Q4 2021 MACOM Technology Solutions Holdings Inc Earnings Call

Welcome to make them for fiscal quarter 2021 conference call.

Call is being recorded today Thursday November four 2021 at this time all participants are in a listen only mode.

I'll now turn the call to Mr. Steeper Auntie May comes Vice President of strategic initiatives and Investor Relations. Mr. Ferranti. Please go ahead.

Thank you Olivia good morning, and welcome to our call to discuss <unk> fourth fiscal quarter and fiscal year 2021 financial results.

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 1095.

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 make comps filings with the SEC Mad.

Management statements. During this call will also include discussion of certain adjusted non-GAAP financial information.

A reconciliation of GAAP to adjusted non-GAAP results are provided in the company's press release and related form 8-K, which was filed with the SEC today with that I'll turn it over the call to Steve Daly, President and CEO of makeup.

Thank you, Steve and good morning.

I will begin today's call with a general company update.

After that Jack Kober, our Chief Financial Officer, who will provide a more in depth review of our fourth quarter and full year results for fiscal 2021.

When Jack is finished I will provide revenue and earnings guidance for the first fiscal quarter of 2022, and then we will be happy to take some questions.

Our fourth fiscal quarter financial results represent continued improvements in overall performance revenue for Q4 was $155 $2 million and adjusted EPS was <unk> 61 per diluted share.

Notably we exceeded 30% adjusted operating margin, which is an important milestone for the may com team.

With another quarter of strong cash flow, we ended our fiscal year with $345 million in cash and short term investments on our balance sheet.

For the full fiscal year ending October one 2021 revenue was $607 million and adjusted EPS was $2 15 per diluted share.

We are pleased to report 14, 5% year over year revenue growth and 126% year over year earnings growth.

Our financial results for this year would not have been possible without the hard work and dedication of all our employees.

In spite of certain supply chain challenges and COVID-19 headwinds, we met our internal corporate goals, our new product development schedules and our revenue and earnings targets.

I'd like to thank the entire team for their extraordinary efforts and commitment may com is fortunate to have such a hard working and dedicated management team and employees.

Our Q4 and full year book to Bill ratio was one two to one and our turns business was approximately 13% of total revenue.

We believe that the strong Q4 bookings reflect market share gains a few large long term indie orders, which will ship over multiple quarters as well as orders being placed by customers one or two quarters ahead of required ship dates due to longer than normal manufacturing cycle times.

Our strong bookings over the course of FY 'twenty, one allows us to start FY 'twenty, two with a higher than typical backlog.

We continued to manage various supply related interruptions and challenges due to COVID-19, and production capacity limitations with certain semiconductor package and substrate technologies.

Our operations planning and logistics teams have done an excellent job managing through these industry dynamics and they are working around the clock to meet customer commitments.

Fiscal Q4 revenue by end market was generally as expected with industrial and defense at $75 1 million telecom at $46 6 million and datacenter at $33 5 million.

<unk> was up 5% sequentially telecom was down 3% sequentially and data center was up around 1% sequentially.

For fiscal year, 2021, IND was up 44% datacenter up 10% and telecom down 10%.

In FY 'twenty, one our top 10 end customers represented 26, 5% of our total revenue and our revenue concentration on any one product was less than one 6% of our total revenue.

We maintain a diversified technology portfolio as well as a very diversified customer base with thousands of customers.

Our industrial and defense end market performed well during fiscal Q4 and for the 2021 fiscal year.

Our success in this end market is the result of the efforts that we began in 2019 within our engineering groups to revitalize our portfolio of RF and microwave products, including increasing the pace of new product introduction expanding to fill in the gaps of our product lines developing new innovative <unk>.

<unk> and re engaging major customers with a more focused sales and marketing effort.

More recently, we also began ramping up efforts to cross sell our optical and high performance analog products to industrial and defense customers, which creates a sizable growth opportunity for us.

Overall, I am pleased with the level of engagement, our sales and business development teams have had at major defense Oems over the last few quarters involving a variety of ground airborne ship based programs, including radar electronic warfare, avionics and RF and optical communications.

Implications.

These programs are typically long lifecycle programs and we expect they will contribute to our growth in FY 'twenty two and beyond.

Our telecom end market revenue was slightly down in Q4, primarily due to softness in the <unk> market, which was offset by strong demand in broadband access and DOCSIS three one cable TV infrastructure markets.

May com has abroad CATV product portfolio, including single ended in differential amplifiers Transformers power divider combined couplers and Diplex filters.

<unk> represents a large growth opportunity for <unk> com as worldwide demand for improved connectivity at higher data rates grows.

In addition, we see growth opportunities in PON.

TV infrastructure microwave radios and satcom during FY 'twenty, two primarily driven by strong end market dynamics, new product introductions and market share gains.

Our data center end market revenue was essentially flat in Q4.

Nevertheless, we believe data center remains a large growth opportunity for May come we expect new product introductions will be the primary driver for growth for us in this market.

Some examples include 25 G D FB lasers, and 50 G CW lasers photo detectors laser drivers and trans impedance amplifiers.

I'll note that earlier this week, we announced a new linear equalizer product line, which will support high data rate applications, including active active copper cables used inside the data center.

We believe our strategy to collaborate with leading DSP chip suppliers allows may comp to stay focused on designing and producing the industry's next generation high speed <unk> and laser drivers.

Although with the ramp up of 400 G Z R and data center Interconnects, we are seeing an increased interest in the development of coherent solutions for next generation 800, G and higher data rates for connections both between and within data centers.

Coherent ZR technology, typically utilizes silicon photonic optics, along with a coherent DSP to transmit a quad modulator optical signal on a single wavelength.

May come as a leading merchant supplier of modulator drivers in linear tia's for coherent modules and we are currently in volume production with 32, Gigabyte <unk> 64, gigabyte and 96 gigabyte product families.

We are also beginning to see the proliferation of coherent optics into the access market with low cost tunable hundred G solutions.

As a merchant supplier, we are working with our module customers in the datacenter and enterprise markets to support their development of coherent optics with our existing product portfolio and are developing new products as the requirements for higher bandwidth continues to emerge across all market segments.

We had many technical accomplishments in fiscal 2021, and I would like to highlight a few.

First we internally documented 43, new invention disclosures, we formally submitted 49, new patent applications to the U S patent office.

We were awarded 44 new patents.

Innovation and invention is critical to our future success and I would like to congratulate our engineering community for their excellent work in this area.

Second during the year, we introduced over 130 standard products and we expect to grow product introductions in FY 'twenty two by an additional 35%.

In addition, we had great success with our custom IC development activities, which complements the buildout of our standard product portfolio.

During the year, we supported approximately 20 customer funded major IC developments and many smaller unfunded projects.

Further I am pleased to provide a progress report on four important strategic technology developments.

First our <unk> Gan on Silicon carbide process transfer from <unk> is on plan and our fab and device engineering teams have done remarkable work over the past 12 months.

To date, we have verified the processes small signal performance.

And more importantly, we have measured over $4 five watts per millimeter 25 volts at X band frequencies.

We believe this power density performance is extremely competitive.

In the coming months, we will be optimizing the process with the goal to achieve even higher power levels.

I'll note, we have recently designed to mimic power amplifier and processed it on both the <unk> and may comp process.

And with the exception of power levels, we have almost identical performance.

During FY 'twenty, two we plan to complete the installation of new backside process equipment as well as installing atomic layer deposition or <unk> D capability for device passivation.

We recognize we have a lot of work ahead. However, our engineering results to date are compelling and we believe in time, we will capture market share in the high frequency Gan mimic market.

Second we are making excellent progress on our silicon photonics product development.

As I reported last quarter, we are now working with our fab partner on produce ability and yields.

Third our pure carbide high power gain amplifier product line continues to expand since its introduction over one year ago.

Notably, we recently released three additional high power products, including a 60 watt narrow band narrow band and C band product for radar into general purpose 15 Watt broadband products operating a D. C to 12 gigahertz and 30 megahertz to three five gigahertz.

And last as a reminder, our thousand volt chip capacitor product line or kv caps is fully production released and we are beginning to take orders and gain traction in the market.

Kv caps are ideal for high voltage applications, where small size and reliability is critical.

As we look ahead to fiscal year 2022, our priorities include further accelerating in streamlining our new product development process, gaining market share by staying focused on addressing customer needs and providing continuous engineering support.

Strengthening our competitive advantage by introducing new products based on <unk> proprietary semiconductor processes.

Increasing our direct business with major Oems.

And further optimizing the efficiency of our operations to improve profitability and cash flow.

Our organization is lean and can move quickly to ensure we capture market share.

We believe that making modest internal investments in our business can provide opportunities to achieve higher than average return on invested capital and therefore supports our goal of establishing best in class profitability.

The risk reward ratios on these internal investments can be compelling since they leverage existing assets that we already have in place.

For example, we are investing in our Massachusetts in Michigan wafer fabs to modernize develop new process technologies improved quality and expand capacity.

We believe investments in new and existing process technologies like <unk>, four and 90 nanometer Gan on silicon carbide or high voltage capacitors will enable differentiation across our RF and optical products, which ultimately supports our goals are very profitable growth.

Related to our wafer fab investment we are pleased to announce that our low wafer fab recently achieved I E. T. F 16, 949 certification for automotive quality management systems.

As a reminder, this certification focuses on defect prevention waste reduction and supply chain management for the international automotive industry.

We believe this certification will help to open new doors for us in the automotive industry.

In particular, we believe our Lightwave RF and microwave kv capacitor in high speed analog technologies are ideal for automotive applications, such as sensors Lidar under the Hood power management and autonomous driving applications.

In addition to investing in our fab facilities, we're also expanding our assembly.

New product prototyping and engineering test capabilities at some of our other facilities.

For example, we anticipate that our Nashua, New Hampshire facility will expand its manufacturing operation space by 100% over the next 12 months.

This facility supports a wide range of commercial and defense related product development and production programs.

In addition, we just opened a new state of the art product engineering and application lab at our Newport Beach, California facility.

All of these activities require strong and expanding workforces and we have not been standing still and hiring we are focused on expanding R&D with best in class talent and as an example in fiscal year 'twenty, one we hired over a dozen phds to join our already strong workforce.

In summary May com has a wide range of products in production today spanning dozens of different product lines, serving thousands of customers. Many of these products have long life cycles and produce revenue for years after they've been introduced.

We view this diversity of technology products and end market applications as an inherent strength of the company.

To provide a broad revenue base Jack.

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

Thank you, Steve and good morning, everyone.

We continued the trend of improving profitability during the fourth fiscal quarter ended October one 2021.

Gross margin operating margin and earnings per share all showed improvement on a sequential and year over year basis adjust.

Adjusted operating margin exceeded 30%, which is a notable milestone for the company.

Revenue for the fourth quarter was $155 2 million up one 7% quarter over quarter.

As expected the sequential improvement in revenue was driven primarily by an increase in industrial and defense.

Data center was up modestly partially offset by a modest decline in telecom end market.

For the full fiscal year revenue was $607 million in fiscal 2021 up 14, 5% from $530 million in fiscal 2020.

On a geographic basis domestic customers represented approximately 46% of both our fiscal Q4 and fiscal year 2021 results.

These amounts represent increases from the approximate 36% and 41% of sales to domestic customers in fiscal Q4 2020 in fiscal year 2020, respectively.

Adjusted gross profit in fiscal Q4 was $94 9 million or.

Were 61, 1% of revenue.

Up another 80 basis points sequentially.

Adjusted gross margin for the full fiscal year 2021 was 59, 6% up 460 basis points from 55% in fiscal 2020.

The strong gross margin performance for fiscal year 2021 was the result of a variety of ongoing initiatives that we've touched on in the past.

We have numerous internal actions focused on improving the efficiency of our operations, including optimizing yields reducing scrap cycle time enhancements in supply chain management.

We've also been focused on pricing across our product line and customer base.

All of these efforts will support our gross margins to continue to be above 60% in.

And over time further contribute to additional gains in gross margins.

Total adjusted operating expense was $48 1 million consisting of R&D expense of $32 million.

SG&A expenses of $17 9 million.

Total operating expenses were sequentially flat from fiscal Q3 levels.

For fiscal year 2021, total adjusted operating expense was $191 2 million.

Down two 4% from fiscal year 2020 levels.

For fiscal year 2022, we believe that it is.

Operating expenses will increase as we expand sales and marketing activities and enhance our R&D capabilities by investing in new programs to support our future growth.

While also continuing to be very disciplined with our discretionary spending.

Adjusted operating income in fiscal Q4 was $46 $8 million.

Up from $43 9 million in fiscal Q3.

Adjusted operating margin was 32% for fiscal Q4 sequentially up from 28, 7% in Q3.

Adjusted operating margin in excess of 30% represents a new record for May come since we went public back in 2012.

For fiscal.

Full year 2021, adjusted operating income was $173 million compared to $96 million for fiscal 2020.

Presenting 77% year over year increase.

Depreciation expense for fiscal Q4 was $5 7 million and adjusted EBITDA.

$2 5 million.

For fiscal year 2021, our last 12 months adjusted EBITDA was $194 million as compared to $124 5 million in fiscal 2020, representing 56% increase year over year.

Adjusted net interest expense for fiscal Q4 was one $4 million sequentially flat from fiscal Q3.

Fiscal year 2021, adjusted net interest expense was $11 million down from $23 3 million in 2020, primarily due to the restructuring of debt in March of 2021.

Our adjusted income tax rate in fiscal Q4 remained at 5% and resulted in an expense of approximately $2 3 million.

Our cash tax payments were $200000 for the fourth quarter and $1 6 million for fiscal year 2021, we.

We expect our adjusted income tax rate to remain at 5% for fiscal 2022.

Fiscal Q4, adjusted net income was $43 3 million compared to $40 3 million in fiscal Q3.

Adjusted earnings per fully diluted share was <unk> 61 <unk>.

Utilizing a share count of $71 1 million shares compared to 57 of adjusted earnings per share in fiscal Q3.

For fiscal year 2021, adjusted net income was $151 9 million more than double fiscal year 2020 income 67 1 million.

Fiscal year, adjusted EPS was $2 15.

Compared to 98 days.

Fiscal year 2020.

Now moving onto the balance sheet and cash flow items.

Our Q4 accounts receivable balance was $84 6 million up from $71 6 million in fiscal Q3.

As a result days sales outstanding were 49 days.

Our accounts receivable balance reflects an increase over prior periods as our revenue has been increasing and also due to more shipments occurring later in the quarter as compared to prior quarters.

Inventories were $82 7 million at quarter end down a little less than $1 million sequentially.

Inventory turns were flat sequentially at two nine times during the fourth fiscal quarter.

Our fiscal Q4 cash flow from operations of approximately $48 million was down $4 $1 million sequentially, primarily due to the increase in accounts receivable balances.

Capital expenditures totaled $5 million in fiscal Q4.

Fiscal 2021, Capex of $18 million was up slightly from $17 6 million in fiscal 2020, primarily attributable to investments in our fabs as well as R&D infrastructure.

We expect Capex to increase in fiscal year, 'twenty, two and be in the range of $30 million to $35 million as we continue to invest in our internal fab and production capabilities as well as R&D equipment.

Free cash flow was $35 8 million for the fourth fiscal quarter and $130 5 million for fiscal 2021.

Cash cash equivalents and short term investments for the fourth fiscal quarter were $345 million up $36 million from fiscal Q3, and up by $11 $8 million versus the same quarter in the prior year.

As a reminder, in March 2021, we repaid $100 million of our outstanding term loans and also entered into a $450 million convertible note arrangement utilizing the proceeds to further pay down our outstanding term loans.

Our long term debt currently consists of $450 million of convertible notes due in 2026 and $121 million remaining on our term loans due in 2024.

Neither of these arrangements require any principal repayments until the maturity. We also have $29 million of finance leases.

With the improvements in trailing 12 months EBITDA, we exit the fourth quarter with a net leverage ratio of around one seven times and gross leverage of three one times down from three four and five five times, respectively in fiscal 2020.

During September standard and Poor's upgraded our credit rating from B to B plus.

We view this as a recognition of our operational and financial achievements during the fiscal year and our continued efforts to strengthen our balance sheet.

These improvements across the business would not have been possible without the teamwork and dedication of the entire may come organization.

I would like to note that may come as a diversity.

With a strong financial model and possesses many opportunities to grow and expand as we execute our strategic priorities moving into fiscal year 'twenty, two and beyond I will now turn the discussion back over to Steve.

Yes.

Thank you Jack.

<unk> expects revenue in fiscal Q1, ending December 31, 2021 to be in the range of 157% to $161 million.

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

Thank you, ladies and gentlemen to ask a question at this time you were wanting to process started in the one key on your Touchtone telephone to withdraw your question press the pound key.

And the consumers of time, we ask you. Please limit yourself to one question and one follow up please stand by while we compiled occurring lobster.

Now first question coming from the lineup Viebrock Arya with Bank of America. Your line is open.

Thanks for taking my question, Steve on the last call you kind of outline this march to a billion dollars or so.

By 2025, so that implies kind of a low double digit growth Gieger and you were above that trend line in the last fiscal year.

Just curious to get your parts as you start the new fiscal year, you're starting Q1 that grilled taste. That's below that trend line. What helps you accelerate later in the year just give us some puts and takes as you started the year and what role the supply constraints Gonna play as you think about the growth prospects for the <unk>.

Yeah.

Sure. Thank you of X.

So I think our comments from the last call still stand I think we are on a good trajectory to hit our long term goals of $1 billion.

So not much has materially changed since.

Those comments were made three months ago, I will say that we are starting the year with almost a near record backlog.

We have been.

<unk> working on bringing a better and better products to market. So I think we're in a stronger point today than we were say a year ago.

I also would just highlight not to look at any one particular.

Quarter as a as a bellwether of sort of long term growth because we are in dynamic markets and we are constantly seeing some markets accelerated and others decelerate at different times, so I wouldn't read too much into any particular quarter.

And I'll also just highlight that the underlying growth driver for our business is new products and as I talked about in my prepared remarks, we continue to increase the velocity of new products that were bringing to market. So generally speaking.

I think we're on plan as I noted in.

And the script also as we look forward we.

We think we can achieve at least 10% year over year growth. This is similar to the messaging that we gave really a year ago. At this time, when we looked into our physical 21.

Got it and then one more question on the supply side.

Which is the bottleneck is it the ability to get your components out is it the ability of somebody else in the supply chain, which is getting your grew up because the customer cannot complete the bill of materials. What is the real bottleneck for your order is the bottleneck somebody else.

And the industry and what is changing or can change to help ease those bottlenecks over the next few quarters. Thank you.

Thank you so I think we see both die.

Dynamics at play first one being our ability to.

Let's say get capacity or deliver products on the required schedule. So we are constrained in certain areas there and there.

Those areas would revolve around in some instances semiconductor technology or.

Or package technology and also in some instances.

<unk> capacity, which is the assembly and test a portion. So there are some constraints there and then I would say within the last three months, we have seen some of our customers actually coming up short on components necessary for them to build their systems and that has resulted in pushouts of schedules and whatnot.

But I have to say one thing. These these I view as short term issues. These are not going to stand in the way of May calm growing and hitting its long term targets. We look at these issues as tactical issues that our operations team needs to manage and work with our customers and the fact that we have such a diversified.

Business I think puts us in a very enviable spot and as I highlighted on on my remarks again.

The highest volume product that we sold last year was less than 2% of our total revenue. So we have a very diverse.

Business. So while there are constraints in the industry, we are not getting too focused on that we are focused on.

Developing new technologies and the products that we need to grow over the long term.

Maybe it will pick the next question.

Our next question coming from the line up and buy with me I'm in company. Your line is open.

Great Congratulations on a nice results and an outlook Steve wanted to ask two questions on the data center business <unk> guided it down 10% wondering if if there's any specific factors for the weakness in the December quarter, and then a follow on question you mentioned, the new equalization product.

For active copper cables. It seems like there is growing interest for active copper cables to extend reaching the data center I'm. Just wondering if you could give us your outlook for you know that the adoption of active cables in the data center and where you are opportunities may lie with that product. Thank you.

Sure. Thank you.

So.

Maybe maybe I'll make some.

Few broader comments on our business and the data Center and then talk about some of the sub.

Air product areas that we address so if we put things in perspective I just highlight first the datacenters one of our smallest and markets. It's the third smallest.

In fiscal year 19, we had about $114 million of revenue.

In fiscal year 20 that grew to $126 million in revenue and then last year. It grew to $138 million in revenue and as we look out over the next 12 months.

We think that.

There'll be continued growth of in the range of 8% to 10% so that will be four consecutive years of growth in the data center.

This is also with the backdrop as we discuss two quarters ago that some of our legacy Amc's business was tailing off and we expected about a 15 million dollar decline Fisk.

Fiscal year 22, compared to fiscal year 21, so.

So.

I'll mention those points as the backdrop.

As we ended the year, we actual our fiscal year, we had a very strong backlog or book to Bill in the data Center segment was the strongest of the three.

But then when you start to look at our business and the different areas, where we sell our products, we see a lot of.

Different moving parts. So for example.

Our core business of hundred GC WDM for.

Analog solutions for optical modules.

Has been down in the last few quarters in fact, our lead customer they're.

Their volumes are down.

30% to 40%.

What's been happening here was we've been gaining market share.

At other accounts and that's in offsetting that decline and we see that is a good thing we see that is diversifying our overall business. So when we look out into our full fiscal year 2002, we would expect our core hundreds ECW GM for business to grow.

The other two areas that were very active of course is.

Active optical cables were we sold products to about $25 and 100 G applications that <unk> business last year was very strong primarily due to build out in.

International markets that has slowed this year and we think that will slow in the next few months as well.

The 100 G.

Applications for active optical cables is also declined we think that there's a lot of inventory and we also think some of our customers are having issues getting supply of other components, that's putting a bit of a headwind on.

On our ability to ship to them.

When we think about the areas that will be very strong over the next year.

We look at 100, <unk> and 400 G. Dear one in here for as being very strong and we're seeing tremendous growth.

These are Pam four platforms.

We're also seeing very strong growth with 200 G. Pam for solutions as well so that's an area of a very strong growth.

We're also seeing growth in the data center from across points switches, we haven't talked about that a lot recently.

And we sell it to two applications in the data center, one is redundant switching and the other is areas that are requiring very low latency that we have fairly sophisticated 100 160 by 160 cross points switches that we saw it to this market.

And then as I pointed out in the script 400 zero applications are growing and this is an area where.

As this market is growing it's sort of coming to make calm in the sense that we are a leader with larger later drivers, whether we're driving lithium niobate or indium phosphide or silicon photonic modulators, we have the industry's best drivers and best Tia's and so is this is this market is beginning to develop where cohere.

Sure It is coming closer to the datacenter, perhaps inside the data centers, we think that will drive growth. So there's a lot of moving parts within the data center, depending on the type of product we're selling.

And then as you asked specifically about active copper cable we are excited about.

The new the new launch of the product line, it's an area that we have core competency.

Ill ill.

I will say that we're not quite sure how big it could be we do know that passive cables are one of the.

Highest volume areas within the data center and so as our customers adopt active solutions, we will have to see what the adoption rate is I don't think anybody really knows we will have to wait and see but our products I can tell you support 50 G Hun.

100, <unk> 204 hundred G applications and so we are very actively working with companies that are building copper cables that want to use our products. So there's a lot of moving parts within the data center I haven't really spoken also about the fact that we are starting to see early traction with our laser portfolio.

And so we're also excited about that.

Thank you for the great great color.

You're welcome.

Yeah. Our next question coming from the lineup, Tom O'malley with Barclays going on or something.

Good morning, guys. Thanks for taking my question I just wanted to hit on another one of the large segments. In telecom you had talked about earlier this year some weakness in front hall, you're obviously guiding that business up pretty strongly December he's got a return to some growth there and then if you could just address some of the supply issues that we're hearing on that side of the business.

That would be really helpful.

Yes, so in terms of telecom, there's also it's a very diverse.

And market, it's one of our potentially one of our.

Most diverse and possibly fastest growing over the next three to five years.

If your question about weakness in front Hall, I would say that.

It's at a steady run right at the moment, which is definitely lower than where it was a year and a half ago, but I wouldn't necessarily categorize it as week I would say that if there is a steady poll of products.

Four or five G fronthaul, but not at the rate that it was a year and a half ago, where we're seeing growth in telecom is certainly cable infrastructure and pond and we think these areas will continue to grow over the next one to two years and so.

That's an area that we're very very focused on the last item. All mentioned just about telecom in general is our activity on the RF side of five G Telecom infrastructure, we've been making great progress with our front end modules and also our power amplifiers are again on silicon carbide power amplifiers are star.

Going to gain traction and we expect growth from that product line over the next 12 months.

That's helpful. And then just as a follow up we're seeing some consolidation in the optical universe. This morning with you mentioned the new could you talk about I mean, I know, it's very early here and you guys, probably just learned about this morning as well, but could you talk about downstream impacts. Their obviously you would assume that there's some analog componentry that you're selling across multiple customers. How do you think that can.

Holiday should may impact you guys.

Yeah, So Tom I haven't really thought about that and that's hasn't been a focus for may calm here in the last 24 hours. So.

This industry.

<unk> is seen consolidation and will continue to seek consolidation in our position in the market as a merchant supplier to companies that build RF microwave optical telecom equipment.

And so from our perspective at a very high level nothing has really changed.

From that merger or or any other mergers that may happen in the future.

Our next question coming from the lineup harsh come off with Piper suddenly you're on a cell phone.

Yeah, Hey, guys first of all congratulations once again solid execution and avoiding a lot of supply issues of the industry seeing Steve.

Steve If I can ask you on that question did you happen to leave any revenues behind I know you mentioned some supply issues, but I was curious if you would characterize the amount that you might have left behind on the table.

Yeah, I'll, just make a comment and maybe ask Jack to also.

Help answer that question when we put forward our guidance for the next quarter, we take all things into consideration, including customer schedules availability of material.

We make judgements based on turns business and so we come up with what we consider a reasonable target for the next period and.

And in areas, where we think there may be supply constraints, we have to factor that in and then make a judgment so.

I would.

You all of that activity is normal business operations, and so I don't look look at that.

Those projections as leaving revenue on the table and that's not how we look at it will look at it strictly how do we service the customers what can we do in a reasonable amount of time.

We don't necessarily want to start putting a dollar value on what revenues we might have shipped in the past the Jack maybe you can help answer the question. We're completely yep. Thanks, Steven Good morning, harsh I think we performed has expected when we set our forecast there can be a certain amount to very variability with any forecast.

As the quarter evolves, but.

It's through that <unk>.

Interaction that we've had with our customers and to some extent with our suppliers as well that we were able to to.

To end up coming in where we did and.

We just haven't put put a number on the impact to any one quarter and as Steve had mentioned earlier, it's really just become part of our day to day processes that we have here as opposed to.

One time issue that we're we're dealing with.

Understood guys and if I can ask a two part question here from a follow up.

So the dentist center. The initial turn that happened in May calm two years ago. When you came on board is that data center was going to grow and then we had a little bit of a setback with a customer I think last quarter.

Warner or something like that as you look out into the next year and you're trying to compare it to grow into a data center for next fiscal year versus your 10% at least 10% target do you think data center will overgrow that 10% number and contribute to growth horrible they'd be in line with the rest of the corporate number.

Hello.

Hello.

They send I must be the line we connected.

Okay, great. Thank you.

Okay.

Yeah.

Yeah.

Yeah.

Hello, everyone. We're back on we apologize for that technical difficulty we got disconnected for a brief moment. So hopefully everybody is still there and we will continue with the Q&A at this moment.

Yes, Hey, so can you guys hear me okay.

Yes, we can hear you now harsh.

Great. So let me just repeat my question I guess the question was do you see data center in this coming fiscal year to grow faster than your overall corporate at least 10% sort of outline that you gave and then you talked about the <unk> question, you talked about $1 billion number last quarter.

I was wondering if you could help give us a little bit more color on what kind of margin structure. You would expect the company to have that sort of a run rate.

Sure. So the first part of your question.

As we look at the three markets.

We are estimating today that the industrial and defense and data center will be in the range of 8% to 10% and telecom will be around 15% per.

For year over year growth figures.

So thats, our best estimate today and those are the where are we.

We want to caveat.

Those comments as it is still early in the year and a lot can happen in the next 12 months.

And then your question around what our margin profile might look like as we grow and scale, we really have to wait and see on that I mean, it's very difficult for us to.

Make that level of a projection I can tell you that as we are launching our products. We are focused on launching products that are having above corporate average margins. So that we can drive additional profitability when we start to bring on products like the kv caps when we start to bring on our Gan on silicon carbide.

When we start to diversify and sell products into the automotive industry.

We think that we're going to have stronger.

Positions with our with our customers and theyre going to be willing to pay a premium for our products. So we'd.

We'd like to think that things will continue to improve but it's very difficult for us to.

Really quantify that specifically at this point.

Understood guys. Thank you so much and great job.

Excellent.

Our next question comes from the lineup Harlan sur with Jpmorgan. Your line is open.

Good morning, guys, great job on the quarterly and fiscal year execution and strong margins.

The team has had a strong execution on new product introductions across all of your end markets.

Clearly a strong indicator of the forward revenue growth potential I believe that you guys had a target to grow new product introductions by 15% last year.

Does that translate to the 130, new standard products that you.

Talked about on the call did you guys hit that 15% target and then just as importantly, what's the profile of gross margin across those new products I would assume a majority of them are above current corporate gross margins, but wanted to get your views.

Sure. So we did hit our targets in terms of new product introductions last year and as we look into fiscal year 'twenty two we'll be launching.

Even more products so we're accelerating.

The rate of product introduction.

Its coming across all of our different business units and as you remember we organized our business into.

Technology areas. So each each of our six technology areas is just doing a great job.

Hitting their targets and they have been very focused.

Don't typically breakout gross margins by by end market or product line or technology. So I can't really comment further on that.

Recognize that we are always focused on improving profitability.

But also it is important to us to increase.

Absorption and make sure that our fabs are full and so.

We have to make sure that we balance volume with pricing at some point, but.

But I will say, we have a tremendous amount of leverage in our business model to grow without bringing on any.

Significant incremental costs and maybe Jack you can talk about that for a moment, yes. Thanks, Steve.

We do we do have a variety of different.

Gross margin profiles that some of the new product introductions that.

We do have that they may meet and with the current business model that we have where we've got certain products that are internally manufactured from a fab and also from a backend process perspective, and then we've got other product lines in areas of the business, where the fab in the backend or all outsourced so.

That gives us a fair amount of leverage as we go forward, where we could.

Expand the topline without.

Without having to meaningfully impact.

Some of the incremental costs. So we are very focused on overall on the bottom line improvements as well.

These.

As the topline improvements that we might get through new product introductions. So all in all we think we've got a fair amount of leverage within the existing model.

We can continue to grow.

Yes, thanks for that and you guys already have a pretty strong position in metro and long haul coherent optics.

As driver. So it's good to see that you guys are leveraging that on the new coherent 400, ZR Dci technology. This is.

New technology, that's just starting to ramp, but I believe Microsoft.

Just starting to fire in the second half of this year, you've got the other cloud Titans firing next year. So I guess my question for you guys in the team already have design wins with modulator drivers and coherent amplifiers with the qualified for AGA. Dr. Plausible module vendors and do you expect these products to contribute to revenue.

Is this fiscal year.

So the short answer is yes, we do have.

Customer traction and we do expect very modest contribution in our fiscal 'twenty two.

Growth will come in 'twenty three so.

I think we're doing all the right things we are known in the in the Metro long haul area as you've highlighted to have best in class products and so we're very busy right now focusing on.

Supporting a wide range of module manufacturers that want to get into this business.

It's going to break away from being a captured market to more of a merchant market for module solutions here and we think we will have a very strong position in the next one to two years.

We'll take the next question coming from the line of Karl Ackerman with Cowen <unk> Company. Your line is open.

Yes. Thank you.

Two questions if I may.

First you've continued to transition the.

Business overall to industrial and aerospace applications.

We tend to have.

Product cycles longer than your average I was hoping you could discuss some of the key drivers as you look into your fiscal 2022.

Such as selling more of a module and or sub system versus a discrete solution.

So the vast majority of our business as component based business. So we.

The growth that we have this year will not be coming from modules per se.

And some of our.

RF and microwave product lines, we do packaged assemblies, but we would consider those components, where we might have a few active devices and substrates and it might be a connector is box, but we don't really view that as a.

Ah.

Can you hear me.

Okay.

Ladies and gentlemen, please standby.

Yeah.

Okay.

Okay.

Okay.

Yeah.

Hello, everyone. We apologize again for the bulk of the technical difficulties, we are back here and.

We will pick up where we left off on cost question.

Carl I'm not sure how much of that you heard but my my short answer is.

Next in.

In 12 months, we do not expect a strong contribution from module and subsystem, that's primarily <unk>.

Call. It base business. However, we are over the long term going to be going after this business.

We recently opened up a remote design center, which is explicitly focused on a very high frequency.

Modules and subsystems, so it's an area of strong strategic progress.

Thank you for that I appreciate that for my follow up I wanted to focus on data center.

And follow up with your comments in response sequence question on data Center.

Is the is the growth of a 100 gig next year coming from outside the U S.

And then second.

As you answer that question do you have a view of when your pants or solutions would reach revenue crossover horses.

Energy products as you gain these opportunities in 100 gig and 400 gig.

Tier one offerings. Thank you.

Yeah. So.

A lot of the growth is coming from international markets for the 100 G. C. C. WDM four so that is that absolutely.

Correct.

In terms of when they'll be that crossover that you talked about it.

It's a very difficult for me to make.

Make an estimate there so I really don't have a comment on that.

Okay.

And our next question coming from the line of Chris Caso with Raymond James Your line is now open.

Yes. Thanks, good morning, just a clarification regarding some of the fiscal 'twenty two.

Gross numbers that you've mentioned in response to some of the questions. It would seem if if if I heard you right.

With the telecom about 15% a year and then data center and <unk>, each about 8% to 10% year on year. It suggests that.

All of the sequential growth that you get through the year comes from from data center with the other segments kind of being flat on a quarterly basis. It is is that interpretation correct and maybe you could just address that.

You know what what what is there a seasonal aspect to it or or.

Is that just a data.

Data center driving all the growth incrementally through the year.

Yeah, I think that.

There's some truth to what you're saying, but I would say that we're not giving such specific guidance that we can comment on sequential growth I think there's going to be periods, where.

Markets are going up in markets going down over the course of fiscal year 'twenty two.

And we saw that even in this past quarter were telecom was down and it was up and data center was essentially flat. So I would I would essentially set the expectation that you'll continue to see on a sequential basis a lot of variability in the growth rates and it has to do with <unk>.

The timing.

Orders, our ability to execute given supply issues and end demand, which is oftentimes difficult to predict so.

You know I wouldn't want you to draw that conclusion.

Instead, I would step back and looked at.

And understand that the three end markets should grow.

Not all double digit.

Close to double digits with the exception of telecom you feel that will certainly be at a minimum double digit growth.

Got it okay.

As a follow up.

You can address some of your prior comments on on pricing.

And obviously, we've seen across the space.

That's starting to go up particularly in response to some of the input cost increases. So if you could talk about what youre doing with respect to the input cost how that's applying the pricing and is that a headwind to a tailwind or or perhaps neutral the gross margins.

Sure and I think Jack did even make mention of pricing in some of his comments regarding.

Strategies and whatnot, so pricing is strategic in.

In areas, where we believe we have.

Pricing strength, we try to optimize pricing, but generally speaking.

We're in very competitive markets and customers really understand the value of their components, they're constantly comparing your performance against your competitors.

And so I wouldn't say that there is this a wholesale opportunity to increase pricing across the board in this environment.

That is not our approach we look at pricing very strategically.

We try to win market share and set pricing that's compelling for customers, while also optimizing profitability.

When we see areas, where there is cost increases we would always try to absorb that first and if that's not possible. Then we would have to work with customers and figure out a path to potentially pass some of that cost along.

Our next question coming from the line of Theresa.

With Stifel. Your line is now open.

Yes, Thank you and congratulations on the operating margin milestone.

First question is and congratulations on getting the certification, but once the earliest we can expect revenues from may come in automotive and you listed a few applications with just wondering if there's one or two.

That you know you think.

You could get the traction in earlier.

Yeah. So we today have a.

Some parts in production for automotive customers those are generally on the RF.

Side of the of our technology and we wanted to expand that into our Lightwave and also capacitors and even power management.

In addition, our high performance analog team is working at it studying some of the new standards that are coming out for our high speed data connectivity within automobiles. So are our view of this certification and our view with automotive in general is really long term growth.

We think there may be some near term opportunities with some of our high voltage capacitors since their run in our fab, which is automotive certified we think that will be compelling technology for customers. We also want to try to take advantage of some of the shortages that we're seeing within the industry and Woodbine.

Accurately reacting to offered opportunities that are coming our way across various parts of our portfolio. So it is a you know towards the long term.

Effort and it will incrementally support our growth.

Great. Thank you for that and as my follow up could you just give us a little more of a detailed update on the DSP laser business.

You know timing ramps, so on and so forth.

Yes.

So as everybody knows we announce that clear diamond.

Portfolio in June of 'twenty, one and that was essentially a portfolio of 25 G. D. P. Lasers, we were initially targeting telecom.

So that would be front haul and mid haul type applications.

So it's been about five months since we made that announcement.

And I can tell you that.

We're very pleased with the results today, we see that we are gaining market share. We have numerous customers that are qualified the product.

Those customers are in a low rate production.

And we're supporting.

A variety of protocols, including devices that operate at 13, 10 nanometers as well as by Guy modules, which is 12 somebody in 13 30, which is typically used for international five G.

As well as TWD <unk>, six which is for China. So.

We were very pleased with the traction we're very pleased that we're shipping and low volume production today.

And we think that fiscal year 'twenty, two will be a growth year for us.

For five G laser business, where may com, what's really surprised us with our laser.

Activities is the traction that we're getting from customers that are building modules for the data center, where.

We're actually seeing an equal amount of activity with TWD him for.

Module, which is up to about two kilometers and also Rand WDM four which is up to 10 kilometers for a data center interconnect again, we have multiple customers, where we're qualified and we're beginning to ship low rate volume.

Production in that that's been a bit of a surprise for us.

And so certainly a pleasant surprise and then the last area for the lasers that I'll. Just highlight is our 20 <unk> FP lasers, we are actively working to bump out our competitors tend to be happier with our lower cost.

And higher performance 20, <unk> fabric gorilla.

And we think this solution lowers the overall.

Costs for our customers and so it's compelling for them.

So you know when we step back and look at our laser business. We think we're gonna have very strong growth is going to support not only our telecom growth. This year, but also it'll start to support data center.

And again, our philosophy of having a portfolio, where we have two and a happy.

All the way up to a 50 P. Lasers, we have P. M. L. Lasers CW lasers. We're also working on laser arrays for a next generation data center platforms.

We're pleased with the results from the team and the next 12 months will be a period, where we start ramping up to higher volumes.

Okay.

Our next question coming from the line of David Williams with Benchmark. Your line is open.

Hey, good morning, and thanks for taking the question.

Wanted to maybe touch on the supply side and it seems like <unk> some of.

The South East Asia Covid issues.

Some of your peers have noted and I think last quarter. You had noted a maybe a higher risk to execution in the fourth quarter and just kind of curious how you're seeing that as we head into the first quarter here is that risk still may or do you feel like maybe some of that abated a bit.

So the one of the things we were concerned about last quarter was we were seeing certain countries shutting down and having factories either go idle or operated.

Less than 100% utilization and we've seen that.

That situation improved dramatically so.

Thailand, Vietnam, Malaysia, they're all starting to sort of come back to normal and so that risk has come down dramatically.

Okay, great. Thanks, and then maybe just on the base station deployments with China. It seems like they've been a little bit slower to roll out and COVID-19 pockets or are starting to appear just kind of curious thinking about about the base station deployments and just generally overall kind of be the China.

Mainland how you see that performing over the next maybe 12 months.

So I think theres going to be steady very moderate growth that's our expectation.

There's been a lot of tenders out earlier in the year, mostly for 700 megahertz, we have little exposure to that platform.

So from our point of view a deployment in China.

It will be.

Very muted I would say based on our current outlook and.

From our point of view, what's important is that we win market share when we get our newer newest products, including our Gan on silicon carbide massive mimo power amplifiers designed in wherever we can and that's the focus for the business. We are seeing also an uptick in interest with Oran, we're seeing an increase.

<unk> interest from international.

Companies that are outside of China that better interested they may comps products not only on the RF side, but also on the optical side as well as on the PON side of telecom networks, So while China might be a.

A bit muted, we see other opportunities outside of China.

Our next question coming from the line up and Peterman with Craig Hallum Capital. Your line is now open.

Hi, guys. Thanks for taking my question I wanted to go back to telecom and ask about <unk>.

With drivers who is next year I think our near the beginning of the call you listed out four things if I remember right is as.

As growth drivers, there, including PON cable infrastructure.

Radios and Satcom and I was curious if you guys could just kind of.

Frank Order those are how you think those will impact your telecom drove about 22 and as you could kind of comment on how you see potential cable capex.

Pending rollover.

Now between kind of a lot of the new initiatives for fiber and fiber to the home that had been going out here in the last couple of months.

Well. Thank you so it's very difficult for us to rank order those end markets I think we're gonna grow at different rates at different times during the next 12 months.

We think that as I talked about you know at a high level, our expectation is 15% year over year growth for the for the <unk>.

Tire.

Segment.

Certainly <unk> will contribute no doubt cable infrastructure is very strong right now here in the U S. We do expect that to continue to your to your question about sort of Capex spending. We think this is a multi year cycle. This will not be a 12 month cycle. This was a three year cycle minimum.

We also believe that.

We're winning market share in 10 G PON specifically on.

First more ti as in drivers, where we have very strong very strong position and lasers. So the teng PON market will be an area, where we have very strong growth.

We also I'll just point out and again this speaks to our thesis that our growth is product driven we are gaining traction with our avalanche photo detectors are inside of a coupon equipment and so that's also exciting for us so really as we think about telecom it.

It's our core product line is getting stronger and winning market share whether it's high power high power switches funding modules for base stations.

<unk> components for front haul.

And you know Dupont so.

A lot of moving parts I wouldn't necessarily want to rank order or any one of them as being more important than the other.

Got it okay. Thanks for all the color there and then just a quick follow up on Capex, It looks like a pretty big step up.

You know from 20 million ish the last two years to over $35 million next year, you said it was mostly around <unk>.

Production capacity in your Fabs at this.

Ramping for certain products, maybe within auto or elsewhere or could you just give any color on kind of what that capex spend is going for.

Yeah, maybe I'll say, a few words and then Jack can follow up so if we if we go back to 2019, we we effectively shut offs capex spending.

To do a thorough top to bottom review of our current assets and so then we after that.

Reset in the middle of our fiscal 2019.

He began to open it up in and our goal for the first two years was to have more depreciation roll off then we rolled on with new Capex spending and we were able to do that very successfully for let's say year, one and year two.

But that did create a bit of a pent up demand for capex spending and so what you're seeing this year is us increasing capital.

And the range of $10 million, but if you look at the three year average with actually our depreciation and Capex is almost a wash in terms of.

Increasing our overall depreciation and that's where we're happier.

Now when we think about where that where those dollars are going.

We're spending about $8 million a year on general refresh expansion.

New equipment upgrades within our fab here in Massachusetts.

And then the balance of that spending goes across the business units for test and measurement equipment or other general uses to support growth.

So theres no not any one program driving the Capex increase we think it's a continued investment in the business. It's true we are developing new technologies like our <unk> one for Gan on silicon carbide, but the capital expenditure on that program is actually quite modest.

It's not a big driver of our overall spending.

Jack I don't know, whether you want to add some color to that.

I think the number we put out there was some capex to be in the range of 30 to 35 million so not not over the 35 million number.

Richie.

And we are looking at each of our Capex investments very closely to make sure. We have the appropriate returns and there are certain infrastructure items that we do.

We will support the business and some of the new products that we are introducing overtime.

And there's a combination.

Manufacturing capability part of that Capex number, but there's also some some capital equipment that is working its way into our R&D investments as well.

To get to 40, so whether it be product introductions that we have.

Yeah.

And our last question coming from the line of harsh Kumar with Piper Sandler Your line is now open.

Sorry, Hey, guys I wanted to go back to Chris <unk> question earlier.

Related to the data center cadence for call it 8% to 10% growth what if I understood. It correctly I think your starting point is down 10% sequentially into the December quarter. So you start the year down.

If you get to 10% you have to basically plug in kind of double digit sequential growth numbers for all practical purposes to get to that 8% pushing cadence is that feasible and if so Steve could you maybe elaborate I know you talked a lot about data center business, but won't be the one or two things that would drive it.

So one of the things we've seen with our data center business is.

Impact from backend supply and packaging. So if we were to look at all of our end markets and pick one that has the most impact it would certainly be the data center.

We use very high density.

Straits that are used in some of our packages and and we're.

We're having issues associated with supply on those technologies, so that's causing the revenue to be I'll say backend loaded for this fiscal year, and it's primarily driven by supply so.

We think that will open up.

Towards the back half and as a result that will.

That's why we're.

Starting the year with let's say a low point, but we do think there will be strong sequential growth after that with the ending the year in a very strong position, but supply definitely has a play here.

Understood. Thank you guys.

Thank you and I'm showing no further questions at this time I would now like to turn the call back over to Mr. Steve Daly for any closing remarks.

Thank you Olivia and I'd first like to apologize to all of our attendees for the two interruptions on the call today.

We'll have to work on our infrastructure here to make sure that doesn't happen again, and then in closing I'd like to thank all of our employees for their support during fiscal year 'twenty, one and we all look forward to having a great fiscal 'twenty to thank you for attending.

Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.

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Welcome to make them what fiscal quarter 2021 conference call. This call is being recorded today.

Day in November for 2021 at this time all participants are in a listen only mode.

I will now turn the call to Mr. Steve Bronte make them Vice president of strategic initiatives and Investor Relations. Mr. Ferranti. Please go ahead.

Thank you Olivia good morning, and welcome to our call to discuss <unk> fourth fiscal quarter and fiscal year 2021 financial results I.

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 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 make comps filings with the SEC.

Management statements. During this call will also include discussion of certain adjusted non-GAAP financial information a.

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 makeup.

Thank you, Steve and good morning.

I will begin today's call with a general company update after that Jack Kober, Our Chief Financial Officer, who will provide a more in depth review of our fourth quarter and full year results for fiscal 2021.

When Jack is finished I will provide revenue and earnings guidance for the first fiscal quarter of 2022, and then we will be happy to take some questions.

Our fourth fiscal quarter financial results represent continued improvement in overall performance revenue for Q4 was $155 $2 million and.

<unk> EPS was <unk> 61 per diluted share.

Italy, we exceeded 30% adjusted operating margin, which is an important milestone for the <unk> team.

With another quarter of strong cash flow, we ended our fiscal year with $345 million in cash and short term investments on our balance sheet.

For the full fiscal year ending October one 2021 revenue was $607 million and adjusted EPS was $2 15 per diluted share.

We are pleased to report 14, 5% year over year revenue growth and a 126% year over year earnings growth.

Our financial results for this year would not have been possible without the hard work and dedication of all our employees.

In spite of certain supply chain challenges and COVID-19 headwinds, we met our internal corporate goals, our new product development schedules and our revenue and earnings targets I would like to thank the entire team for their extraordinary efforts and commitment.

<unk> is fortunate to have such a hard working and dedicated management team and employees.

Our Q4 and full year book to Bill ratio was one two to one and our turns business was approximately 13% of total revenue.

We believe that the strong Q4 bookings reflect market share gains a few large long term orders, which will ship over multiple quarters as well as orders being placed by customers one or two quarters ahead of required ship dates due to longer than normal manufacturing cycle times are.

Our strong bookings over the course of FY 'twenty, one allows us to start FY 'twenty, two with a higher than typical backlog.

We continue to manage various supply related interruptions and challenges due to COVID-19, and production capacity limitations with certain semiconductor package and substrate technologies.

Our operations planning and logistics teams have done an excellent job managing through these industry dynamics and they are working around the clock to meet customer commitments.

Fiscal Q4 revenue by end market was generally as expected with industrial and defense at $75 1 million telecom at $46 6 million and datacenter at $33 5 million.

R&D was up 5% sequentially telecom was down 3% sequentially and data center was up around 1% sequentially.

For fiscal year, 2021, and was up 44% datacenter up 10% and telecom down 10%.

In FY 'twenty, one our top 10 end customers represented 26, 5% of our total revenue and our revenue concentration on any one product was less than one 6% of our total revenue.

We maintain a diversified technology portfolio as well as a very diversified customer base with thousands of customers.

Our industrial and defense end market performed well during fiscal Q4 and for the 2021 fiscal year our.

Our success in this end market is the result of the efforts that we began in 2019 within our engineering groups to revitalize our portfolio of RF and microwave products, including increasing the pace of new product introduction expanding to fill in the gaps of our product lines developing new innovative tech.

<unk> and re engaging major customers with a more focused sales and marketing effort.

More recently, we also began ramping up efforts to cross sell our optical and high performance analog products to industrial and defense customers, which creates a sizable growth opportunity for us.

Overall, I am pleased with the level of engagement, our sales and business development teams have had at major defense Oems over the last few quarters involving a variety of ground airborne ship based programs, including radar electronic warfare, avionics and RF and optical communication.

Locations.

These programs are typically long lifecycle programs and we expect they will contribute to our growth in FY 'twenty two and beyond.

Our telecom end market revenue was slightly down in Q4, primarily due to softness in the <unk> market, which was offset by strong demand in broadband access and DOCSIS three one cable TV infrastructure markets.

May com has abroad CATV product portfolio, including single ended in differential amplifiers Transformers power divider, combining couplers and Diplex filters.

<unk> represents a large growth opportunity for may call as worldwide demand for improved connectivity at higher data rates grows.

In addition, we see growth opportunities in PON.

ATV infrastructure microwave radios and satcom during FY 'twenty, two primarily driven by strong end market dynamics, new product introductions and market share gains.

Our data center end market revenue was essentially flat in Q4.

Nevertheless, we believe datacenter remains a large growth opportunity for may come.

We expect new product introductions will be the primary driver for growth for us in this market.

Some examples include 25, <unk> lasers, and <unk> CW lasers photo detectors laser drivers and trans impedance amplifiers.

Note that earlier this week, we announced a new linear equalizer product line, which will support high data rate applications, including active active copper cables used inside the data center.

We believe our strategy to collaborate with leading DSP chip suppliers allows may comp to stay focused on designing and producing the industry's next generation high speed <unk> and laser drivers.

I will note with the ramp up of 400 G. ZR and data Center Interconnects. We are seeing an increased interest in the development of coherent solutions for next generation 800, G and higher data rates for connections both between and within data centers.

Coherent ZR technology, typically utilize our silicon photonic optics, along with a coherent DSP to transmit a quad modulator optical signal on a single wavelength.

May come as a leading merchant supplier of larger laser drivers and linear tia's for coherent modules and we are currently in volume production with 32, Gigabyte 64, gigabyte and 96 gigabyte product families.

We are also beginning to see the proliferation of coherent optics into the access market with low cost tunable hundred <unk> solutions.

As a merchant supplier, we are working with our module customers in the datacenter and enterprise markets to support their development of coherent optics with our existing product portfolio and are developing new products as the requirements for higher bandwidth continues to emerge across all market segments.

We had many technical accomplishments in fiscal 2021, and I would like to highlight a few.

First we internally documented 43, new invention disclosures, we formally submitted 49, new patent applications to the U S patent office and we were awarded 44 new patents.

Innovation and invention is critical to our future success and I would like to congratulate our engineering community for their excellent work in this area.

Second during the year, we introduced over 130 standard products that we expect to grow product introductions in FY 'twenty two by an additional 35%.

In addition, we had great success with our custom IC development activities, which complements the buildout of our standard product portfolio.

During the year, we supported approximately 20 customer funded major IC developments and many smaller unfunded projects.

Further I am pleased to provide a progress report on four important strategic technology developments.

First our <unk> Gan on Silicon carbide process transfer from <unk> is on plan and our fab and device engineering teams have done remarkable work over the past 12 months.

To date, we have verified the processes small signal performance.

And more importantly, we have measured over four five watts per millimeter at 25 volts at X band frequencies.

We believe this power density performance is extremely competitive.

In the coming months, we will be optimizing the process with the goal to achieve even higher power levels.

I will note we have recently designed to mimic power amplifier and processed it on both the <unk> and may comp process and with the exception of power levels, we have almost identical performance.

During FY 'twenty, two we plan to complete the installation of new backside process equipment, as well as installing atomic layer deposition or <unk> capability for device passivation.

We recognize we have a lot of work ahead. However, our engineering results to date are compelling and we believe in time, we will capture market share in the high frequency Gan mimic market.

Second we are making excellent progress on our silicon photonics product development.

As I reported last quarter, we are now working with our fab partner on produce ability and yields.

Third our pure carbide high power gain amplifier product line continues to expand since its introduction over one year ago.

Notably, we recently released three additional high power products, including a 60 watt narrow band narrow band C band product for radar in two general purpose 15 Watt broadband products operating a DC to 12 gigahertz and 30 megahertz to three five gigahertz.

And last as a reminder, our thousand volt chip capacitor product line or kv caps. This fully production released and we are beginning to take orders and gain traction in the market.

JV caps are ideal for high voltage applications, where small size and reliability is critical.

As we look ahead to fiscal year 2022, our priorities include further accelerating in streamlining our new product development process.

Gaining market share by staying focused on addressing customer needs and providing continuous engineering support.

Strengthening our competitive advantage by introducing new products based on may comps proprietary semiconductor processes.

Increasing our direct business with major Oems and further optimizing the efficiency of our operations to improve profitability and cash flow.

We believe that making modest internal investments in our business can provide opportunities to achieve higher than average return on invested capital and therefore supports our goal of establishing best in class profitability.

The risk reward ratios on these internal investments can be compelling since they leverage existing assets that we already have in place.

For example, we are investing in our Massachusetts in Michigan wafer fabs to modernize develop new process technologies improved quality and expand capacity.

We believe investments in new and existing process technologies like <unk>, four and 90 nanometer Gan on silicon carbide or high voltage capacitors will enable differentiation across our RF and optical products, which ultimately supports our goals are very profitable growth.

Related to our wafer fab investment we are pleased to announce that our low wafer fab recently achieved IAA Tee up 16, 940, <unk> certification for automotive quality management systems.

As a reminder, this certification focuses on defect prevention waste reduction and supply chain management for the international automotive industry.

We believe this certification will help to open new doors for us in the automotive industry.

In particular, we believe our Lightwave RF and microwave kv capacitor in high speed analog technologies are ideal for automotive applications, such as sensors Lidar under the Hood power management and autonomous driving applications.

In addition to investing in our fab facilities, we're also expanding our assembly.

New product prototyping and engineering test capabilities at some of our other facilities.

For example, we anticipate that our Nashua, New Hampshire facility will expand its manufacturing operation space by 100% over the next 12 months.

This facility supports a wide range of commercial and defense related product development and production programs.

In addition, we just opened a new state of the art product engineering and application lab at our Newport Beach, California facility.

All of these activities require strong and expanding workforces and we have not been standing still and hiring we are focused on expanding R&D with best in class talent and as an example in fiscal year 'twenty, one we hired over a dozen phds to join our already strong workforce.

In summary, <unk> has a wide range of products in production today spanning dozens of different product lines, serving thousands of customers. Many of these products have long life cycles and produce revenue for years after they've been introduced.

View this diversity of technology products and end market applications as an inherent strength of the company, helping to provide a broad revenue base.

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

Thank you, Steve and good morning, everyone.

We continue the trend of improving profitability during the fourth fiscal quarter ended October one 2021 revenue gross margin operating margin and earnings per share all showed improvement on a sequential and year over year basis.

Adjusted operating margin exceeded 30%, which is a notable milestone for the company.

Revenue for the fourth quarter was $155 2 million up one 7% quarter over quarter.

As expected the sequential improvement in revenue was driven primarily by an increase in industrial and defense.

Data center was up modestly partially offset by a modest decline in telecom end market.

For the full fiscal year revenue was $607 million in fiscal 2021 up 14, 5% from $530 million in fiscal 2020.

On a geographic basis domestic customers represented approximately 46% of both our fiscal Q4 and fiscal year 2021 results.

These amounts represent increases from the approximate 36% and 41% of sales to domestic customers in fiscal Q4 2020 in fiscal year 2020, respectively.

Adjusted gross profit in fiscal Q4 was $94 9 million or 61, 1% of revenue.

Up another 80 basis points sequentially.

Adjusted gross margin for the full fiscal year 2021 was 59, 6% up 460 basis points from 55% in fiscal 2020.

The strong gross margin performance for fiscal year 2021 was the result of a variety of ongoing initiatives that we've touched on in the past.

We have numerous internal actions focused on improving the efficiency of our operations, including optimizing yields reducing scrap cycle time enhancements in supply chain management.

We have also been focused on pricing across our product lines and customer base. We believe all of these efforts will support our gross margins to continue to be above 60% in.

And over time further contribute to additional gains in gross margins.

Total adjusted operating expense was $48 1 million, consisting of R&D expense of $32 million and SG&A expense of $17 9 million.

Total operating expenses were sequentially flat from fiscal Q3 levels.

For fiscal year 2021, total adjusted operating expense was $191 2 million down two 4% from fiscal year 2020 levels.

For fiscal year 2022, we believe that it is the.

Operating expenses will increase as we expand sales and marketing activities and enhance our R&D capabilities by investing in new programs to support our future growth.

While also continuing to be very disciplined with our discretionary spending.

Adjusted operating income in fiscal Q4 was $46 8 million up from $43 9 million in fiscal Q3.

Adjusted operating margin was 32% for fiscal Q4 sequentially up from 28, 7% in Q3.

Adjusted operating margin in excess of 30% represents a new record for <unk>. Since we went public back in 2012.

For fiscal year 2021, adjusted operating income was $173 million compared to $96 million for fiscal 2020.

Representing 77% year over year increase.

Depreciation expense for fiscal Q4 was $5 7 million and adjusted EBITDA was $52 $5 million.

For fiscal year 2021, our last 12 months adjusted EBITDA was $194 million as compared to $124 $5 million in fiscal 2020, representing a 56% increase year over year.

Adjusted net interest expense for fiscal Q4 was $1 $4 million sequentially flat from fiscal Q3.

Fiscal year 2021, adjusted net interest expense was $11 million down from $23 3 million in 2020, primarily due to the restructuring of debt in March of 2021.

Our adjusted income tax rate in fiscal Q4 remained at 5% and resulted in an expense of approximately $2 3 million.

Our cash tax payments were $200000 for the fourth quarter and $1 6 million for fiscal year 2021, we.

We expect our adjusted income tax rate to remain at 5% for fiscal 2022.

Fiscal Q4, adjusted net income was $43 3 million compared to $40 3 million in fiscal Q3.

Adjusted earnings per fully diluted share was <unk> 61 <unk>.

Utilizing a share count of $71 1 million shares compared to 57 of adjusted earnings per share in fiscal Q3.

For fiscal year 2021, adjusted net income was $151 9 million more than double fiscal year 2020 income $67 1 million.

Fiscal year, adjusted EPS was $2 15.

<unk> to 98 days in fiscal year 2020.

Now moving onto the balance sheet and cash flow items.

Our Q4 accounts receivable balance was $84 6 million up from $71 6 million in fiscal Q3.

As a result days sales outstanding were 49 days.

Our accounts receivable balance reflects an increase over prior periods as our revenue has been increasing and also due to more shipments occurring later in the quarter as compared to prior quarters.

Inventories were $82 7 million at quarter end down a little less than 1 million sequentially.

Inventory turns were flat sequentially at two nine times during the fourth fiscal quarter.

Our fiscal Q4 cash flow from operations of approximately $48 million was down $4 $1 million sequentially, primarily due to the increase in accounts receivable balances.

Capital expenditures totaled $5 million in fiscal Q4.

Fiscal 2021, Capex of $18 million was up slightly from $17 6 million in fiscal 2020, primarily attributable to investments in our fabs as well as R&D infrastructure.

We expect Capex to increase in fiscal year, 'twenty, two and be in the range of $30 million to $35 million as we continue to invest in our internal fab and production capabilities as well as R&D equipment.

Free cash flow was $35 8 million for the fourth fiscal quarter and $130 5 million for fiscal 2021.

Cash cash equivalents and short term investments for the fourth fiscal quarter with $345 million up $36 million from fiscal Q3, and up by $11 $8 million versus the same quarter in the prior year.

As a reminder, in March 2021, we repaid $100 million of our outstanding term loans and also entered into a $450 million convertible note arrangement utilizing the proceeds to further pay down our outstanding term loans.

Our long term debt currently consists of $450 million of convertible notes due in 2026 and $121 million remaining on our term loans due in 2024.

Neither of these arrangements require any principal repayments until the maturity. We also had $29 million of finance leases.

With the improvements in trailing 12 months EBITDA, we exit the fourth quarter with a net leverage ratio of around one seven times and gross leverage of three one times down from three four and five five times, respectively in fiscal 2020.

During September standard and Poor's upgraded our credit rating from B to B plus.

We view this as a recognition of our operational and financial achievements during the fiscal year and our continued efforts to strengthen our balance sheet.

These improvements across the business would not have been possible without the teamwork and dedication of the entire <unk> organization.

I would like to note that may come is a diverse business with a strong financial model and possesses many opportunities to grow and expand as we execute our strategic priorities moving into fiscal year 'twenty, two and beyond I will now turn the discussion back over to Steve.

Thank you Jack.

<unk> expects revenue in fiscal Q1, ending December 31, 2021 to be in the range of $157 million to $161 million.

Adjusted gross margin is expected to be in the range of 60% to 62% and adjusted earnings per share is expected to be between 60 and 64.

Based on $71 4 million fully diluted shares.

In fiscal Q1, we estimate industrial and defense revenues to be flat data center to be down, 10% and telecom to be up 15%.

As I have noted we maintain a long term perspective on executing our strategy and we are confident that we can continue to improve our financials and take market share in the months and years ahead.

Based on the opportunities in front of US we believe that May com has the potential to achieve at least 10% year over year revenue growth in FY 'twenty two.

In addition, we believe our business model has leveraged to improve profitability.

Our product portfolio is stronger than it was a year ago and for this reason we are confident we can meet or exceed our FY 'twenty two targets.

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

Thank you, ladies and gentlemen to ask a question at this time you will need to press. The Star then the one on your Touchstone telephone to withdraw your question press the pound key.

Of time, we ask that you. Please limit yourself to one question and one follow up please standby, while we compile the Q&A roster.

Now first question coming from the line of Vivek Arya with Bank of America. Your line is open.

Thanks for taking my question.

Steve on the last call you kind of outline this march to a $1 billion or so in terms of savings by 2025 implies kind of a low double digit growth CAGR and you were above that trend line in the last fiscal year.

Just curious to get your thoughts as you start the new fiscal year Youre starting Q1.

Growth rate, that's below that trend line.

What tends to accelerate later in the year, just give us some puts and takes as you start the year and what role the supply constraints kind of play as you think about the growth prospects for the coming year.

Sure. Thank you Vivek.

Our comments from the last call still stand I think we are on a good trajectory to hit our long term goals of $1 billion.

So not much has materially changed since those comments were made three months ago I will say that we are starting the year with.

A near record backlog.

We have been diligently working on bringing a better and better products to market. So I think we're in a stronger point today than we were say a year ago.

I also would just highlight not to look at any one particular.

Quarter as a as a bellwether of sort of long term growth because we are in dynamic markets and we are constantly seeing some markets accelerate and others decelerate at different times, so I wouldn't read too much into any particular quarter.

And I'll also just highlight that the underlying growth driver for our business is new products and as I talked about in my prepared remarks, we continue to increase the velocity of new products that we're bringing to market. So generally speaking.

I think we are on plan as I noted.

In the script also as we look forward, we think we can achieve at least 10% year over year growth. This is similar to the messaging that we gave really a year ago. At this time, when we looked into our fiscal 'twenty one.

Got it and then one more question on the supply side.

Which is the bottleneck is it the ability to get your components out is that the ability of somebody else in the supply chain.

We're just getting your growth because the customer cannot complete the bill of materials.

The real bottleneck for you or is the bottleneck somebody else.

The industry.

What is changing or can change to ease those bottlenecks over the next few quarters. Thank you.

Thank you so I think we see both.

Dynamics at play first one being our ability to.

Let's say get capacity or deliver products on the required schedule. So we are constrained in certain areas there.

And those areas would revolve around in some instances semiconductor technology or package technology and also in some instances.

<unk> capacity, which is the assembly and test portion. So there are some constraints there and then I would say within the last three months, we have seen some of our customers actually coming up short on components necessary for them to build their systems and that has resulted in push outs of schedules and whatnot.

But I have to say one thing.

These I view as short term issues. These are not going to stand in the way of May com growing and hitting its long term targets. We look at these issues as tactical issues that our operations team needs to manage and work with our customers and the fact that we have such a diversified business.

It puts us in a very enviable spot and as I highlighted on my remarks again.

The highest volume product that we sold last year was less than 2% of our total revenue. So we have a very diverse.

Business, so while there are constraints in the industry.

We're not getting too focused on that we are focused on developing new technologies and the products that we need to grow over the long term.

Maybe I will take the next question.

And our next question coming from the line of Quinn Bolton with Needham <unk> Company. Your line is open.

Great Congratulations on the nice results and outlook, Steve wanted to ask two questions on the data center business you guided it down 10% wondering if theres any specific factors for the weakness in the December quarter, and then a follow on question you mentioned, the new equalization product for <unk>.

Active copper cables. It seems like there's growing interest for active copper cables to extend reach in the data center and just wondering if you could give us your outlook for the adoption of active cables in the data center and where your opportunities may lie with that product. Thank you.

Sure. Thank you.

So.

Maybe maybe I'll make some.

A few broader comments on our business in the data Center and then talk about some of the sub.

Air product areas that we address so if we put things in perspective I'll just highlight first the data centers one of our smallest end markets. It's the third smallest.

In fiscal year 19, we had about $114 million of revenue.

In fiscal year, 'twenty that grew to $126 million in revenue and then last year. It grew to $138 million in revenue and as we look out over the next 12 months.

We think that.

There'll be continued growth within the range of 8% to 10% so that will be four consecutive years of growth in the data center.

This is also with the backdrop as we discussed two quarters ago that some of our legacy AMC business was tailing off and we expected about a $15 million decline Fiske.

Fiscal year, 'twenty, two compared to fiscal year 'twenty one so.

So.

I'll mention those points as the backdrop.

As we ended the year, we actual our fiscal year, we had a very strong backlog and our book to Bill in the data Center segment was the strongest of the three.

But then when you start to look at our business in the different areas, where we sell our products, we see a lot of.

Different moving parts. So for example.

Our core business of 100 G C WDM four.

Analog solutions for optical modules.

Has been down over the last few quarters in fact, our lead customer their volumes are down.

30% to 40%.

What's been happening here is we've been gaining market share.

At other accounts and that's been offsetting that decline and we see that as a good thing we see that is diversifying our overall business. So when we look out into our full fiscal year 'twenty. Two we would expect our core 100 G CWT import business to grow.

The other two areas that we're very active of course is.

Active optical cables, where we sell products to both <unk> and <unk> applications. The <unk> business last year was very strong primarily due to build out.

In international markets that has slowed this year and we think that will slow in the next few months as well.

The 100 G applications.

Applications for active optical cables has also declined we think theres a lot of inventory and we also think some of our customers are having issues getting supply of other components and that's putting a bit of a headwind on.

Our ability to ship to them.

When we think about the areas that will be very strong over the next year.

We look at 104 hundred G D R. One and tier four as being very strong and we're seeing tremendous growth.

These are Pam four platforms.

We're also seeing very strong growth with 200 gig Pam four solutions as well so that's an area of very strong growth.

We're also seeing growth in the data center from cross point switches, we haven't talked about that a lot recently.

We sell it to two applications in the data center, one is redundant switching and the other is areas that are requiring very low latency. We have fairly sophisticated 100 160 by 160 Cross point switches that we sell into this market.

And then as I pointed out in the script 400, ZR applications are growing and this is an area where.

As this market is growing it's sort of coming to make calm in the sense that we are a leader with modulator drivers, whether we're driving lithium niobate or indium phosphide are silicon photonic modulators, we have the industry's best drivers and <unk> and so as this as this market is beginning to develop where cohere.

It is coming closer to the data center and perhaps inside the data center, we think that will drive growth. So there is a lot of moving parts within the data center, depending on the type of product we're selling.

And then as you asked specifically about active copper cable we are excited about.

The new the new launch of the product line, it's an area that we have core competency.

Ill.

I will say that we're not quite sure how big it could be we do know that passive cables are one of the <unk>.

Highest volume areas within the data center and so as our customers adopt active solutions will have to see what the adoption rate is.

I don't think anybody really knows we will have to wait and see but our products I can tell you support 50 G.

100, <unk> 204 hundred G applications and so we are very actively working with companies that are building copper cables that want to use our products. So there's a lot of moving parts within the data center.

Haven't really spoken also about the fact that we are starting to see early traction with our laser portfolio.

And so we're also excited about that.

Okay. Thank you for the great great color.

Youre welcome.

And our next question coming from the line of Tom O'malley with Barclays. Your line is open.

Good morning, guys. Thanks for taking my question I just wanted to hit on another one of the large segments in telecom.

You had talked about earlier this year, some weakness and front haul you're obviously guiding that business up pretty strong in December is that a return to some growth. There and then if you could just address some of the supply issues that we're hearing on that side of the business.

That would be really helpful.

Yes.

Yes.

In terms of telecom, there's also it's a very diverse.

<unk> market, it's one of our potentially one of our.

Most diverse and possibly fastest growing over the next three to five years.

Your question about weakness in front haul I would say that.

It's at a steady run rate at the moment, which is definitely lower than where it was a year and a half ago.

But I wouldn't necessarily categorize it as weak I would say that if there is a steady pull of products.

<unk> front haul.

But not at the rate that it was a year and a half ago, where we're seeing growth in telecom is certainly cable infrastructure and pond and we think these areas will continue to grow over the next one to two years and so.

And that's an area that we're very very focused on the last item I'll mention just about telecom in general as our activity on the RF side of five G Telecom infrastructure, we've been making great progress with our front end modules and also our power amplifiers, our Gan on Silicon carbide power amplifiers are starting.

To gain traction and we expect growth from that product line over the next 12 months.

That's helpful. And then just as a follow up we're seeing some consolidation in the optical universe. This morning with momentum and Neo could you talk about I know, it's very early here and you guys, probably just learned about this morning as well, but could you talk about downstream impacts. There. Obviously you would assume that there is some analog componentry that youre selling across multiple customers. How do you think that consol.

She may impact you guys.

Yes, so Tom I haven't really thought about that and that hasnt been a focus for may com here in the last 24 hours. So.

This industry has seen consolidation and we will continue to seek consolidation in our position in the market as a merchant supplier to companies that build RF microwave optical telecom equipment.

And so from our perspective at a very high level nothing has really changed.

From that merger or any other mergers that may happen in the future.

Our next question coming from the line of harsh Kumar with Piper Sandler Your line is now open.

Yeah, Hey, guys first of all congratulations once again solid execution and avoiding a lot of supply issues or the industry is seeing.

Steve If I can ask you on that question did you happen to leave any revenues behind I know you mentioned some supply issues, but I was curious if you would characterize the amount that you might have left behind on the table.

Yes, I'll, just make a comment and maybe ask Jack to also.

To help answer that question.

Put forward our guidance for the next quarter, we take all things into consideration, including customer schedules availability of material.

We make judgments based on turns business and so we come up with what we consider a reasonable target for the next period.

And in areas, where we think there may be supply constraints, we have to factor that in and then make a judgment so.

I would view all of that activity is normal business operations and so I don't look at that.

Those projections as leaving revenue on the table, but that's not how we look at it we look at it strictly how do we service the customers what can we do in a reasonable amount of time.

Don't necessarily want to start putting a dollar value on what revenues, we might have shipped in the past, but Jack maybe you can help answer the question more completely.

Stephen Good morning, harsh I think we performed as expected when we set our forecast there can be a certain amount of very variability with any forecast.

As the quarter evolves, but.

It's through that.

Or action that we've had with our customers and to some extent with our suppliers as well that we were able to.

To end up coming in where we did.

We just haven't put put.

Put a number on the impact of any one quarter and as Steve had mentioned earlier, it's really just become part of our day to day processes that we have here as opposed to.

One time issue that we're dealing with.

Understood guys and if I can ask a two part question here for my follow up.

So with data center. The initial churn that happened in May com two years ago. When you came on board is that data center was going to grow and then we had a little bit of a setback with the customer I think last quarter.

Or something like that as you look out into the next year and you try to compare the growth in data center for next fiscal year versus your 10% at least 10% target do you think data center will overgrow that 10% number and contribute to growth or will it be in line with the rest of the corporate number.

Please standby while speaker line with connect.

Okay, great. Thank you.

Hello, everyone.

Back on with you I apologize for that technical difficulty, we got disconnected for a brief moment. So hopefully everybody is still there and we will continue with the Q&A at this moment.

Yes, Hey, so can you guys hear me okay.

Yes, we can hear you now harsh.

Okay, Great. So let me just repeat my question I guess the question was do you see data center in this coming fiscal year to grow faster than your overall corporate at least 10% sort of outline that you gave and then you talked about the next question you talked about $1 billion number last quarter.

I was wondering if you could give.

Give us a little bit more color on what kind of margin structure, you would expect the company to have that sort of a run rate.

Sure. So the first part of your question.

As we look at the three markets.

We are estimating today that the industrial and defense and data center will be in the range of 8% to 10% and telecom will be around 15%.

For year over year growth figures.

That's our best estimate today and those are.

Sure.

We want to caveat.

Those comments as it's still early in the year and a lot can happen in the next 12 months.

And then your question around what our margin profile might look like as we grow and scale, we really have to wait and see on that I mean, it's very difficult for us to.

Make that level of a projection I can tell you that as we are launching our products. We are focused on launching products that are having above corporate average margins. So that we can drive additional profitability when we start to bring on products like the kv caps when we start to bring on our Gan on silicon carbide.

When we start to diversify and sell products into the automotive industry.

Think that we're going to have stronger.

Positions with our with our customers and theyre going to be willing to pay a premium for our products. So.

Wed like to think that things will continue to improve but it's very difficult for us to.

Really quantify that specifically at this point.

Understood guys. Thank you so much and great job.

Excellent.

Our next question coming from the line of Arlinda Lee with Jpmorgan. Your line is open.

Good morning, guys, great job on the quarterly and fiscal year execution and strong margins.

The team has had a strong execution on new product introductions across all of your end markets.

Clearly a strong indicator of the forward revenue growth potential I believe that you guys had a target to grow new product introductions by 15% last year.

Does that translate to the 130, new standard products that you.

Talked about on the call did you guys hit that 15% target and then just as importantly, what's the profile of gross margin across those new products I would assume a majority of them are above current corporate gross margin, but wanted to get your views.

Sure. So we did hit our targets in terms of new product introductions last year.

As we look into fiscal year 'twenty, two we'll be launching.

Even more products so we're accelerating.

The rate of product introduction.

And it's coming across all of our different business units and as you remember we organized our business into <unk>.

Technology area. So each each of our six technology areas is just doing a great job.

Hitting their targets and they have been very focused.

We don't typically breakout gross margins by by end market or product line or technology. So I can't really comment further on that.

Recognize that we are always focused on improving profitability.

But also it is important to us to increase.

Absorption and make sure that our fabs are full and so.

We have to make sure that we balance volume with pricing at some point.

But I will say, we have a tremendous amount of leverage in our business model to grow without bringing on any.

Significant incremental costs and maybe Jack you can talk about that for a moment, yes, thanks, Steve and we do we do have a variety of different.

Gross margin profiles that some of the new product introductions that that we do have that they may meet and with the current business model that we have where we've got certain products that are internally manufactured from a fab and also from a back end process perspective, and then we've got other product lines in areas of the business where.

The fab in the backend or all outsourced so.

That gives us a fair amount of leverage as we go forward, where we could.

Expand the top line without.

Without having to meaningfully impact.

Some of the incremental costs. So we are very focused on overall on the bottom line improvements as well.

These.

As the topline improvement that we might get through new product introduction. So all in all we think we've got a fair amount of leverage within the existing model.

Can continue to grow.

Yes, thanks for that.

You guys already have a pretty strong position in metro and long haul coherent optics.

Earnings driver and so it's good to see that you guys are leveraging that under the new coherent 400, ZR Dci technology. This is.

New technology, that's just starting to ramp but I believe Microsoft is just.

Starting to fire in the second half of this year, you've got the other cloud Titans firing next year. So I guess my question for you guys in the team already have design wins with modulator drivers on coherent amplifiers with the qualified for the Dr. <unk> module vendors and you expect these products to contribute to revenues.

This fiscal year.

So the short answer is yes, we do have.

Customer traction and we do expect a very modest contribution in our fiscal 'twenty two.

Big growth will come in 'twenty three so.

I think we're doing all the right things we are known.

The metro long haul area as you've highlighted to have best in class products and so we're very busy right now focusing on <unk>.

Supporting a wide range of module manufacturers that want to get into this business.

It's going to break away from being a captured market to more of a merchant market for module solutions here and we think we will have a very strong position in the next one to two years.

We'll take the next question coming from the line of Carl Ackman with Cowen <unk> Company. Your line is open.

Yes. Thank you.

Two questions if I may.

First you've continued to transition the.

The business overall to industrial and aerospace applications.

Tend to have.

Product cycles longer than your average I was hoping you could discuss some of the key drivers as you look into your fiscal 2022.

Such as selling more of a module and or sub system versus a discrete solution.

So the vast majority of our business is component based business. So the.

The growth that we have this year will not be coming from modules per se.

And some of our.

RF and microwave product lines, we do packaged assemblies, but we would consider those components, where we might have a few active devices and substrates and it might be a connector is box, but we don't really view that as a.

Ah.

Can you hear me.

Ladies and gentlemen, please standby.

Yeah.

Okay.

Yes.

Hello, everyone. We apologize again for the technical difficulties we are back here.

We'll pick up where we left off on cost question and Carl I'm not sure how much of that you heard but.

My short answer is in the next.

In 12 months, we do not expect.

A strong contribution from module and subsystem Thats, primarily a component based business. However, we are over the long term going to be going after this business.

We recently opened up a remote design center, which is explicitly focused on.

Very high frequency.

Modules and subsystems.

It's an area of strong strategic interest.

Thank you for that I appreciate that for my follow up I wanted to focus on data center.

Follow up on your comments in response to <unk> question on data Center.

Is the.

The growth of 100 gig next year coming from outside the U S.

And then second.

As you answer that question do you have a view of when your Pam four solutions.

Reach revenue crossover persons.

And our new products as you can.

These opportunities in a 100 gig and four.

Tier one offerings. Thank you.

Yes so.

A lot of the growth is coming from international markets for the 100 G. SIB CWT EMCORE, so that that absolutely.

Correct.

In terms of when there'll be that crossover that you've talked about it.

It's very difficult for me to make.

<unk> estimate there so I really don't have a comment on that.

Okay.

And our next question coming from the line of Chris Caso with Raymond James Your line is now open.

Yes. Thanks, good morning, just a clarification regarding some of the fiscal 'twenty two.

Growth numbers that you've mentioned in response to some of the questions.

It would seem.

If I heard you right.

With the telecom about 15% a year and then data center and <unk>, each about 8% to 10% year on year. It suggests that.

All of the sequential growth that you get through the year comes from from data center with the other segments kind of being flat on a quarterly basis.

Is that interpretation correct and maybe you could just address that.

What is there a seasonal aspect to it or.

Is that just.

Data center driving all the growth incrementally through the year.

Yes, I think that.

There's some truth to what you're saying, but I would say that we're not giving such specific guidance that we can comment on sequential growth I think there's going to be periods, where.

Markets are going up and markets are going down over the course of fiscal year 'twenty two.

And we saw that even in this past quarter were telecom was down and it was up and data center was essentially flat. So I would I would essentially set the expectation that youll continue to see on a sequential basis a lot of variability in the growth rate and it has to do with <unk>.

The timing.

Orders, our ability to execute given supply issues and.

And demand, which is oftentimes difficult to predict so.

I wouldn't want you to draw that conclusion.

Instead, I would step back and look at.

And understand that the three end markets should grow.

Not all double digit.

The double digits.

With the exception of telecom, we feel that will certainly be at a minimum double digit growth.

Got it okay.

As a follow up if you could address some of your prior comments on pricing.

And obviously, we've seen across the space that pricing is starting to go up particularly in response to some of the input cost increases. So if you could talk about what youre doing with respect to the input costs, how that's applying the pricing and is that a headwind.

Headwind to a tailwind or or perhaps neutral the gross margins.

Sure and I think Jack did even make mention of pricing in some of his comments regarding.

Our strategies and whatnot, so pricing is strategic.

In areas, where we believe we have.

Pricing strength, we try to optimize pricing, but generally speaking.

We're in very competitive markets and customers really understand the value of their components. They are constantly comparing your performance against your competitors.

And so I wouldn't say that there is this wholesale opportunity to increase pricing across the board in this environment.

That is not our approach we look at pricing very strategically.

We try to win market share and set pricing that's compelling for customers, while also optimizing profitability.

When we see areas, where there is cost increases we would always try to absorb that first.

And if that's not possible then we would have to work with customers and figure out a path to potentially pass some of that cost along.

Our next question coming from the line of choice.

With Stifel. Your line is open.

Yes, Thank you and congratulations on the operating margin milestone.

First question is.

Graduations in getting the certification, but once the earliest we can expect revenues from May comment on automotive and you listed a few applications with just wondering if there's one or two.

Got you. Thank you.

You could get the traction in earlier.

Yes, so we today have.

Some parts in production for automotive customers those are generally on the RF.

Hi.

Our technology and we wanted to expand that into our Lightwave and also capacitors and even power management.

In addition, our high performance analog is working at studying some of the new standards that are coming up for high speed data connectivity within automobiles.

So our view of this certification and our view with automotive in general is really long term growth.

We think there may be some near term opportunities with some of our high voltage.

Capacitors.

Since they are run in our fab, which is automotive certified.

We think that will be compelling technology for customers. We also want to try to take advantage of some of the shortages that we're seeing within the industry.

And we've been accurately reacting to.

Opportunities that are coming our way across various parts of our portfolio.

So it is.

Towards the long term.

Effort and it will incrementally support our growth.

Great. Thank you for that and as my follow up could you just give us a little more of a detailed update on the DSP laser business.

Timing ramps, so on and so forth.

Yes.

So as everybody knows we announced the clear diamond.

Our portfolio in June of 'twenty, one and that was essentially a portfolio of 25 <unk> lasers.

We're initially targeting telecom.

So that would be front haul and mid haul type applications.

So it's been about five months since we made that announcement.

And I can tell you that.

We're very pleased with the results today, we see that we are gaining market share. We have numerous customers that are qualified the product.

Those customers are in low rate production.

And we're supporting.

A variety of.

Protocols, including.

Devices that operate at 13, 10 nanometer as well as by di modules, which is 12, 70% <unk> 30, which is typically used for international Baidu.

As well as TWD <unk>, six which is for China. So.

We're very pleased with the traction we're very pleased that we're shipping and low volume production today.

And we think that fiscal year 'twenty, two will be a growth year for us.

For <unk> laser business for May com, what's really surprised us with our laser.

Activities is the traction that we're getting from customers that are building modules for the data center.

We're actually seeing an equal amount of activity with TWD <unk> four.

Module, which is up to about two kilometers an also ran WDM four which is up to 10 kilometers per day.

At the centre interconnect again, we have multiple customers, where we're qualified and we're beginning to ship low rate volume.

Production and that's been a bit of a surprise for us.

And so certainly a pleasant surprise and then the last area for the lasers that I'll just highlight as on our 20 <unk> FP lasers.

We're actively working to bump out competitors tend to be happier.

With our lower cost.

And higher performance <unk> 25, a fabric gorilla and.

And we think this solution lowers the overall.

Well cost for our customers and so it's compelling for them.

So when we step back and look at our laser business. We think we're going to have very strong growth is going to support not only our telecom growth. This year, but also it will start to support data center.

And again, our philosophy of having a portfolio, where we have two and a half.

All the way up to 52 lasers CML lasers CW lasers. We're also working on laser arrays for next generation data center platforms.

We're pleased with the results from the team and the next 12 months will be a period, where we start ramping.

To higher volumes.

Okay.

Our next question coming from the line of David Williams with Benchmark. Your line is open.

Hey, good morning, and thanks for taking the question.

Just wanted to maybe touch on the supply side and it seems like <unk> some of the best.

Southeast Asia Covid issues that some of your peers have noted and I think last quarter. You had noted maybe a higher risk to execution in the fourth quarter and just kind of curious how you're seeing that as we head into the first quarter here is that risk still there or do you feel like maybe some of that has abated a bit.

Okay.

So one of the things we were concerned about last quarter was we were seeing certain countries shutting down and having.

Factories, either go idle our operator.

Less than 100% utilization and we've seen that.

That situation improved dramatically, so, Thailand, Vietnam, Malaysia, they're all starting to sort of come back to normal and.

And so that risk has come down dramatically.

Okay, great. Thanks, and then maybe just on the base station deployments in China. It seems like they've been a little bit slower to roll out and Covid pockets are starting to appear just kind of curious thinking about about the base station deployments and just generally overall kind of beat that China.

Mainland how you see that performing over the next maybe 12 months.

So I think theres going to be steady and very moderate growth that's our expectation.

There's been a lot of tenders out earlier in the year, mostly for 700 megahertz, we have little exposure to that platform.

So from our point of view deployment in China.

We'll be.

Very muted I would say based on our current outlook.

<unk>.

From our point of view, what's important is that we win market share when we get our newest products, including our Gan on silicon carbide massive mimo power amplifiers designed in wherever we can and that's the focus for the business. We are seeing also an uptick in interest with Oran.

We're seeing an increased interest from international companies.

Companies that are outside of China that are interested in may comps products not only on the RF side, but also on the optical side as well as on the PON side of telecom networks, So while China might be.

A bit muted, we see other opportunities outside of China.

Our next question coming from the line of Sam Peterman with Craig Hallum Capital. Your line is now open.

Hi, guys. Thanks for taking my question I wanted to go back to Telecom and asked about growth drivers for next year I think near the beginning of the call U S. About four things if I remember right is as growth drivers there, including PON cable infrastructure microwave radios in satcom and I was curious if you guys could just kind of.

Rank order those how do you think.

Will impact your telecom growth in F. 'twenty, two and as you could kind of comment on.

How you see.

Cable capex.

Spending rollover.

You know balance out between kind of a lot of the new initiatives for fiber and fiber to the home that had been gone out here in the last couple of months.

Thank you so it's very difficult for us to rank order those end markets I think theyre going to grow at different rates at different times. During the next 12 months.

We think that is.

As I talked about.

At a high level.

Our expectation is 15% year over year growth for the entire.

Segment.

Certainly <unk> will contribute no doubt cable infrastructure is very strong right now here in the U S. We do expect that to continue to your to your question about sort of Capex spending. We think this is a multi year cycle. This will not be a 12 month cycle. This is a three year cycle minimum.

We also believe that.

We're winning market share in <unk> specifically on.

First of all <unk> and drivers, where we have very strong a very strong position and lasers. So.

The Teng PON market will be an area, where we have very strong growth.

We also I'll just point out and again this speaks to our thesis that our growth is product driven.

We are gaining traction with our avalanche photo detectors.

Inside our coupon equipment and so that's also exciting for us so really as we think about telecom it.

It's our core product lines are getting stronger and winning market share whether it's high power high power switches front end modules for base station.

Component.

Paul.

And <unk> so.

A lot of moving parts I wouldn't necessarily want to rank order or any one of them as being more important than the other.

Got it okay. Thanks for all the color there and then just a quick follow up on Capex, It looks like a pretty big step up.

From $20 million ish, the last two years.

Over $35 million next year, you said it was mostly around <unk>.

Production capacity in your Fabs is this.

Kind of ramping for certain products, maybe within auto or elsewhere.

Or could you just do you have any color on kind of what that Capex spend is going for.

Yes, maybe I'll say a few words and then Jack can follow up so if we if we go back to 2019.

We effectively shut off capex spending.

To do a thorough top to bottom review.

Current assets and so then we after that.

Reset in the middle of our fiscal 2019.

We began to open it up and our goal for the first two years was to have more depreciation roll off then we rolled on with new Capex spending and we were able to do that very successfully for let's say year, one and year two.

But that did create a bit of pent up demand for capex spending and so what youre seeing this year is us increasing capital.

And the range of $10 million, but if you look at the three year average with actually our depreciation and Capex is almost a wash in terms of.

Increasing our overall depreciation and that we're happier.

When we think about where that where those dollars are going.

Spending about $8 million a year on general refresh expansion.

New equipment upgrades within our fab here in Massachusetts.

And then the balance of that spending goes across the business units for test and measurement equipment or other general uses to support growth.

So theres no not any one program driving the.

Capex increase we think it's.

<unk> investment in the business.

It's true we are developing new technologies like our <unk> for Gan on Silicon carbide, but the capital expenditure on that program.

Were quite modest.

It's not a big driver of our overall spending.

I don't know, whether you want to add some color to that.

I think the number we put out there was some capex to be in the range of $30 million to $35 million over the 35 million number.

Mentioned.

And we are looking at each of our Capex investments very closely to make sure. We have the appropriate returns and there are certain infrastructure items.

We believe will support the business and some of the new products that we're introducing over time.

And there's a combination.

Manufacturing capability part of that Capex number, but there's also some some capital equipment that is working its way into our R&D investments as well.

Supporting some of the new product introductions that we have.

And our last question coming from the line of harsh Kumar with Piper Sandler Your line is open.

Sorry, Hey, guys I wanted to go back to <unk> question earlier.

Related to the data center cadence for call it 8% to 10% growth what if I understood. It correctly I think your starting point is down 10% sequentially into the December quarter. So you start the year down.

If you get to 10%.

Basically plugging kind of double digit sequential growth numbers for all practical purposes to get to that 8%, 9% cadence is that feasible and if so Steve could you maybe elaborate I know you talked a lot about data center business, but won't be the one or two things that would drive it.

So one of the things we've seen with our data center business is.

Impact from.

Back end supply and packaging. So if we were to look at all of our end markets and pick one that has the most impact it would certainly be the data center we.

We use very high density.

Straits that are used in some of our packages.

And we're.

We're having issues associated with supply on those technologies, so that's causing the revenue to be backend loaded for this fiscal year, and it's primarily driven by supply so.

We think that will open up.

The back half and as a result that will.

Yes.

That's why we're.

Starting the year with let's say a low point, but we do think there will be strong sequential growth after that with the ending the year in a very strong position, but supply definitely has a play here.

Understood. Thank you guys.

Thank you and I'm showing no further questions at this time I would now like to turn the call back over to Mr. Steve Daly for any closing remarks.

Thank you Olivia and I'd first like to apologize to all of our attendees for the two interruptions on the call today.

We will have to work on our infrastructure here to make sure that doesn't happen again.

And then in closing I'd like to thank all of our employees and support during fiscal year 'twenty, one and we all look forward to having a great fiscal 'twenty to thank you for attending.

Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.