Q1 2022 MACOM Technology Solutions Holdings Inc Earnings Call

[music].

Welcome to May comes first fiscal quarter 2022 conference call.

Call is being recorded today Thursday January 27 2022.

At this time all participants are in a listen only mode.

I'll now turn the call to Mr. Steve Ferranti, <unk>, Vice president of strategic initiatives and Investor Relations.

<unk>. Please go ahead.

Thank you Olivia.

Morning, and welcome to our call to discuss <unk> financial results for the first fiscal quarter of 2022.

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 with 995.

Actual results may differ materially from those discussed today.

For more detailed discussion of the risks and uncertainties that could result in those differences, we refer you to make filings with the SEC.

Management statements. During this call will also include discussions 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 will turn it over to call, Steve Daly, President and CEO may call.

Thank you and good morning.

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

After that Jack Kober, our Chief Financial Officer, who will review our Q1 results.

Jack is finished I will provide revenue and earnings guidance for fiscal Q2, and then we will be happy to take some questions.

Q1 was a good start to our fiscal year.

Revenue for the quarter was $159 $6 million and adjusted EPS was <unk> 64 per diluted share.

We made incremental progress in profitability, achieving gross margins above 61% and operating margins above 30%.

Our financial performance reflects the numerous improvements that we're making across all aspects of the business.

Over the last couple of years, our management team and employees have worked hard on numerous continuous improvement projects that have spanned the company.

We are focused on execution, whether it involves developing and launching new products meeting customer delivery requests improving our operational efficiency or improving internal business development processes to name a few.

I would like to thank all <unk> employees for their continued dedication and hard work.

Overall demand for our products has been increasing.

Our book to Bill ratio for the quarter was one one to one representing the fifth consecutive quarter of a book to bill ratio being greater than one <unk>.

Days near record backlog is helpful. As we play in Q2 and beyond.

Similar to prior quarters, we believe that our Q1 bookings activity reflects a combination of market share gain and or long lead orders, which are being placed well ahead of required ship dates due to extended industry cycle times.

Our turns business was approximately 14% of our total revenue during the quarter, which was in line with expectations.

Our operations planning and logistics teams continued to do an excellent job managing the variety of day to day challenges whether supply chain shortages of key components temporary interruptions from offshore Assembly and test production capacity limitations within our supply base.

The team continues to outperform which has allowed us to meet our near term revenue goals.

The revenue breakdown by end market for Q1 was as follows industrial and defense was $73 1 million Telecom was $55 8 million and data center was $37 million.

Industrial <unk> defense was down two 7% sequentially Telecom was up 20% sequentially and data center was down eight 4% sequentially.

All of these figures were in line with our expectations.

Our industrial and defense market following several quarters of strong sequential growth was down slightly in Q1.

Backlog is strong and we are well positioned for future growth in this market.

I'll also highlight the test and measurement segment is trending up mostly supported by standard products.

The defense market is a focus for <unk> com and we believe there is a significant opportunity to expand our market share over the next few years.

Today, we are working to strengthen relationships with major aerospace and defense primes, introducing them to the full scope of <unk> capabilities and technology.

We believe that this work is leading to a growing pipeline of meaningful opportunities.

I would like to highlight to investors how may comp plans to further differentiate itself in the defense markets.

We will offer low frequency, but extremely high power amplifier solutions typically at multi kilowatt power levels.

We will support advanced high frequency radar applications, using our Gan mimic technology and solutions.

We will introduced advanced high data rate transmitter and receiver solutions, which combine our proven optical semiconductors with advanced package technology.

Lastly, we are improving our microwave system engineering design capabilities to enhance our competitiveness with microwave assemblies, which we believe will maximize the value of our semiconductor content.

Our telecom end market revenue increased in Q1.

As a reminder, telecom is a very broad and diverse end market for <unk> com spanning numerous network architectures and topologies.

These include wireless systems Metro long haul optical backbone deployments fiber to the home.

Cable TV infrastructure broadband satellite networks wireless backhaul.

<unk> wireless and broadcast video.

During Q1, we experienced broad strength across various telecom applications.

Today, we believe we are only delivering on a fraction of our potential for this market and we anticipate further expanding our portfolio to more fully address these markets.

Our data center end market revenue was down in Q1, primarily driven by reduced shipments to low data rate short reach 25.

LC applications and 100 G CW DM for plausible module applications.

Note, our long term growth factors remain intact and include supporting 100 G to 800 gig platforms with market, leading analog <unk> solutions.

<unk> and drivers. Additionally.

Additionally, we're also expanding our datacenter product offerings to now include Equalizers photo detectors and lasers.

And lastly, we are seeing growing interest in may comps linear drive solutions, which will compete with DSP and certain applications in interconnect architectures.

Technology development and portfolio expansion to better address our three end markets are among the key growth drivers for <unk> com.

Our long term growth strategy is built upon offering our customers unique products based on our compelling semiconductor process technologies innovative analog and mixed signal designs, which will use world class semi silicon semiconductor processes, and offering solutions to customers, which utilize advanced packaging and <unk>.

Criteria sub system designs.

We envision that the end result of this strategy is the creation of unique solutions that help solve complex technical challenges for our customers, while driving highly profitable growth for makeup.

An important element of our strategy is to leverage our innovative new semiconductor technologies to expand our market opportunities. For example, we estimate the market opportunity for <unk> com and high frequency Gan mimics to be around $300 million.

We expect our <unk> four micron Gan on Silicon carbide mimic process will enable us to enter this market within the next 12 months.

Additionally, we estimate our opportunity for high voltage capacitors to be around $100 million.

We have only recently entered the market with our new <unk> Com kv caps, we believe that our <unk> technology provides compelling advantages to our customers and we expect to grow share over time.

And lastly over the past two and a half years, we have made significant progress bringing to market. Our indium phosphide 20, <unk> FP and DSP laser product line.

These products are early in their lifecycle and they represent a large growth opportunity for us.

Our team has done a great job developing and improving our laser semiconductor processes and we are very excited to execute our laser technology roadmap.

I would now like to provide an update on some recent key activities.

This month, we received an aerospace quality management system certification for our facilities enrolled, Massachusetts, Nashua, New Hampshire, and Arbor, Michigan in Morrisville North Carolina.

<unk> 90, and 100 gig is an internationally recognized quality management system or <unk> standard for aviation space and defense organizations.

This certification demonstrates may comps continued commitment to ensuring the highest level of operations and production standards for aerospace customers.

Last quarter, we announced the release of our new high performance linear equalizer product line for use in that plane and datacenter applications that require high speed data paths over short distances.

<unk> response has been very positive. Our initial products include two channel and for channel four Equalizers running at 56, and 112 Gigabits per lane respectively.

These products consume a very low power and have extremely low latency.

Calm linear equalizers can double the reach of existing passive cables and short reach 200 G 400, G 800 <unk> applications.

Our wafer fab and engineering teams driving our one four micron Gan on silicon carbide limit.

<unk> continues to make excellent progress.

I am pleased to report that earlier this month, we achieved our power density performance goal of six watts per millimeter at 25 volts that expand frequencies.

We believe this power density will provide us with a competitive advantage because simply put our mimic amplifiers will be smaller in size and capable of transmitting more power than our competition.

Smaller chip size also means our designers can push performance to higher frequencies.

Our plan is to install new backside process equipment, as well as atomic layer deposition or <unk> capability.

Our goal is to enter the market in late calendar 2022, although I'm pleased we already have engaged with select customers, who may want to be early adopters of our Gan.

Our team is planning to attend the optical fiber conference or OFC in March <unk> has a broad portfolio of optical and high speed analog mixed signal solutions that we will be highlighting during the conference.

Examples include our low power to chip analog Pam four solution supporting 200, G and 400 G short reach applications.

We believe this chipset can provide comparable performance to DSP based <unk> solutions at lower cost lower power and lower latency for short reach multimode applications.

We will also be demo ing, our industry, leading trans impedance amplifiers and laser drivers supporting 400 G 800 <unk> applications.

We play it to have more than 10 product demonstrate demonstrations at OFC and we look forward to announcing more details on these demos prior to the conference.

We continue to strengthen our engineering and sales applications and operations teams with very talented new hires that all levels of the organization.

Our highly skilled global workforce is critical for us to meet our future R&D and revenue growth objectives.

Further adding employees with different skills experiences and backgrounds helps to further create a diverse and inclusive workforce, which makes may comps stronger.

Before turning it over to Jack I would like to make a few final remarks.

Our product strategy will continue to utilize both internal and external wafer foundries some of our product lines like diodes mimics the lasers rely on our internal process technology to provide a competitive advantage.

Other product lines like <unk> network products, and cross point switches rely solely on our industry, leading high speed analog and mixed signal circuit design capabilities to differentiate.

Our internal semiconductor processes combined with best in class analog and mixed signal chip design capability allows us to address a wide range of applications within our target markets.

In aggregate, we believe our Sam today, now exceeds $5 billion, which provides us with a significant opportunity to create stockholder value.

Our long term goal is to reach $1 billion in revenue in our fiscal year 2025.

Going forward, we will see not only to maximize our revenue opportunities in the market segments I discussed, but we will also add new market segments, where we will have the ability to leverage may comps engineering excellence to drive growth.

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

Thank you, Steve and good morning, everyone. Our fiscal year 2022 began with further improvements in revenue gross margin operating margin and earnings per share.

Revenue for the first quarter was $159 6 million up two 8% quarter over quarter.

Sequential improvement was driven by strength in our telecom end market.

On a geographic basis consistent with prior periods domestic customers represented approximately 47% of our fiscal Q1 results.

Adjusted gross profit was $98 million or <unk> 61, 4% of revenue up 30 basis points sequentially.

During fiscal 2022 and beyond largely as a result of the numerous operational improvements that Steve noted in his prepared remarks, we expect further gross margin improvement.

At a slower rate compared to prior periods.

Total adjusted operating expense was $49 million, consisting of R&D expense of $31 2 million and SG&A expense of $17 8 million.

Total operating expenses were sequentially up by $900000 from fiscal Q4, 2021, driven by anticipated increases in R&D staffing.

Over the past few years, we have implemented new processes to assess our R&D investment opportunities and new product initiatives.

We feel these investments and the rigor associated with our processes will continue to help ensure we are maximizing returns for our stockholders going forward.

I would also like to note that we will continue to be disciplined with overall discretionary spending for fiscal year 2022 carefully balancing growth related operating expenses.

With appropriate returns.

Adjusted operating income in fiscal Q1 was $49 1 million up from $46 8 million in fiscal Q4.

Adjusted operating margin was 37% for fiscal Q1 sequentially up from 32% in Q4.

We expect the combination of topline growth incremental gross margin improvements and disciplined spending will enable opportunities for modest operating leverage improvements in fiscal year 2022.

Depreciation expense for fiscal Q1 was $5 $9 million and adjusted EBITDA was $55 million.

Trailing 12 months adjusted EBITDA was $205 1 million as compared to $194 million in Q4 fiscal 2021.

Adjusted net interest expense for fiscal Q1 was $1 2 billion down.

<unk> down approximately $100000 from fiscal Q4.

Our adjusted tax rate in fiscal Q1, we've made at 5% and resulted in an expense of approximately $2 4 million.

Our cash tax payments were $200000 for the first quarter unchanged from fiscal Q4 2021.

After completing our fiscal year end reporting and updating our tax analysis during our fiscal Q1, we feel it is now appropriate to update our adjusted income tax rate, 3% beginning in our fiscal Q2 and going forward.

I would also like to highlight that as of December 31, 2021, we estimate that we have more than $700 million of available U S net operating losses.

Fiscal Q1, adjusted net income was $45 4 million compared to $43 3 million in fiscal Q4 adjusted.

Adjusted earnings per fully diluted share was <unk> 64.

Utilizing a share count of $71 2 million shares compared to <unk> 61 of adjusted earnings per share in fiscal Q4.

Now moving on to operational balance sheet and cash flow wise our.

Our Q1 accounts receivable balance was $97 4 million up 14, $4 6 million in fiscal Q4.

As a result days sales outstanding were 55 days.

Our accounts receivable balance reflects an increase over prior periods due primarily to the timing of shipments occurring later in the quarter.

Inventories were $88 5 million at quarter end up by $5 8 million sequentially.

Inventory turns were two eight times in Q1 down slightly on a sequential basis from two nine times in the prior quarter.

As you May know, we have been very focused on inventory management over the past few years.

Timber 2019, we have reduced our inventory balance by approximately 18%.

While growing our quarterly revenue by more than 40%.

These higher fiscal Q1 inventory levels are required to support future growth.

Fiscal Q1 cash flow from operations was approximately $34 1 million.

As we have previously noted our expectation is that cash flow from operations will run at a comparable amount of non-GAAP net income over time.

Capital expenditures totaled $5 1 million for fiscal Q1, as we made investments at our internal fabs and production capabilities as well as R&D equipped.

We expect Capex to increase in fiscal year, 2022, and be in the range of $30 million to $35 million.

As we continue to strategically invest in capital that will support us as we grow.

Free cash flow was $29 million for the fiscal quarter down $6 8 million sequentially, mostly due to the increases in working capital items previously noted.

Next I'd like to provide some additional information regarding the December 2021 sale of our less than 10% equity interest appear compete holdings for $127 8 million.

Our equity interest in <unk>.

<unk> was established back in 2017 with May come divested applied micro circuits Corporation's arm based compute business.

May come was a passive investor in <unk>.

<unk> bin its operations and we had limited rights.

One of your peers other limited liability members exercised its call option, which was established in 2017.

The $127 8 million cash consideration amount was also established back in 2017.

Our fiscal Q1, 2022 financials reflect a $118 2 million GAAP gain recorded as other income.

This gain represents the difference between the $127 8 million of proceeds and our approximate $9 $6 million carrying value of the investment.

It was substantially no tax impact as we're able to utilize net operating losses to offset the gain.

This transaction further strengthens <unk> financial position.

Next moving on to other balance sheet items.

Cash cash equivalents and short term investments for fiscal quarter were $477 7 million up $132 8 million from fiscal Q4 2021.

Our long term debt currently consists of $450 million of convertible notes due in 2026.

$21 million remaining on our term loans due in 2024.

Neither of these arrangements require any principal payments until the maturity.

Another balance sheet item to highlight is that during Q1 based upon the adoption of a new accounting standard we reclassified $72 2 million associated with our convertible notes from equity to long term debt.

We believe the adoption of this accounting standard provides a more accurate financial representation of overall debt.

I do not expect the new accounting standard to have any impact on our non-GAAP adjusted interest expense or net leverage calculations.

During the past fiscal quarter, our net debt decreased from $255 million to $122 million a decrease of roughly 52%.

With this reduction in net debt along with the improvement in trailing 12 months EBITDA, we exit the first quarter with a net leverage ratio of around 1.0 times.

Gross leverage of two nine times down from one seven at $3 one respectively in Q4.

Before turning it back to Steve I'd like to highlight that the company has continued to reach out to our stockholders and other stakeholders of the company to discuss the business, including environmental social and corporate governance or ESG.

Earlier this month, we filed our annual proxy statement, which includes additional information related to our ESG program as well as a summary of what we have heard from our stockholders. During some of these engagements and how we have responded.

Do this process is another meaningful step toward improving our practices and disclosures.

I'll now turn the discussion back over to Steve.

Thank you Jack.

<unk> expects revenue in Q2 to be in the range of $161 million to $165 million adjusted.

Adjusted gross margin is expected to be in the range of 60% to 62% and adjusted earnings per share is expected to be between 64 and 68.

Based on 71 4 million fully diluted shares.

In Q2, when compared to Q1, we expect revenue for industrial and defense and data center to be flat to slightly up in.

In telecom to grow by approximately 5%.

In summary, we stand in front of a multibillion dollar Sam with a unique technology portfolio. Our strategy is to further establish a diverse portfolio of products customers and end markets. We maintain a long term perspective on executing our strategy and we will work to manage our business to be profitable throughout all business cycles.

We are confident we can continue to improve our financials and take market share in the months and years ahead.

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

Thank you.

Ladies and gentlemen, good luck to ask a question at this time Youre wondering if you press. The Star then the one key on your Touchtone telephone to withdraw your question press the pound key.

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

And our first question coming from the line of Tom.

Murray from Barclays. Your line is open.

Hey, good morning, guys and thanks for taking my question and I appreciate the color into March as well I guess the major question here is when you guys laid out kind of the shape of the year.

Heading into this year, you had talked about a data center business that would grow high single digit to low double digits youre guiding the datacenter business.

Up slightly flat to up slightly what's going to drive this acceleration in the back half of June September is that the addition of the laser portfolio are you seeing increased analogs shipments there just any color on that acceleration, which is kind of implied for the back half.

Sure. Good morning. So thank you for the question, maybe what I'll do is I'll sort of take a step back first and talk about the <unk>.

Expectations for the full year in total and then we can talk a little bit about the data center.

So <unk>.

<unk> today.

Certainly we can update everybody to say that we are still on plan.

To hit at least 10% year over year growth.

For the company. So we're very excited about that.

Second I would just highlight that theres really no changes to our outlook and industrial and defense end market, which is our largest market.

On our last call, we had signaled sort of an 8% to 10% year over year growth rate.

Comfortable with that range.

And third our outlook for.

Telecom has increased slightly since our last call.

And our outlook for data center has decreased slightly.

And so as we look into the rest of the year. We think telecom is going to be in the mid teens or slightly better and we think the data center.

Will more likely be.

Low to mid single digits for growth year over year, and what's driving that is a few different factors and we highlighted some of these on our call last quarter and some of these trends continue.

We are seeing.

Softness in 100 G CW deal for <unk> some of our short reach.

Volumes were also expecting to continue to.

Either remain at the current levels or decreased slightly in the back half of the year.

And so those are areas within the data center that I would say are soft and that's our expectation for the balance of the year.

And that will be offset by some different.

Areas of growth most of which are paying for related including 200 G. Short reach applications 400, G D or for <unk> applications and then some of the work we're doing for linear risers.

Within the data center and then on top of that.

The only other thing I'll highlight for the data center, some of our new products and some of our existing products.

<unk> strong acceleration.

The acceleration in Q4, some of that is timing of ramps and some of that is back in supply chain related.

I hope that's helpful. That's sort of the 10000 foot view.

What we see going on for the balance of the year and I'll. Just highlight also that as we say every quarter. These markets are.

Constantly changing in there.

There is constant mix changes and outlook changes in demand changes from our customers and so we try to blend that together and provide the best information we can.

Of course, we are still.

Excited about a lot of the different product development activities that we have within the data center, including we're starting to see traction with our lasers.

Specialty for long reach applications and so that's exciting for us.

Thank you that's really helpful.

I guess the second question is just on the broader supply demand environment. When you're when you are looking about the group Youre seeing a lot of people talking about increased supply pressures freight costs et cetera.

What did you build into your guidance in terms of.

Cautionary cautionary measures to protect against those risks and then can you just describe the supply demand environment and what Youre seeing is it improving is it worsening and just highlight areas, where we are you can highlight importance I guess.

Sure so our approach to providing guidance for the quarter or even sort of our general outlook for the year has not changed we tried to factor in all of the things that you've talked about including supply chain risk potential shortages of components.

An area that is a little bit of a wildcard of course some of our customers are having problems supply components for their builds oftentimes what they will do is delay.

The production, which of course has an impact in a couple of like lay com. So we tried to factor all of those things and I would say generally speaking the environment has not really changed from may come in the last three months, we have areas, where we are.

Running at very high utilization rates or at or near capacity.

Have a few product lines, mostly network and data center related product lines that are being directly impacted by capacity constraints for high density.

Let's say ball grid array package technology and so there is a significant amount of work we're doing right now to bring up second sources and Thats. One of the reasons. Why you are really seeing a plateauing of the data center run rates sort of mid year, and we think that will open up in Q4, but generally speaking to.

The environment has not changed in the last three months.

Impact to Covid I would say is abating.

Of course on the logistics side.

It is there is lots of issues moving product around the world right now and our team I think it does a nice job managing those challenges.

Our next question coming from the lineup sorry, Sandberg with Stifel. Your line is now open.

Yes, thank you and congratulations on the continuous execution here.

Steve maybe it's just my perception, but I thought the laser business would probably start to ramp a little bit quicker or.

I was thinking maybe it would ramp this year.

Any any changes there.

Or are there some qualification delays if you could help business specifically on the laser business that'd be great.

Yes, so our expectation for laser.

Growth and revenue growth.

In the second half is significant.

And we think our laser revenues for both telecom and datacenter will grow by at least a factor of five in.

In the second half compared to the first half so from a <unk>.

Design qualification winning market share nothing has changed there it's really a timing around.

Individual customers ramp.

We are starting from in the case of <unk>.

<unk> technology.

<unk> from a very small base effectively zero as you remember we launched our clear Diamond product line in June of 2021.

But we are getting positive signals from the market. We believe we will be winning market share this year.

So.

I don't see any.

Yellow or red red issues associated with.

The laser business in general.

Great. Thank you for that.

I know analytic platform has been an opportunity for a while but you spent a little bit more time on it on this call does that mean, we are.

Shut in inflection point of seeing analog pen for.

Penetrating the market more materially this year.

I think I can talk from our perspective and the makeup of our revenue.

Three maybe four years ago, all of our business was NRG business.

And today, we're approaching about 50% of our data center revenue being painful related so it's absolutely.

See a movement of the movement towards paying for an art contribution is primarily 200 400 800 key applications.

We're we support short reach analog platforms.

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

Yeah, Hey, guys first of all congratulation solid frame solid guide.

I appreciate that very much.

So Steve May come had historically been a growth story and you were showing leverage on the gross margin.

Think youre, indicating on this call that the leverage on the gross margin piece and the op margin leverages intact, but I wanted to understand the growth piece, a little bit more can you point us to things that are working in telecom as you look out over the next 12 months, which parts might move faster than the others.

Other question was did you leave any revenues behind on the table because of supply can change in either December or the implied guidance for March and I have a follow up.

Sure. Thanks, Thank you for the question.

Maybe a couple of words about the.

The recent history our execution.

And as we've talked about in the past on prior calls.

Taking a big step back from 2010 to 2020.

Those fiscal years may come out of a CAGR of about seven 5% in.

And our goal from from 2020 to 2025 is at least double that that is our goal and when we do that.

We ended up at approximately $1 billion of revenue in our fiscal year 2025, So that is our goal now.

We had of course as everybody knows a very strong fiscal year 'twenty.

In 'twenty one in fact in fiscal year 'twenty, one we had 14, 5% year over year growth.

Which meant that we exited fiscal year 'twenty at a very high run rate because the sequential growth during fiscal year 'twenty one.

Between 1% and 2%.

And if you look at our sequential growth today, and what we're forecasting for the back half of the year.

Q1, and Q2, it's around north of 2%.

And then in the back half of the year, we expect sequential growth greater than 4%.

So we believe there will be some slight acceleration of growth in the back half of our year due to some of the reasons we've talked about now.

When you ask well Where's the growth coming from it really speaks to our strategy.

Our strategy is to expand our Sam to launch new product lines to get into new markets.

And as we've talked about some of the accomplishments and we look at our business today.

Can tell you that this past quarter, we had record bookings with Dan.

On a pure carbide line.

Which but certainly supports our growth strategy for RF power, we want a major development contract with a tier one defense contractor to work with them on some what we call RF over fiber or high speed connectivity applications in their systems, where we did benchmarking.

Some of our components for them. We're also doing it architecture trade study with them.

<unk> validates our idea of bringing optical technology into the military market.

We're winning market share with discrete components.

This past quarter, we had our first design win with a major base station manufacturer that we had in <unk>.

Within the past on volume platforms.

I also recently announced actually back in November we reworked our China organization, we promoted one of our senior executives to be president of baked on China to emphasize the focus we have on those markets and of course, there's many other things that we're doing so our growth is more than just coming from telecom it's coming.

From industrial and defense it will come from expanding our Sam by adding new technologies and new products. So I would.

Asset.

We'll focus on those attributes.

Rather than let.

Let's say those submarkets and of course.

It's the common markets that we talked about by Jeep.

Upon a variety of wireless applications satcom so we.

We really are very much attracted to the industrial and defense.

Very attracted to the various telecom markets. We believe over time those two markets will outgrow the data center.

While the absolute growth basis.

So we're very happy that we have a lot of different.

The attributes of our portfolio that will support this growth target.

Sure.

Hey, Steve very helpful. And then maybe one for you or Jack I wanted to go back to gross margins show.

You came on and it was very quick gross margin turned out really quick because of tweaks to the business and some initial cost cuttings.

Can you maybe help me understand as I look to the next three years, let's say.

<unk> gross margin growth.

Is that likely to come from tweaks in the business.

Or to a greater degree from the new products that youre getting into is there a threshold that you have for gross margin for the new products finished perhaps driving gross margin now.

Thanks for the question and maybe I'll just.

A few comments Ben Jackson also add to it so the.

You are correct. We've done the team has done a lot of work to improve the gross margins of the portfolio and that work continues.

As we think about the future.

We will now start turning towards.

More of a dependency on the new products and their contribution to.

The gross margin improvement.

And so.

Let's say over the next two to three years the majority of the improvements will come from product.

And technology, and making sure that we're more differentiated and our price points have more value.

We can achieve higher gross margins.

And just just to build on that.

As I had mentioned in my prepared remarks, there's a fairly robust process that we have from an R&D perspective in terms of analyzing.

Those projects to make sure they're coming out.

With higher margins not every new product is going to have higher margins, but we are definitely focused on driving that higher and then to your other point. There are things that we can continue to do within the business to improve the gross margins over time, there's a number of internal initiatives that we have working.

That that will improve that overtime and.

We continue to expand our product launches as well as the Sam that Steve had mentioned.

That additional revenue will also provide additional margin expansion.

Pension as we go forward.

Okay.

Sorry for that.

Just speaking.

On.

Paul inventory.

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

Yes. Thank you good morning.

First question I, just wanted to go through a bit of.

The expectations for the second half of the fiscal year based on the color you provided both of the overall revenue up 10% and the.

The different segment commentary.

Based on what you said it would seem that.

It would be kind of up slightly on a quarterly basis in the second half of the fiscal year.

But then telecom.

To get to that kind of.

Mid teens growth.

It would suggest that it's down on a quarterly basis, and then data center as you said would be up pretty strongly in the second half of the fiscal year.

Is that consistent with your expectations and maybe some kind of color on on what would be driving those.

Trends as you go into the second half of the fiscal year.

Yes, Chris this is Jack so yes, it based on the math that you are describing that.

That would get us to the.

The things that we have described.

But also as Steve had mentioned it isn't going to be a perfect answer the markets do continue to change and evolve but that.

That would be our viewpoint and we also look to our strong book to Bill on our backlog as we formulate some of these these projections going out over time, so that backlog gives us some of the strength two to hit those numbers as we work our way through the year.

Okay, great as a follow up.

Just just just about that backlog as you go in the second half of the year and maybe you could talk about what's in that backlog.

And I presume based on.

We talked about the growth projections, a strong part of that backlog is in data center.

And is that really.

Ken.

Dependent on supply constraints, right now and getting some of that backend capacity you had talked about there is that the main constraint or kind of risk factor on getting to those numbers as you go to the second half of the year.

Sure.

Maybe I'll.

Help with the answer on that question so.

You are correct that we have been building backlog.

As I highlighted we've had five consecutive quarters of greater than one book to Bill of data Center backlog has been growing and we.

We are constrained in some product areas I talked about related to different package technologies and so we do see that.

Q4 is an important quarter for us on the data center to make sure a lot of things.

Fall into place to support the demand that we have for our products, but generally speaking as we again as we talked about.

Making taking two or three quarter forecast as is.

As scientific as we would want certainly we have a strong backlog, but theres also dynamics at play.

From each of these different markets, our smallest market in Q1 data center, which is about 18% of our revenue is the most volatile market. So that can move around quickly on us both on the ramp up and as well as on the ramp down side of the.

The cycle. So we have to plan for that and hedge those extreme cases and make sure that we can hit the targets that we put out there publicly but generally speaking if we look at the growth.

India is going to have a very good year. This year telecom is going to be as I highlighted in the mid teens for the full year.

And then the data center, if we can.

Hit mid single digit.

We will be very pleased with the way, we set ourselves up for fiscal year 'twenty three.

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

Hey, good good morning, and thanks for letting me ask a few questions here.

Just wanted to kind of head space, maybe in terms of the order trends youre seeing and how those maybe track obviously the book to bills have been good but just are there any areas that you're seeing particular, I guess changes in customer behavior in terms of order trends.

No I think our main customers that run in high volume platforms are well aware of.

Extended cycle times in the industry that they understand the risks associated with supply and potential constraints and so our customers and our sales force has been working very closely to make sure that.

We understand their demands and we tell our customers the best way to secure supply is to place orders. So that we can instigate the planning the other thing that I'll just highlight and Jack mentioned this in his script is that we have been building a bit of inventory our inventory went up this quarter and that also.

We will allow us to hit some of the.

The revenue.

Projections that we have for Q3 and Q4.

We have seen I will say, we have that message by some customers that they're not getting all of the components they need to run production.

And that has a attenuating effect on our plans and so I would say that's probably the only.

Sort of new dynamic that's at play right now we are hearing that from customers and I think now there their level setting what they can execute and resetting production schedules based on good.

Good information about supply.

And so that has a trickle down effect to us, but again I think these are short term issues. They are manageable and over the long term I think we're setting ourselves up for success ill highlight that.

Engineering team. This year has been doing a great job with product development.

Still on track to launch at least 35% more products. This year than we did last year.

We're coming up to OFC in March and also IMS in June and these are these are major.

<unk>.

Conferences, where we like to introduce our best latest products. So.

We're getting pretty excited about some announcements at OFC and also of IMS.

Great. That's very helpful. Thank you and then maybe just kind.

Kind of thinking about when when the supply chain begins to normalize do you think that there is a period of replenishment of the supply chain that will need to happen that maybe helps to kind of isolate the the oversupply that we typically see.

I'm just trying to get a feel of how you think the customer behaviors will act as we get closer to normalization. How do you think in terms of your business and your visibility into the supply chain do you feel like you are fairly well positioned to maybe avert some of the.

The problems as we begin to normalize.

So it depends on the end market.

Have some end markets, where the channel inventory is empty or very very low and then we have other markets where the.

Customers are in lowering or medium volume.

Production and they do a very good job of planning and so we wouldn't expect that expect any sort of.

Unforeseen falloff on their run rates.

Highlight that most of our major customers deal directly with May com and we have good visibility into their plans.

And so that gives us comfort that.

If theres going to be changes in the future. We can plan for that because as you know our manufacturing cycle times in some instances are longer than six months and so we have to stay very close to our high volume customers.

Our next question coming from the line of Carl Ackman with Cowen. Your line is now open.

Yes. Thank you two questions if I may good morning.

I guess first just on capacity growth you wouldn't be expanding capacity in new Hampshire, which there wasn't much commentary on this call 90 days ago.

Would it really be extending capacity, new Hampshire, unless your customers are telling you they need more capacity.

Clearly the markets you serve are all growing which you indicated there are several areas where your Tam is expanding now.

Are these customers, giving you order visibility beyond 2022, and maybe even into the back half of 2022.

And can you discuss the manufacturing loading and when that facility should be up and running.

Thank you for the question so.

In some areas we have.

Good visibility and backlog through the.

Through the back half of 2022.

So, yes, and as we highlighted in the script, we have a record backlog.

If we if we roll the math, even on our last five quarters, where we had greater than one book to Bill.

It shows and you compare that to what we actually ship, we've actually generated over $120 million of backlog over the past five quarters.

And so the demand is there.

You mentioned, new Hampshire in the manufacturing side, we have there and the doubling of the space. So I would just highlight that that is one example of an area that we're expanding we're expanding.

In all different parts of our business.

<unk>.

The business unit's operations planning logistics design engineering and of course production and so.

We have very aggressive growth plans, obviously, we talked about.

35% more products coming out this year than last year and that requires more people and more facility to support.

The growth now with that said.

We like the Fabless model and we have a significant portion of our business that we run through other People's Fabs and that provides our business tremendous leverage where we can.

Ramp production quickly with adding little or no cost to our operation. So we still have leverage in the model.

Spending.

Based on expectations of growth in areas, where we think it makes sense to do that.

The New Hampshire facility runs a wide range of products for a wide range of markets and so I wouldn't read into that expansion as sort of an indicator of any one.

Particular customer program of activity.

Broad it's to support broad based growth.

I appreciate that two quick clarifications, if I may I'll tie them into one.

The higher growth projections you have in telecom is this mainly front haul lasers orders is also coming from PON second.

Jack I guess.

When might you have finalized plans to deploy the proceeds from the inflow of cash from the up here. Thank you.

Thank you for the question.

I'll take the first whether they be Jack can take the second so.

I wouldn't want you or investors to think that.

Our telecom growth is exclusively coming from <unk>.

<unk> front haul or PON. It is it is a diversified growth.

Certainly pond is an important market for us but.

But we also service various wireline and broadband applications.

As well as.

Of course, five G not only on the optical side, but on the RF side. So.

The good news is our growth in telecom is broad based not just based on the two items that you talked about.

Jack you want to take the second.

And then with regards to the <unk> transaction, we were pleased with the outcome there.

As we sit here today, we don't view ourselves as having any kind of excess cash we are still in a in a net debt position Carl So we think.

We think were appropriate in terms of where we sit today, we don't feel like there's any needs to deploy that cash immediately as we've mentioned, we've been making investments internally in the business.

Over the past year and plan to continue doing that I know in my prepared remarks I had also mentioned some capex investment so that will be some of the utilization for our cash to make sure we're generating appropriate returns for.

For the business as we go forward.

Our next question coming from the line of Quinn Bolton with Needham. Your line is now open.

Hey, guys just a couple of quick questions for me just one on the gross margin guide midpoint of 61 down 40 basis points sequentially any particular headwinds youre seeing in the current quarter either from a product mix shift or COVID-19 costs related issues higher input costs that we should be aware of.

The short answer to that Quinn is no, but as we work through.

Gross margins as we look to go out into the future. Our goal is to continually improve.

It does get a bit more challenging as time goes on and things don't always happen in a straight line.

Our plans are to as I said continually make those improvements and effectively we grab the guide that we put out there last quarter. It was within the range over the 60% number so I think the.

The guide that we had was 60% to 62%. So nothing nothing really notable to point out with that with that guide there.

Perfect. Thanks for that clarification, Jack and then Steve I guess, a couple of questions on the data Center you mentioned, the 25 gig <unk> and CW DM for business was going to be soft in the second half of the year should we sort of think of those now.

Past their peak and those businesses sort of move into a legacy in a declining mode.

As the business shifts towards Pam or do you think at some point you could see a resurgence in those lower speed applications.

So that's a that's a very.

Very good question and that's a question. We're also asking ourselves as we look to work with our customers. Our general sense is these programs, especially 100 G C WDM four.

Steady demand and they'll continue to be.

Relevant, let's say in the future.

But.

We're still looking at that it's possible they'll continue to trend down, but that's really not our expectation.

And then certainly things are migrating towards paying for it in the higher data rates and certainly <unk>.

Areas that we see that are very exciting and maybe I'll spend a moment on this as the.

The new product line that I talked about in my prepared remarks, the linear equalizers and I think it is important to highlight that this technology really addresses two very different applications in the data center. The first is.

Short reach electrical.

Connections, where youre on let's say back plane or copper cable and Youre moving an electrical signal as opposed to an.

On optical signal and then the second application is inside the data center, where we're working with companies that have all of the components necessary to stand up.

Very high end computers.

And they want to use the infrastructure of their computers, and the <unk> to drive and make adjustments to the optical signal and so we're working and working with some key customers to develop solutions to effectively remove the DSP folks that let's say.

From the plausible module and have that functionality brought into the.

And so that's exciting for us and we're doing we're entering programs at 400 G.

And if we're successful here that will break the dam on moving that as a more adopted technology for broader applications inside the data center. So we're very focused on that as a company.

Where we have very unique technology, we have close relationships with some major companies that are looking at.

Effectively there's different words for it you can call it direct detect a direct drive, but but the goal would be to eliminate the DSP and certain applications and so.

No.

The reason why I mentioned this when we talked about some of those legacy.

Platforms like 100, GSR for <unk>, XR Alcs things will migrate to newer technologies and we are involved in those so.

It's about portfolio management, making sure that we're engaged with next generation platforms.

And I'm not showing any further questions at this time I would now like to turn the call back over to Mr. Daly for any closing remarks.

Thank you.

In closing, we'd like to thank our customers suppliers business partners and employees for their continued just continued support thank you and have a nice day.

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

Okay.

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Welcome to make them first fiscal quarter of 2022 conference call.

This call is being recorded today Thursday January 27th 2022.

At this time all participants are in a listen only mode.

I will now turn the call to Mr. Steve Rossi make them Vice president of strategic initiatives and Investor Relations.

Mr. <unk>. Please go ahead.

Thank you Olivia.

Good morning, and welcome to our call to discuss <unk> financial results for the first fiscal quarter of 2022.

I would like to remind everyone that our discussion today will contain forward looking statements, which are subject to certain risks and uncertainties.

The safe Harbor for forward looking statements contained in the private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those discussed today.

For more detailed discussion of the risks and uncertainties that could result in those differences we refer you to make some filings with the SEC.

Management statements. During this call will also include discussions 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.

With that I will turn it over to call, Steve Bayley, President and CEO of <unk>.

Thank you and good morning.

I will begin today's call with a general company update after that Jack Kober, Our Chief Financial Officer, who will review our Q1 results.

Jack is finished I will provide revenue and earnings guidance for fiscal Q2, and then we will be happy to take some questions.

Q1 was a good start to our fiscal year <unk>.

Revenue for the quarter was $159 $6 million and adjusted EPS was <unk> 64 per diluted share.

We made incremental progress and profitability, achieving gross margins above 61% and operating margins above 30%.

Our financial performance reflects the numerous improvements that we're making across all aspects of the business.

Over the last couple of years, our management team and employees have worked hard on numerous continuous improvement projects that have spanned the company we.

We are focused on execution, whether it involves developing and launching new products meeting customer delivery requests improving our operational efficiency or improving internal business development processes to name a few.

I would like to thank all <unk> employees for their continued dedication and hard work.

Overall demand for our products has been increasing our book to Bill ratio for the quarter was one one to one representing the fifth consecutive quarter of a book to bill ratio being greater than one.

Days near record backlog is helpful. As we planned Q2 and beyond.

Similar to prior quarters, we believe that our Q1 bookings activity reflects a combination of market share gain and or long lead orders, which are being placed well ahead of required ship dates due to extended industry cycle times.

Our turns business was approximately 14% of our total revenue during the quarter, which was in line with expectations.

Our operations planning and logistics teams continued to do an excellent job managing the variety of day to day challenges, while their supply chain shortages of key components temporary interruptions from offshore Assembly and test where production capacity limitations within our supply base.

The team continues to outperform which has allowed us to meet our near term revenue goals.

The revenue breakdown by end market for Q1 was as follows industrial and defense was $73 1 million Telecom was $55 8 million and data center was $30 7 million.

Industrial <unk> defense was down two 7% sequentially Telecom was up 20% sequentially and data center was down eight 4% sequentially.

All of these figures were in line with our expectations.

Our industrial and defense market following several quarters of strong sequential growth was down slightly in Q1.

Our current backlog is strong and we are well positioned for future growth in this market a.

I'll also highlight the test and measurement segment is trending up mostly supported by standard products.

The defense market is a focus for <unk> com and we believe there is a significant opportunity to expand our market share over the next few years.

Today, we are working to strengthen relationships with major aerospace and defense primes, introducing them to the full scope of <unk> capabilities and technology.

We believe that this work is leading to a growing pipeline of meaningful opportunities.

I would like to highlight to investors how may comp plans to further differentiate itself in the defense markets.

We will lock or low frequency, but extremely high power amplifier solutions typically at multi kilowatt power levels.

We will support advanced high frequency radar applications, using our Gan mimic technology and solutions.

We will introduced advanced high data rate transmitter and receiver solutions, which combine our proven optical semiconductors with advanced package technology.

Lastly, we are improving our microwave system engineering design capabilities to enhance our competitiveness with microwave assemblies, which we believe will maximize the value of our semiconductor content.

Our telecom end market revenue increased in Q1.

As a reminder, telecom is a very broad and diverse end market for <unk> com spanning numerous network architectures and topologies.

These include wireless systems Metro long haul optical backbone deployments fiber to the home.

Cable TV infrastructure broadband satellite networks wireless backhaul.

<unk> wireless and broadcast video.

During Q1, we experienced broad strength across various telecom applications.

Today, we believe we are only delivering on a fraction of our potential for this market and we anticipate further expanding our portfolio to more fully address these markets.

Our data center end market revenue was down in Q1, primarily driven by reduced shipments to low data rate short reach 25.

<unk> applications and 100 G C WDM four plausible module applications.

I'll note our long term growth vectors remain intact that includes supporting 100 G to 800 gig platforms with market, leading analog CDI solutions.

<unk> and drivers. Additionally.

Additionally, we're also expanding our datacenter product offerings to now include Equalizers photo detectors and lasers.

And lastly, we are seeing growing interest in May comms linear drive solutions, which will compete with DSP and certain applications in interconnect architectures.

Technology development and portfolio expansion to better address our three end markets are among the key growth drivers for <unk> com or.

Our long term growth strategy is built upon offering our customers unique products based on our compelling semiconductor process technologies innovative analog and mixed signal designs, which will use world class semi silicon semiconductor processes.

Offering solutions to customers, which utilize advanced packaging and proprietary sub system designs.

We envision that the end result of this strategy is the creation of unique solutions that help solve complex technical challenges for our customers, while driving highly profitable growth for makeup.

An important element of our strategy is to leverage our innovative new semiconductor technologies to expand our market opportunities. For example, we estimate the market opportunity for <unk> com and high frequency Gan mimics to be around $300 million.

We expect our <unk> four micron Gan on Silicon carbide mimic process will enable us to enter this market within the next 12 months.

Additionally, we estimate our opportunity for high voltage capacitors to be around $100 million.

We have only recently entered the market with our new May com kv caps, we believe that our <unk> technology provides compelling advantages to our customers and we expect to grow share over time.

And lastly over the past two and half years, we have made significant progress bringing to market. Our indium phosphide 20, <unk> FP and DSP laser product line.

These products are early in their lifecycle and they represent a large growth opportunity for us.

Our team has done a great job developing and improving our laser semiconductor processes and we are very excited to execute our laser technology roadmap.

I would now like to provide an update on some recent key activities.

This month, we received an aerospace quality management system certification for our facilities in Lowell, Massachusetts, Nashua, New Hampshire, and Arbor, Michigan in Morrisville North Carolina.

Aaas 9100 gig is an internationally recognized quality management system or <unk> standard for aviation space and defense organizations.

This certification demonstrates may comps continued commitment to ensuring the highest level of operations and production standards for aerospace customers.

Last quarter, we announced the release of our new high performance linear equalizer product line for use in that plane in data center applications that require high speed data paths over short distances.

<unk> response has been very positive. Our initial products include two channel and four channel Pam four equalizers running at 56, and 112 Gigabits per lane respectively.

These products consume a very low power and have extremely low latency.

Calm linear equalizers can double the reach of existing passive cables and short reach 200, G 400, G and 800 gig applications.

Our wafer fab and engineering teams driving our one four micron Gan on silicon carbide limit.

<unk> continues to make excellent progress.

I am pleased to report that earlier this month, we achieved our power density performance goal of six watts per millimeter at 25 volts at expand frequencies.

We believe this power density will provide us with a competitive advantage because simply put our mimic amplifiers will be smaller in size and capable of transmitting more power than our competition.

Smaller chip size also means our designers can push performance to higher frequencies.

Our plan is to install new backside process equipment, as well as atomic layer deposition or <unk> capability.

Our goal is to enter the market in late calendar 2022, although I'm pleased we already have engaged with select customers, who they want to be early adopters of our Gan.

Our team is planning to attend the optical fiber conference or OFC in March <unk> has a broad portfolio of optical and high speed analog mixed signal solutions that we will be highlighting during the conference.

Examples include our low power to chip analog Pam four solution supporting 200, G and 400 G short reach applications.

We believe this chipset can provide comparable performance to DSP based <unk> solutions at lower cost lower power and lower latency for short reach multimode applications.

We will also be demo our industry, leading trans impedance amplifiers and laser drivers supporting 400 G. At 800 <unk> applications.

We plan to have more than 10 product demonstrate demonstrations at OFC and we look forward to announcing more details on these demos prior to the conference.

We continue to strengthen our engineering and sales applications and operations teams with very talented new hires at all levels of the organization.

Our highly skilled global workforce is critical for us to meet our future R&D and revenue growth objectives.

Further adding employees with different skills experiences and backgrounds helps to further create a diverse and inclusive workforce, which makes may comps stronger.

Before turning it over to Jack I would like to make a few final remarks.

Our product strategy will continue to utilize both internal and external wafer foundries some of our product lines like diodes mimics the lasers rely on our internal process technology to provide a competitive advantage.

Other product lines like <unk> network products, and cross point switches rely solely on our industry, leading high speed analog and mixed signal circuit design capabilities to differentiate.

Our internal semiconductor processes combined with best in class analog and mixed signal chip design capability allows us to address a wide range of applications within our target markets.

In aggregate, we believe our Sam today, now exceeds $5 billion, which provides us with a significant opportunity to create stockholder value.

Our long term goal is to reach $1 billion in revenue in our fiscal year 2025.

Going forward, we will seek not only to maximize our revenue opportunities in the market segments I discussed, but we will also add new market segments, where we will have the ability to leverage may comms engineering excellence to drive growth.

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

Thank you, Steve and good morning, everyone. Our fiscal year 2022 began with further improvements in revenue gross margin operating margin and earnings per share.

Revenue for the first quarter was $159 6 million up two 8% quarter over quarter.

The sequential improvement was driven by strength in our telecom end market.

On a geographic basis consistent with prior periods domestic customers represented approximately 47% of our fiscal Q1 results.

Adjusted gross profit was $98 million or <unk> 61, 4% of revenue up 30 basis points sequentially.

During fiscal 2022 and beyond largely as a result of the numerous operational improvements that Steve noted in his prepared remarks, we expect further gross margin improvement, albeit at a slower rate compared to prior periods.

Total adjusted operating expense was $49 million, consisting of R&D expense of $31 2 million and SG&A expense of $17 $8 million.

Total operating expenses were sequentially up by $900000 from fiscal Q4, 2021, driven by anticipated increases in R&D staffing.

Over the past few years, we have implemented new processes to assess our R&D investment opportunities and new product initiatives.

We feel these investments and the rigor associated with our processes will continue to help ensure we are maximizing returns for our stockholders going forward.

I would also like to note that we will continue to be disciplined with overall discretionary spending for fiscal year 2022 carefully balancing growth related operating expenses.

With appropriate returns.

Adjusted operating income in fiscal Q1 was $49 1 million up from $46 8 million in fiscal Q4.

Adjusted operating margin was 37% for fiscal Q1 sequentially up from 32% in Q4.

We expect the combination of topline growth incremental gross margin improvements and disciplined spending will enable opportunities for modest operating leverage improvements in fiscal year 2022.

Depreciation expense for fiscal Q1 was $5 $9 million and adjusted EBITDA was $55 million.

Trailing 12 months adjusted EBITDA was $205 1 million as compared to $194 million in Q4 fiscal 2021.

Adjusted net interest expense for fiscal Q1 was $1 2 billion.

Down approximately $100000 from fiscal Q4.

Our adjusted tax rate in fiscal Q1, we made 5% resulted in an expense of approximately $2 $4 million or cash tax payments were $200000 for the first quarter unchanged from fiscal Q4 2021.

After completing our fiscal year end reporting and updating our tax analysis during our fiscal Q1, we feel it is now appropriate to update our adjusted income tax rate, 3% beginning in our fiscal Q2 and going forward.

I would also like to highlight that as of December 31, 2021, we estimate that we have more than $700 million of available U S net operating losses.

Fiscal Q1, adjusted net income was $45 4 million compared to $43 $3 million in fiscal Q4.

Adjusted earnings per fully diluted share was <unk> 64.

Utilizing a share count of $71 2 million shares compared to <unk> 61 of adjusted earnings per share in fiscal Q4.

Now moving on to operational balance sheet and cash flow wise our.

Our Q1 accounts receivable balance was $97 4 million up from $84 6 million in fiscal Q4.

As a result days sales outstanding were 55 days.

Our accounts receivable balance reflects an increase over prior periods due primarily the timing of shipments occurring later in the quarter.

Inventories were $88 5 million at quarter end up by $5 8 million sequentially.

Inventory turns were two eight times in Q1 down slightly on a sequential basis from two nine times in the prior quarter.

As you May know, we have been very focused on inventory management over the past few years and since September 2019, we have reduced our inventory balance by approximately 18%.

While growing our quarterly revenue by more than 40%.

These higher fiscal Q1 inventory levels required to support future growth.

Fiscal Q1 cash flow from operations was approximately $34 1 million.

As we have previously noted our expectation is that cash flow from operations will run at a comparable amount of non-GAAP net income overtime.

Capital expenditures totaled $5 1 million for fiscal Q1, as we made investments at our internal fabs and production capabilities as well as R&D.

We expect Capex to increase in fiscal year, 2022, and be in the range of $30 million to $35 million.

As we continue to strategically invest in capital that will support us as we grow.

Free cash flow was $29 million for the fiscal quarter down $6 8 million sequentially, mostly due to the increases in working capital items previously noted.

Next I'd like to provide some additional information regarding the December 2021 sale of our less than 10% equity interest in a peer compute holdings of $127 8 million.

Our equity interest in <unk>.

<unk> was established back in 2017, when May come divested applied micro circuits Corporation's arm based compute business.

May come was a passive investor in <unk>.

And its operations and we had limited rights.

One of your peers other limited liability members exercise its call option, which was established in 2017.

The $127 8 million cash consideration about was also established back in 2017.

Our fiscal Q1, 2022 financials reflect a $118 2 million GAAP gain recorded as other income.

This gain represents the difference between the $127 8 million of proceeds and our approximate $9 $6 million carrying value of the investment.

It was substantially no tax impact as we were able to utilize net operating losses to offset the gain.

This transaction further strengthens <unk> financial position.

Next moving on to other balance sheet items.

Cash cash equivalents and short term investments for fiscal quarter were $477 $7 million.

Up $132 8 million from fiscal Q4 2021.

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 payments until the maturity.

Another balance sheet item to highlight is that during Q1 based upon the adoption of a new accounting standard we reclassify $72 2 million associated with our convertible notes from equity to long term debt.

We believe the adoption of this accounting standard provides a more accurate financial representation of overall debt.

We do not expect the new accounting standard to have any impact on our non-GAAP adjusted interest expense or net leverage calculations.

During the past fiscal quarter, our net debt decreased from $255 million to $122 million a decrease of roughly 52%.

With this reduction in net debt along with the improvement in trailing 12 months EBITDA, we exit the first quarter with a net leverage ratio of around 1.0 times.

Gross leverage of two nine times down from one seven at $3 one respectively in Q4.

Before turning it back to Steve I'd like to highlight that the May come team has continued to reach out to our stockholders and other stakeholders of the company to discuss the business, including environmental social and corporate governance or ESG.

Earlier this month, we filed our annual proxy statement, which includes additional information related to our ESG program as well as a summary of what we have heard from our stockholders. During some of these engagements and how we have responded.

This process is another meaningful step toward improving our practices and disclosures.

I'll now turn the discussion back over to Steve.

Thank you Jack May.

<unk> expects revenue in Q2 to be in the range of $161 million to $165 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 64 and 68.

Based on 71 4 million fully diluted shares.

In Q2, when compared to Q1, we expect revenue for industrial and defense and data center to be flat to slightly up.

In telecom to grow by approximately 5%.

In summary, we stand in front of a multibillion dollar Sam with a unique technology portfolio. Our strategy is to further establish a diverse portfolio of products customers and end markets. We maintain a long term perspective on executing our strategy and we will work to manage our business to be profitable throughout all business cycle.

We are confident we can continue to improve our financials and take market share in the months and years ahead.

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

Thank you Sir.

Ladies and gentlemen, if you'd like to ask a question at this time.

The Star then the one key on your Touchtone telephone to withdraw your question press the pound key.

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

Now first question coming from the line of Tom <unk>.

From Barclays. Your line is open.

Hey, good morning, guys and thanks for taking my question and I appreciate the color into March as well I guess the major question here is when you guys laid out kind of the shape of the year.

Heading into this year, you had talked about in data center business that would grow at a high single digit to low double digits youre guiding the datacenter business up slightly flat to up slightly what's going to drive this acceleration in the back half of June and September is that the addition of the laser portfolio are you seeing increased analog shipments there just any color on that acceleration, which is kind of <unk>.

<unk> for the back half.

Sure. Good morning. So thank you for the question, maybe what I'll do is I'll sort of take a step back first and talk about the <unk>.

Expectations for the full year in total and then we can talk a little bit about the data center.

So <unk>.

For today.

Certainly we can update everybody to say that we are still on plan.

To hit at least 10% year over year growth.

For the company. So we're very excited about that.

Second I would just highlight that theres really no changes to our outlook and industrial and defense end market, which is our largest market.

On our last call, we had signaled sort of an 8% to 10% year over year growth rate.

Comfortable with that range.

And third our outlook for.

Telecom has increased slightly since our last call.

And our outlook for data center has decreased slightly.

And so as we look into the rest of the year. We think telecom is going to be in the mid teens or slightly better and we think the data center.

Will more likely be.

Low to mid single digits for growth year over year, and what's driving that is a few different factors and we highlighted some of these on our call last quarter and some of these trends continue.

We are seeing.

Softness in 100 G CW DM port <unk> some of our short reach.

Volumes were also expecting to continue to.

Either remain at the current levels or decreased slightly in the back half of the year.

And so those are areas within the data center that I would say are soft and that's our expectation for the balance of the year.

And that will be offset by some different.

Areas of growth most of which are paying for related including 200 G. Short reach applications 400 G. D for <unk> applications and then some of the work we're doing for linear risers.

Within the data center and then on top of that.

The only other thing I'll highlight for the data center, some of our new products and some of our existing products.

<unk> strong acceleration.

The acceleration in Q4, some of that is timing of ramps and some of that is back end supply chain related.

I hope that's helpful. That's sort of the 10000 foot view.

Of what we see going on for the balance of the year and I'll. Just highlight also that as we say every quarter. These markets are.

Constantly changing in there.

There is constant mix changes and outlook changes in demand changes from our customers and so we try to blend that together and provide the best information we can.

Of course, we are still.

Excited about a lot of the different product development activities that we have within the data center, including we're starting to see traction with our lasers.

Specialty for long reach applications and so that's exciting for us.

Thank you that's really helpful.

I guess the second question is just on the broader supply demand environment, when you're looking about the group Youre seeing a lot of people talking about increased supply pressures freight cost et cetera.

What did you build into your guidance in terms of.

Cautionary cautionary measures to protect against those risks and then can you just describe the supply demand environment and what Youre seeing is it improving is it worsening and just highlight areas where were you can highlight importance I guess.

Sure so our approach to providing guidance for the quarter or even sort of our general outlook for the year has not changed we tried to factor in all of the things that you've talked about including supply chain risks potential shortages of components.

An area that there is a little bit of a wildcard of course at some of our customers are having problems supply components for their builds oftentimes what they will do is delay.

The production, which of course has an impact in a couple of like lay com. So we tried to factor all of those things and I would say generally speaking the environment has not really changed from may come in the last three months, we have areas, where we are.

Running.

Our high utilization rates or at or near capacity.

We have a few product lines, mostly network and data center related product lines that are being directly impacted by capacity constraints for high density.

Let's say ball grid array package technology and so there is a significant amount of work we're doing right now to bring up second sources and Thats. One of the reasons. Why you are really seeing a plateauing of the data center run rates sort of mid year, and we think that will open up in Q4, but generally speaking to.

The environment has not changed in the last three months.

Impact to Covid I would say is abating.

Of course on the logistics side.

It is there is lots of issues moving product around the world right now and our team I think it does a nice job managing those challenges.

Our next question coming from the line of sorry, Sandberg with Stifel. Your line is now open.

Yes, thank you and congratulations on the continuous execution here.

Steve maybe it's just my perception, but I thought the laser business would probably start to ramp a little bit quicker or.

I was thinking maybe able to grant this year.

Any any changes there.

Or are there some qualification delays if you could help business specifically on the laser business that'd be great.

Yes, so our expectation for laser.

Growth and revenue growth.

In the second half is significant and we think.

Our laser revenues for both telecom and data center will grow by at least a factor of five.

In the second half compared to the first half.

So from that.

A design qualification winning market share nothing has changed there.

Really a timing around.

Individual customers ramp.

Starting from in the case of <unk>.

Technology, we're starting from a very small base effectively zero as you remember we launched our clear Diamond product line in June of 2021.

But we are getting positive signals from the market. We believe we will be winning market share this year.

So.

I don't see any.

Yellow or red red issues associated with.

The laser business in general.

Great. Thank you for that and I know analytic platform as being an opportunity for a while but you spent a little bit more time on that on this call does that mean, we are.

Shut in inflection point of seeing analog penny for.

Penetrating the market more materially this year.

I think I.

Can talk from our perspective, and the makeup of our revenue.

Three maybe four years ago, all of our business was NRG business.

And today, we're approaching about 50% of our data center revenue being painful related so it's absolutely.

We see a movement of the movement towards paying for and our contribution is primarily 200 400 800 key applications.

Where we support short reach analog platforms.

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

Yeah, Hey, guys first of all congratulation solid frame solid guide.

Appreciate that very much.

So Steve make on had historically been a growth story and you were showing leverage on the gross margin.

I think you're indicating on this call that the leverage on the gross margin piece and the op margin leverages intact, but I wanted to understand the growth piece, a little bit more can you point us to things that are working in telecom and as you look out over the next 12 months, which parts might move faster than the others and my other question was did you leave any revenue.

Is behind on the table because of supply can change in either December or the implied guidance for March and I have a follow up.

Sure. Thanks, Thank you for the question.

Maybe a couple of words about the.

The recent history our execution.

And as we've talked about in the past on prior calls.

Taking a big step back from 2010 to 2020.

Those fiscal years May com had a CAGR of about seven 5% in.

And our goal from from 2020 to 2025 is to at least double that that is our goal and when we do that.

We ended up at approximately $1 billion of revenue in our fiscal year 2025, So that is our goal now.

We had of course as everybody knows a very strong fiscal year 'twenty.

In 'twenty one in fact in fiscal year 'twenty, one we had 14, 5% year over year growth.

Which meant that we exited fiscal year 'twenty at a very high run rate because the sequential growth during fiscal year 'twenty one.

Between 1% and 2%.

And if you look at our sequential growth today, and what we're forecasting for the back half of the year.

Q1, and Q2, it's around north of 2%.

And then in the back half of the year, we expect sequential growth greater than 4%.

We believe there will be some slight acceleration of growth in the back half of our year due to some of the reasons we've talked about.

When you ask where is the growth coming from it really speaks to our strategy.

Our strategy is to expand our Sam to launch new product lines to get into new markets.

And as we've talked about some of the accomplishments and we look at our business today.

Can tell you that this past quarter, we had record bookings with Dan.

On a pure carbide line.

Which but certainly supports our growth strategy for RF power, we want a major development contract with a tier one defense contractor to work with them on some what we call RF over fiber or high speed connectivity applications in their systems, where we did benchmarking.

Some of our components for them. We're also doing it architecture trade studies with them.

<unk> validates our idea of bringing optical technology into the military market.

We're winning market share with discrete components.

This past quarter, we had our first design win with a major base station manufacturer that we had in <unk>.

Within the past on volume platforms.

I also recently announced actually back in November we reworked our China organization, we promoted one of our senior executives to be president of baked on China to emphasize the focus we have on those markets and of course, there's many other things that we're doing so our growth is more than just coming from telecom it's coming.

From industrial and defense it will come from expanding our Sam by adding new technologies and new products. So I would.

Asset.

We'll focus on those attributes.

Rather than let.

Let's say those submarkets and of course.

It's the common markets that we talked about by Jeep.

Upon a variety of wireless applications satcom so we.

We really are very much attracted to the industrial and defense.

Very attracted to the various telecom markets. We believe over time those two markets will outgrow the data center.

While the absolute growth basis.

So we're very happy that we have a lot of different.

The attributes of our portfolio that will support this growth target.

Hey, Steve very helpful. And then maybe one for you or Jack I wanted to go back to gross margins. So.

You came on and it was very quick gross margin turned out really quick because of tweaks to the business and some initial cost cutting can.

Can you maybe help me understand as I look to the next three years, let's say.

<unk> gross margin growth.

Is that likely to come from tweaks in the business.

Or to a greater degree from the new products that youre getting into is there a threshold that you have for gross margin for the new products that ish, perhaps driving gross margin now.

Thanks for the question and maybe I'll just.

A few comments Ben Jackson also add to it so the.

You're correct. We've done the team has done a lot of work to improve the gross margins of the portfolio and that work continues.

As we think about the future.

We will now start turning towards.

More of a dependency on the new products and their contribution to.

The gross margin improvement.

And so.

Let's say over the next two to three years the majority of the improvements will come from product.

And technology, and making sure that we're more differentiated and our price points have more value.

We can achieve higher gross margins.

And just just to build on that.

As I had mentioned in my prepared remarks, there's a fairly robust process that we have from an R&D perspective in terms of analyzing.

Those projects to make sure they're coming out.

With higher margins not every new product is going to have higher margins, but we are definitely focused on driving that higher.

Then to your other point there are things that we can continue to do within the business to improve the gross margins overtime. There is a number of internal initiatives that we have working.

That that will improve that overtime and.

We continue to expand our product launches as well as the Sam that Steve had mentioned.

That additional revenue will also provide additional margin expansion as we go forward.

Okay.

Sorry.

Misspeaking.

On.

Poly inventory.

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

Yes. Thank you good morning.

Question I just wanted to go through a bit of.

The expectations for the second half of the fiscal year based on the color you provided both of the overall revenue up 10% and the.

Different segment commentary.

Based on what you said it would seem that.

It would be kind of up slightly on a quarterly basis in the second half of the fiscal year.

But then telecom.

To get to that kind of.

Mid teens growth.

It would suggest that it's down on a quarterly basis, and then data center as you said would be up pretty strongly in the second half of the fiscal year.

Is that consistent with your expectations and maybe some kind of color on on what would be driving those.

Trends as you go into the second half of the fiscal year.

Yes, Chris this is Jack so yes, it based on the math that you're describing that.

That would get us to the.

The things that we have described.

But also as Steve had mentioned it isn't going to be a perfect answer the markets do continue to change and evolve but that.

That would be our viewpoint and we also look to our strong book to bill on our backlog as before formulate some of these these projections going out over time, so that backlog gives us some of the strength to to hit those numbers as we work our way through the year.

Okay, great as a follow up.

Just just just about that backlog as you go to the second half of the year and maybe you could talk about what's in that backlog.

And I presume based on.

We talked about the growth projections, a strong part of that backlog is in data center.

And is that really.

Ken.

Dependent on supply constraints, right now and getting some of that backend capacity you talked about there is that the main constraint or or kind of risk factor on getting to those numbers as you go to the second half of the year.

Sure.

Maybe I'll.

Help with the answer on that question so.

You are correct that we have been building backlog.

I think as I highlighted we've had five consecutive quarters of greater than one book to Bill of data Center backlog has been growing and we.

We are constrained in some product areas I talked about related to different package technologies and so we do see that.

Q4 is an important quarter for us on the data center to make sure a lot of things.

Fall into place to support the demand that we have for our products, but generally speaking as we again as we talked about.

Making taking two or three quarter forecast as is.

As scientific as we would want certainly we have a strong backlog, but theres also dynamics at play.

From each of these different markets, our smallest market in Q1 data center, which is about 18% of our revenue is the most volatile market. So that can move around quickly on us both on the ramp up and as well as on the ramped down side of the.

The cycle. So we have to plan for that and hedge those extreme cases and make sure that we can hit the targets that we put out there publicly but generally speaking if.

We look at the growth.

It's going to have a very good year. This year telecom is going to be as I highlighted in the mid teens for the full year.

And then the data center, if we can.

Hit mid single digit.

We will be very pleased with the way, we set ourselves up for fiscal year 'twenty three.

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

Hey, good good morning, and thanks for letting me ask a few questions here.

Just wanted to kind of touch base, maybe in terms of the order trends youre seeing and how those maybe track obviously the book to bills have been good but just are there any areas that you're seeing particular, I guess changes in customer behavior in terms of order trends.

Generally no I think our main customers that run in high volume platforms are well aware of the <unk>.

Extended cycle times in the industry that they understand the risks associated with supply and potential constraints and so our customers and our sales force have been working very closely to make sure that.

We understand their demands and we tell our customers the best way to secure supply is to place orders. So that we can instigate the planning the other thing that I'll just highlight and Jack mentioned this in his script is that we have been building a bit of inventory our inventory went up this quarter and that also.

It will allow us to hit some of the.

The revenue projections.

Projections that we have for Q3 and Q4.

We have seen I will say, we have that message by some customers that they're not getting all of the components. They need to run production and that has a attenuating effect on our plants and so we.

I would say that's probably the only.

Sort of new dynamic that's at play right now we are hearing that from customers and I think now there their level setting what they can execute and resetting production schedules based on.

Good information about supply and so that has a trickle down effect to us, but again I think these are short term issues. They are manageable and over the long term I think we're setting ourselves up for success ill highlight that.

The engineering team. This year has been doing a great job with product development.

We are still on track to launch at least 35% more products. This year than we did last year.

We are coming up to OFC in March and also IMS in June and these are these are major major cause.

Conferences, where we like to introduce our best latest products. So.

We're getting pretty excited about some announcements at OFC and also of IMS.

Great. That's very helpful. Thank you and then maybe just.

Kind of thinking about when the supply chain begins to normalize do you think that there is a period of replenishment of the supply chain that will need to happen that maybe helps to kind of isolate the the oversupply that we typically see.

I'm just trying to get a feel of how you think the customer behaviors will act as we get closer to normalization. How do you think in terms of your business and your visibility into the supply chain do you feel like you are fairly well positioned to maybe avert some of the.

The problems as we begin to normalize.

So it depends on the end market.

Have some end markets, where the channel inventory is empty or very very low and then we have other markets where the.

Customers are lowered for medium volume.

Production and they do a very good job of planning and so we wouldn't expect that expect any sort of.

Foreseeing falloff on their run rates.

Highlight that most of our major customers deal directly with <unk> com and we have good visibility into their plans.

And so that that gives us comfort that if there is going to be changes in the future. We can plan for that because as you know our manufacturing cycle times.

In some instances are longer than six months and so we have to stay very close to our high volume customers.

Our next question coming from the line of Karl Ackerman with Cowen. Your line is now open.

Yes. Thank you two questions if I may good morning.

Yes.

I guess first just on capacity growth you wouldn't be expanding capacity in new Hampshire, which there wasn't much commentary on this call relative to 90 days ago.

But you wouldn't really be extending capacity, new Hampshire, unless your customers are telling you they need more capacity.

Clearly the markets you serve are all growing which you indicated there are several areas where your Tam is expanding now.

But are these customers, giving you order visibility beyond 2022, and maybe even into the back half of 2022.

Maybe can you discuss the manufacturing loading and when that facility should be up and running.

Thank you for the question so.

In some areas, we have very good visibility and backlog through the through.

Through the back half of 2022.

So, yes, and as we highlighted in the script, we have a record backlog.

If we if we roll the math, even on our last five quarters, where we had greater than one book to Bill.

It shows and you compare that to what we actually shipped we've actually generated over $120 million of backlog over the past five quarters.

And so the demand is there.

You mentioned, new Hampshire in the manufacturing side, we have there and the doubling of the space. So I would just highlight that that is one example of an area that we're expanding we're expanding.

In all different parts of our business.

<unk> the business unit's operations planning logistics.

<unk> engineering and of course production and so.

We have very aggressive growth plans, obviously, we talked about.

35% more products coming out this year that last year and that requires more people and more facility to support the growth now with that said, we like the Fabless model and if we have a significant portion of our business that we run through other People's Fabs and that provides our business tremendous.

Leverage where we can.

Ramp production quickly with adding little or no cost to our operation. So we still have leverage in the model.

We're expanding.

Based on expectations of growth in areas, where we think it makes sense to do that.

The New Hampshire facility runs a wide range of products for a wide range of markets.

And so I wouldn't read into that expansion as sort of an indicator of any one.

Particular customer program of activity, it's broad it's to support broad based growth.

I appreciate that two quick clarifications, if I may I'll tie them into one.

The higher growth projections, you Havent telecom is this mainly front haul laser sources also coming from PON.

Jack I guess.

When might you finalized plans to deploy the proceeds from the inflow of cash from the up here. Thank you.

Thank you for the question.

I'll take the first whether they be Jack can take the second so.

I wouldn't want to.

Or investors to think that.

Our telecom growth is exclusively coming from.

<unk> front haul or PON. It is it is a diversified growth.

Certainly pond is an important market for us but.

But we also service various wireline and broadband applications.

As well as.

Of course, five G not only on the optical side, but on the RF side. So.

The good news is our growth in telecom is broad based not just based on the two items that you talked about Jack.

Jack you want to take the second and.

And then with regards to the <unk> transaction, we were pleased with the outcome there.

As we sit here today, we don't view ourselves as having any kind of excess cash we are still in a in a net debt position Carl So we think.

We think were appropriate in terms of where we sit today don't feel like there's any needs to deploy that cash immediately as we've mentioned, we've been making investments internally in the business.

Over the past year and plan to continue doing that I know in my prepared remarks I had also mentioned some capex investment so that will be some of the utilization for our cash and make sure we're generating appropriate returns for the business as we go forward.

And our next question coming from the line of Quinn Bolton with Needham. Your line is now open.

Hey, guys just a couple of quick questions for me just one on the gross margin guide midpoint of 61 down 40 basis points sequentially any particular headwinds youre seeing in the current quarter either from a product mix shift or COVID-19 costs related issues higher input costs that we should be aware of.

The short answer to that Quinn is no, but as we work through.

Gross margins as we look to go out into the future. Our goal is to continually improve.

It does get a bit more challenging as time goes on and things don't always happen in a straight line.

Our plans are to as I said continually make those improvements and effectively we grab the guide that we put out there last quarter. It was within the range or the 60% number so I think the.

The guide that we had was 60% to 62%. So nothing nothing really notable to point out with that put that guide there.

Perfect. Thanks for that clarification, Jack and then Steve I guess, a couple of questions on the data Center you mentioned, the 25 gig iOS season.

<unk> business was going to be soft in the second half of the year should we sort of think of those now.

Past their peak and those businesses sort of move into a legacy in a declining mode.

As the business shifts towards Pam or do you think at some point you could see a resurgence in those lower speed applications.

So that's a that's a very good question and that's a question. We're also asking ourselves as we look to work with our customers.

Our general sense is these programs, especially 100 G CW deal for <unk>.

Have steady demand and they'll continue to be.

Relevant, let's say in the future.

But.

We're still looking at that it's possible they'll continue to trend down, but that's really not our expectation.

And then certainly things are light grading towards paying for it in the higher data rates and certainly.

Areas that we see that are very exciting and maybe I'll spend a moment on this as.

The new product line that I talked about in my prepared remarks that linear equalizers and I think it's important to highlight that this technology really addresses two very different applications in the data center. The first is.

Short reach electrical.

Connections, where youre at lets say back plane or copper cable and Youre moving an electrical signal as opposed to.

On optical signal and then the second application is inside the data center, where we're working with companies that have all of the components necessary to stand up.

Very high end computers.

And they want to use the infrastructure of their computers, and the asics to drive and make adjustments to the optical signal and so we're working and working with some key customers to develop solutions to effectively remove the DSP function, let's say.

From the plug a hole module and have that functionality brought into the <unk>.

And so that's exciting for us and we're doing we're entering programs at 400 G.

And if we're successful here that will break the dam on moving that as a more adopted technology for broader applications inside the data center. So we're very focused on that as a company.

Where we have very unique technology, we have close relationships with some major companies that are looking at.

Effectively there's different words for it you can call it direct detect a direct drive, but but the goal would be to eliminate the DSP and certain applications and so.

No.

The reason why I mentioned this when we talked about some of those legacy.

Platforms like 100, GSR for 25 G. ESR Aoc's things will migrate to newer technologies and we are involved in those so it's.

It's about portfolio management, making sure that we're engaged with next generation platforms.

And I'm not showing any further questions at this time I would now like to turn the call back over to Mr. Daly for any closing remarks.

Thank you.

Closing, we'd like to thank our customers suppliers business partners and employees for their continued just continued support thank you and have a nice day.

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