almost 2x what PHM can do, and you'll also get 10 points of higher efficiency on that particular amplifier.

So there's a compelling reasons why we believe the LEO constellations will -- and our customers will want to adopt this technology as soon as it's ready in our fab.

Our next question coming from the line of Harsh Kumar with Piper Sandler.

Congratulations on some great results. Steve, if I look at your guidance, I think there's a little bit of a step-up in growth. Just at a broad level, I mean you talked about multiple drivers. But if I had to be specifically ask you about what is driving the step-up in growth, how would you characterize that? And I have a follow-up.

Are you referring to Q1 specifically or in general?

Yes, yes, [ December number ].

Well, I think it's, first and foremost, driven by the continued rollout of 1.6T and 800-gig platforms across various customers with various products. That is absolutely driving the growth.

And then I would say the other factor is we're seeing a little bit of a bounce back in telecom. As you know, going Q3 to Q4, it was sequentially down a little bit, really due to the timing of orders and also just continued strength in our defense business.

And then the other thing I'll add, as we really are at the beginning of our fiscal '26, our October bookings were one of the best months we've had in years. And so we're really excited to start the year with a strong backlog and a lot of momentum.

Fair enough. And Steve, you talked a lot about satellite on this call, something you haven't done. You've talked about -- you mentioned satellite, but not to this extent. And you talked a lot about LEO satellites.

I guess, could you help us understand the timing of some of these new products, the scale? Where is the business at today? And how big could it be?

And also, I was wondering, part 2, the standard question LPO, you started shipping seems like -- could you help us size that market for 2026?

Yes. Thanks, Harsh. So I would say that the current LEO business is included in the telecom numbers that we're currently reporting. We don't particularly want to break out that particular submarket within telecom. So I would say, the timing is now, and it's -- we're ramping. And the LEO business that we have is expected to grow over the next 12 to 18 months.

How big could it be? It can be hundreds of millions of dollars in size. This is not a small market, it's a large market. As I mentioned, we support this business at the chip level, the module level and even the subsystem level.

And when we talk about LEO constellations, I also have to highlight it includes not only the payload on the satellite, but it also includes the ground gateways and the terminals, which also have very high value-added products.

In terms of the LPO question you mentioned -- you asked, we talked about having one customer in production on our last conference call. I can tell you, that number has tripled. So now we have 3 and growing. And so we would expect that number to continue to increase as the industry adopts LPO.

We don't necessarily want to size the market. It really depends on what the customers do in terms of their deployments, and that's a very difficult number to put out there. We have our own internal models. But we would rather -- we're sure that there's error associated with those estimates.

I will say that our competitive advantage with LPO shines very very well because there's no DSP. So the landscape and the competitive dynamics changed quite dramatically when you remove the DSP. And then the other thing I'll just highlight, the LPO solutions today are running at 100-gig per lane.

Our next question coming from the line of Karl Ackerman with BNP Paribas.

Steve, you spoke of record backlog, but does that include a record backlog for datacom products such as TIAs, drivers and PDs? And as you address that, can you quantify the level of order visibility with your customers, perhaps in terms of quarters as you seek to add capacity to fulfill this customer demand?

Yes. Thank you. We don't really break the backlog out by product line or market per se. But you can imagine that coming off of a year where we had 50% year-over-year growth in the data center, and there's a lot of momentum that the data center backlog is growing nicely.

Some of our other end-markets like defense, they typically have longer lead times and manufacturing cycle time. So we typically would build backlog with our defense customers at the beginning of the year. So overall, a healthy backlog, and we really can't break it out any further than that.

Got it. That's fair. Jack, perhaps one for you, if I may. Just on the RF business, any updated thoughts on the timing of yield enhancements and operational performance? Would you anticipate this business going to be margin neutral once these yield enhancements are complete perhaps before you add the planned 30% of wafer capacity?

Yes, I think what you're referring to, Karl, is some of the gross margin improvements, and we talked about it in our prepared remarks, the sequential improvements that we expect to see on a quarterly basis of anywhere from 25 to 50 basis points. As we've also discussed, we've completed the RTP fab conveyance. So that's part of the MACOM portfolio.

And through a combination of enhancements to our gross profits and cost reductions and yield improvements across all of MACOM, including facilities like [indiscernible] and our other 2 fab manufacturing locations, are going to be helping to contribute to some of those gross margin improvements that we had talked about earlier.

So it's more of a global effort that we have as opposed to being focused on any one area of the business.

Our next question coming from the line of Tore Svanberg, Stifel.

And let me add my congrats on the record results. Steve, I know you typically don't guide more than a quarter out, but just so many irons in the fire here across all 3 segments. So directionally, how should we think about growth in the 3 segments next year, especially also in light of the more than 40% growth in both data center and telecom this year?

Thank you for the question, Tore. As you know, we don't typically give full-year guidance. But I'd be happy to make some general comments on our expectations for 2026. And maybe before I do so, I think there's some important trends to highlight, and I think you mentioned a few.

Number one, we had very strong growth year-over-year, 32% growth on the top line. And that really represented the 4 out of 6 years in a row, we've had double-digit growth. and we're excited about that. Our CAGR over the last 6 years has been in the mid-teens, and we're pleased with that type of performance.

As we think about '26, we have various scenarios, we have our base case scenarios and our improved or best case scenarios. But if I just focus on the base case for a minute, we would certainly expect double-digit growth with no less than mid-teens on the top line. We believe the growth will be driven by the data center business. It will have -- it will be our strongest market, then followed by industrial and defense and telecom. And it will be a year where you begin to see leverage on -- of our business model and improved operating income and earnings growth. So we're very excited about that as well.

Great. And as my follow-up, it sounds like you turned about 14%, 15% of the revenue this quarter. I'm just curious, given the strong momentum, the order rates, are you starting to see some tightness, whether that's with your own fabs or lead times starting to stretch? Because obviously, the growth momentum seems to be accelerating. So I just want to make sure that everything is on track as far as capacity is concerned.

Yes. Well, we're growing as quickly as we are. There's always stress points throughout our operations and supply chain, and we have an outstanding team that can manage those tactical and strategic issues quite well. So we're very pleased with the team's performance, and we're able to get the things we need and have the capacity available.

I highlighted as an example with our 200 gig per lane photo detector. We recognized last year that we were going to have some very strong growth in the next 24 months. And so we took actions to move that product to our large [indiscernible] facility here, where we have really unlimited manufacturing capability to produce PDs to support the industry.

So we're taking those steps. A lot of those things you see behind the scenes, where we're making sure we have a front-end, back-end test capacity in place, there's always areas where we need to do more and pinch points. And the team is managing those very well.

So yes, it's always a challenge in a high-growth environment, but I think we have it under contro

l.

Our next question coming from the line of Blayne Curtis with Jefferies.

I want to ask you, I mean, obviously, very strong comments about growth in fiscal '26. The book to bill just over 1%, I guess, I think you said maybe there's some function with the defense business. But I'm just kind of curious, is that the case across all 3 segments? Is there something that's down? Or is that just timing-wise and if that should improve?

Yes. We track the book-to-bill for each of our markets and submarkets and customers on a very granular level. And every quarter, it's a different setup. And so over the long term, is really what matters. And over fiscal year '25, our book-to-bill ratio was 1.1, to be clear. And that's a very strong number.

And we started fiscal '26 in October with one of our best Octobers and as long as I can remember. So we're not -- you have to read through the noise. I wouldn't get too fixated on any particular quarter's book-to-bill. And if you remember a few years ago, we had a -- we had a quarter where we had 0.5 book-to-bill, and we survived that quite nicely. But -- so that's the nature of the business.

Some of our markets are a little volatile. Some of them have different timing of orders, and customers have different schedules, and we just try to blend it all together and report the results.

And then I wanted to ask on the gross margin, the 25 to 50 basis points improvement. Obviously, you took over the Wolfspeed fab, and there was some lifting to do there. Maybe you could just talk about the contribution from those improvements versus just what it looks like overall, volumes are going up as well

.

Yes. Thanks for that. And I'll just highlight on a go-forward basis, we don't really want to talk about the gross margins by fab. I think that -- our business is too complicated than that.

I know, before the closing of the fab and during the transition, we were very transparent about the puts and the takes on the RTP site specifically. But now that it's in the MACOM tent and we're changing so many things, including the mix, the customer base, the focus, as I highlighted as an example, we took 1 of the RTP 15-nanometer GaN on silicon carbide processes and we upgraded it by adding an ALD covering and now that's going to open up a new market segment and that will lead to great things; so there's just a lot of moving parts at each one of the fabs. And to get fixated on any particular fabs, near-term performance is -- could be limiting.

So I think we take a broader approach and we're not really going to be discussing gross margins by fab because that could be a tell on the profitability of those associated products, which we don't want to disclose.

Now the other thing I'll highlight is a big part of our business uses external fabs. And we are working with the leading fabs across the U.S., Europe and Asia to support a lot of our high-speed business, primarily data center centric, as well as various tests -- very high-performance test chips or products for broadcast video or other high-speed trading-type chips that are very high-speed matrices that are used in high-speed trading.

So we have a lot of high-end chips that we externally sourced from 4 to 5 different fabs, depending on the technology. And that -- those product lines also contribute quite nicely to our business and can also affect the overall corporate gross margins.

Jack, I don't know whether you want to add to that?

I think just maybe just providing a little bit more color in terms of RTP, right, when we had talked about it last quarter, we had only had it for 2 weeks. So it came in line with our expectations. It allowed us to also derisk the business in terms of being able to take control of that business. So the team has done a fantastic job with everything that's going on there.

Our next question coming from the line of Sean O'Loughlin with TD Cowen.

Thanks for letting me hop on and ask a question and like my peers, I'll congratulate you on the excellent results. I wanted to ask -- two of your, I guess, I'll call them sort of competitors announced a merger last week, a question that we've gotten from investors is whether you anticipate much changing on the competitive landscape following that merger.

Obviously, you don't compete in the handset market, but maybe as you think about those companies' respective broad markets businesses coming together, does that change much? Or is it too early to say with any certainty?

Yes. Thank you for the question, and congratulations to both companies. And you're right, we're not in the handset business, so it shouldn't affect us. Neither companies are customers or suppliers to us, so there's no sort of impact there. So we don't really see a direct impact.

We have noticed that each of those companies is closing down their fabs, and I imagine over the course of time, there'll be some restructuring. And so it's possible that, that could create an opportunity for us to maybe win some more sockets or hire some great talent. So we'll see how it goes. And we again, congratulate both companies on that deal.

Great. And then as a follow-up, I wanted to ask an AI question that is actually not about the data center market. if you can believe that. But in telecom, one of the themes that our colleagues on the comm infrastructure side of the house have been exploring is the potential impact of some of these deployments and the data center builds on access and long-haul networks as bandwidth increases either due to distributed training or more 2-way inference traffic.

Are you -- I guess, put simply, are you seeing that at all? Or do you anticipate that in the future? And then maybe how should we be thinking about the puts and takes of those trends as it relates to MACOM?

Well, we have very good relations with the major RAN manufacturers that are deploying 5G and working on 6G. We also have a very strong understanding of the front-haul network itself because that's a big part of our business. And we're very, very strong with RF over fiber. And in some future generations, there may be more RF over fiber directly to the radio.

And so all of these things would contribute to moving high-speed data or large blocks of data faster. And so we are definitely working with customers and trying to keep up with their investigations of different architectures like the ones you mentioned.

So we do have -- again, I think the key point here is that trend would most likely be a long-term trend, and we think we have the right technology, given the highest speed, highest data rate, highest frequency. A lot of these applications might also deploy very high frequencies. And so we think we're in a good spot to take advantage of that.

And our next question coming from the line of William Stein with True Securities.

And also congratulations on the strong results and outlook and perhaps especially on the fiscal '26 commentary, which sounds good.

Steve, I was hoping that you might reflect on the one hand, relatively light comments about the industrial end market performance, while on the other hand, gross margin sounds like they're going to be tracking better consistently over the coming year. I've historically sort of associated these two things together that that low in the industrial end market has been sort of a weight on gross margins.

Is that still the case? Is that part of the thinking behind expanding gross margins next year or recovery in that market? And if any other details you could provide around that thinking, would be helpful.

Yes. And I think you're thinking about it the right way. And historically, we've had a lot of our industrial revenue was internal fab centric. And that's because it would be servicing markets like test and measurement or medical markets where they use a nonmagnetic high-voltage diodes, which we have a very strong position in the market on, as well as factory automation and other wireless platforms.

And so as that market improves, that benefits the loading and can have a benefit on the gross margins. Generally speaking, I would -- with that said, generally speaking, as we look into '26, we think there will be some positive trends in industrial, but more importantly, stronger trends in defense, And that will also be a tailwind on our gross margins

That's helpful. Maybe as a follow-up, can you maybe help us understand the diversification in the data center end market? And maybe explore a little bit where the design wins come from. Are they more from module makers, from semiconductor suppliers, from the cloud service providers? And maybe give us an idea of the diversification and the types of customers that you're actually getting design wins from and transacting with.

Thank you for the question. We address to the back half of your question, all three of those customer categories. So that would be the module manufacturers or cable manufacturers, semiconductor companies and the cloud or the hyperscalers directly. So we engage it all in all of those categories.

And so when you take that and add that all up, you'll see that there's a lot of mix of what those different companies would want in terms of product for MACOM.

As we look at the market, we break it up into really three segments, it would be the multi-mode market itself, which is generally short reach; single mode, which is medium, long reach; and then metro long haul and coherent. And so as we look down and service these different companies in those different categories you mentioned, depending on what they're focused on, we'll try to be a merchant supplier and sell them chips. It might be a driver, it might be a laser, it might be a photo detector or TIA.

And so that is -- there's about a half a dozen primary product lines, let's say, that we service the data center with, and that's how we go to market.

Our next question coming from the line of Peter Pang with JPMorgan..

All right. I will go on to the next person in queue, next person of coming from the line of Tim Savageaux Northland Capital Markets.

Okay, just made it. Congrats on the results. And indeed, we've seen some pretty positive results across this optical landscape thus far this week, even with a lot of references to step-function accelerations and demands, I think, both inside and outside the data center. And I think maybe that marries up well with your very strong October bookings commentary, I think,

I guess the question is, in that environment, so you're guiding data center to high 20s growth, maybe 28% growth in Q1; and I guess given this environment that we're seeing and what seems to be a bit of a title wave of demand, is that type of growth rate sustainable for the year in fiscal '26? Or can it even increase?

Yes, I think it can increase. And we have a base case, and then we have our sort of best case. And we're setting guidance on it, I would say, our base case are more conservative which even provides strong sequential growth coming off of a very strong Q4. And so we would expect that to continue.

There are scenarios, as we model our fiscal '26, where our data center can actually really outperform and have very strong performance similar to last year. But we're not forecasting that now. We know a lot of things have to happen, including various ramps have to occur and things of that nature.

So we're not forecasting that sort of super strong growth. We're going to start the year and look at our backlog and plan accordingly. But you're correct, and those trends are there, and it's primarily around 1.6T. That's where the volume is, that's where the demand is, that's where the shortage of supply in some key technologies is. And quite frankly, that's where MACOM can be a strategic partner

Our next question coming from the line of Quinn Bolton with [indiscernible] Company.

I guess maybe, Steve, just coming out of the ECOC Optical Show a few weeks back, there was some chatter about market share shifts in the TIA and the driver side at 800 gig and 1.6T modules.

I just wonder if you could address how do you feel about your relative share position across TIA drivers? Have you seen any shifts? Do you feel like you're still pretty well holding share or maybe even taking share? But any comment just how you're doing in the PMDs for optical modules at 800 and 1.6T?

Thank you for the question. I think we're doing well. I think we have differentiated product, and it's a very competitive landscape. So you have to earn every socket based on performance, timing, price, and I think we're bringing our best game to the market.

So holding share?

I'm not going to comment on particular product lines, whether we're gaining or losing market share.

There are no further questions at this time. I will now turn the call back over to Mr. Steve Daly for any closing remarks.

Thank you. In closing, Jack and I would like to thank the entire MACOM team for their continued dedication, which made our FY '25 results possible. We will continue to work as a team to meet our customers' needs and execute our strategic plan as we start fiscal year '26. Thank you very much, and have a nice day.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.

Welcome to MACOM's Third Fiscal Quarter 2025 Conference Call. This call is being recorded today, Thursday, August 7, 2025. [Operator Instructions] 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, Olivia. Good morning, and welcome to our call today to discuss MACOM's financial results for the third fiscal quarter of 2025. I would like to remind everyone that our discussion today 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 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's 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 8-K, which was filed with the SEC today.

With that, I'll turn over the call to 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 Q3 results for fiscal year 2025. When Jack is finished, I will provide revenue and earnings guidance for the fourth quarter, and then we will be happy to take some questions.

Revenue for the third quarter of fiscal 2025 was $252.1 million and adjusted EPS was $0.90 per diluted share. We had a strong quarter of cash generation and ended the quarter with approximately $735 million in cash and short-term investments on our balance sheet. Overall, our team did an excellent job in meeting our business and financial objectives this quarter.

Revenues by end market were as follows: Industrial & Defense was $108.2 million, Data Center was $75.8 million and Telecom was $68.1 million. I&D was up 10% sequentially. Data Center was up 5% sequentially and Telecom was up 4% sequentially. Our I&D and Data Center quarterly revenues achieved record results. Our Q3 book-to-bill ratio was just over 1.1:1. As a result, our backlog remains at a record level. Our turns business or orders booked and shipped within the quarter was around 17% of total revenue. We believe our backlog growth is driven by our new products gaining market share as well as a positive secular trends across our 3 major end markets.

Our ability to provide competitive and leading solutions to our customers is what drives our financial performance. As a result, we continue to focus on technology differentiation across all our product lines. Simply put, our strategy is to enable the highest power, highest frequency and highest data rate applications within our 3 core markets, using proprietary semiconductor processes, IC design techniques and package technologies.

In addition, over the past 6 years, our strategy has included strengthening our RF microwave in optical systems engineering capabilities. As a result, we are better able to engage customers early on system architecture discussions rather than offer point product solutions after the schematics and block diagrams have been developed. This approach when combined with the strength of our chip designers and manufacturing capabilities allows us to have input on the system block diagram, which can translate into larger business opportunities and more cross-selling of products from our diverse portfolio.

Industrial & Defense remains strong and we continue to see opportunities in the U.S. and European markets. We support a wide range of applications, including military space electronics, MILCOM, onboard drone electronics and directed energy anti-drone defense systems. Electronic warfare has been very active within our I&D business. EW systems typically contain complex wideband mimic semiconductors generally operating at the higher frequency bands. These precision high-frequency applications offer require high levels of integration and novel engineering solutions. Examples include components for radio and radar jamming as well as optical electronics using conjunction with microwave electronics to spoof radar systems. These requirements within the defense electronics sector play into MACOM's strengths.

Our industrial and multimarket product lines had modest improvements in demand during the quarter. Standard product sales are increasing across a wide range of low and medium volume applications. Telecom orders remained solid, specifically in 5G infrastructure broadband access and metro long haul. While our lead 5G customers expect limited growth in the global radio access network market, our strategy is to gain market share with new designs that outperform the competition. In support of this goal, over the past 18 months, we have developed our next-generation high-power GaN on silicon carbide, semiconductor process at our RTP fab to support existing and future 5G applications. We call this process GaN 4. I am pleased to report products from the GaN 4 process have been sampled to several of our major customers, and we have received very positive feedback on product performance. We believe our GaN 4 process will make us more competitive in massive MIMO applications, which we are not currently addressing well.

Our metro long haul and SATCOM 5 businesses within the telecom end market continued to perform. Expansion of high-speed data transmission and increased ground to satellite and satellite to satellite communications are driving demand for our products, some of which operate at 130 gigabaud data rates and up to 80 gigahertz in frequency. And finally, our Data Center business continues to grow, driven by the global expansion of this market. Demand remains solid for our high-performance connectivity IC portfolio supporting 800G and 1.6T deployments. In fact, we believe we will have a record 200G per lane product revenue in Q4.

Additionally, we are seeing demand at the lower data rates, including 100G and 400G, supporting expansion links and more traditional data center architectures. As we look at our full year results for the data center, we expect significant growth across almost all data rates and platforms. Even our legacy 25G NRZ business is expected to grow year-over-year. We are also pleased to report our data center product revenue mix is expanding as 2 new product lines enter production. First, we recently transitioned our 200G per length photo diodes or photodetectors, also known as PVs, into high-volume production.

We have a strong market position with 200G per PDs as MACOM is one of the few suppliers who can offer customers both the TIA and photodetector ICs, and we can offer a chip scale stacked configuration with 4 PDs mounted on top of the TIA. Second, we have secured high-volume production orders for 100G per lane linear pluggable optics or LPO chipsets. Our LPO customer is deploying an 800G network in a median reach application. We believe this production order confirms that the market will continue to evaluate and adopt LPO architectures and roll out LPO solutions at scale. LPO is beginning to spread, which is good for MACOM.

Our R&D, product development and operational execution ramping the PD and the LPO products represent a major technical accomplishment by our teams. We believe these 2 new product lines will support future revenue growth. Many investors ask us about our ACC or Active Copper Cable business and opportunities. Internally, we refer to these products as linear equalizers. As the data rates increase, we believe passive connectivity will coexist or be replaced with active solutions. Active connectivity solutions can be organized into 3 categories: active copper cable or ACC; active optical cables or AOCs; and active electrical cables, AECs. MACOM provides linear equalizers and TIA plus driver chipset solutions for ACC and AOC configurations.

We do not support AECs, which are typically retimed DSP-like solutions. We believe the trends to electrify connectivity with equalization will continue to expand inside and around the data center as well as in other applications. As an example, we see some connection protocol in the compute industry moving to higher data rates and therefore, away from passive connections to active electrical or optical solutions. An example would be PCIe to connect disaggregated GPUs, CPUs and memory together using high-speed connections. Disaggregated computing enables the efficient use of compute, memory and storage resources, but it increases the need for fast low-latency connections.

MACOM is addressing this high-volume application with existing InfiniBand and Ethernet devices in developing ICs with PCIe specific protocol features for plug-and-play compatibility with existing cabling and multiple connector form factors. We have developed PCIe solutions for both single mode and multimode fiber applications and demonstrated these at recent OFC and conferences. While MACOM is focused on supporting current generation applications, we are also looking ahead at future applications. As an example, at the last OFC, we demonstrated a 300 gig per lane PAM6 driver IC. As we work on advanced ICs like this, we engage with the industry leaders so we can properly understand future system requirements.

Another example of advanced work includes our active design efforts and product sampling on our 400G per lane products, which we anticipate will support revenues starting about 2 years from now. During Q3, MACOM exhibited at the International Microwave Symposium in San Francisco. This exhibition is a great venue to highlight our latest microwave millimeter wave in optical technology innovations and to introduce new product lines to our customers. At this year's show, MACOM featured 16 live technology demonstrations, showcasing our newest products for electronic countermeasures, radar and SATCOM applications.

I want to highlight 3 noteworthy new products. First, a 1-kilowatt expand pulse power amplifier module developed for electronic countermeasures and directed energy applications. This is a great example of the type of high-value add system-level offerings that I mentioned earlier. Second, a wideband front-end module or FEM, covering 20 to 18 gigahertz. This multichip transmit receive module solution is ideal for wideband phased array architectures. And third, a new product solution for RF over fiber applications MACOM's MAT61m transmit receive module offers up to 70 gigahertz of bandwidth, making it ideal for antenna remoting. The module provides a complete solution for transporting wide bandwidth signals over optical fiber within a compact form factor.

I'll mention a few other noteworthy items. Our RF power business continues to perform well with an attractive mix of defense and commercial applications. Supporting this activity is our wafer fab located in RTP, North Carolina. On July 25, this fab came under MACOM's full control, almost 6 months ahead of the original schedule. We felt it was in our best interest to accelerate the transfer to remove risk given the sellers bankruptcy situation. The accelerated transfer will create a modest near-term gross margin setback, which Jack will review. However, now that we have full control of the fab, we can intensify yield enhancement efforts and optimize performance and operational metrics of the fab.

We have recently executed a plan to increase fab output capacity by up to 30% with the purchase of heavily discounted fab equipment. The equipment installation and qualification will take 12 to 15 months to complete. Our lead high-volume customers are excited for this capacity to come online, and we expect that this move will lead to additional high-volume program wins starting in 2026. Our business development activities based out of MACOM's European Semiconductor Center, or MESC, continues to gain momentum in the market. We believe we are better able to penetrate the major European industrial, defense, space and telecom accounts with the design and manufacturing site in France.

Our goal is to be the premier designer and manufacturer of high frequency in high-power gas and GaN IC semiconductors in Europe, and I am confident our talented team in France can make this happen. And last, our 6 business units continue to engage customers on significant programs at the IC module and subsystem level in all 3 of our target markets. We continue to strategically expand our workforce with industry-leading talent to meet the challenge, to be first to market with best-in-class performance.

Jack will now provide a more detailed review of our financial results.

Thanks, Steve. Our Q3 results are at a record revenue level with strong financial performance, continuing our steady growth in revenue, increased operating income and ongoing cash generation. we have made sustained operational improvements across the business, which have supported our strong balance sheet and cash generation. Fiscal Q3 revenue was a new quarterly record of $252.1 million, up 6.9% sequentially based on growth across all 3 of our end markets.

Our overall book-to-bill ratio for Q3 was just above 1:1. Adjusted gross profit for fiscal Q3 was $145.2 million or 57.6% of revenue, slightly ahead of prior quarters. As Steve had mentioned, we are pleased to have assumed operational control of the RTP, North Carolina fab on July 25, ahead of the original scheduled December transfer date. While we anticipate that the acceleration of this transfer will result in some minor near-term gross margin dilution of approximately 60 basis points or about $1.5 million in Q4. We are excited to have eliminated the business risks of not having the important facility under our operational control. With the facility now under MACOM's control, we believe we will be able to increase the speed of improvements to the fab's production capacity and yields which will help to stabilize and improve the fab's performance as we enter fiscal year 2026.

Total adjusted operating expense for our second quarter was $81.7 million, consisting of research and development expense of $55.1 million, and selling, general and administrative expenses of $26.6 million. The anticipated sequential increase in adjusted operating expenses compared to Q2 was primarily driven by higher R&D associated with employee-related costs and foundry expenses as well as higher variable compensation. As we are scaling the business, we have added new capabilities and resources, primarily within R&D functions. I would like to note that we have remained very focused on controlling our OpEx as we continue to grow our revenue.

Depreciation expense for fiscal Q3 2025 was $6.9 million compared to $6.8 million in Q2 2025. Adjusted operating income in fiscal Q3 was $63.5 million, up 6.2% sequentially from $59.8 million in fiscal Q2 2025. For fiscal Q3, we had adjusted net interest income of $6.8 million, increasing $400,000 sequentially from $6.4 million in Q2. Our adjusted income tax rate in fiscal Q3 was 3% and resulted in an expense of approximately $2.1 million. We expect our adjusted income tax rate to remain at 3% for the remainder of fiscal year 2025. We are continuing to assess the impact of the U.S. government's recent legislation to understand the longer-term impact on our income tax rates and associated balances. Fiscal Q3 adjusted net income increased approximately 6.1% to $68.2 million compared to $64.3 million in fiscal Q2 2025.

Adjusted earnings per fully diluted share was $0.90, utilizing a share count of 75.9 million shares compared to $0.85 of adjusted earnings per share in fiscal Q2 2025. We continue to make operational improvements within the business, which can be seen in the sequential increases in our adjusted operating income and EPS over the past 8 quarters. Now moving on to operational balance sheet and cash flow items. Our Q3 accounts receivable balance was $129.5 million, down from $131.4 million in fiscal Q2 2025. The decrease in our AR balance was driven primarily by stronger cash collections. Our days sales outstanding averaged 47 days, which was below our previous quarter at 51 days.

Inventories were $215.4 million at quarter end, up sequentially from $209.3 million, largely driven by inventory increases to support existing programs and anticipated future demand across the business. Inventory turns increased to 2x from 1.9x in the preceding quarter. Fiscal Q3 cash flow from operations was approximately $60.4 million, up $21.6 million sequentially and an increase of more than $11 million over fiscal Q3 2024. The sequential increase was primarily due to increased net income combined with fluctuations in working capital. As I have noted in previous quarters, given the dynamics of our growing business, it's typical to have variations in cash flow from quarter-to-quarter. Our business model over the last few years has demonstrated strong cash flow from operations. We believe we are on track for our cash flow from operations to be in excess of $220 million for fiscal year 2025.

Capital expenditures totaled $8.8 million in fiscal Q3, up $700,000 sequentially. As a result of our increasing demand from customers during the fourth quarter, we expect to purchase $12 million of surplus equipment at the RTP fab from the previous owner. This will allow us to expand our RTP capacity by up to 30% over the next 12 to 15 months. Including this $12 million purchase, we expect our total capital expenditures for fiscal year 2025 to be in the range of $40 million to $45 million.

Next, moving on to other balance sheet items. Cash, cash equivalents and short-term investments for the third fiscal quarter were $735.2 million, up $53.7 million from Q2. Comparing our cash and short-term investments to the book value of our convertible notes, we are in a net cash position of more than $235 million as of July 4, 2025. I will highlight that we expect to pay off the $161 million of our remaining 2026 notes over the next 3 fiscal quarters as these notes become due under the terms of the original agreement. As we move into our fiscal fourth quarter, we expect revenue and profitability growth and to also maintain a strong balance sheet with ample cash to support our strategic goals. We will continue to carefully manage our discretionary and capital spending to support annualized revenue in excess of $1 billion, while further improving our operational margin, EPS and cash flow.

I would like to thank the entire MACOM team for their contributions over the past quarter, including those that supported the planning and accelerated integration of the RTP fab. I look forward to us making ongoing improvements to the business as we complete the remainder of fiscal year 2025.

I will now turn the discussion back over to Steve.

Thank you, Jack. MACOM expects revenue in fiscal Q4 ending October 3, 2025, to be in the range of $256 million to $264 million. Adjusted gross margin is expected to be in the range of 56% to 58%, inclusive of the near-term impact of the early RTP fab transfer. And adjusted earnings per share is expected to be between $0.91 and $0.95 based on 76.5 million fully diluted shares. We anticipate 5% sequential revenue growth in Data Center and Industrial & Defense. We expect Telecom revenues will be slightly down sequentially. These targets support record revenue and earnings for the company.

And finally, I would like to take a moment to announce that Susan Ocampo will be retiring from our Board of Directors effective as of August 31, 2025. Susan, together with her late husband, John Ocampo, fundamentally transformed MACOM when they acquired the company in 2009, setting MACOM on a path of innovation and growth that continues to this day. Over her 15 years as a director, Susan has been an integral part of MACOM's journey, providing exceptional guidance through our company's most significant periods. The Ocapo's legacy is permanently woven into the fabric of our company, from our corporate values to our commitment to excellence. Susan has shared with us her plans to dedicate more time to philanthropic endeavors with a particular focus on supporting engineering students pursuing degrees in RF engineering and related technical fields.

This commitment to nurturing the next generation of semiconductor talent reflects Susan and John's lifelong passion for education and our industry. We're inspired by Susan's vision to give back to the industry that has been central to her professional life, and we look forward to seeing the impact of our future endeavors in the years to come. On behalf of the entire Board and management team, I want to express our gratitude for Susan's dedication and steadfast commitment to our company's success. While we will certainly miss her guidance in the boardroom, her contributions will continue to benefit MACOM for years to come.

I would now like to ask the operator to take any questions.

[Operator Instructions] Our first question coming from the line of Quinn Bolton with Needham & Company.

Congratulations on the nice results and outlook. I guess, maybe start with the RTP fab conveyance, Steve and Jack, you mentioned it a 60 basis point headwind, but you now have the opportunity to sort of get in there, increase capacity, enhance yields. Wondering if you could give us some sense when do you think those improvements could turn RGP from a margin headwind into a margin tailwind?

Thanks for the question, Quinn. And maybe I'll say a few words about the transfer and then Jack can also add some comments. So number one, we're very excited to have this fab conveyance behind us. As part of that conveyance, it included bringing over and onboarding about 180 employees. So we're now welcoming the workforce that has been working in the fab and around the fab that were not technically MACOM employees over the past 18 months. So a big hearty welcome to all those employees. Our integration teams have been working very well together over the past 18 months. We've been able to migrate all the IT systems, all of the purchasing all of the controls that was really at the -- under the control of the Wolfspeed management team is now fully under MACOM's control.

So what that means is there's no more fab operating committee, where they would be sort of Wolfspeed and MACOM management defining projects in the fab, looking at priorities. All of that goes away. And now we have full rein to do what we want, when we want. And of course, the first thing we will focus on is improving yields, efficiencies, cycle times, overall quality and performance of the fab. And as part of this, I'll just highlight that we took one of our senior executives that had been running the low fab and he and his family moved down to RTP. And so we have new leadership on the ground that understands how MACOM likes to run its fab. So we're very excited to see all the great work from him and his team.

So as we look forward, as we start to move these enhancement programs into financial benefit, we're modeling as we look out over the next few quarters, anywhere between 25 and 50 basis points of improvement sort of going forward after Q4. That's what our crystal ball says at the moment. And so when you do that math, you can see that we're probably a couple of quarters, maybe 3 quarters away before you start to see a tailwind and then a real contribution. The other thing I'll highlight, which is really fundamental to the execution of the fab is increasing the output capacity. And so as we said in our remarks, we have made some purchases to bring in more equipment to eliminate single-point failures, open up areas where we have pinch points and capacity. And that will really allow the fab to run more efficiently, which will also be a benefit to the overall profitability of the operation. So very excited about the transfer. We did it about 6 months before we had originally planned. We had always wanted the fab to come over as sort of gross margin neutral. Clearly, we're just a little bit behind about $1.5 million on a quarterly basis right now, and we think that's easily managed going forward. And maybe Jack can add some comments around our future plans.

Great. Thanks, Steve. And Quinn, we've had the fab under our full control for all of a little less than 2 weeks at this stage. So we're still learning and finding items that are out there. We think we've got a good plan to make those improvements from a yield perspective. We are familiar with running a fab of this size. We have similar capabilities here in Lowell and that extends to some of the suppliers that we have and making sure that we're linking up our supply base with the supply base that's down there at RTP. So we've identified a number of different opportunities that we think we can work through over the next 90 days that will help improve the margins as we go forward and work our way through fiscal year 2026. So great effort and look forward to weaving the RTP fab fully into MACOM. But a lot of work was done upfront to make sure we understood what we were working through as part of this transition. And a lot of that work had helped us to accelerate it and get it done almost 6 months ahead of schedule.

Excellent. My second question, just I wanted to come back to the LTO opportunity. Very encouraging to hear. I think your first customer starting to go into volume production. Just wondered if you could talk about the pipeline you see for LPO adoption. Are you seeing a broader number of customers sort of where you're engaged, looking to go to production, say, in fiscal '26 and beyond? Just any sort of sense of how quickly you could see broader adoption of LPO?

Yes. So if we take a step back and look at some of the work we showcased at the OFC at the end of March, beginning of April this year, it's important to highlight that our demonstration at our booth had an LPO ecosystem being showcased, which included utilizing switches from 2 different vendors, servers from 3 different vendors. And we had 12 different module manufacturers showcasing their hardware which was either running at 400 or 800 gig in both multimode and single mode solutions. And so that really -- I think it puts a stake in the ground as to where LPO was back in March. And so now as we look at where we're at today, a lot of that hardware is being qualified by end users, and we're starting to see production orders roll in. And so we're very happy about that.

And so we do believe that over time, we will continue to sign up new customers for this application. And then, of course, you might ask, why is that? And I think fundamental to the LPO solution is it's a solution that eliminates the DSP, which means it's lower power, lower latency, lower cost, it's easier to use and it's ideal for short lengths. Now the challenge, of course, is the customer needs to work on getting acceptable bidder rate over all of their use cases. There has to be very clean between all the different hardware and you lose some of the creature features of the DSP and the application. And sometimes that is a problem for the end user. So the adoption of LPO is compelling for the reasons I stated, but it also has its challenges, which means it's not ideal for all cases, but we are seeing pull, and I would say that, that pull is increasing. As we stand here today, I would say that we have signed up 1 customer for production. We're very close to signing up a second, and we expect that as we move into 2026, there will be more business.

And our next question coming from the line of Blayne Curtis with Jefferies.

I wanted to ask on the Industrial & Defense. You had strong growth in June, and it looks like it continued in September. I'm just kind of curious as it relates to 1:1 book-to-bill, if you could just talk about Industrial & Defense trends, what's driving the strength? And A lot of people with broader industrial businesses have been kind of people have been worried about whether it's starting to tail off. Just specifically anything that you're seeing in industrial would be great as well.

Yes. Most of the growth in our Industrial & Defense category is coming from Defense. So let's be clear about that. And that -- the book-to-bill of our I&D business has been over for at least 6 quarters, maybe 5 quarters. So the category has been doing quite well. The Industrial category for us is a little bit of a catch-all. And we did start to see some improvement this past quarter, as I mentioned, and our general business, some of that's test and measurement related, some of it's medical-related. But generally speaking, the Industrial is a small segment for us, and our main strategic focus is taking full advantage of the expanding and growing Defense market. And so we really put all our resources on that. And so I would just say that the industrial MACOM is not a bellwether for how that market is doing. It's a small piece of our business. And it's a general category and it's slightly improving today.

Great. And then I wanted to ask and I feel bad asking the question because it's been such a good segment since the acquisition. But as we kind of look at you trying to fill this RTP fab. Just curious down slightly in September. What's driving that? And I guess, when you look at this RF business, I think it surprised a lot of people how strong it have been and you have this great opportunity to gain some share with this capacity. Maybe just comment on September and then the kind of outlook for the RF business in general?

Right. And we're very happy that our telecom business, generally speaking, has been growing really since the beginning of -- at the end of our fiscal '23, and we are running near record levels. And so when you sort of compare our Q3 performance to our Q4 guide, it's, I would say, noise level differences. It's not meaningful. I think what's important to note is the secular growth of SATCOM, satellite communications, where we have a very strong position on the ground gateways as well as on the satellites. We are seeing solid business, and we are predicting growth into next year for our 5G business year-over-year. We are starting to see some improvements in our 10G PON business over the last couple of quarters. So I wouldn't read anything into the modest sequential decline going into Q4. The fact is, on a full year basis, our Telecom business should grow over 40%. So I think we're quite happy with that. .

Our next question coming from the line of Thomas O'Malley with Barclays.

Congrats to the team for reaching that $1 billion run rate in the June quarter. I know that you kind of started out on this adventure targeting. So congrats on that. I wanted to start off on the Data Center bucket, so continued strong growth into the back half of this year. Can you walk through the moving pieces of that bucket? Historically, I think the largest piece had been kind of and drivers in optical modules and ACC was kind of coming up the curve and now you're getting some LPO contribution. But in terms of the drivers of what's continuing that strength here into the back half of the calendar year, maybe spend some time just walking through where specifically you're seeing the strength in that bucket?

Sure. And as I said in my remarks, we are seeing broad strength this year across all of the data rates. So I just want to highlight that to begin with. And I'll also remind listeners that in 2023, we had about 6% year-over-year growth. In 2024, we had 35%, and now we're triangulating for 2025 to have about 48% year-over-year growth. So very, very strong performance. We've had some great success, primarily at the higher data rates, so 1.6T, 800 gig, 400 gig. Our business and our positions there have been quite strong. And I'll highlight -- what we're excited about right now is that we're diversifying the revenue stream. And that's why I wanted to highlight that LPO is coming in. Our PDs are coming online. We see many customers moving to the higher data rates, and they're coming to recognize that it might be more affordable to use an ACC solution or to use an LPO solution than a full DSP-based module.

So there's a lot of pull there. We remain focused on analog solutions. We are not -- even though we do have a DSP in production, we are not spending our R&D dollars on DSP technology. We are spending our R&D dollars on looking forward at the next data rates. And that's why I mentioned the 300-gig and the 400-gig R&D work that we're doing. So great work by the team. Generally speaking, we're engaged not only with the pluggable module people that are in the market, but also people that are working on CPO, some people call it NPO. So we are working with companies that want to push optics onto the PCBs, onto the switchboards. And from our point of view, it's an LPO solution without the package.

Now the one last thing I'll highlight is our fiscal '25 was a very good year for our linear equalizers for a 1.6T application. And our lead customer there is basically during the course of this year, they ramped up that application and they ramped it down. And so when we look into our fiscal '26, we want to make sure that we are able to add new 800 or 1.6T programs to our business, and we are working to that end. So while we do see lots of growth across the product segments, I think the year-over-year comps on ACC are still to be determined.

Helpful. And then the second one is maybe for Jack, just on RTP. So you gave some of the cadence on headwind turning into a tailwind over the next couple of quarters. But I know you guys don't want to give away your secret sauce here, but I remember kind of early days of that deal, you had talked about potentially bringing some product in-house that you had done potentially externally. Could you maybe talk about the product road map at RTP? Is it something where you can bring in compound semis or make any changes to the product that's coming out of there that also offers a next leg of growth and margin improvement? Just anything that you can offer on strategy longer term with that fab and why it's so critical for you guys?

Yes. Maybe I'll say a few words first, Tom, and then Jack can add some comments. So when we first acquired the business, we recognized that their mimic portfolio was too small. They had a lot of great foundry business, which we wanted to continue to grow, and they had a very good position in 5G. And so when we look at how to improve the margins, obviously, looking at adjusting the product mix there, primarily weighing towards mimics, which are generally very high-margin products. We wanted to make sure that we had the best designers in the industry to make use of the processes they have. And you've seen us take actions with hiring and adding R&D resources to our mimic design teams, including the recent acquisition of a company called which has design centers in Dallas and San Diego. And so we really feel great about our design talent, which will drive high-value products through that fab. .

When you specifically asked about sort of insourcing. And so there was a part of the RF business supporting 5G includes purchasing from external suppliers, things like capacitors and passive devices, we call them IPDs that might be used in a matched amplifier module. And we have a very active program to in-source all of that. And we will in-source it most likely in our Lowell facility, which will also solve the other issue, which is the utilization issues that we've been talking about here at Lowell. So our strategy for improving the profitability of the products includes making use of all of the technologies at our different fabs. And so some of the insourcing that I think you're referring to is more in-sourcing some of the silicon and gas passives that are currently outsourced into one of our other fabs. Did you want to add to that, Jack?

The only thing I would add is that, as we had noted, going back over the past year or so, we saw some pretty good strength from our 5G telecom customers. I think a lot of that was a result of MACOM getting involved, and they appreciate the relationship with MACOM and themselves. So that helped to expand some of the market share we had and to grow the business. There's also the I&D piece of the business or the Defense piece of the business that goes through that fab. It is a trusted foundry similar to what we have here at Lowell. So we think that's a strategic capability that we have. And as we've mentioned, it takes a little bit longer to get things moving from a defense customer perspective, but we have made great strides over the past year or so with those customers and see that as an opportunity to help support growth. And with the fab under our control, we'll be able to expand the capacity. We talked about adding some equipment over the next 12 to 18 months. So we think we're in a good spot to help improve the overall fundamentals of that fab as we work our way through fiscal year 2016 and beyond.

And our next question coming from the line up, Karl Ackerman with BNP Paribas.

I was -- a lot of good questions already within datacom and industrial and the fabs, I want to pivot a bit to Telecom. I guess, why growth in Telecom given ongoing strength in DCI? And similar to that, when you -- I guess, what would we expect a pickup in SATCOM from some of the breadth of design wins you previously communicated. Does that begin to pick up back in December and into 2026. Any thoughts on the SATCOM opportunity within Telecom would be great as well.

Sure. Thank you, Karl. You're correct to highlight that our DCI or metro long-haul business is doing quite strong. We have lots of programs running in terms of very high data rate for long haul as more and more data centers are being built out. It's driving the need for hardware that is, in some instances, coherent-based solutions. So that business is doing quite well. So that's really not an issue there. I think the quarter-over-quarter dip you're seeing in Q4, I would say, is more to do with just managing the backlog, generally speaking, and working with customers to hit their dates. And again, I do have to remind you, like I mentioned earlier, that year-over-year, our Telecom business in the fourth quarter, as forecasted, is doing quite well. So the year-over-year numbers are very, very solid.

So I don't think there's anything fundamentally broken there. I think it's -- that market has seen some great growth this year. And we would expect -- and we've said -- and we talked about the fact that the potential within this segment is quite large. And then your last comment about how are the various satellite programs running. I did provide an update on last quarter's call that we were finishing up the mimic design phase. We were building engineering models. That work continues. And in the near term, we're looking towards delivering that our major customer for that 1 large order, engineering models. And then once they go through a review of that hardware, we go through what they call the CDR, Critical Design Review, we locked down the design and then we start production. The timing of that right now hasn't really changed. We're thinking production could start as early as the end of this calendar year or the beginning of next calendar year. It will really depend on the results of the work that we're doing over the next few months.

Our next question coming from the line of Tore Svanberg with Stifel.

Steve, you talked about the photodetector product with the TIA and I think you mentioned the chip scale package. I'm just trying to understand the value proposition there. I mean, it does sound like a level of integration that perhaps some of your competitors don't have. And could you talk a little bit about what specific use cases that will be for those TIAs? And what I mean by that is that sort of intersecting 800 gig or 1.6? Or is it more broad-based than that?

Great. Thank you for the question, Tore. So our photodetector product area is world-class in our -- in my opinion, in our team's opinion. It's fundamentally rooted in epi design and also the chip design itself. The chip design is backed by submicron processing that allows us to do very close alignment of all the various layers on these photodetectors. We -- our products have industry-leading dark currents, which means the products are very stable over time, very reliable over time. Our products are what they call sell hermetic, which means they can -- you don't need to put them in a hermetically sealed module, so they can be open to the environment, and we use very special processing to achieve self hermeticity, which is unique, we believe.

And we have a very good control over the lens fabrication process, both on the front side in aligning the lens to the backside of the device. And so a lot of engineering has gone into these designs. MACOM has been known historically for having the most sensitive photodetectors in the industry. And historically, our customer base has been test and measurement companies, people that are making optical testers that might have a sort of a gold box optical receiver in the piece of test equipment that we manufactured. And over the last year, we have been focusing very heavily on winning high-volume sockets in the data center in 2025 and 2026, you're going to see the results of that effort.

And to do that, I would just add that we have really set a very nice foundation for high-volume testing in manufacturing to meet what really looks like massive step-ups in volume for us. So we're very excited what the work that the team is doing. It's been a group effort between our business units, our operations, our applications teams and where these parts are used. So it's a 200 gig per lane photodetector, so it's suitable for an 800-gig receiver or a 1.6T receiver. So in the case of a 1.6T receiver, it would require 8 photo detectors. So you're talking about millions and millions and millions of devices.

Yes. That's great color. And as my follow-up, you mentioned PCIe 7. I assume these are again PCIe over fiber products and not copper. And again, from -- to sort of trying to understand the timing of that. With this, again, try and intersect, I guess, the 2027 cycle? Or could we start to see some revenues even before that?

So I -- yes, you're right that PCIe 7 is optical based. And we are working with some customers as well on, I would say, electrical solutions that are -- that will maybe come online before PCIe 7. PCIe 7 is a fairly high data rate, bidirectional, lots of different lanes, 32 gigabits per lane, but many, many lanes. So as I highlighted in my comments, the compute industry is really pulling companies like MACOM into their block diagrams because they need to add equalization as they move high-speed data across their computer boards. And so it's kind of a perfect ancillary solution. And again, all of this would fall under our equalizers. And yes, to be very clear, we do have equalizers for PCIe that are electrical based, not just optical.

Our next question coming from the line of Harsh Kumar with Piper Sandler.

Congratulations, first of all, on you had another solid and fantastic results. Steve, I wanted to understand the headwind with the margins. You got it a little bit earlier than you wanted. Is that simply it that the revenue isn't quite where it needs to be. And I want to understand what you can do or what you need to do to overcome this small 1.5 million or 60 basis points of margin? Are there any functional steps that are needed to be done?

Yes. I think it's -- and maybe I'll say some comments and Jack can add on. But I think it really comes down to now taking full control of the fab and being able to fix all the things that we've not been able to fix to date. And so our operations team is doing an absolutely phenomenal job moving the needle as quickly as we can. And I'll just highlight, when we first brought the business over, this business was just in a pretty rough state financially. And so it's been quite transformative over the past 18 months, and I'll highlight that even before we close the acquisition, we effectively worked with the seller to restructure the business, so that the day it came into MACOM, it would be accretive to our earnings, and we met that challenge and met that goal. And we also said that this acquisition would effectively pay for itself in 3 years, and we think we're on track as well.

But as we go forward, it's looking at critical controls. It's looking at areas where we have unacceptable yields. It's turning the material through the fab faster, which means sort of reengineering the industrial side of how material moves in the fab. I wouldn't say or point to any 1 particular thing. I think it's 20 different projects that our team has in flight to incrementally improve financial performance. But the 1 thing I think we should really focus on, which is we can double the size of this business, and that is our plan. So when we look at our position in the market, in GaN on silicon carbide with this technology set, we have tremendous upside. And so it's an anchor technology that allows us to address major customers across test and measurement military, defense, telecommunications, where we can not only sell this anchor product, but also all of our other chips around it. So it's really helping MACOM get to the next level. And so it's block and tackling in the near term. And as we said earlier, 25 to 50 basis point improvements over time starting -- beginning of next year. Jack?

The thing that I would add is just we did not have operational control of the entire fab in terms of the workforce and how we run the equipment, when we run the equipment up until a little less than 2 weeks ago. We had made some pretty good strides with our fab operating committee with the former owner of the fab. So I think out of the gate, we were doing pretty well. Obviously, over the past 6 months, the former fab owner has had a lot going on, and there may have been a little bit of a lack of focus. I think that is what drove some of our decision to accelerate the transfer. And I think we were going to be more than willing to accept that little bit of a temporary margin step back for us to ultimately be able to accelerate some of the improvements that we're anticipating now that we have full control. So -- and once again, we're able to minimize the risk that we can control it. So hopefully, that color helps with regard to that minor margin setback that we referred to.

No, it does. I guess, my next question is also on the fab because most of the product questions have been sort of asked. I guess, I wonder if you would be willing to share with us what level of revenues this fab is doing now? And also we understand it to be a telecom fab. But from a technical competency, what kind of technologies can you have in this fab? And what kind of markets can it address? And then also, I guess, a multipart questions. When it's all said and done and when, let's say, 2 years from now, I'm talking to you, what could the margins be for this company? Wouldn't they be accretive to your corporate gross margins before you about this? Or would it fall somewhere in the same range, sorry for the multipart.

Harsh, these are great questions. And before I answer or try to answer many of those questions, I'll also highlight something that we're very happy about, is as we exit our fiscal 2025, we're really running at operating margins that are peaking really in the last couple of years. So even though we had a little bit of a step back here on the gross margin, $1.5 million of COGS or 60 basis points, the business and the overall fall-through in the operating income of MACOM is growing. And as we look into next year, we believe that the earnings are going to grow faster than the revenue. So I think we have very good control over a lot of the different moving parts. When you ask about the revenue by the fab, that's probably a little sensitive to discuss in any level of detail. We did announce when we acquired the fab, what the prior 12-month run rate was, but we really haven't updated the business since then for competitive reasons publicly. .

When we look at the strategic value of the fab, and I think that it is not just a telecom fab. They have -- they -- when you look at their core technology, it's essentially very high-power GaN silicon carbide that operates up through expand or around 10 gigahertz on most of their -- most of the legacy processes. Those are ideal for very high-power applications. A lot of that technology can replace LDMOS, especially in military applications, where you have high -- you can achieve higher powers and get better efficiencies. The RTP fab also has a 0.15 micron process for microwave applications. And that process operates up to about 20 gigahertz. So now you're able to capture backhaul radio links, you're able to capture other telecommunication applications, military applications, and it covers many SATCOM bands.

SATCOM is one of our fastest-growing areas. We talked a lot about it over the last couple of years, with more and more LEO constellations being launched in LEO constellations. The RTP technology is ideal for those applications. And I'll also add that many of these platforms are now adding direct-to-sell or direct-to-device connectivity, which typically run at the cellular bands. And that is where we really have an advantage, where we have a very strong position in 5G. And many of these LEO satellites are effectively flying base stations, where they need transmitters and receivers and MACOM has great technology to support that. And then the last thing I'll add is, it is a trusted foundry with a very high MRL level for -- to support military production programs.

And so that business for MACOM is booming. And it's booming because we have a very strong amplifier in transmitter design capability. And when you combine that system-level capability -- engineering capability with the GaN and silicon carbide technology at RTP, we're hard to beat. So we're very excited about the prospects. And as I said earlier, I'm confident we can double this business -- double the revenue of this business.

Our next question coming from the line of David Williams with the Benchmark Company.

Thanks for letting me jump on. I guess, maybe first, thinking about the lower speeds, you talked about that are gaining some traction. What's driving that? Is it more of just the expansion beyond data center and into maybe edge AI as kind of moving out or maybe anything that's driving the legacy type solutions?

Yes. I think your thinking is correct there. We believe that as the AI data centers basically begin to expand, there's sort of a front-end traditional data center maybe in front of it, looking towards the Internet. And so we are seeing an uptick across various product categories that would support that forward-looking -- the forward-looking equipment. And so we think that the lower data rates are being sort of dragged along because of the build-outs, and we believe that's why our lower data rates are growing.

Okay. Great. And I would assume that those products probably have a little better margin profile. And then just secondly on that, can you talk to -- is there -- what the impact is from the utilization or underutilization at the fab?

Yes. So -- well, 2 things. The lower data rate products are in most of our drivers and TIAs are not processed in MACOM fab, so I want to clarify that. So it's not necessarily impacting the low utilization. And then your question about are the margins higher at the lower data rates, we don't -- we probably can't comment specifically on that. And over time, as volumes go up, typically, prices come down, that's a general trend. But at the same time, with our yield enhancement programs and working with our supply chain, we're able to drive cost down. So it depends on the product, it depends on the customer and the application as to whether these lower data rate products are sort of higher or lower margin. It depends. .

Our next question coming from the line of with JPMorgan.

Great job on the quarterly execution. I know there's been a lot of questions on the RTP fab conveyance, but I would have thought that there would have been a gross margin step-up on the transfer. I mean, you've had a supply agreement in place. I assume that your cost per wafer under the supply agreement was speed fully loaded costs, right, which includes a lot of the deficiencies and inefficiencies you've talked about yields, et cetera, right? But then they add of markup. So not with full ownership, you don't have that markup, which can imply better gross margins. So what am I sort of missing here?

Yes. So our goal was always to have the fab come over as neutral or positive. And so we've clearly missed that goal is coming over, and we're about 60 basis points away from where we would want it to be neutral. I'm not going to comment on the supply chain agreement or the cost structures on our prior arrangements with with Wolfspeed when we were not in full control of the fab. So I really can't comment there. I think it's important to highlight that, as we've said now multiple times that as we look forward, we expect to improve the performance of the fab, which will drive gross margins. And remember, MACOM is a complex company. We have a fab in Lowell, we have a fab in RTP, we have a small fab in France, and we have our and we have our fab in Michigan. And you combine that with a large business that is effectively a fabless business, there's a lot of moving parts in our model and our gross margin model.

We like the diversity of our business and our manufacturing footprint. We think it's a competitive advantage. And as we review the execution of the acquisition, the integration, the transfer, we give ourselves a very high grade for getting to where we're at today, and we think things will only improve from here.

Perfect. And a lot of product questions and technology questions already asked, but foundry, has been a part of the MACOM strategy, right? It's been a while since we cut up on this part of your business, I believe, the team offers, I think, the most diverse set of 3, 5 compound semiconductor processes in the industry, right? I think you guys have something like 20 different process types. You support a number of different device architectures, dials, MOSFET, Like what's the traction been like in attracting foundry programs? How big is foundry is a part of your overall revenue profile today and maybe your view on the growth outlook for this part of your business?

Harlan, I'm very impressed that you know all our processes, so thank you for that. You're exactly right. We have a very rich portfolio of processes, and I would perhaps invite investors and listeners to look at our summer newsletter, which we put out, and it highlights a few different things. A lot of the work we're doing with EW systems, BAE award. It talks about a contract we received from the French government. And it also highlights and summarizes the various processes that we have at our various fabs, whether it's gallium arsenide GaN, some of the gas devices that we use for our limiters in some of our I&D customers as well as some of our very high frequency GaN on silicon. So you're exactly right to highlight that there is a lot of diversity. Our -- and our philosophy regarding foundry is to allow customers access to our fabs as foundry customers. .

MESC has always had a foundry customer base in Europe. We're continuing to build that. Here in Lowell, we have a small number of foundry customers, mostly test and measurement and defense, and we welcome their business and we support that business. And of course, the fab in North Carolina also supports foundry. So our business model is to allow customers to design chips if that's the way they want to run their business, and we welcome their business as a supplier. We don't break out the foundry numbers specifically, just again because of competitive reasons.

Our next question coming from the line of Tim Savageaux with Northland Capital Markets.

I know we're running long here. But just a quick question on Telecom, which at least came in a little bit stronger than I expected. And I'd be curious, in particular, what you're seeing in cable networking, that does seem to be picking up a bit across the industry. And I'll just ask my follow-up real quick here. With regard to LPO, you mentioned new engagement there. And on the topic of the business diversifying, is that with a new customer or a current large customer? Can you give us a little more color there?

Thank you. Yes, I'll start by saying our cable infrastructure business is growing. It's a small piece of the overall telecom number, but it is going in the right direction, and it is growing, so we're pleased about that. The LPO engagements that we have are with customers that we previously had done business with on other platforms. So they're not foreign to MACOM. We have been supporting them with our other products for some of their pluggable optical modules that are more traditional modules. And as I mentioned in our script, we have 1 lead customer and we think that the is beginning to break and we'll be bringing on additional customers soon. I'm not sure I covered all of your questions, but I'll pause there.

Our next question coming from the line of Richard Shannon with Craig-Hallum Capital Group.

Squeezing me in as well here. And my first question would be a quick and simple 1 a 2-parter here just to get a sense of size of revenues here. I'd love to get a sense of the split between I&D, especially the defense here, it sounds like it's going very well. Then also especially with the close of the RTP fab and you talked a lot about GaN today, what's the percent of sales ever coming from your various GaN processes and products.

Yes. With regard to the I&D split, that's varied over time. I think if you were to go back a number of years, we probably had a majority of our revenue coming through on the industrial side of the business. That's obviously changed over the past couple of years as the defense piece is picked up and also through some of the acquisitions. So we're probably closer to a 65-35 split over time.

And then on GaN, Jack?

Yes, we don't generally break those pieces out as part of our public discussions.

Okay. Fair enough. I thought I'd try that one. My follow-up question is, as people are trying to model for 2026, I just wanted to get a sense of relative growth by your segments here. And maybe I'll offer a couple of thoughts here as I was trying to work through this. You're obviously seeing some tough compares in the Telecom business. And Data Center, it sounds like you're adding some new products, which could continue that growth there. And obviously, Defense is going well. But I know you're not going to give us much quantification, but if there's any relative growth by segments that you offer for next year, that would be a great outlook.

Yes. Thank you for the question. It's certainly difficult to discuss 2026 at this stage. I'll just highlight that 2025, we should be over 30% growth, maybe closer to 32% or 33% growth. All of our secular growth trends are intact across our core markets. Our portfolio has room to grow. We are still a small company relative to the $8 billion SAM that we sort of stand in front of. I would say, at a high level, our revenues are slightly ahead of maybe what we talked about previously in terms of achieving the $1 billion. We talked a lot about the gross margins being slightly behind, and we acknowledge that, but our earnings are on track. And I think as we achieve that sort of $1 billion run rate, we should have earnings of over $4 a share as we improve the things that we need to improve.

Clearly, Data Centers volatile. We've talked about that in the past. That hasn't changed. Our position in the Defense market, Telecom market is very, very strong. I think we touched on some of those. Probably too early to talk about what markets will drive our growth next year. I think that's more likely a conversation we'll have on our next call as we wrap up our fiscal '25 and then look forward into 2026.

Our next question is coming from the line of William Stein, Truist Securities.

I fear I might have misheard the last one, and I hope I'm not asking the same question, but there's been a lot of attention paid today on this call, I think, to the gross margin effect of the RTP fab conveyance. We understand there's 1 other aspect of the business that you're preventing gross margins from achieving -- the the targets that you established at some point were 60% plus at a $1 billion run rate. And you're guiding lower than that -- so part of it, again, the RTP fab conveyance. I think the other piece is utilization level. But can you talk about your ability to track towards that 60% level. You discussed improvement in utilization of and performance in RTP. So should we expect perhaps sometime in the middle of next year to hit that 60%

Yes. Thank you for the question. And so as we look out into '26 and I realize it's early to be doing that, but as we look at the programs that we have in place and all the moving parts, we think we're more likely to exit 2026, closer to 59% gross margins in that sort of a year from now. And so that is sort of the trajectory we think we're on. So I don't think the 60% gross margin is going to happen in our fiscal '26. It's more likely a fiscal '27 event. .

Okay. A follow-up, if I can. You've talked a lot about all the moving parts within your data center business. There's a lot of products there. And for some of us the detail is maybe a little overwhelming. So let me ask a more high-level sort of simplified view of this. CapEx is still very strong in that end market. You're guiding to a level where we should expect something about 48% sales growth this fiscal year. If there were no great movements in products, I wonder what we should expect growth to be next year. I would assume you don't want us modeling a similar 48% growth in the coming year as well. That's quite optimistic. But can you talk about the puts and takes and how you might encourage us to think about growth in that market next year?

Yes. And I think you're right to say that we wouldn't recommend putting 48% growth into year-over-year growth for fiscal '26 related to the Data Center segment. When we look at our business, we want to have a business that's constantly improving its profitability, improving its operating margins, constantly diversifying the portfolio and getting a stronger position in the market, and data center is 1 element of our strategy. Big picture, we think MACOM should be growing double digits on the top line. And so you've seen that performance over the past few years -- 4, 5 years, we would expect that to continue. The mix will change every quarter and every year. But because of the things we've talked about today, including the heavy investment in the technologies and the products for our core markets, we think we have a very good strategy and a very good team that can execute the strategy. So how that shakes out for the data center, we'll have wait and see. We'll take that sort of 1 quarter at a time. But I think big picture, which I think you were asking about, it would be our expectation that we are growing our top line by double digits, and we're beating -- we have even a higher growth rate on our bottom line. .

And I'm showing no further questions at this time. I will now turn the call back over to Mr. Daly for any closing remarks.

Thank you. In closing, I'd like to thank all of our employees for making these results possible. Have a nice day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.