Q4 2024 MACOM Technology Solutions Holdings Inc Earnings Call
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Thank you Olivia good morning, and welcome to our call to discuss May Com's financial results for the fourth fiscal quarter and full fiscal year of 2024.
First we are pleased that we were awarded several large purchase orders and contracts by industry, leading customers in each of our three major markets.
We expect these program wins will help support our growth over the next 12 months and beyond.
Second we expanded our leadership position in high performance connectivity solutions for data center customers and we continue to provide advanced solutions to the leaders in this space.
Our full year fiscal 2024 data center revenue was a record and we posted greater than 30% data center growth for the year.
Third we continued to execute our strategy to develop industry, leading microwave and millimeter wave frequency processes products and solutions.
Of our advanced semiconductor development projects have U S government support as we highlighted in our press release that we issued earlier this week.
In total in recent times, we've been awarded funding of approximately $29 million to develop advanced semiconductor technology.
And last the recent strategic acquisitions have resulted in <unk> being a larger stronger and more competitive.
Expanding our portfolio has increased our serviceable addressable market or Sam significantly.
And while we are pleased with the numerous achievements during the past fiscal year. There are some areas that we recognize we did not meet our targets.
First we fell short of our goal to introduce 50% more IC products year over year.
More work needs to be done to increase our new product introduction or NPI capacity inefficiencies, including expanding automation streamlining NPI processes at accelerating fab cycle times.
Second we did not achieve optimal utilization of our lower wafer fab may.
<unk> financials are strongest when our internal fabs are fully utilized.
We maintain a continuous improvement mindset and we will certainly be addressing these two important areas in fiscal 2025.
As we turn our attention to fiscal 2025, our priorities include.
Extending our leadership in gallium arsenide, and Gan mimics and taking market share in RF and microwave applications.
Leading the market in 200 G per lane high speed analog solutions for data center applications across copper cable and optical interfaces.
Further expanding our optical capabilities within the aerospace and defense applications.
Growing our module and subsystem business in key high performance applications, while leveraging our domestic and international operations.
Completing the qualification of our European semiconductor centers six inch wafer production line before the end of calendar 2025.
Wrapping our high speed photodetector, and CW laser products to support 800, G and 160 applications.
Accelerating the pace of new product introductions, which can drive increased fab utilization.
And finally, continuing to recruit and attract industry, leading talent to ensure we stay on track with executing our comprehensive strategy.
Turning to our end markets.
Q4 revenue performance by end market was as expected with industrial and defense at $92 8 million.
Telecom at $51 7 million.
In data center at $56 2 million.
For the quarter datacenter was up 14, 7% sequentially.
Indy and telecom were both up two 1% sequentially.
I'll note, our IND revenue level was an annual and quarterly record.
We continue to identify growth opportunities in the industrial and defense market spanning radar electronic warfare secure communications and integrated battlefield systems.
Trend across all of these applications is towards higher frequencies higher power levels wider bandwidth and higher levels of integration.
Lets from Uavs more sophisticated targeting systems and dramatically more complex electromagnetic environment on the battlefield are driving systems towards higher frequency ranges, including expand and V band to increase system performance.
I am pleased to report that earlier this month may com delivered a large expand high power Gan based phased array transmitter to our navy customer.
This was a major milestone for <unk> com and I congratulate our dedicated team on completing this complex project.
Our system Engineering team was supported by our RF power components team, which resulted in an efficient design and build of this high performance system.
We are pleased that our efforts resulted in a new contract at twice the value to design and build a higher frequency next generation high powered Gan transmitter Ray.
We believe the trends for the Iot market play directly into <unk> strengths.
Fiscal Q4, adjusted net income increased to $54 2 million compared to $48 9 million in Q3.
Adjusted earnings per fully diluted share was <unk> 73, utilizing a share count of $74 5 million shares compared to <unk> 66 of adjusted earnings per share in fiscal Q3.
Now moving onto operational balance sheet and cash flow items.
Our Q4 accounts receivable balance was $105 $7 million down from $106 8 million in fiscal Q3, due to improved shipment linearity and strong collection activity during the quarter.
As a result days sales outstanding were 48 days compared to 51 days in the prior quarter.
Inventories were $194 5 million at quarter end up sequentially from $190 7 million.
Inventory turns were flat sequentially at one seven times.
The quality and mix of our inventory is strong and continues to support our strategic backlog and our growth plans for fiscal 2025.
As we move through fiscal 2025, we expect to see improvements in inventory turns.
In addition, this marks the fifth quarter in a row, where we have reduced channel inventories held at certain of our partners.
Fiscal Q4 cash flow from operations was approximately $62 3 million up $13 3 million sequentially.
Capital expenditures totaled $5 2 million for fiscal Q4.
In fiscal 2024 annual Capex of $22 4 million decreased slightly from $24 7 million in 2023.
As we move into fiscal year 2025, we expect our capital expenditures to be approximately $35 million for the full year.
Next moving on to other balance sheet items.
Cash cash equivalents and short term investments for the fourth fiscal quarter were $581 9 million.
Up $60 4 million from Q3.
I'm pleased to note that we were able to utilize available cash for our RF business acquisition earlier in the fiscal year and comparing our cash and short term investments to the book value of our convertible notes. We are in a net cash position of more than $133 million as of September 27th 2024.
Our balance sheet and cash generation remains sound and we continue to exercise leverage over our operations in discretionary spending to support may comps target margins through ongoing cyclical pressure.
We expect sequential revenue growth in all of our end markets. We expect data center will lead with approximately 15% sequential growth followed by telecom and industrial and defense with low to mid single digit sequential growth.
I will note that ngetich will not contribute materially to our Q1 financial performance.
I would now like to ask the operator to take any questions.
Speaker Change: Thank you, ladies and gentlemen to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question simply press Star one again.
In consideration of time, we ask you please limit yourself to one question and one follow up.
Speaker Change: Please standby, while we compile the Q&A Boston.
Speaker Change: And our first question coming from the line of David Williams with the Benchmark Company. Your line is now open.
David Williams: Hey, good morning, and congrats on the solid performance here.
Speaker Change: Thank you I guess, maybe paper Stephen you talked a little bit of course, a lot of a lot of nice opportunities in the data center, but I wanted to see maybe first you could talk about the <unk> opportunity you mentioned in the in the script and you talked about some of the new technology is starting to take share to support 800, GE any more color around that and just what are you seeing that develop.
Speaker Change: Yeah on the L. P O what we have seen really over the last.
Speaker Change: Four months, maybe six months.
Speaker Change: Is increased interest from the.
The industry.
We have seen the growth in the MSA organization from about <unk>.
Speaker Change: 10 to 12 members now up close to 19 members.
Speaker Change: And we're starting to see customers.
Speaker Change: Begin testing of interoperability of LPR solution, so we find that very attractive.
But we have to also just note that it's very early.
Speaker Change: For deployments of <unk> solutions.
Speaker Change: And we think that over the next one to two years <unk> will definitely begin to take.
Speaker Change: A certain portion of the market. So we are in a very strong position with them as you know one of the founding members of the MSA and we've certainly got a very strong design team and product portfolio that supports these type of solutions and the last point I'll make on LPL as we believe it will intercept intersect.
Speaker Change: The market at 800 G.
Speaker Change: Data rates, so that seems to be a very good sweet spot for this application.
Speaker Change: In terms of some of the newer technologies, obviously, there is as the data rates go higher in frequency.
Speaker Change: As the landscape changes.
Speaker Change: Feel like we are very well.
Speaker Change: Position not only on our high performance Silicon side, but also with our optical solutions and I mentioned in my remarks.
Introducing.
Speaker Change: Photo detectors as well as CW lasers, and so we believe that 2025 and 2026 will be good years for these particular product lines.
Speaker Change: Great. Thanks for the color there and then maybe just secondly for me is have.
Speaker Change: Have you noticed any changes maybe on the active copper cable side in terms of deployment or maybe customers thinking about that.
Speaker Change: Our strategies in different ways to deploy there or does everything still may be the same as it was six six months ago or even 30 days ago. Thank you.
Speaker Change: Yes, I think that it's important to highlight and we say this often to investors and analysts that the data center market is very volatile and our customers are constantly.
Speaker Change: Changing solutions changing architectures.
Speaker Change: Ramping programs up quickly and ramping programs down quickly and we again, we always emphasize that this is one of our most volatile end markets.
ramping programs up quickly and ramping programs down quickly and we again we always emphasize that this is one of our most volatile end markets.
Speaker Change: In terms of your question, specifically I would say that.
In terms of your question specifically, I would say that there has been some discussion about...
Speaker Change: There has been some discussion about.
Speaker Change: From some large customers of using less copper.
certainly from some large customers of using less copper cable in certain architectures let's say and so we certainly follow that that commentary but from our point of view our data center revenue is very diversified so we we're supporting not only active optical cables but also active copper cables
Speaker Change: Copper cable and certain.
Speaker Change: Architecture is let's say.
Speaker Change: And so we certainly follow that that commentary, but from our point of view our data center revenue is very diversified so we.
Speaker Change: We're supporting not only active optical cables, but also active copper cables and various plug a hole modules and so.
Speaker Change: We don't really get too hung up on any one particular portion of the market and what customers may or may not be deploying because of the diversity within our overall data center portfolio.
Speaker Change: We don't really get too hung up on any one particular portion of the market and what customers may or may not be deploying because of the diversity within our overall data center portfolio.
Speaker Change: Remember our strength as it has been historically short reach.
Speaker Change: As I mentioned in my prepared remarks.
as I mentioned in my prepared remarks.
Speaker Change: You are seeing now even the short reach and medium reach becoming more complicated with new protocols, including ZR.
You're seeing now even the short reach and medium reach becoming more complicated with new protocols including ZR.
Speaker Change: And coherent light and so these type of solutions that start to overlay these short and medium length.
and Coherent Light.
Speaker Change: Connections again as an opportunity for growth from E. Com. So we don't get too overly excited about any one particular area. We're trying to address all of them and make sure that our customers are successful.
these short and medium length connections.
Speaker Change: Again, it's an opportunity for growth for Macom. So, we don't get too overly excited about any one particular area. We're trying to address all of them and make sure that our customers are successful.
Speaker Change: Thank you.
Speaker Change: And our next question coming from the line of harsh Kumar with Piper Sandler Your line is now open.
Thank you.
And our next question, coming from the line of...
Harsh Kumar with Piper Fendler, Jelani Smetelven
Speaker Change: Hey, guys first of all let me congratulate you guys on some fantastic guidance here.
Hey guys, first of all, let me congratulate you guys on some fantastic guidance here.
Speaker Change: Steve do that and I'm seeing the growth pick up materially here for the December guide relative to the last two or three quarters that you've guided to and I know, it's coming from data center, but is it fair for me to think that maybe data centers hit that sustainable level of growth, where we could expect these.
Speaker Change: Steve, to that end, I'm seeing the growth pick up materially here for the December guide relative to the last two or three quarters that you've guided to, and I know it's coming from data center, but is it fair for me to think that
Speaker Change: Maybe data centers hit that sustainable level of growth where we could expect.
Speaker Change: These kind of numbers, maybe not quite 15% sequentially, but good solid growth for the next several quarters, particularly as opportunities like the ACC and maybe eventually down the line LBO come to fruition do grow double digits. For example sequentially for a couple of quarters in data center.
Speaker Change: These kind of numbers, maybe not quite 15% sequentially, but, you know, good, solid growth for the next several quarters, particularly as opportunities like ACC and maybe eventually down the line, LPO come to fruition. Do you grow double digits, for example, sequentially for a couple of quarters in data center?
Yeah.
Speaker Change: Well I would temper expectations on.
On.
Speaker Change: Continuous double digit growth generally don't believe that would be sustainable.
Speaker Change: you know continuous double-digit growth. I generally don't believe that would be sustainable. I do think that our fiscal 2025 will be a very strong year for the data center. In fact, I think it may be one of our fastest growing end markets.
Speaker Change: I do think that our fiscal 2025 will be a very strong year for the data center. In fact, I think it may be one of our fastest growing end markets.
Speaker Change: It certainly should deliver double digit growth for the full year very strong double digit growth, but I would never set expectations that.
Speaker Change: Stephen Kober, Stephen Daly, Stephen Ferranti, Stephen Kober, Stephen Kober, Stephen Kober,
Speaker Change: Things will be linear and constant sequential growth and for the reasons I stated on the last.
Speaker Change: <unk>, which was about the volatility of the points I made about the volatility are very important to highlight here. It is a volatile market and as a result, we can see variability on a quarter by quarter basis.
Speaker Change: about the volatility of the points I made about the volatility are very important to highlight here. It is a volatile market and as a result we can see variability on a quarter by quarter basis.
Speaker Change: Now with that said I would add one other comments, we are definitely seeing fast movement to 160, and we are seeing some very strong growth opportunities.
and we are seeing some very strong growth opportunities.
Speaker Change: In this area and so we think that 2025 will be very strong for 160.
Speaker Change: in this area. And so we think that 2025 will be very strong for 1.6T. Behind that, of course, will be more solid performance at 800G as well.
Speaker Change: Behind that of course will be more solid performance at 800, <unk> as well. So between these two factors I do believe we could have a very strong year. However.
Speaker Change: While we may have very strong near term visibility I would say as we look to the back half of our fiscal year, obviously that visibility is less.
Speaker Change: Less clear.
Speaker Change: On the optical side, we have.
Some very high end photo detectors that are.
Speaker Change: Very interesting to many customers right now.
Speaker Change: We have good timing, let's say.
Speaker Change: And so.
Speaker Change: It is possible that our photo detector and CW components.
Speaker Change: Could have meaningful contribution in our fiscal 25, I think it's a little early to tell on that right now.
Speaker Change: But we do have good timing for both those solutions.
Speaker Change: I'll also highlight that split.
Speaker Change: The 200 gig per lane, obviously $1 60 is really this migration to the 200 gig per lane that's of course, <unk> linear equalizers drivers and the photo detector. So.
Speaker Change: When we hear 160, we're thinking all of the products. We sell that are 200 gig per lane products.
And.
Speaker Change: Just as general background I think I mentioned this on last quarter's call our team has.
Speaker Change: Already working and spending significant time and resource on 400 gig per lane solutions as well.
Speaker Change: Okay. Thanks for thanks for that perspective very helpful. My follow on question probably is for Jack here.
Speaker Change: If I run the numbers on the guide here. It seems like Opex is going up more than a couple million dollars here discussing just wanted to verify I am doing the math right here in this kind of a longer term perspective, you're obviously your revenues look excellent here for the December quarter guide and it looks like Theres. Some really good momentum here wondering if youre opening up the spigot, just a little bit more than than you have in the recent past.
Speaker Change: Yes, I think that's a that's a fair point.
Speaker Change: As we look at this Richard.
Yes.
Speaker Change: Little bit of a step up in our operating expenses some of that is with.
Speaker Change: <unk> to some of those additional design capabilities that Steve was referring to obviously, the new acquisition will add a couple of bucks to that that operating expense item, but we're also looking to invest in our employees with some of those additional.
Speaker Change: Design activities. We also go through a merit process, which hits us here in the in the December quarter. So so there is a culmination of a lot of things that that we have going on to support that growth. We do take a hard look at our operating expenses and think we do a pretty good job in terms of being able to manage those expenses as.
Speaker Change: We go through our strategic planning process as well as our budgeting process. We also look at our operating expenses, primarily from an R&D point of view and make sure we're allocating.
Speaker Change: Those dollars to growth areas of the business. So.
Speaker Change: That will continue as we go forward.
Speaker Change: Thank you.
Our next question coming from the line of <unk>.
Speaker Change: Ken Paulson with Needham <unk> Company. Your line is now open.
Speaker Change: Okay, Nick Doyle on for Quinn.
Speaker Change: Quinn Bolton Thanks for squeezing me in.
Speaker Change: Just kind of following up on Karl's ACC question, what application would be using these lower data rates outside rack to rack and Nick to torque connections and would those also be taking share from dax.
Speaker Change: Yes, that's a very specific question. So I'll answer it at a very high level. So we are seeing international interest in our ACC products for various implementations whether it's.
Speaker Change: Top to bottom of Iraq or rack to rack.
Speaker Change: Okay. Thanks, Thank you for that and then.
Speaker Change: On the DOCSIS 4.0 demand.
Speaker Change: Youre expecting modest CATV revenue growth next year I understand we've been in a lull in kind of inventory digestion, but is there anything about the technology advancements or supply chain, that's kind of pulling in the transition now.
Speaker Change: Not so much I think.
Yes.
Speaker Change: There's been this sort of multi year design cycle on next generation DOCSIS platforms.
Speaker Change: If we look across the various industries that we serve we would say that the cable infrastructure market probably did some of the most over buying.
Speaker Change: Our product <unk>.
Speaker Change: During the Covid cycle, and so it's been a while for that.
Speaker Change: Inventory to burn down.
Speaker Change: So that's been happening over the past couple of years.
Speaker Change: All the Meanwhile, they've been working on the Nextgen systems. So we are starting to grow our backlog.
Speaker Change: For product sets that we know are for new platforms, and we would expect.
Speaker Change: To generate some revenue this year with that business. The other thing I'll highlight is the DOCSIS architecture is is a little bit different than the prior.
Speaker Change: Architectures and so in some cases, that's bringing.
Speaker Change: Additional product opportunities to make com.
Yes.
Speaker Change: Thank you and I'm showing no further questions in the queue. At this time I will now turn the call back over to Mr. Daly for any closing remarks.
Mr. Daly: Thank you in closing Jack and I would like to thank the entire May com team for their continued dedication which has made our FY 'twenty four results possible.
Mr. Daly: We will continue to work as a team to meet our customers' needs and execute our strategy as we start fiscal year 'twenty five thank you very much.
Speaker Change: Ladies and gentlemen that does conclude our conference for today. Thank you for your participation and you may now disconnect.
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