Title

Presentation

MACOM Technology Solutions Holdings, Inc. beats earnings expectations. Reported EPS is $1.02, expectations were $0.99.

Operator: Welcome to MACOM Technology Solutions Holdings, Inc.’s First Fiscal Quarter 2026 Conference Call. This call is being recorded today, Thursday, February 5, 2026. At this time, all participants are in a listen-only mode. I will now turn the call to Mr. Steve Ferranti, MACOM’s Senior Vice President of Corporate Development and Investor Relations. Mr. Ferranti, please go ahead.

Stephen Ferranti: Thank you, Olivia. Good morning, and welcome to our call to discuss MACOM Technology Solutions Holdings, Inc.’s financial results for 2026. I would like to remind everyone that our discussion today will contain forward-looking statements which are subject to certain risks and uncertainties as defined in the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. For a more detailed discussion of the risks and uncertainties that could result in those differences, we refer you to MACOM Technology Solutions Holdings, Inc.’s filings with the SEC. Management statements during this call will also include a discussion of certain adjusted non-GAAP financial information.

A reconciliation of GAAP to adjusted non-GAAP results is provided in the company’s press release and related Form 8-Ks, which was filed with the SEC today. With that, I’ll turn over the call to Stephen Daly, President and CEO of MACOM Technology Solutions Holdings, Inc.

Stephen Daly: Thank you, and good morning. I will begin today’s call with a general company update. After that, Jack Kober, our Chief Financial Officer, will review our Q1 results for fiscal year 2026. When Jack is finished, I will provide revenue and earnings guidance for 2026 and then we will be happy to take some questions. Revenue for 2026 was $271.6 million and adjusted EPS was $1.02 per diluted share. Demand for our products is strong across our three end markets, and our backlog continues to build. Our financial performance improved across most key metrics in Q1. At quarter end, we held approximately $768 million in cash and short-term investments on our balance sheet. Our Q1 book-to-bill ratio was 1.3 to one, and orders booked and shipped within the quarter were 23% of total revenue.

Our Q1 turns business was higher than recent quarters due to strong early quarter bookings. Our current backlog remains at record levels. Turning to other recent trends, Q1 revenue performance by end market was as expected and all end markets grew sequentially. Industrial and defense was $117.7 million, data center was $85.8 million, and telecom was $68.1 million. Data center was up approximately 8% sequentially, telecom was up 3% sequentially, and industrial and defense was up 2% sequentially. Both industrial and defense and data center revenues were at record levels. As we review our full fiscal year forecasts, we are gaining confidence that our data center revenue could achieve 35 to 40% year-over-year growth. Hyperscaler’s capital investments are robust, which is driving demand for our 801.6T optical and high-speed analog products.

To capitalize on this opportunity, we have been expanding, and we will continue to expand our data center product portfolio. As a reminder, our portfolio currently supports NRZ, PAM4, and coherent modulations. We provide products that support VCSEL, EML, and silicon photonic-based optical transmission technologies as well as electrical connectivity solutions over copper. Revenue growth inside the data center is robust, primarily in pluggable optical modules and optical cables with our 800G and 1.6T PAM4 products. We support our customers’ DSP, LPO, and LRO module architectures. We also support customer requirements for coherent DCI hardware, including ZR and ZR Lite. MACOM Technology Solutions Holdings, Inc.’s coherent light solutions designed for shorter reach coherent applications enable higher bandwidth performance with significantly improved power efficiency compared to traditional coherent systems.

Interest in LPO continues to spread, and we are further supporting customers as they leverage the benefits of a low power and low latency 400G and 800G optical solution. In addition, we see interest in enabling a similar value proposition at 1.6T using LRO or LPO implementations. In this case, a 200 gig per lane solution would be used. We are also supporting LPO use in PCIe and NPO implementations as the industry strives to optimize interconnects for both scale-up and scale-out. Notably, we are starting to see interest in LPO from telecom front haul applications. Demand for our 200 gig per lane photodetectors continues to grow, supporting 800G and 1.6T connectivity. As I highlighted on our last earnings call, we are adding manufacturing capacity to keep up with our customers’ forecasted demand.

We have indications that demand will remain strong into calendar 2027. Further, MACOM Technology Solutions Holdings, Inc. is positioning itself to support next-generation opt receiver platforms at speeds beyond 200 gig per lane. Part of our near-term and long-term growth strategy is to expand our photonics portfolio with higher speed photodetectors and new CW lasers. We are also seeing renewed interest in our linear equalizer products that help extend the reach of copper interconnects in 800G and 1.6T. Linear equalizers enable longer reach active copper cables or ACCs and can enhance signal integrity when used in backplane applications. We are working closely with multiple customers to address their program-specific requirements and various use cases.

MACOM Technology Solutions Holdings, Inc.’s roadmap extends to 3.2T technologies, and we have aligned our product roadmaps and resources with our customers’ needs to ensure we deliver the right technology at the right time. Our future products are increasingly optimized for co-packaged and highly integrated architectures, like CPO and NPO. We can differentiate in this market based on our strong customer relationships, IC and system design expertise, as well as our unique photonic materials and product design expertise. Finally, we have successfully launched a PCIe 6 optical chipset that supports sideband data streams over fiber. We have expanded the portfolio with a new PCIe 7 equalizer. These ICs provide new exposure to the compute side of the data center network.

These products and associated solutions will be on display at the DesignCon show in Santa Clara, California later this month. Similar to the data center, we see many growth opportunities across the industrial and defense markets, primarily in the defense segment. Advanced radars, electronic warfare, and new communication systems are using higher frequencies, higher RF or microwave power levels, and higher levels of integration. These requirements play to our strengths, and we offer our customers turnkey support from custom chip design to subsystem solutions. We are a supplier of choice among many of the large US defense OEMs, and we continue to work to expand MACOM Technology Solutions Holdings, Inc.’s presence and brand in Europe. The pace of innovation in the defense market is accelerating by both the traditional defense primes and the newer, more nimble defense companies.

As an example, new risks from drone attacks are driving the need for an entirely new platform to detect, identify, track, and respond to these threats. MACOM Technology Solutions Holdings, Inc. has a portfolio of products and system engineering capabilities to support our customers’ fast design and manufacturing timelines. Our defense customer base is large and very broad, and we typically support radar systems, missile and missile defense systems, drone and drone defense systems, and wideband electronic warfare systems. I’ll illustrate four examples where our products have a competitive advantage in the defense market. MACOM Technology Solutions Holdings, Inc. has developed a family of industry-leading, high-efficient, wideband gain MIMIC amplifiers that significantly reduce the transmitter’s heat dissipation.

This is critical for small form factor applications. Our GaN technology supports directed RF energy solutions, and our seven-kilowatt devices lead the industry. Our RF over fiber products enable the distribution of RF microwave signals over long distances using linear photonics. Our products are typically used in phased array radars, remote antennas, and towed decoy applications. When it comes to receiver protection diodes, whether in a radio or a radar, MACOM Technology Solutions Holdings, Inc. is the golden standard in the industry for performance and quality. We like to combine our proprietary core technologies with microwave systems engineering capabilities. This enables us to engage much earlier in our customers’ project design cycles and presents the full scope of MACOM Technology Solutions Holdings, Inc.’s capabilities to help solve the customer’s technical challenges.

Within the telecom end market, satellite-based broadband access and direct-to-cell opportunities remain robust with numerous LEO networks in the planning stages. The number of LEO satellites planned to be launched continues to grow as more companies compete to provide commercial broadband data, voice, and video communications by satellite. These networks typically use microwave or millimeter wave frequencies and free space optics or FSO communications for satellite-to-satellite or satellite-to-ground communications. LEO and MEO constellations have many key areas where MACOM Technology Solutions Holdings, Inc. can contribute, including large phase array antennas with active beam steering, direct-to-device links operating at UHF or S band, backhaul links operating at Ka, Q, V, and E band, data center-like electronics with high-speed optical links transferring data within or across the satellite, free space optics for satellite-to-satellite communications, and ground terminal and gateway linearization for high power transmitters.

Ground stations and gateways are a key part of the LEO networks. MACOM Technology Solutions Holdings, Inc. specializes in designing products and solutions that overcome nonlinearity of RF, microwave, and millimeter wave signal transmission for satellite communication systems. In many cases, ground-to-satellite links prefer linearization of SSPAs or TWTAs to boost the linear power efficiency of the link. I would like to update investors on the status of our $55 million satellite contract that we were awarded and announced previously. Production is planned to start in 2026. The schedule delay is primarily driven by satellite system changes flow down from our customer, which impact the design of the hardware we deliver. Overall, we view this as a positive because the system changes can add new functionality, which broadens the application space for the constellation.

Turning towards the 5G segment we serve, our global team continues to secure new business in the macro base station market, driven by the need for high-performance amplifiers in multiband radios. We are making good progress improving the overall performance and competitiveness of our base station portfolio, with major improvements in the 2.7 and 3.5 gigahertz bands. Our RF power team is sampling products using our new GaN4 technology, which will further improve our competitiveness. We recognize the two major European base station OEMs expect the global RAN market to be flat in 2026, with regional variations. Both companies recently commented on a significant potential upside from the EU’s high-risk vendor replacement initiative, and this might provide MACOM Technology Solutions Holdings, Inc.

upside growth over the long term. Future base station demand is supported by additional 5G rollouts, growing AI-driven connectivity needs, and emerging mission-critical defense markets. We believe the cable infrastructure market segment is also improving. Cable networks are in transition from 3.1 DOCSIS 4.0, and we have been releasing new products and working with customers on design wins to support this upgrade. We expect the cable TV market will be a modest contributor to our telecom revenue growth in FY26. Next, I’ll quickly summarize progress on our five goals for FY26, which we outlined on our last earnings call. First, take advantage of the data center opportunity. We continue to enhance our design teams and expand our presence in the data center, and we are raising our data center year-over-year revenue growth base case from 20% to 35 to 40%.

Second, to expand our 5G market share. We are excited to be sampling our next-generation GaN4 products to our customers. In addition, we see that one of our competitors is exiting the 5G RF power GaN market, and we hope to benefit from this competitive landscape shift. Related to this event, we recently hired a team of experienced engineers to complement our existing RF power team. Third, extend leadership in industrial and defense. Our defense business continues to grow, and our team continues to win large IC module and subsystem programs. Fourth, continue to develop advanced 3-5 semiconductor technologies. Our technology teams are making progress developing advanced GaN on Silicon processes while also installing new equipment to modernize and expand manufacturing capabilities.

Last, to manage our capital and investments. As Jack will note, our return on capital metrics and trends continue to improve, and we plan to manage investments to achieve superior returns. In summary, our strategy is to continue to build a best-in-class and diversified semiconductor portfolio that will enable MACOM Technology Solutions Holdings, Inc. to capture a larger share of the three markets we focus on. Our agility and strong teamwork across our organization help us address opportunities and ultimately beat our competitors that are often larger and have more resources. Jack will now provide a more detailed review of our financial results.

Jack Kober: Thanks, Steve, and good morning, everyone. The results from our first quarter were solid, and MACOM Technology Solutions Holdings, Inc. achieved a few new quarterly records associated with our financial performance. Our teams continue to focus on executing our strategic plan and driving increased revenue and profitability. Fiscal Q1 revenue was $271.6 million, up 4% sequentially and up 24.5% year-over-year, driven by growth across all three of our end markets. We have seen continued strong bookings across all of our end markets, resulting in a book-to-bill, which increased to 1.3 to one. This was one of our strongest quarterly bookings in the company’s history and our highest quarterly book-to-bill ratio since Q3 2021.

On a geographic basis, revenue from US domestic customers represented approximately 45.6% of our fiscal Q1 results, a slight increase over both the prior quarter and Q1 of fiscal year 2025. Adjusted gross profit for fiscal Q1 was $156.5 million or 57.6% of revenue. Through the diligent and consistent hard work of our dedicated operations team, we have continued to increase our capacity and improve yields, and we expect to see ongoing incremental progress across all four of our fab operations during fiscal 2026. The increase in product demand across our internal fabs has resulted in improving utilization and associated incremental gross margin improvement. As a result, we continue to expect sequential quarterly gross margin improvements of between 25 to 50 basis points as we move through the remainder of fiscal 2026.

These improvements include any potential offsets to cost increases such as gold and other precious metals, depreciation, and labor costs. Total adjusted operating expense for our first quarter was $82.5 million, consisting of research and development expense of $55.8 million and selling, general, and administrative expense of $26.7 million. The anticipated sequential increase in adjusted operating expense compared to Q4 was primarily driven by ongoing R&D investments and employee-related costs. As our business continues to grow, we expect associated growth, primarily related to higher R&D and higher variable costs. Consistent with our practice, we will remain very focused on managing our OpEx balance, long-term revenue growth, and profitability, with continued investment in the business.

Depreciation expense for fiscal Q1 2026 remained stable at $8.7 million, the same as the prior quarter. Adjusted operating income in fiscal Q1 was another record, coming in at $74 million, up 10.4% sequentially from $67 million in fiscal Q4 2025 and up 33.5% year-over-year. For fiscal Q1, we had adjusted net interest income of $6.7 million, a slight decrease of less than $100,000 sequentially from $6.6 million in Q4. Our adjusted income tax rate in fiscal Q1 was 3% and resulted in an expense of approximately $2.4 million. As of January 2, 2026, our deferred tax asset balances remained at $208 million. We anticipate further utilizing our deferred tax asset balances, including R&D tax credits, through fiscal 2026 and beyond, helping to keep our cash tax payments relatively low over these periods.

We expect our adjusted income tax rate to remain at 3% as we continue through fiscal 2026. Depending on the jurisdictional mix of our income, we expect the US government’s recent tax legislation to support a low to mid-single-digit adjusted tax rate for the next few fiscal years. Fiscal Q1 adjusted net income increased approximately 9.6% to $78.2 million compared to $71.4 million in fiscal Q4 2025. Adjusted earnings per fully diluted share was $1.02 utilizing a share count of 76.7 million shares, compared to $0.94 of adjusted earnings per share in fiscal Q4 2025. I’ll note exceeding $1 per share of quarterly EPS is a milestone for the company. Our team continues to optimize the business’s performance, which has resulted in sequential increases in our adjusted operating income and EPS over the past ten quarters.

Now on to operational balance sheet and cash flow items. Our Q1 accounts receivable balance was $160 million, up from $148.6 million in fiscal Q4 2025. The increase in our accounts receivable balance was driven by sequential quarterly revenue growth as well as the timing of customer shipments and payments. Our day sales outstanding averaged fifty-four days compared to the previous quarter at fifty-two days. Inventories were $238.9 million at quarter-end, up sequentially from $237.8 million, largely driven by additional work in process inventory at the RTP and 1.9 times the same level as the preceding quarter. Fiscal Q1 cash flow from operations was approximately $42.9 million, down $26.7 million sequentially. The sequential decrease was primarily due to the typical timing of employee-related payments as well as other changes in working capital balances during the quarter.

We expect that our Q2 cash flow from operations will be in excess of $60 million. Capital expenditures totaled $12.9 million for fiscal Q1. We continue to estimate fiscal year 2026 CapEx to be in the range of $50 million to $55 million as we upgrade and enhance our production and engineering equipment facilities, expand capacity where needed. Moving on to other balance sheet items, cash, cash equivalents, and short-term investments for the first fiscal quarter were $768 million. We are in a net cash position of more than $268 million as of January 2, 2026, when comparing our cash and short-term investments to the book value of our convertible notes. In mid-March, we anticipate retiring our 2021 convertible notes by paying out $161 million of principal value in cash and settling any conversion premium with shares of our common stock.

Shares associated with this settlement have been included in our fully diluted share count as well as our guidance for Q2. Our remaining debt balance is approximately $340 million of convertible notes, which mature in December 2029. I would like to highlight that over the past several years, we have been focused on growing our profitability and carefully managing our operating asset base, resulting in an improving return on invested capital. We feel this ROIC improvement demonstrates the effectiveness of our business strategy and furthers our goal of building long-term financial strength for the company. Thanks to the entire MACOM Technology Solutions Holdings, Inc. team for their contributions to help make this another quarter, which included the achievement of additional record results.

Now back over to Steve.

Stephen Daly: Thank you, Jack. MACOM Technology Solutions Holdings, Inc. expects revenue in fiscal Q2 ending April 3, 2026, to be in the range of $281 to $289 million. Adjusted gross margin is expected to be in the range of 57 to 59%. And adjusted earnings per share is expected to be between $1.05 and $1.09, based on 77.7 million fully diluted shares. We expect sequential revenue growth in each of our three end markets. We expect that data center will achieve low to mid-teens sequential growth, and we expect telecom and industrial and defense will achieve low single-digit sequential growth. As Jack highlighted, we expect to make incremental progress improving our profitability and financial performance in Q2. Lastly, I would like to welcome Brian Ingram, who joined our board of directors on January 12.

Brian’s industry experience and strategic acumen managing large multibillion-dollar businesses will be an asset to our management team and the board. I would now like to ask the operator to take any questions.

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Operator: Thank you. Ladies and gentlemen, to ask a question at this time, you will need to press 11 on your telephone and wait for your name. To withdraw your question, simply press 11 again. As a reminder, in consideration of time, please limit yourself to one question and one follow-up. Now, the first question coming from the line of Quinn Bolton with Needham and Company. Your line is now open.

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

Stephen Daly: Thank you, Quinn, for the question. To some degree, it’s a little bit of all of the above for your question. But the key underlying driver is 1.6T. That’s where we see the most activity, the most design wins transitioning into production runs. So I would just highlight 1.6 is really the long-term or near, I would say, the long-term trend that will be very favorable to MACOM Technology Solutions Holdings, Inc. And you’re correct that as we look at our data center business today, we have a very healthy backlog. We think our second half will be stronger than our first half in terms of the overall absolute dollars of revenue shipped. So we are in a very good position. We have programs that are ramping. That gives us confidence to, as a base case, hit 35 to 40%. There’s also upside to that number, which is a bit unquantifiable right now. And we’ll update everybody, certainly on our next call, as to more specific guidance for Q3 and Q4.

Quinn Bolton: Excellent. And, Steve, you’d mentioned, I mean, there’s not a lot of talk about CPO in the past couple of weeks and months, I guess. You mentioned NPO, maybe even CPO in your script, but maybe just spend a minute talking about how MACOM Technology Solutions Holdings, Inc. could benefit to the extent we start to see a shift more towards either near-packaged or co-packaged optics?

Stephen Daly: Yes. And the product set that we would sell into a CPO or NPO platform is very similar to what we sell into pluggable modules. So it’s the same drivers, TIAs, photodetectors, and possibly lasers. I will highlight that a lot of these platforms are moving quickly to silicon photonic-based solutions, which is putting a heavy demand on the optic, certainly the CW laser and the photodetector optical chips. We have a very competitive photodetector today. It’s ramping in production, primarily for pluggables. We are making very quick progress on our CW lasers. We now have two customers that have confirmed that our CW lasers are meeting their requirements electrically. So now we are going through a qualification phase, which will last some number of months, and also looking at the production readiness of our fab.

These are 75-milliwatt lasers. These are not what I would consider the higher power 400-milliwatt class lasers. Those are not the type of lasers that we make today. But we do think that the CT and the NPO sort of transition is a benefit to MACOM Technology Solutions Holdings, Inc. I’ll also add that from an overall architecture, you see many, many channels in a smaller form factor. So a lot of the traditional chips that we sold into pluggables are becoming more complex for NPO and CPO. There’s far more channels per chip, and this is a change that we have a lot of strength in terms of design capability. The last thing I’ll add is some of these systems are actually moving towards coherent modulation and coherent light specifically. In this case, we have a very strong design capability, given the history with our metro long-haul chips that we’ve been shipping for years.

Operator: Thank you. And our next question coming from the line of Vivek Arya with Bank of America Securities. Your line is now open.

Vivek Arya: Thanks for taking my question. Steve, you were nice enough to give us the prospects for data center growth this year. I was hoping you could give us kind of some similar growth potential in your other two segments also. I’m particularly interested in the telecom side because of this RF power exit that NXP announced. I think they had close to a $300 million or so business last year, which is larger than your entire telecom segment. So I’m curious, when do you think you can start to gain some share? When does it start to really become accretive to your base telecom business? Thank you.

Stephen Daly: Yes. So it was certainly a fortunate stroke of serendipity that one of our competitors is exiting the business. I can’t really comment on how much market share this will translate to. I think it will take one or two years for that to play out. Our goal is to strengthen our design team, accelerate product development, and go to the market with more intensity to try to maximize the opportunity. But I think it’s premature today to put a dollar value on that. The 5G market space is a relatively slow-moving market where it might take one year to get a design win, and then after that, you have a ramp. We want to engage the same customer base that we have today with more intensity. We also want to let them know that we’re going to be there not only for the current 5G generation but also the next generation platforms.

As they move to different architectures, some of which will include more fiber right up to the remote radio unit, we want to be there and offer the full suite of products. We do find this to be an exciting time to be addressing the market. Now with that said, the market is flat, as I mentioned in my prepared remarks. So the overall number of radios being manufactured per year is relatively flat. But we believe we can grow through share gains. That is certainly front of mind for us. The other important area that we focus on in the telecom space is SATCOM. As I mentioned, we have a very large backlog. We have a LEO program moving into production in 2026. We have many significant opportunities that we’re working on, which will provide growth in our 2027 and beyond time frame.

We see an incredible amount of investment going into LEO constellations for direct-to-device applications. We think there are certain structural reasons why the market wants space-based, direct-to-cell connectivity. We want to make sure that we offer the full suite of products to these different satellite systems. Every customer is doing something a little different. Our content varies dramatically from customer to customer. But we have a rich treasure trove of technology we can offer our customers here.

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

Stephen Daly: Sure. Why don’t I start with the first part of that question, and then Jack can address the second part. We don’t give full-year guidance, and I think you’re asking what the rest of our fiscal 2026 looks like. Last year, we grew by 32%. That was driven in part by our telecom business, which grew over 40% last year. This year, we don’t expect the same level of growth. It’s more likely going to be high single-digit, maybe low double-digit. We’ll have to wait and see on the timing of some of the programs that I’ve talked about. But it is growing. As I talked about, the market opportunities for us not only in 5G but also SATCOM and, of course, cable improving is providing us with those growth opportunities. The last segment, just for completeness, I’ll talk about is our industrial and defense.

Industrial and defense last year also did very well, close to 20% year-over-year growth. As we look out into the second half of the year and look at the tea leaves, again, we probably are unlikely to hit 20% growth. It’s probably somewhere between 15-20%. If we look at our backlog and all the different moving parts. Collectively, MACOM Technology Solutions Holdings, Inc. should grow, and we have internal targets that put us somewhere in the 20% range, plus or minus. But, of course, all of this is dependent on booking orders, ramping successfully, and executing on various programs. There are fundamental growth opportunities that are intact. The movement to higher data rates inside the data center, the movement to more optics in the data center, this is a tailwind for us.

In our industrial and defense, more and more GaN on silicon carbide, and we’re providing more modules and subsystems to our customers. In the telecom space, as I talked about, we see opportunities with LEO in 5G. These are really the primary pieces that we get excited about. On the profitability side, as Jack mentioned, we do expect incremental improvements during the course of the year. I’ll let him comment further.

Jack Kober: Back to the root of your question, Vivek, with regard to our profitability profile versus some of our other peers. We’re going to be different in terms of how those peers may look, whether it’s within the data center end market or within industrial and defense and telecom. The mix of fabs that we have versus things that are maybe fabbed externally may create a different answer. As Steve mentioned, that 25 to 50 basis points of sequential quarterly increases on the gross margin side is comprised of a number of different items that we’ve got, which we think are working in our favor, including some volume increases as well as some new product introductions across the business that is supporting that expected gross margin improvement as we work our way through the remainder of the year.

Operator: Thank you. Our next question coming from the line of Thomas O’Malley with Barclays. Your line is now open.

Thomas O’Malley: I just wanted to dive a little bit more on the gross margin line. You pulled in the RTP fab in-house. You talked previously about bringing more products into that that MACOM Technology Solutions Holdings, Inc. used to run externally. Can you maybe give us an update on how that’s going so far? Then you’ve guided that 25 to 50 basis points of incremental improvement over time. Do you think that RTP could contribute a little bit more to the upside on that gross margin profile? Any update there would be helpful.

Stephen Daly: Thanks for the question, Tom. Just to highlight, since we closed that acquisition of the RTP fab, our team in North Carolina has been incrementally improving the profitability ever since we purchased the fab. Almost every quarter, we’ve seen a positive movement in terms of cost of manufacturing, improving yields, lowering the scrap, improving overall efficiencies throughout the building, and removing costs. The team has done a phenomenal job there. The improvements that we’re seeing this year and going into next year for gross margins will primarily revolve around improving the utilization of our Massachusetts-based fab and, to some degree, our French-based fab. We do see increased demand, and that is improving the overall gross margin and operating margin models.

That’s being driven by the market. I will say that there’s significant more work to do at our North Carolina fab. One of the primary goals there is to increase output. We have a very aggressive plan to increase output by 30%. We have bought some amount of equipment to support that. But a big part of that added capacity will be reducing the cycle times. That site’s number one corporate priority is to speed up not only development wafers but also production wafers. That just has so many benefits to the business. That is a key focus for that particular fab. As it relates to insourcing some of the components that we currently outsource, those benefits have not hit the P&L. Those items will really come on most likely into 2027 and beyond. You’re talking about taking IPDs or capacitors from a third-party vendor and replacing them in new products with MACOM Technology Solutions Holdings, Inc.

content. That has to go through a design cycle, and those benefits will come on incrementally over time. You’re not seeing that shine through today. The last thing I’ll highlight is our French fab is doing a phenomenal job with the transition of their technology from a three-inch wafer to a six-inch wafer. We are just about ready to wrap up that work and release to production all of the different processes. We sort of have a goal of by June 2026, everything will be fully qualified and released to production. As we go into 2027, that will also provide a benefit not only from a quality point of view and efficiency point of view, but we’re also seeing improved performance of some of our chips in the processes as we migrate to newer equipment. In our low fab, I’ll just add one other item.

It’s a high mix fab, so we’re running GaAs, GaN, silicon, indium phosphide, and we continue to, the team here does a phenomenal job balancing all of the different technologies. You’re starting to see that come through now, Tom, is the conclusion. Jack, I know that was a long-winded answer. Do you want to add to that?

Jack Kober: I think the short answer, Tom, is it’s not any one specific item that we have that’s helping to drive the improvement that we see in front of us. It’s a combination of a lot of things happening across the entire organization where we’re looking to take out costs where it makes sense, try and be more efficient, work with our supplier. So there’s a lot of contributing factors to this as we go forward from a gross margin standpoint.

Thomas O’Malley: Super helpful. Just as a follow-up, I’m going to cheat here and kind of ask on two at once, but two growth drivers where people are really focused this year are SATCOM and then also ACCs. It’s difficult to get the relative sizing of these given they live within larger buckets. Historically, you haven’t really broken that out. But any help on the relative sizing of those two drivers? As you look into the out year, I think you talked about strong telco growth and pointed to SATCOM specifically. You spent most of your time on the data center talking about 1.16 modules in the optical side. Maybe a little bit on the ACC market and how that can contribute to data center growth as well.

Stephen Daly: Sure. Certainly, I tried to address the ACC question in my prepared remarks. I’ll just add to that that as we look at our revenue for Q1, there was no ACC revenue in there. In terms of the SATCOM market, it is a growth market. Not only on the commercial side, I’ll add, but also on the military side and the DOD side. We do expect our SATCOM business to grow very nicely as we move into 2027. We have multiple SATCOM LEO programs in the design phase today. By the way, I’ll also highlight that the telecom revenue last year growing by 40%. One of the drivers, not the only, but one of the drivers was some of our LEO business. We don’t typically size product lines or market segments. We have our own, I mean, we do it internally, but we don’t typically share that externally.

I know there’s certainly a lot of very good information in the industry about sort of peeling the onion back on those market sizes, and we would deflect the answer to maybe having you look at that other information. But we don’t typically give out SAMs by product line or market segment.

Operator: Thank you. Our next question coming from the line of Karl Ackerman with BNP Paribas. Your line is now open.

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

Stephen Daly: We think that, if you’re referring to the large contract that I mentioned, we believe our customer is adding functionality that will bring new customers to that constellation, which is a positive for the long-term prospects of that platform. I hope I answered that particular question. What was the second part of the question?

Karl Ackerman: Just the breadth of satellite programs that you have engaged on.

Stephen Daly: We have multiple, as I mentioned. We are addressing not only on the microwave side, which would be either a backhaul link ground to satellite. Also, we’re engaged with satellite-to-satellite communications. We’re engaged with optics. It’s probably fair to say that we are engaged at some level with all of the major LEO constellations today. Some of that is narrow support. Maybe it’s direct-to-device or direct-to-cell circuitry or electronics. Some of it’s on the optic side. Some of it’s on the microwave side. Some of it’s on the ground station side. But it’s fair to say that we have blanketed the major players, as well as the up-and-coming companies that are trying to produce their first satellites. It’s a strategic focus for the company.

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

Karl Ackerman: Very helpful. Thank you.

Operator: Thank you. Our next question coming from the line of David Williams with The Benchmark Company.

David Williams: Hey. Good morning. Let me add my congratulations to the really solid progress and the demand here. I guess maybe first, gentlemen, thinking about your demand across the data center, is there a way to kind of think about that from a regional perspective? Are there transitions or maybe the pace of transition that’s happening in terms of the speeds between the different regions you service?

Stephen Daly: There is certainly a geographic spread, but I would highlight maybe more one area that we focus on in the way we look at the data is also by data rate. A significant portion of our data center revenue is 400 gig and above, with the fastest-growing portion of the market being the 1.6T applications. We do, as you know, still service a lot of the other traditional older-style data centers. For example, we still sell today 25 gig per lane NRZ chips with CDRs. That business is hanging in there and doing reasonably well. Our 50 gig per lane PAM4 business is also, I would say, sort of flat, not really growing. Our traditional 100 gig per lane PAM4 business is solid, both in multimode and single-mode fiber. The real action is at 200 gig per lane PAM4 and also some of the next-generation coherent systems is an area of intense focus for us.

I would also just add that it’s fair to say that we are supporting all of the hyperscalers here in the US, as well as international hyperscalers. We typically find our products being sold into people building modules, AOCs, or cables, and they are disseminated across the various hyperscalers.

David Williams: Great. Thanks for the color there. Then maybe just secondly, in terms of shortages and pricing environment, can you talk maybe about just what you’re seeing in terms of your supply on the IMP side and anything that’s impacting you there? How is the pricing environment as we think about going through the rest of the year? Thank you.

Stephen Daly: Yeah. I think on the pricing side, I think our competitors and MACOM Technology Solutions Holdings, Inc. are being rational. I don’t think there’s any news there. Certainly, all of our markets are very competitive. The customers are price-sensitive. We try to balance our pricing with the value we’re offering. But I would say we’re in an environment where there is scarcity in some areas, and in that case, one would generally not be lowering their prices. But that’s not always the case. On the supply side, we are absolutely in ramp mode in various programs, and there’s always stress on the supply chain as well as on the execution side. Our global supply chain management team does an outstanding job making sure we have what we need when we need it.

It’s certainly a key area of focus, especially as it relates to, as you mentioned, indium phosphide, but also other exotic materials. We’re always keeping an eye on availability and potential constraints around those areas.

Operator: Thank you. Our next question coming from the line of Harsh Kumar with Piper Sandler.

Harsh Kumar: Yeah. Hey, guys. Congratulations on very good results and possibly even better guidance. Maybe, Jack, one for you, housekeeping, and then I’ll ask my real question. The 1.3 book-to-bill is very strong. I think you mentioned, Steve, that it’s the strongest probably in the last four, five years. Is that primarily driven by data center, or are there other components you’re seeing within that? Then I wanted to kind of, for my main question, wanted to go back to the one that Vivek asked about. Gross margins on the data center business. Is it fair for me to assume that your margins on the data center business are below your corporate goal of 60%?

Jack Kober: Yeah. Thanks for the question, Harsh. With regard to the book-to-bill, we generally don’t break it out by end market. But obviously, on the guide that we put out there and some of the other items, we did see a fair amount of strength within the December as it relates to the data center book-to-bill. So things are definitely going in the right direction there. In terms of the data center profile margin profile, as I said, we manage a portfolio of products, and gross margins will vary across the business. I don’t know if there’s any other commentary that you’d like to add on that.

Stephen Daly: That’s a perfect answer, Jack.

Harsh Kumar: Okay. Great. Maybe one thing that didn’t get touched upon on the call is the LPO business. I think you mentioned in one of the earlier quarters that you were expecting revenues, I think maybe last quarter already. If you can just update if you already have commercial revenues. Then also, I wanted to ask about kind of how you’re thinking about the OPO business. You talked about it in commentary. Seems like a lot of exciting things going on. What kind of market size do you think LPO can deserve for your company or TAM or however you want to scope it in the next two to three years?

Stephen Daly: Thanks for the question. We are very bullish on LPO. In fact, we now have three hyperscalers embracing LPO. We are in various phases of production with those three hyperscalers. Just to remind everybody, these are typically or in all cases, 100 gig per lane for generally 800 gig modules. We also see that LPO will evolve to NPO in CPO or XPO if you want to include everything. We’re following that trail into different form factors. We’re finally getting success here. I think it’s still a small part of the market. We get various data points from various resources about how big the market could be. But I think today, it’s small. I would expect it will remain small in the next one to two years, and maybe over time, it grows.

But you have to be careful with the use case. It is certainly compelling, the power savings that you’re getting with LPO is compelling for the end users. But again, as I mentioned earlier, we’re a little hesitant to size the market because we really have to wait and see. But we do have a full suite of products here. The fact that we have three hyperscalers in production or at various stages is great. I think the one thing maybe that I should highlight in my answer is we’re also seeing our customers investigate LRO at 1.6T using 200 gig per lane chips. That is exciting for us. That is an area of focus currently.

Operator: Our next question coming from the line of Blayne Curtis with Jefferies. Your line is open.

Blayne Curtis: Hey, guys. Thanks for taking my question, and nice results. I just want to go back to the strength in the data center. Obviously, 1.6 is ramping. The market is very strong. I’m just kind of curious for you in particular, whether there’s a share aspect as well to the growth you’re seeing in 1.6T for the analog components, which I’m assuming is the bulk of that growth?

Stephen Daly: I’m not sure it’s so much share growth per se. As we look at our dashboards and where we have content and where we don’t have content, we see competitors on all sides. I wouldn’t necessarily say that this is a share gain. I think the market’s growing. We’re winning designs. We always go up against the same competitors. It’s a combination of timing and support and having new products. One of the key growth drivers for MACOM Technology Solutions Holdings, Inc., of course, is the 200 gig per lane portfolio, but also on the optic side. We do see significant opportunities with our photodiodes. As I mentioned, we have arguably one of the best 200 gig PDs in the market today. We are working on higher speed PDs to support higher data rates.

Lastly, as I mentioned, we have two customers that are very excited about our CW lasers for their silicon photonics solutions. This would certainly be picking up market share because today, we don’t sell lasers into 1.6 applications.

Blayne Curtis: Perfect. Then maybe just some housekeeping with Jack. I just want to understand the impact. I always hate modeling converts. When you look at March, maybe just comment on, I think you said the shares to settle are already in the share count. What’s the impact, positive or negative, on OI and E? Just trying to triangulate how the rest of the P&L and OpEx is guided. Then maybe you could just also talk about capital returns. I think you had signaled maybe you’d do some share buybacks, but I’m assuming that debt retirement takes precedent in March. How are you thinking about it for the rest of the year?

Jack Kober: Yeah. Thanks for the question, Blaine. With regard to the share count, yeah, there’s a number of factors that can contribute to share count as we go forward. Part of it is just our normal employee equity that’s awarded, and we’ve kept pretty well control over that in terms of adding to our outstanding over the past number of years. The convert is another piece. We’ve been adding some of the additional shares to the share count as we work our way through the year and leading up to the final settlement, which we expect to be in mid-March. With regard to your capital allocation question, yeah, I think our primary focus is getting through this debt repayment, which is $161 million in the mid-March time period. I’ll just add to that that as it relates to share buybacks, that is not something that we’re contemplating, and you should not expect that in the future.

Operator: Thank you. Our next question coming from the line of Tore Svanberg with Stifel. Your line is now open.

Tore Svanberg: Yes. Thank you, and congrats on the record results. Steve, I wanted to go back to a comment you made on growth in telecom for this year. I know it wasn’t guidance per se, but it just feels like high single-digit or low double-digit for telecom growth this year. It seems quite conservative, especially given your position in SATCOM, 5G coming back, and so on and so forth. Is that kind of just like a really base case number?

Stephen Daly: Yeah. I think also, keeping in perspective that last year, we had about 40% growth. So we’re coming off a pretty high base there. I highlighted that the RAN market is sort of relatively flat with us having potential to pick up market share. We have a great position in the SATCOM market, and these are generally long design cycle complex builds that take time. A lot of the growth in SATCOM, I would say, is more of a late 2026, early 2027, which makes it difficult for us today to sort of settle in on a, let’s say, a best-case number. So I think thinking below 10% is a good way to think about it today.

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

Stephen Daly: I would have to go back and check on that one. I know we certainly were demonstrating 1.6T ACCs and AOCs, but I have to go back, Tore, and check on the LPO version of that. Certainly, we were demonstrating 400 and 800 gig modules in the booth from our customers. I think the answer to your question is the customers are evaluating both right now, but there’s significant benefits even with LRO. It gets down to the specifics around really the DSP, the power budget, the link length. It’s really TBD. There’s a higher probability of LRO working than LPO working because there’s just more capability from the ASIC itself, let’s say, to support the interface. From a probability point of view, I would say LRO is more likely to happen first. Then LPO, there’s still more work that needs to be done there. But we see that work happening at our customers.

Operator: Thank you. Our next question coming from the line of Sean O’Loughlin with TD Cowen.

Sean O’Loughlin: Hey, guys. Thanks for taking my question. Congrats on the nice set of results. Had a quick question about the CW laser customer commentary. Just wanted to clear up. Are those customers, if you’re able to disclose, are we talking about module maker customers, or was that a reference to more hyperscale type customers?

Stephen Daly: Yeah. I would say that we’re engaging with more the former. So it’s really the module customers that are our first line of entry. We want to make sure that they are able to use our laser. They’re getting good module-level results. The next step is to collect a large body of reliability data. When our customer is happy with that dataset, then they go to the hyperscalers and run through a PCN process to get us on the approved vendor list, let’s say. We’re early in that phase. But it is a watershed moment because six months ago, we were not in a position where we had a compliant laser. Today, we do. We’re excited about that. We also recognize there’s a process to get into production, and we’re in the early stages of that.

Sean O’Loughlin: Great. Thanks. Yeah. It’s great to hear on the progress there. Then just sort of a blue sky question. I was interested to hear you mention front haul as an application for LPO. As some you’ve often reminded us, LPO is typically suited for short-reach applications within the data center. Typically, I don’t think of front haul as a short-reach application. So I’d love to hear just any more details on that application potential for a linear pluggable option? Thanks, guys.

Stephen Daly: Yes. I think your question speaks to the fact that our customers are critically looking at the network connections and where they use optics for their next-generation systems and how do they reduce cost and complexity. LPO brings that benefit. Yes, we are going through design and trials with various customers to see if it works in the system. The benefit they see, quite frankly, is that it is a low latency solution. It’s more of a real-time transmission, let’s say, than a retimed solution. We’ll have to wait and see. As AI starts to creep into the networks and as things move towards the edge, a lot of the optical interconnect becomes more relevant. The other sort of tangent I’ll add is we are engaged also to help customers rearchitect remote radios where you bring fiber right to the radio. We want to be involved in that part of the network as well.

Operator: Thank you. Our next question coming from the line of Christopher Rolland with Susquehanna. Your line is now open.

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

Stephen Daly: Yeah. Adding the linear equalizers to various backplanes is of interest to lots of customers. Not only in the traditional AI construct but also closer to the compute, we see opportunities to eliminate retimers in various compute connections. That’s number one. Number two, as things move to 400 gig per lane, having equalization on these boards is going to be very important. Customers recognize there’s trace losses and interface issues. They’re going to need something to compensate. The use case at a 400 gig lane speed is compelling. Today, though, with our 200 gig per lane, you’re looking to augment passive DACs is something we’re looking at. But I don’t think all of those things combined will be as big as the ACC opportunity.

It becomes architectural, and there’s lots of cables, and we just see that as a bigger growth opportunity. The volumes that some talk about on the ACC side are quite large compared to the backplane applications. The last thing I’ll add is we also have customers looking at AECs and asking themselves, can I convert this to an ACC? We’re trying to help them answer that question as well.

Christopher Rolland: Very helpful. Thank you. Then I was wondering if maybe you could just provide kind of a big picture answer here. You have such a diverse product set. You also have new products coming onto your roadmap. What are, in your opinion, the biggest needle-moving new offerings that you think are really going to make a difference on the top line for MACOM Technology Solutions Holdings, Inc. over the next couple of years? Thank you.

Stephen Daly: Well, I think that’s a great question. I’ll just highlight that this management team, in about four years, has doubled the size of the company. Our fundamental focus has been on high power, high frequency, and high data rate. When we look ahead, we want to double the size of this company and not take four years. We want to do it faster. So we’re trying to execute our strategic plan that gets us to $2 billion with a reasonable CAGR, and we want to double the share price, the earnings per share. That is our focus, and that means non-commodity differentiated products stay with the large growing markets but also diversify. That is a big part of our story here, and that from us, I think, from a lot of the companies that are very focused on, let’s say, indium phosphide components for the data center.

These are structural organizations that do not have diversity. Our approach to these large opportunities is to bring the diversity. When you look at our fabs as an example, they’re running lots of different technologies. There’ll be periods where some technologies grow very quickly and periods where they don’t. Fundamental to our business model is diversification in product lines, geography, and end markets.

Operator: Thank you. Our next question will come from the line of Timothy Savageaux with Northland Capital Markets. Your line is now open.

Timothy Savageaux: Good morning, and congrats on the results. Good timing here given you just mentioned indium phosphide. That’s my question. Actually, you mentioned capacity addition. I’m really looking for kind of magnitude and timing for that capacity addition, say, from the beginning to the end of the fiscal year. What are you targeting there? As a quick follow-up, how material are those optical devices within the overall data center unit right now? Where do you expect that to go? Thanks.

Stephen Daly: Thank you. We’re not going to really disclose the amount of capacity we’re adding for competitive reasons. I can tell you that our indium phosphide PDE business is growing rapidly. It’s primarily focused on 200 gig per lane. But I don’t really want to talk about the number of wafer starts or where we started the fiscal year and what will end the year. I will say that it’s a major focus to bring on capacity, and we’ve been doing that. The results of that will be reflected in the guide and in our general comments. Again, akin to that, the materiality of that business, we really don’t disclose the revenue by product line or by technology. I would just highlight that we, as I just mentioned, we do have a diversified business.

When we look at our data center revenue today, it consists of TIAs, drivers, combo chips that are basically TIAs and CDRs. We’ve now added photodiodes or photodetectors. The next step is to add lasers. We also have in the back room, we’re working on EML lasers. We have various versions of that in test right now. I think you should think of our data center business as diversified by end customer, by data rate, and by product family, both on the optical side and on the electrical side. We do recognize, as an example, there’s opportunities for us on the compute side of the network, and we’re investigating and designing products for things like PCIe 6 that will also add new growth vectors.

Operator: Thank you. Our last question will come from the line of William Stein with Truist Securities. Your line is now open.

William Stein: Great. Two quick questions. First, on the LEO satellite business. Can you talk about average dollar content per satellite and the duration between your revenue recognition and a satellite launch? Is that like a quarter or like a year? I mean, color there would help.

Stephen Daly: Well, we recognize the revenue when we ship our products to the customer. It’s a hardware deliverable. It’s a hardware shipment. We don’t wait for the customer to launch the satellite to take our revenue. In terms of the dollar content per satellite, it varies quite a bit. As I mentioned, there’s a lot of variation in the construct of these satellites. Some of them have very large beam-steered arrays. Some of them have very complex optics. Some of them have data center-centric electronics, so moving high-speed data across the bus of the satellite. Some are using linearizers to communicate back to the ground. It would be very difficult to put a dollar value on that. It varies quite a bit. I’ll also argue that, as I mentioned earlier, we’re dealing with all the major constellations in different ways.

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

William Stein: Thank you. But to clarify with the first part of my question, I fully understand that you recognize revenue when you ship. But we don’t necessarily get alerts to that, whereas we do get alerts as to launches. So I’m just trying to line up when we see a launch happen, what that relates to in terms of your revenue. Is that revenue that you would have recognized a quarter ago, a month ago, a year ago, so we can try to sort of align the parts of the market that are visible to us with your revenue generation?

Stephen Daly: Yeah. I think those are dots that it would be difficult for us to connect here on the call. But I understand certainly it’s measured in many months. Beyond that, we would have to do work, and it’d be very situational. Jack, did you want to add to that?

Jack Kober: Even though it’d be situational, it probably wouldn’t be accurate either, just based on the ebbs and flows of this end market.

William Stein: Got it. Thank you.

Operator: Thank you. I am showing no further questions at this time. I will now turn the call back over to Mr. Stephen Daly for any closing remarks.

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

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

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