Leanne Sievers - IR, EVP, Shelton Group John Croteau - President, Chief Operating Officer Bob McMullan - Senior Vice President, Chief Financial Officer.

Blayne Curtis - Barclays Harlan Sur – JPMorgan Quinn Bolton - Needham & Company Steven Smigie - Raymond James Mark Lipacis - Jefferies Harsh Kumar - Stephens.

Good afternoon, and welcome to M/A-COM Technology Solutions’ Fiscal Third Quarter 2014 Financial Results Conference Call. At this time all participants are in a listen-only mode. At the conclusion of today’s conference call, instructions will be given for the question-and-answer session.

As a reminder, this conference call is being recorded today, Tuesday, July 29, 2014. I would now like to turn the call over to Leanne Sievers of Shelton Group, the Investor Relations agency for M/A-COM. Leanne, please go ahead..

Good afternoon, and welcome to M/A-COM Technology Solutions’ fiscal third quarter 2014 earnings conference call. I'm Leanne Sievers, Executive Vice President of Shelton Group, M/A-COM's Investor Relations firm.

With us today are M/A-COM's President and Chief Executive Officer, John Croteau; and Senior Vice President and Chief Financial Officer, Bob McMullan. Before I turn the call over to Mr.

Croteau, I’d like to remind our listeners that management’s prepared remarks contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions.

Therefore, the company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those discussed today and therefore, we refer you to a more detailed discussion of the risks and uncertainties that could result in those differences in the company's filings with the Securities and Exchange Commission, including its Form 8-K filed today, its annual report on Form 10-K filed on December 5, 2013 and it’s restated financial statements filed on Form 8-K on July 3, 2014.

In addition, any projections as to the Company’s future performance represent management’s estimates as of today, July 29, 2014. M/A-COM assumes no obligation to update these projections in the future, as market conditions may or may not change.

Additionally, the company's press release and management's statements during this conference call will include discussions of certain non-GAAP measures and financial information.

These financial measures and a reconciliation of GAAP to non-GAAP results are provided in the Company's press release and related current report on Form 8-K, which was filed with the SEC today and can be found at the Investor Relations section of M/A-COM’s website.

For those of you unable to listen to the entire call at this time, a recording will be available via webcast for at least 30 days in the Investors Relations section of M/A-COM's website at www.macom.com. And now, I'll turn the call over to M/A-COM’s President and CEO, John Croteau. Mr. Croteau, please go ahead..

Thank you, Leanne. Welcome everyone and thank you for joining us today. I’ll begin today’s call with an overview of our third quarter results, and then turn the call over to Bob McMullan our CFO, who will review our financial performance in further detail.

I’ll then conclude today’s prepared comments by providing an overview on our strong execution in the quarter, followed by guidance for the fiscal fourth quarter. Diving straight into the results, revenue for the third quarter was $112.4 million.

Non-GAAP gross margin was 51.7%, with non-GAAP net income of $15.8 million or $0.33 earnings per diluted share.

During the quarter, revenue and earnings per share came in at the high end of guidance, with non-GAAP gross margin improving 240 basis points from the prior quarter and 670 basis points year-over-year due to growth of our high margin products and sales of CPE business.

This represents our seventh sequential quarter of non-GAAP gross margin improvement and a major milestone as we cross the 50% gross margin threshold rounding out yet another quarter of solid execution by the MACOM team.

We expect to continue to reap the benefits of our sustained investments in R&D targeting high growth, high margin opportunities with disruptive technologies. Looking at our results for the quarter, growth was strong sequentially and broadly distributed across end markets.

Excluding the CPE business, networks grew 14% quarter-on-quarter driven largely by optical. Aerospace and Defense was up 12% due to a recovery across Defense and commercial sectors. Multi-market was up 13%, and automotive performed as expected, down slightly based upon what we believe are normal fluctuations in production at Ford.

Let me now turn it over to Bob to review our fiscal third quarter financials in more detail..

Thank you, John and good afternoon everyone. During the course of my comments as well as those made by John, all income statement amounts and percentages will be discussed on a non-GAAP basis and are provided to enhance the understanding of our core operating performance.

A reconciliation of each figure in the most comparable GAAP measure is included in today’s earnings press release. Revenue was $112.4 million, representing sequential increase of 4.6% compared to $107.5 million in the prior quarter, and an increase of 36.7% compared to $82.2 million in the fiscal third quarter of 2013.

As previously mentioned third quarter revenues were above the high-end of the expectations. Revenue by end markets were Carrier and Enterprise networks, $53.7 million and 48%, A&D $22.2 million and 20%; Automotive $18.9 million and 17%; and Multi-markets $17.5 million and 15% of total revenues.

As you can see we have combined Carrier and Enterprise networks because we found it difficult, if not impossible to trace Carrier versus Enterprise demand within our network customers which are similar.

Gross profit in the third quarter was $58.1 million or 51.7% of revenues, compared to $53 million or 49.3% of revenues in the prior quarter and $37 million or 45% in the fiscal third quarter of 2013. As John mentioned gross margins hit a milestone in the quarter breaking the 50% level even when including one month of lower margin CPE business.

Gross margin expansions benefited from favorable mix of higher gross margin products, MACOM believes strongly that it’s focused on improving gross margins will continue to deliver margin expansion going forward.

In terms of operating expenses for the fiscal third quarter, total operating expenses were $34.2 million compared to $31.6 million in the prior quarter and $20.8 million in the prior year’s quarter. Research and Development expense for the fiscal third quarter was $18.8 million.

This compares to R&D expense of $17 million in the prior quarter and $9.7 million in the fiscal third quarter of 2013. R&D as a percentage of revenue represented 16.7% in the fiscal third quarter, compared to 15.8% in the previous quarter and 11.8% in the prior year’s quarter.

The sequential and year-over-year increase in R&D was largely a result of continued investments in new product development. Selling, General and Administrative expenses were $15.4 million compared to $14.6 million in the previous quarter and $11.1 million in the prior year's quarter.

SG&A as a percentage of revenue represented 13.7% in the fiscal third quarter, compared to 13.6% in the previous quarter and 13.5% in the prior year's quarter. MACOM continues to leverage our global infrastructure as revenues grow. Income from operations was $23.9 million or 21.3% of revenue.

This compares to $21.4 million or 19.9% of revenue in the prior quarter and $16.2 million or 19.8% of revenue in the prior year's quarter. EBITDA or earnings before interest taxes depreciation and amortization was $27.2 million, up from $24.8 million in the prior fiscal quarter and $18.9 million in the prior year’s quarter.

Interest expense was $ 3.2 million for the fiscal third quarter, increase from $1.5 million in the fiscal second-quarter. The increase in interest expense was due to the higher debt level and interest rates following the completion of our refinancing of our bank facility with an institutional term B loan in May.

We expect interest expense to be higher in our fiscal fourth-quarter as the term B facility will be outstanding for the fourth quarter. Turning to income taxes, our effective rate remains unchanged at 23.5%.

Our fiscal third quarter net income was $15.8 million or $0.33 per diluted share, at the high-end of the range compared to fiscal second quarter net income of $15.2 million or $0.32 per diluted share and net income of $11.5 million or $0.24 per diluted share in the prior year’s quarter.

Share count used to compute EPS was 48.5 million shares for the fiscal third quarter, and 48.2 million shares for the previous quarter as well as in the fiscal third quarter of 2013. Cash flow from operations for the fiscal third quarter was $14 million compared to $13.4 million in the fiscal quarter of 2013.

Turning to the balance sheet, at July 4, 2014, our cash and cash equivalents were approximately $173.5 million. Our debt was $350 million and we had a $100 million in credit availability. We added almost $100 million with our term B refinancing. Accounts receivable of $75.8 million compares to $67.9 million at the end of the prior quarter.

Day sales outstanding were 61 as compared to 57 in the prior fiscal quarter. Inventory was $69.9 million compared to $71.9 million in the prior quarter, inventory turns were 3.1 times versus 3 in the prior quarter.

Capital expenditures in the fiscal third quarter were $4.3 or 3.8% of revenue compared to $3.8 and 3.6% of revenues in the fiscal second quarter. Depreciation expense on property and equipment for the fiscal third quarter was approximately $3.3 million.

Now I’ll turn the call back over to John who will provide more color on the quarter and our business outlook for the fourth quarter of fiscal 2014..

Thank you, Bob. Complementing our solid financial execution, there were a number of positive developments for MACOM during the quarter. In May, we held our inaugural Analyst Day in New York, the event was a major success hoping to educate a broader set of investors on MACOM's story.

I’d like to thank all those who are attended and those who listened in to the webcast. For those of you were unable to attend the entire event and presentation can be viewed on our website. We currently expect to hold this event every other year, but we’ll reassess the frequency as we continue to execute on our organic and M&A growth strategies.

As outlined during the Analyst Day event, we believe MACOM is ideally positioned to take advantage of several secular trends there will be key drivers of our future growth. First, 100G Optical represents a hyper growth opportunity for MACOM as operators worldwide have been rapidly deploying 100G platforms in long-haul and now metro networks.

With the broadest portfolio of analog semiconductor solutions for long-haul metro and for client site networks MACOM is well positioned to drive 100G from the core to the datacenter and benefit from this expected decade long build out.

Second, actively antenna arrays are playing a key part in next generation radar systems for civil and defense applications. MACOM has hit the forefront of this revolution providing the RF content and playing a key role in defining the next generation of radar technology.

Third, high data density networks, as all of you know content rich applications as well as the need for improved situational awareness on the modern battlefield are fueling an explosion in data traffic in field networks.

MACOM's millimeter wave portfolio provides state-of-the-art single and multiple channel offerings that are capitalizing on this explosive growth in next generation systems. And last but not least, GaN technology. GaN is at the very beginning of its adoption cycle.

We believe that this breakthrough technology will disrupt more than 80% of our high performance RF market over the next decade. Both organically and through acquisition we’ve established what we believe to be the broadest GaN product portfolio in the industry.

MACOM is driving a profound change in economics for mainstream GaN adoption, while enable breakthrough RF performance. Our innovative leadership approach to this technology transition represents significant share gain opportunities from MACOM.

One accomplishment during the quarter that underscores our technology and product leadership was that two of our products were recognized as best in class by the industry’s leading optical publication Lightwave. One of those products received their views only 5 out of 5 star rating.

This serves as independent validations that are preeminent product position that has now been driving sequential growth for multiple quarters. Shifting gears, as you’re all aware our corner of the semi-conductor industry has undergone major consolidation.

Our top work competitors are today undergoing merger or acquisition, leaving MACOM as the only remaining pure play high performance RF and microwave company. We expect to be a major beneficiary of the potential disruption and distractions that our competitors may experience.

In fact, we’ve already secured numerous purchase orders and design wins as a direct result of this disruptions. To capitalize further on the secular growth drivers and competitive disruptions, this week we’re realigning our business unit structure within MACOM to maximize focus and execution to realize our growth aspirations.

We’re signing our top talent to the leadership positions, where they are now empowered to realize the vision and opportunities as they highlighted in our Analyst Day. To conclude my comments, this is an extraordinary time in the history of MACOM.

We're today realizing the benefits of our strategic initiatives and past investments in growth and gross margin improvement. We’re reaching full stride across our businesses and believe that we have strong tailwinds fueling future growth.

At the same time we’re seeing disruptions at many of our competitors that are impairing their ability to capitalize on these same opportunities.

We remain laser focused on servicing target customers and applications, as we further extend our leadership position and capture a greater share of the high-performance analog RF, microwave and millimeter wave market. With that let me provide our guidance for the fourth fiscal quarter ending October 3, 2014.

We expect another quarter of solid growth with revenue expected to be in the range of $112 million to $116 million which would be roughly 5% to 9% sequential growth after adjusting for the sale of CPE.

We expect non-GAAP gross margin between 50% and 53% and non-GAAP earnings per diluted share between $0.31 and $0.34 on an anticipated 49 million shares outstanding. Operator, you may now open the call for questions..

(Operator Instructions) Our first question comes from Blayne Curtis of Barclays. Your line is open, please go ahead..

Nice results. Maybe it's the first question, can you talk about by segment, as you look at the outlook, whether there is any outliers as far as up or down, you obviously have to absorb the CPE follow up, if you could quantify that to a little bit. I know you said it’s 5 to 9, but I assume you are backing out of June as well.

If you could just clarify that..

So let me start with the last question Blayne. The CPE revenue in the third fiscal quarter was $5 million, so we have to account for that plus the additional growth on top. Looking at the projections and the outlook by our end markets, it’s pretty much up into the right across the board.

We have got parts of our business like A&D and the automotive business with kind of mid-single digit growth, and then in multi-market and networks it looks like low-double digits. So it’s pretty much strength across the board. .

Maybe just following up, your Carrier network, we’ve seen kind of a mixed result. I know you’re not completely focused on China wireless, but it’s your perspective on just how these rollouts are happening and how that -- is it affecting you, or are you seeing any pause in demand, just any perspective you have would be great. Thanks..

Sure. So as I said in previous quarters we have had very little exposure to both the good times and perhaps forthcoming downtimes in terms of the LTE build up in China. We do have some switch business, but that’s very modest compared to what kind of exposure others have.

We do see signs like we have had another strong quarter of sequential growth in our wireless backhaul business, and that projects forward also with a nice quarterly sequential growth, forward looking the next quarter. And indeed it looks like Europe is showing signs like which is, where we have our primary exposure..

Thanks and just a quick one for Bob.

If you could just, the interest expense, is that the new run rate that you are seeing in June and then just on taxes this September as well?.

So, taxes look it -- answer the last, first the taxes will continue for the fourth quarter at 23.5%. The term B with outstanding for only a partial amount of the quarter, not the complete quarter, so it will rise slightly to about a little over $4 million per quarter, is sort of the run rate. .

Our next question comes from Harlan Sur from JPMorgan. Your line is open, please go ahead..

A&D was up 12% sequentially in the June quarter, I think you just said that it’s going to be up mid-single digits in the September quarter.

Can you guys just talk about the sequential growth drivers that will strengthen the business, both in June and kind of your expectations about the applications that are driving the growth in the September quarter?.

I can tell you backward looking with more and more details, forward looking, actually I don’t have that in front of me. But for the third quarter growth it was pretty much across both the -- really civil radar, and satellite communications, so it was across the board.

There wasn’t a single end market application that’s spread out, so it’s pretty much widespread. And then forward-looking, we can see continued lift, actually let me take a look at my notes here. Yes, it looks like communications again, a slight lift, and then in some radar programs, yes actually radar is also showing growth.

So it looks like it’s pretty much across the board again next quarter..

Got it.

Is that more of a commercial radar that you’re talking about?.

Yes. A lot of our exposure of radar programs now at this point. Forward looking, we’ve got a lot more Defense; but right now at present times a lot of it is air traffic control..

Okay got it.

And then, I know it’s kind of early days, but typically there is not much novel seasonality in your business, but sort of just looking at your design wind and customer and program pipeline, how should we think about the revenue trends on looking at the December quarter?.

Harlan, two things that come up this year that has the effect of seasonality in our fiscal Q1. We see strength at Ford on the new model years, but there is some tooling that to be done there, so we see some pullback against normal production run rates on the auto business but that’s a tool up a bit.

And then in HPA business high performance analogue products business there is some seasonality with respect to some of the fiber to the home products. So that’s different from past years with MACOM..

Would you kind of generally expect kind of the fourth quarter revenue trajectory to be kind of bounce like this sequentially then?.

No, fourth quarter, no. Fourth quarter, we’re guiding up but that’s more of a sensuality to the first quarter of fiscal '15..

So that’s fourth quarter calendar is our first fiscal..

That’s what I am trying to figure out.

So should we, given some of the seasonality trends and I know just highlighted a couple of them, but directionally speaking would we anticipate your fiscal Q1 to be sort of down slightly or too early to tell?.

No, I think it is down slightly..

Okay, got it. Thank you for that. And then, Bob your guiding gross margins relatively flattish in September, but you don’t have the low margin CPE business and I'm assuming that your incremental revenues are coming on at 60% to 70% incremental gross margins, just trying to reconcile that with your flattish guidance here.

How do you set the midpoint of the range?.

Well, I would say the midpoint of the range looks it’s up slightly, but basis points obviously. We do have 3000 products and we ship anywhere from 1600 to 1800 different products. And some of the strength in some of the older products that come back have slightly lower margin than in new products.

So we are projecting a mix that is in the range that we gave 51 to --..

Maybe I can add some color. So it’s coming off a very favorable quarter. So if you look our gross margin this past quarter and our third quarter, are relative to guidance we're at the top end of gross margin mix. So we had a favorable mix and then your observation is not inaccurate.

So I would say our gross margin improvement will be not as strong possibly, but to be honest as Bob said, it’s one of the toughest things to predict because there can be so many puts and takes during the quarter. But again third quarter was very favorable..

Yes, that is extensive, you sounded like you captured a lot of the incremental gross margin opportunity in the June quarter. So I can understand the tough comparison. Okay, thank you very much..

You’re welcome. Thank you..

Thank you. And our next question comes from Quinn Bolton from Needham & Company. Your line is open. Please go ahead..

Congratulations. Just wanted to come back to the radar.

You discussed a number of radar programs at Analyst Day, MPAR for civil air traffic control and some of the active electronically scanned defense programs, it sounds like the radar trench you're seeing now -- is that more the MPAR civil or is MPAR so ahead of us for the military radar program you’ve talked about at Analyst Day, what do you see those really starting to kick in? And then I have got a follow-up question..

So, let me walk through the numbers attached to your question. So the present tense revenue is largely legacy air traffic control business with our post power transistors where we’re number one in the market for I would say conventional radar systems.

MPAR is still ahead of us although interestingly over the lunch today there is very strong signs of life that things be coming in relatively near-term, some very sweet orders. And then to answer your question about defense radar, we won some programs that should be turning into material production in our fiscal '15.

So all of this kind of layers on top of the legacy stuff. Again those would be some of the growth drivers for next year..

And then follow-up question just on optical business, I think you said that was one of the drivers for the June quarter, could you just go into little more detail was that sort of mostly 100 gig? Did you also see growth in the fiber to the home part of that business, but any more color you can provide on optical would be helpful?.

The optical I refer to driving the growth was actually the 100 gig optical, so there is the long haul metro stuff and that more than doubled in the quarter..

And you expect optical to continue to grow in September?.

It will continue to grow and I am not saying we’re going to be putting back to back double in quarters. But as we described at the Analyst Day, it’s one of the key growth drives for the Company..

Great. Thank you..

Thank you. Our next question comes from Steven Smigie from Raymond James. Your line is open. Please go ahead..

Thanks. Congratulations on the numbers.

I was going to ask about the high performance analogue business and how that looks go into September, I think you talked about the group overall that just specifically for HPI?.

Yes, that’s continuing to growth putting together sequential quarters of very growth. I would say consistent with the kind of growth numbers that we talked about across our segments which I mean between AMD multi market networks they were all above 10% sequential growth, that’s the kind of numbers I would be referring to.

And on a go forward basis, I would say next quarter it’s similar kind of growth rates and the one thing I would caution Bob referred to is, there upon business tends to see some seasonality, the previous MACOM portfolio has never experienced so some exposure to more a seasonal aspect of build outs.

But, yes, I mean like the vision as anticipated coming into the company has been realized fully..

Thanks. And then on the auto business, can you talk about, over the next couple of years how you sort of see the trajectory of that business.

I think you’re still doing some investment there, that kind of steady, steady relative performer cash flow in business?.

Yes. I mean our relationship with Ford has never been stronger. We continue with -- we don’t consider that to be a growth business because we believe Ford’s fully saturated in terms of their portfolio with the sync feature in their systems in their cars.

But we certainly have a portfolio extending beyond the current GPS functionality to advance drive assistance. And we have other customers and other engagements. We tend not to talk about it, because at this point automotive companies are working model year '18. So it’s, we don’t want to confuse people with short term versus long term growth.

But its, as you said it’s a very very nice business, still accretive to our operating margins. So it’s a great cash generator for us..

Great.

So the last question, just on consolidation as you mentioned there’s a lot of activity in this space right now, you guys just beefed up your balance sheet and you've already driven some acquisition here, but how do you see your activity going forward? Is it imperative that you do stuff quickly here?.

No. I don’t feel and do pressure to do things quickly, we certainly have cash in the balance sheet, we have the ability to do things, but we pride ourselves and being very disciplined in the transactions that we chose to trigger. And those don’t come along, on a short order, you have to be waiting for the right deal at the right time.

And the other thing that we care very much about is remaining focused on the markets the customers and the technologies that are close and adjacent.

We don’t want to get ourselves spread out and going in five directions simultaneously, so it’s an issue of beefing up either in markets or technologies, but it’s all about sticking to netting and getting stronger in our areas of focus..

Thank you. And our next question comes from Mark Lipacis from Jefferies. Your line is open. Please go ahead..

Two question, first on the growth.

The growth rates are impressive, we’ve also heard from some other broader based companies, some pretty good growth rates, John I was wondering if you would be able to share your perspective of where you think we are cyclically or where we are in the cycle? Could you guys talk about your lead times, are they stretching or shrinking? And what kind of visibility you have into inventories of your products or your customer products downstream to the extent that you have any concerns about inventory books?.

Yes. So relative to other companies we are really not exposed to the industry inventory cycles anywhere near, other people of the industry.

I can tell you we do have very good insight into our distribution as well as customer inventories, we see no evidence certainly kind of inventory access inventory build, I think it’s a very healthy state right now, in fact we’ve gone through a very deliberate process of draining our channel inventories.

So it’s very high quality revenue per quarter and the backlog looks very consistent with the growth aspiration we have, so it’s I think we’re playing within our soft skill and realizing genuine growth..

How about the lead times?.

Well, I mean there is certain foundry partners of ours that have stretch some lead times in one particular part of our business, but I would say that’s very very limited exposure. For the most part, we don’t have any lead time issues..

Okay. Thank you. And a follow-up if I may, a follow-up on the previous question.

So as we think about your M&A strategy, it sounds like you preferred to go deeper within your existing product set as opposed to broader and doing a full time, is that fair?.

No, not necessarily. To me it's an issue of adjacency and the Mindspeed transaction is a perfect example and it was highly complementary and expansion of our product portfolio. But it was the same customers and the same applications.

So what I would shy away from something that is different technology in a different market with different customers as the gist gets us spreads thinner rather than getting leverage from our existing either product market or technology position..

That’s fair. Is there a sweets spot in terms of size that you’re looking at? Or is there a range? Is there size above which you would just say this might be too big for us? Thank you and that’s my last question..

No, I guess, we’re open minded about all options but the way we think about it is we have a very-very rich pipeline of small transactions in a pre relative company, small little tuck-ins that are not really material. We don’t necessarily even talk about them.

And then we have transactions like the Nitronex transaction that was a $26 million transaction which is very nice in terms of inside straight. And then we go the Mindspeed type transaction which was $277 million I believe the price value.

And the only thing that we’re religious about is making sure that it’s neutral to accretive as quickly as possible. And with Mindspeed we manage it in the first quarter of mind operation, but certainly within the first year would be an imperative. For anything that would be material for the Company, we would make sure that it neutral to accretive..

Thank you. (Operator Instructions) And our next question comes from Tore Svanberg from Stifel Nicolaus. You line is open. Please go ahead..

Hi, this is Eric calling in for Tore. I'll also echo the nice results for the quarter. Getting back to -- I think some of the accretion targets that you talked about in the past and I know last quarter you said you already achieved $0.07 accretion with respect to that deal, and we’re in line to hit at least $0.21.

Based on the June quarter results and September quarter outlook, it looks like you’re tracking more towards $0.23, what's changed and is there any update that you have for the accretion expectations?.

Eric, I wouldn’t change the -- so almost a year has gone by since the acquisition was announced and the way it’s integrated I think that there is definitely within the range of the original $0.15 to $0.20 accretion we are running a slightly ahead of that, but we’re achieving efficiencies as well as the margin on the new products kicking in, is making a difference on the gross margin line, that’s slightly is making the difference dropping to the EPS line.

So I would chock up that delta to the improving gross margin product mix..

So, I didn’t quite follow the math on the logic, but I'd add some color to Bob’s comments. So the Mindspeed transaction has continued to only exceed our expectations throughout.

I would say the only the thing that has gone the other way and that’s a temporary thing as with the term loan, that was diluted to our earnings with the interest expense, so that might look to be dampening kind of for the Mindspeed transaction. But once we put that money to work, we’ll hopefully pull another Mindspeed..

Got that and I was considering the $0.03 in the June quarter in relation to that but that’s helpful. Thanks. In relation to your target model, I think you mentioned the 60% - 30% gross operating margin.

What revenue run rate would you need to achieve to kind of hit those numbers or come close?.

It’s our long-term model and we strive to work everything to the most -- it drives the way we invest in products and what product area is potential new development based upon incremental gross margin obviously.

We don’t have a time horizon but I think overtime you continue to see the progression of gross margin and operating margin increase as revenues increase across the board. So we don’t a timeframe nor do we have a revenue target, but I think we’d continue to take progress over the next few years..

Okay thanks maybe just more if I could squeeze in, and I think in the past you talked about how much you had booked in the quarter to give you the confidence in your guidance, Can you provide that for us?.

I would tell you that our book to bill was overwhelming..

I would only add that the backlog is very consistent with previous percentages at this point, the quarter is nothing stand out if anything stronger, but we've decided that’s not necessarily material especially with the introduction of the Mindspeed portfolio.

It kind of behaves differently than our traditional, so with more turns business over in China, but it’s all, if anything favorable to prior quarters..

Okay, thanks so much..

Thank you. And our next question comes from Harsh Kumar from Stephens. Your line is open. Please go ahead..

Couple of question and congratulations -- my congratulations as well on the good numbers.

And this was a start a second ago on the long-term model, I'm curious if you have a mid-term model, or you've given some thought about -- given the tremendous amount of improvements that you had, is there something we should be looking for in the next maybe, call it a year or two year timeframe Bob? Or are still going to hold to the long-term model?.

I will tell you that, I think we can continue the progression that you have seen. As revenues go up, I think the dynamics are at play that we will continue to eke out incremental gross margin increases over the next few quarters. So obviously you get to something below 60 to get to 60. So you’ll see that march to 60 over time..

I mean, we were ahead of where we had originally projected even with the Mindspeed transaction.

So things are going well, I can tell you that my mindset is reaching 55 next, probably the next celebration point and then eye towards 60 to be honest, like I said at the Analyst Day, 60 is only a waypoint in addition, and who is to say two years is a long-term. .

I was wondering, I know this was asked as well earlier, but I was wondering if you could give us some clarity on what impact maybe that month of CPE business had on your margins. I know you talked a lot about maybe the nice mix and why the margins won’t go up this quarter.

But maybe help us understand how much it cost you in terms of gross profit from the one-month?.

I would say that if we had it for the full quarter, all the CPE business are quarter-over-quarter, we would have been closer to low-end of the guidance than where we are today..

That’s very helpful Bob. And the last question I have is on the CapEx. Very good control on CapEx, I think you’re talking about 4.3 million or so.

Is that a number we should think about from here on for a foreseeable future, is that number just a low number likely to go up?.

Again from what we foresee today as our capital needs and how we are spending and how we’re budgeting for things, 4% is the annual target for our capital expenditures, if it goes a little per quarter it’s sort of smoothing that. But that’s really the target that we think this business needs.

And I would reiterate the fact that we’re very -- even though we have a manufacturing fab here, we’re very capital light from an investment perspective. So we don’t need a lot of capital to continue to grow in CapEx..

And we have a follow-up from Quinn Bolton from Needham and Company. Your line is opened, please go ahead. .

Just have a quick toss on OpEx into the September quarter, looking here you're up a couple of plus million in the June quarter, do you think that's kind of flattish into September? Any thoughts you can provide on OpEx in September?.

The OpEx will continue to up. I don’t think the change is as large from Q2 to Q3, but it will increase in fiscal Q4..

Thank you. And I’m showing no further questions at this time. I’d like to hand the conference back over to Mr. John Croteau. Sir, you may conclude with remarks..

Very good. A couple of final notes before we close today’s call. Bob and I will be participating in multiple IR events this quarter which will provide several opportunities to meet with our shareholders and investors.

First Bob will be attending the Oppenheimer conference in Boston on August 12 as well as the Jefferies conference in Chicago on August 27. We'll also be on the road in New York, Baltimore, Philadelphia, Minnesota, Milwaukee as well as Los Angeles and San Diego. If you’re interested in meeting with us there please send us an email at ir@macom.com.

We look forward to meeting with you in the near future and reporting our continued progress next quarter. Operator, you may now disconnect the call..

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes our program. You may now all disconnect and have a wonderful day..