Good afternoon, and welcome to MACOM’s Third Fiscal Quarter 2019 Conference Call. This call is being recorded today Thursday, August 1, 2019. At this time, all participants are in a listen-only mode.I will now turn the call to Mr. Steve Ferranti, MACOM's Vice President of Investor Relations. Mr. Ferrant, please go ahead..

Thank you, Latif.

Good afternoon, everyone, and welcome to MACOM’s third fiscal quarter 2019 earnings conference call.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 results in those differences, we refer to MACOM's filing with the SEC.Management statements during this call will include discussion to certain non-GAAP financial information.

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

Industrial & Defense was $46.8 million, down 7% sequentially. Telecom was $43.9 million, down 7% sequentially and data center was $17.6 million, down 26% sequentially.For the quarter, our book-to-bill was 1.2:1.

Our churns business or business booked and shipped within the quarter was 40% of our total revenue, which is slightly higher than typical.In summary, Q3 was a pivotal quarter for MACOM's leadership.

Jack and I are excited to leading MACOM, and we continue to evaluate all aspects of the business including technology road maps, R&D investments, product line strategies, sales strategies, operational and supply chain activities and company positioning within the markets we serve.In the near term, we are focused on cost control, planning and organizational structure, which we expect will lead to incrementally improving our financial performance in the coming quarters and years ahead.Jack will now provide a more detailed review of our Q3 financials..

Thanks, Steve. Good afternoon, everyone. I'm excited to take on the role of MACOM CFO and look forward to continuing to partner with Steve, the management team and all of our employees to help improve the company’s profitability.I believe in a straightforward data-driven and balanced approach to growing our business and creating shareholder value.

MACOM has a longstanding solid business with many dedicated employees and numerous well-defined processes upon, which we can build and improve.And now on to our Q3 financials. Adjusted revenue in fiscal Q3 was $108.3 million, down 25% year-over-year from $144.9 million in Q3 of fiscal 2018.

The year-over-year decline was driven by a combination of softness in the data center market, the reduction in sale to Huawei and its affiliates as well as our decision to lower shipments into the description channel.Adjusted gross profit and adjusted gross margin in fiscal Q3 were $42.6 million and 39.4% of revenue respectively.

These amounts included $15 million of additional inventory reserves or roughly 1400 basis points of gross margin impact.Also at current revenue levels, lower absorption of overhead has a more pronounced impact on gross margins.

As revenue improves over time and depending on product mix, we expect to see an associated gross margin benefit.Total adjusted operating expenses were $64.9 million, which consisted of R&D expenses of $40.1 million and SG&A expenses of $24.8 million.

Total adjusted operating expenses were sequentially up approximately $1.5 million or 2.5% due primarily to additional R& D related mass costs incurred during the quarter, partially offset by reduced spending in other areas.Adjusted loss from operations in the third quarter was $22.3 million, translating into negative 20.6% operating margin.

As noted earlier on June 18, we announced a restructuring initiative, which once fully implemented is expected to result in approximately $15 million in annualized cost savings.We do not have a significant benefit in the third quarter from these restructuring actions, but do expect a significant operating expense benefit beginning in our fourth fiscal quarter as reflected in our guidance.

The majority of the total savings are expected to be fully realized by the end of fiscal Q2 2020.We incurred a $9 million of charges in the third fiscal quarter associated with this initiative including cash cost of roughly $2 million, primarily associated with employee severance obligations.

We expect to incur additional restructuring charges of approximately $1.6 million during the fourth fiscal quarter and approximately $2.3 million during fiscal 2020.The total cash cost associated with this initiative are expected to be approximately $9 million.

I will also note that in connection with the restructuring initiative, during Q3 we determine that certain intangibles and fixed assets were impaired and others were required to be re-valued resulting in non-cash impairment charges of $264 million.Adjusted EBITDA for fiscal Q3 was negative $15 million.

Adjusted net interest expense was approximately $8 million. Our normalized adjusted income tax rate in fiscal Q3 continued at 8%.

Fiscal Q3 adjusted net loss was $27.7 million translating into a loss of $0.42 per fully diluted share utilizing 66 million fully diluted shares to calculate this fiscal Q3 adjusted net loss per share.And now moving on to cash flow and balance sheet items.

GAAP cash flow from operations was $1.4 million in fiscal Q3 aided by reductions in net working capital of $31.9 million. We did generate positive operating cash flow in spite of the significant third quarter losses.Fiscal Q3 capital expenditures totaled $9.3 million or 7.6% of revenue and depreciation expense was $7.3 million.

We note that a significant portion of our capital expenditures for fiscal Q3 as well as expected fiscal Q4 2019 are associated with commitments we entered prior to May of this year.

We are currently reviewing all of our investments closely and intend to actively manage capital expenditures going forward.Q3 free cash flow was negative $7.9 million, down sequentially from a positive $12.8 million in Q2.

Cash, cash equivalents and short-term investments were $185.8 million, down $7.1 million from $192.9 million at the beginning of our fiscal year. As a reminder, our short-term investments are comprised of corporate bonds and commercial paper and are classified as held-for-sale.Inventories were $111 million at quarter end.

Inventory turns were 2.4 times, up from 2.1 times sequentially. Excluding the $15 million of additional inventory reserves recorded during fiscal Q3, our inventory turns would have been 1.9 times.

We do recognize the need to focus on and improve our inventory management.As Steve noted, we have a broad product portfolio, a large and diverse customer base and we utilize a combination of internal and external foundaries that contribute to long lead times.In addition, our internal fab can be characterized as a high mixed operation.

Notwithstanding these items, we do see opportunities for improvement on our inventory metrics going forward. Long-term debt was $684.9 million inclusive of capital leases. Long-term debt of $656 million which is covenant-light is termed with minimal annual principal repayments until it's maturity in May 2024.

MACOM also has an undrawn $160 million credit line available through November 2021.So in summary, we're confident in our liquidity position and remain focused on improving profitability and cash flow.

We believe that our recent restructuring initiative along with tight management of operating expenses, capital expenditures and working capital will help set the stage for improving our financial results.I’ll now turn the call back over to Steve..

Thanks Jack. MACOM expects revenue in the fourth fiscal quarter ending September 27, 2019 to be in the range of $108 million to $112 million. Adjusted gross margin is expected to be 52% to 54%.

And adjusted earnings per share is expected to be minus $0.04 to $0.00 per share, based on 66.5 million fully diluted shares.Our Q4 predictions include expectations that our data center and industrial and defense revenues will be up slightly and our telecom revenues will be flat to down slightly.In summary, we have multiple growth opportunities in front of us and we are very focused on execution and planning.

As part of this process we are establishing a detailed bottoms-up strategic plan, which will drive revenue and profitabilityI would now ask the operator to take any questions.

Latif, are you on?.

[Operator Instructions] Our first question comes from the line of Harsh Kumar of Piper Jaffray. Your line is open..

Yes. Hey, welcome, Steve and Jack to your first call. Hey guys I had two quick ones.

First of all, if I just do some simple math $110 million revenues up by pick in the gross margin that you guys got associated math, I get like $52 million roughly in OpEx projected for September quarter.If I compare that to where you were in June that's already about a $12-something million reduction, so that is basically pretty much all of the restructuring that you guys announced but in your scripted call you mentioned that there's more coming.

So I'm trying to reconcile how much is left and how do I work around this math and then I have a quick follow-up?.

Right. Well, thank you for the question. So, generally speaking your math - your gross math levels are correct, but there will be some incremental improvements in the next few quarters.

And Jack, if you want to add to that?.

Yes. Sure. Harsh, we’re probably about 80% of the wafer there here in the fourth quarter in terms of reaching that annualized savings target with some of those savings being spread out for the next couple of quarters as they work their way in.

There were a couple of items that we had here in the third quarter.We test upon some of the mass costs that drove our Q3 up a little bit and then there were some also some other expenses that we had here with the transitions that drove that operating expense number up a little higher..

Understood, guys. And so one for you, Steve.

Long-term as you think about -- so let's call it 12 months to 18 months, what are some of the drivers out of the three end markets that you have, which are the ones that you are expecting incremental growth out of where you would outperform the market?.

Well, I think – generally, speaking the growth story for MACOM is really about products and our ability to launch the products into the market at a faster pace.

So I would say that, generally speaking those products are aiming at 5G and that includes variety of product lines including lasers, APDs, pins where you look to – we're looking to expand our Gas and CD [ph] portfolio into the 5G market as well.But I think MACOM is very well positioned in the three main markets that we serve.

Certainly, industrial and defense the data center, and the telecom, so the growth drivers for us is not necessarily the movement of these markets at the moment. It's more about us launching products into the market..

Thanks, guys..

Thank you. Our next question comes from the line of Tore Svanberg of Stifel. Your line is open..

Hi. This is Jeremy calling for Tore.

I just had a question about the GaN-on-Silicon, I understand you are not commenting on the instrumental timing but can you give us a sense of the magnitude of the expecting investment and kind of the maybe of the time that you are hoping to adjust and are you still advancing at both Singapore and European locations?.

Right. So, certainly the GaN opportunity for the company is quite large. And that thesis of growth driver remains. We have been working on GaN for a number of years.

Today we have products selling into the market as I mentioned in my prepared remarks including, the mobile radio and also we're beginning to see the market with some of our products in the telecom space specifically 4G and 5G. So the underlying thesis of growth around GaN is intact.We do have as everybody knows a relationship with STMicroelectronics.

And thinking with this relationship is to be able to bring the company into very high-volume production, with a very low-cost cost of goods sold. So that is a project that’s so well underway.

We don't want to give specific guidance on when that development will be completed, because it's still a moving target.We are encouraged that we have working prototypes in the lab.

But because we see there still a lot of work to do, one of the first things Jack and I did in the past month is we literally – certainly not with the management team, but we essentially put the program on hold so that we could do a full review of all the technical issues associated with the program, the capital spending associated with the program, so that we could really understand what was going to be necessary to get into the market.

Ultimately, we concluded that this is still a very interesting opportunity for the company.As you know, with the 5G infrastructure architectures many of these base stations have very large antenna systems. So for example, you will have a three-sector antenna system with 64 elements per sector.

So you're looking at 192 amplifiers per base station.And so our goal is to use the GaN-on-Silicon to address that market. So the opportunity is quite large. You can measure the volume of amplifiers in the tens of millions of units. And that opportunity is really coming right at MACOM.

So, it's really about finishing the development, the customers are certainly interested on the technology.We’re excited about the technology and we think that GaN on Silicon fits very nicely between our LDMOS and GaN on Silicon carbide.

And so we will make sure that we optimize our development program to win the sockets that we could be very competitive on with regards to performance.We believe we have a cost advantage and the very high volume applications, so now it's about addressing the areas where we can be on par with the GaN on Silicon carbide whether it'd be the bandwidth, certainly the efficiency, and also how the product is actually used in the application.

So the timing of that has yet to play out. I can say that we are certainly excited about the opportunity and it is very large..

Thank you for that very thorough answer. Just turning to the Industrial & Defense for the next quarter, if I -- can you parse out -- maybe there are two different moving parts there.

Are they both expected to grow sequentially or is one maybe outperforming the other a little bit?.

Yes, I would say that on balance they are about the same with a slight advantage to test and measurement or the industrial piece.

We do see that business has been relatively steady with the build-out of 5G testers to support the infrastructure rollout.And then what will follow that is of course testers for the handsets, which will be another big advantage. And so we have a lot of different products across our mimic product line, the diode product line.

We have very nice control products. So, we do see some I would say stable to slightly up opportunities in the coming months ahead..

Thank you. Our next question comes from the line of Quinn Bolton of Needham. Your question please..

Hi guys, this is Michelle on for Quinn. Thanks for taking the question. So, yes it's on Huawei.

Did you guys see any pulls-in in orders in like the first half of the June quarter and you mentioned you guys might be applying for some of the licenses with the Department of Commerce? Have you actually submitted for those or are you guys still evaluating?.

Right. So, we have a very broad product line that addresses many different divisions of Huawei. And so when the company was put on the entity list, obviously, we halted all shipments and we began to next really doing an evaluation of the situation.I would say is that -- so the short answer is yes, we are in the process of applying for licenses.

We actually haven't done that yet.

But separate to that as we have gone through and reviewed some of the products we have, we have determined that we are able to make shipments and these products are typically foreign made shipping from outside the US and they've gone through a very careful vetting process not only internally with our trade compliance.But also with the support of outside council to make sure that we're following the export administration regulations and that these parts are not controlled for national security reasons.

I don't want to specifically comment on the behaviors around the pullings and push-outs on the customer-to-customer basis.So I’ll sidestep that one. But I would just add that this is an evolving situation, the vast majority of products today are on hold, and we're just spending shipments.

And there's just a very small amount of products that fit into the category of being outside if they are..

Okay. All right. Thank you..

Thank you..

Thank you. Our next question comes from the line of Mark Delaney of Goldman Sachs. Your question, please..

Yes. Good afternoon. Thanks very much for taking the questions. Steve and Jack welcome to both of you in the new roles. We certainly wish you both all the success. My first question is a follow-up related to your to again GaN-on-Silicon opportunity.

I don't know if you can give us a sense about what percentage of those pass those qualifications, step have been done.But maybe more importantly, I think one of the challenges with the company for GaN-on-Silicon, you realize couple of years that has been in the 4G era, the equipment had already been designed with the LDMOS and so customer didn’t want to redesign it.So I was wondering MACOM is working to complete the qualification with the STMicro and those factories, are you going to be missing out on some of the design and third parties that when one the company does figure out some of these qualification issues are going to be able to you have one the stock that you need to stay at – you’ll be able to shipping volume when you're ready? Thank you..

Thanks. So, a few comments. I'm not sure I agree with the setup on your question, but regarding 4G and how we participated there. So I don't necessarily want to address that, but I do want to address the size of the market and our ability to take the market. I look at it like this.

We want to launch products that are compelling for the customers.And so the rollout of the 5G is starting now and it's going to continue for the next five years probably peeking in terms of power amplifier requirements maybe two or three years from now. And so I don’t get the sense that MACOM is going to be late.

I think when we enter the market, our product will be compelling from a performance point of view.From an ability to scale quickly point of view, remember also that these applications for 5G are also at higher frequencies 3.5 gigahertz in some cases 4.8 gigahertz.

So those higher frequencies begin to be challenging for the LDMOS community.And so the frequencies are higher, the volume is that actually the lower power levels, specifically the massive MIMO platforms and so that is certainly the front and center at what we're focused on at the moment.

So we may miss some of it, but we certainly recognize that it's a big opportunity, it's a multi-year opportunity. And when we're ready to enter the market with our partners, we believe will be successful..

Thank you. Our next question comes from the line of Richard Shannon of Craig-Hallum. Your question, please..

Guys, thank you for taking my questions. Look forward to working with you.

You've made some restructuring changes here when you give us a sense maybe on a dollar level where we're going to see OpEx starts here in this quarter and into the next couple.But maybe if you can give us a little bit longer-term view on where you think your operating model can go both from a gross margin and operating margin or OpEx point of view that will be helpful?.

Sure. So just as a sort of on a go-forward basis, we probably won't be putting out what I would consider a target model. If I look at the MACOM's financial situation at the moment, we're underperforming and our goal is to incrementally improve that.

We want to become an average performing semiconductor company financially and we want to be an above the average performing company, which means controlling costs, driving gross margins up and increasing the earnings per share.So that’s the priority for the business. And to do that, we need to balance our investment in R&D.

We need to really manage carefully our growth aspirations, so that we're investing in projects that we can start and finish, and bring to market in a timely manner.So, I would say - I would just generally signal to you that going forward, you're going to see a tight control on the OpEx lines.

We're going to continue to work on the projects that we believe in. And in projects that we feel we're not going to be successful or they're not going to create financial returns. We'll certainly a pivot away from those, and we'll start new projects.Jack and I are very focused on return on capital employed.

If you look at the capital of the company has spent over the past two to three years, for me it's been quite high, $53 million last year, $32 million the year before that. This year we are in place to be somewhere between $45 million and $50 million.And so, one of the first things Jack and I doing is taking a very critical look at these investments.

And as we go into our next fiscal year, fiscal year 2020, we're going to drive that number down.And I think we already have tremendous leverage in the business with the foundation with a lot of that spending behind us. But on a go-forward basis, we're going to be very careful on the capital investments.

And so Jack maybe you want to comment further on the model?.

Yes. That's fine. Steve, thank you. So with regard to ongoing operating expenses, we did lay out in our prepared remarks, the $50 million of annualized cost savings earlier and the rest of it would be about 80% of the way there through our fourth quarter.

And that coupled with many of the things that Steve was referring to will be driving some additional efficiencies and operating expense leverage as we work our way through 2020.But we're still working through some of the details. We're still working through our budgeting process and we're going to be doing a bottoms-up.

So, there's more to come in terms of where we think we're going to shake out as we work away through 2020..

Okay. That’s helpful perspectives. And my follow-on question is related to data center business, they're down quite a bit in the June quarter, and your prepared remarks mentioned a little bit of growth here in September. Seeing a little bit of a tepid market here, particularly in the 100-gig generation, which I think MACOM is very good positioned in.

What are you seeing in terms of bookings for this market in view of the couple of quarters? And then, what do you think your position is going to be for the 400-gig and when does that start to inflict?.

So the bookings specifically for our data center end market have been improving in the last month and half. Some of our lead customers are beginning to order some of their HPA products high performance analog products.

These are typically very sophisticated CDR driver-type products.We also are seeing some of our optical customers that service -- this market optical module customer service in this market also beginning to step up a little bit in terms of bookings activity.So we are forecasting improvements going into the next quarter from a revenue point of view, and we do see a little bit of for our backlog growing, and we did as you heard in the remarks report of 1.2 to 1 book-to-bill ratio for the full quarter.Regarding 400G, so that's actually something that we do have some R&D working on.

I would say, our main focus for this application revolves around our silicon photonic products, specifically the L-PIC products where we have CW laser being placed on our silicon photonic device.And so I would say that it's early days on that right now, it's something that's in development.

Very interesting results and so we're certainly going to continue to work in this area. We think that when we finish development it will be meaningful for the company.But again I would say that this is in the early phase in terms of development.

We are fortunate to have a lead customer that we're working with and we believe they are a leader in the industry. And so we have a good collaboration engineer-to-engineer to work out some of the technical issues..

[Operator Instructions] Our next question comes from the line of Tim Savageaux of Northland Capital. Your line is open..

Hi, good afternoon.

I want to follow-up on that book-to-bill of 1.2 book-to-bill, and I wonder if you could provide any color on what the drivers there were maybe from end market segment standpoint in terms of the bookings strength?.

It really was the two of the three markets industrial and defense and the data center. It's where the strength came from. As I mentioned a moment ago on the industrial and defense end market, primarily test and measurement for 5G-type customers that are working on testers.

And then on the data center, primarily 100G-type applications and we are starting to see some improvements in the general traffic in this area..

And I would just also add to that the actual billings came in at $108 million, which was relatively low, so that improve the book-to-bill ratio..

Got it. And a follow-up on the telecom side, I guess with the Huawei impact maybe less than I might have expected.

Can you quantify the impact of the Huawei band in the quarter? And then maybe relate that to what you expect to get back heading forward as you resume some shipments?.

Right. So we don't want to necessarily get too much detail on the customer-by-customer. But I can say historically going back a few years Huawei was greater than 10% customer. In recent times they were inching up to hit that threshold.

When we made our pre-announcements back in June, we talked about a drop in revenue this quarter based on two factors, one was assessing shipments to Huawei, as well as slowing the sales into the distribution channel.If you look at those numbers, I would say it's almost a 50/50 split between the distribution and Huawei in terms of dollars -- dollar reduction for the quarter.

I think that would be helpful for you..

It is. Thank you very much..

Thank you. And our next question comes from the line of C.J. Muse of Evercore. Your line is open..

Yes. Thank you for taking the question. I just wanted to follow-up on the previous question, related to synergies. And then, and perhaps, we are just explain marking of the OpEx level of prior quarter.But it looks like you've garnered already $52 million, quarter-to-quarter in your OpEx guide. And you talked about only being 80% there.

So it sounds like, what you're telling us is that the pro forma OpEx actually in the March quarter should be roughly $49 million.

Is that what you're trying to tell us?.

I would say that, first of all, the $52 million number plus or minus some amount is a reasonable number to dial into the models for exiting Q4. And what we would like you to understand is, as we enter next quarter and our fiscal 2020, we'd like to control that number.

We're not forecasting going below $50 million or to that level of detail.The message we want to send tonight is, we are containing our costs.

As you know, in some instances there's lumpiness within the OpEx that we have a large mass flowing through.For example, some of the products that we worked on have mass costs that are between $1 million and $4 million.

And so if one of those comes through in a particular quarter it can certainly move the needle.But generally speaking, we're trying to control costs. That's a big theme of what Jack and I are doing. But we really don't want to have you get ahead and think we're going to be below $50 million for OpEx.

So I think that would be, we don't want you to be familiar with that understanding. I don't know Jack, if you want to add to that..

Very helpful.

And then, Steve, as my follow-up, as you've gone out and talked with customers about your transformation of MACOM and focused efforts, I guess how have those discussions gone? Is there willingness for greater partnerships? Do you see perhaps more content wins at customers would love to hear just kind of initial thoughts on these conversations?.

Sure. So, I guess I'll answer it, in the following way. So we have very compelling technology in certain areas of the business. And those customers are very excited to see these developments to be finished and have the products launched.So that covers a whole wide area.

If I look at our photodetectors, if I look at our lasers, if I look at -- if I look at L-PIC, these are major initiatives that customers are waiting for.And so, our job, as I mentioned earlier on the script, is to really finish these projects, and enable our customers to build the equipment they want.

And just to give you an example, of some of the complexities around these product developments. Let me talk about lasers for a second.So, there's been a number of talk about, 25G lasers and whatnot. But when we look at our laser product line, we're addressing three different markets, access, mobile front haul and backhaul and the data center.

We do it at six different data rates 2.5G, 10G, 25G, 100G, 200G and 400G.We have two different laser structures L-PIC and DSP two modulation schemes, direct moderation and CW using Mark Center devices that run on L-PIC.

We have to be four different temperature requirements.And we sell these devices in three form factors, chips, [indiscernible] we designed the lasers for our L-PIC structures. So when you look at all of that and then do that over four different wavelengths there's a lot there.

And so we have very good relationships with our customers they understand our road map. MACOM needs to finish these developments.We have an advantage in cost. We have an advantage to mass produce.

And as an example, a few years ago we were selling about $20 million a quarter in lasers at 2.5 -- just for the 2.5G PON end market, right?So there's tremendous possibility with finishing all of these different projects and bringing them to market. We're specialized -- we understand the APY formulas reach one of these lasers.

We understand the grading required to make the DFP devices.

There is a very complicated back-end manufacturing process to make lasers.So when I -- when you talk about getting customers excited they want to see MACOM be successful with lasers as an example, but I could really go across the businesses and the technology centers and say the same thing and tell the same story.And so frankly MACOM is internally focused to execute these product development plans so that we can bring these products to market.

And that is really the main focus of our activities both Jack and I – we are critically looking at everything including organizational structure, resource loading and budgets so that we optimize the balance and then optimize the returns for our shareholders and our investors..

Thank you..

Thank you. Our next question is a follow-up from Mark Delaney of Goldman Sachs. Your line is open..

Yes. Thanks for taking the question.

My follow-up question is for Steve -and Steve, I was hoping you could may be compare -- what your impressions are of MACOM and compare that with Hittite and I asked then a lot of investors who I speak with -- remember all the success that you have with Hittite and the revenue growth that they had.And I mean certainly not looking for any sort of financial targets or top-line, but in terms of some of the steps you're taking at MACOM and getting the organization to where you'd like it to be maybe -- if you could reflect on what were at Hittite that allow that type of growth and where you think you are in the process in MACOM and in terms of making some of the changes that you would like to implement? Thanks..

Sure. Well, let me talk about MACOM and let me talk about some of the things that we want to do here as a management team. So one of the things we want to do is we want to take a very critical review of our process to develop products and launch products.

I think there's opportunities to streamline these processes and get more products to the market faster.As I mentioned earlier, the growth driver and a growth engine for MACOM will be product based. We're in the right markets. We have the right technology.

We now need to complete the developments of the processes, the semiconductor processes as well as the product development for those processes.The one thing, I absolutely think is a tremendous advantage for MACOM in the market is we practice a fab model and a fabless model.

Today, we work with actually nine external foundries both in Silicon and Gallium Arsenide and Indium Phosphide. We have two fabs internally.We have -- as Jack mentioned in his comments a very high-mix, high-performance fab that is very capable of ramping up very quickly to address the needs of the market.

And we also have a fab out in Michigan that is producing world-class photo-detectors.And we think we have some of the best APDs and PINs in the markets. And so these are very compelling technologies.

And I think that our goal like I mentioned a moment ago is to make sure that we finish this process developments and launch products.Overlay that strong design teams, great sales channel, looking at our multiple sales channels including distribution and the relationships with our distributors, our rep sales force and our direct sales channels, we want to optimize that and look for opportunities possibly to get better coverage, fill gaps in the channel, collaborate with our distributors on margins control.So these are things that are very important to the company to make sure that we optimize the profitability.

The theme tonight is profitability and that's captured by I think very close detailed or attention to the details along the entire process, whether it's engineering, the sales channels or G&A and supporting the business at large. So the success of MACOM going forward will be focusing on all the little details. I think I'll leave it at that..

Thank you..

Thank you. At this time, I'd like to turn the call back over to President, CEO, Steve Daly for any closing remarks. Sir..

Thank you. In closing, Jack and I would like to thank our employees for the warm welcome and support that they have provided us over the past two months. We have the strong management team, a world-class employee base and together I'm confident we can achieve our new objectives. Thank you..

Ladies and gentlemen, that does conclude today's conference. Thank you for your participation. And have a wonderful day. You may disconnect your lines at this time..