Good afternoon, and welcome to MACOM’s Fourth Fiscal Quarter 2019 Conference Call. This conference call is being recorded today Tuesday, November 12, 2019. At this time, all participants are in a listen-only mode.I will now turn the call over to Mr. Steve Ferranti, MACOM’s Vice President of Investor Relations. Mr. Ferrant, please go ahead..

Thank you, Liz.

Good afternoon, everyone, and welcome to MACOM’s fourth fiscal quarter 2019 earnings conference call.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 more detailed discussions of the risks and uncertainties that could result in those differences, we refer you to MACOM’s filing with the SEC.Management’s statements during this call will include discussion to certain adjusted non-GAAP financial information.

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

Industrial and Defense was $50.1 million, up 7% sequentially; Data Center was $22.6 million, up 28% sequentially; and Telecom $39.6 million, down 10% sequentially.Our Data Center revenue showed improved performance following three quarters of decline. Our Industrial and Defense revenue was driven by various U.S.

Defense programs, as well as increased sales to our tested measurement customers. And our Telecom revenue declined sequentially, primarily due to weakness in GPON.Overall, our three core end markets are strong and full of opportunity for MACOM.

And I believe our new focus on product development and execution will allow us to win market share more efficiently.On a geographic basis, 48% of our fourth quarter revenue was from domestic customers and 52% was from international customers, similar to prior periods.

Our book-to-bill ratio was 1.1:1 and our churns business or business booked and shipped within the quarter was 31% of our total revenue.Our operations team is doing a great job focusing on planning and executing linear shipments throughout the quarter, which we anticipate will improve cash flows, AR and customer satisfaction.We have established an internal working fiscal year 2020 annual operating plan.

This plan includes a detailed bottoms-up revenue forecast, based on known design wins on identified programs. It also contains a bottom-up operating expense and capital equipment budget.In addition, we completed a first pass review of all R&D projects currently being funded to ensure the priorities and the budgets are aligned.

The management team and I are confident we can improve our financial performance during our FY 2020.To ensure we remain focused, we have established a top 10 priority list for the company, which underscores to the management and all employees are key strategic initiatives for long-term growth and profitability.

Additionally, all members of the leadership team have individual top 10 priority lists to support corporate objectives.As we enter our 2020 fiscal year, we are focused on completing products in our pipeline, which will help drive MACOM’s near and long-term growth. Our three primary markets are large and provide MACOM significant growth opportunities.

For example, we support major OEMs in our Industrial and Defense end market with our leading L GaAs Diode products. These products are designed into a number of new radar and aircraft platforms that will be deployed over the next few years.

And we have a wide range of technologies and products for our telecom end market.For example, we believe our high-performance analog drivers, TIAs and APDs for 5G front haul are among the best-in-class and our 64-gigabaud coherent driver in TIA products for deployment in the next-generation of metro long haul optical networks are winning market share.We continue to have success in the data center with a well-established line of high-performance analog components, including drivers, TIAs and CDRs for 100G deployments, along with new designs being introduced for 200G applications.The opportunities that I’ve just outlined are based on established MACOM products that we have in production today.

These products set the foundation of MACOM and should provide MACOM with profit and revenue growth in the coming months and quarters.Our portfolio also contains new technologies, which are still emerging, including GaN-on-Silicon, high-speed lasers, coherent and PAM4 DSPs and silicon photonics.

These technologies are compelling and our engineers continue to make solid technical progress to move these technologies closer to productization.We recognize that these technologies have the potential to generate significant revenues and profits in the years ahead.

Further details and updates will be made as we make progress, and after the associated products are launched and generating revenue.I’ll highlight a few notable events that occurred during the fourth quarter. First, MACOM attended this year’s CIOE or China International Optoelectronic Exposition in Shenzhen.

We hosted a live demonstration of an Open Eye MSA-compliant 200G PAM4 chipset for data center applications. This chipset includes our high-performance CDR with integrated laser driver on the transmit side.On the receive side, the chipset includes MACOM photodetectors, a quad TIA and a four-channel receive CDR.

We view this solution as a great example of MACOM’s product breadth, technology and industry. leadership.Second, during the quarter, we began production of a SIPRI compliant combo chip for 5G front haul length ranging from 500 meters to 20 kilometers.

This chip integrates a DML laser driver with a limiting amplifier, dual CDRs, power management and diagnostics.We also recently introduced a Trans-Impedance Amplifier, which supports data rates of up to 28 gigabits per second with very low power consumption.

When used in combination, these products can provide our customers a complete solution for low-cost, low-power 25G SFP modules for 5G front haul applications.And third, we have released a very competitive front-end module or FEM, targeting massive MIMO 5G deployments.

This product utilizes multiple technologies, including a Silicon-On-Insulator, or SOI switch in a gallium arsenide low-noise amplifier.

The product offers high power switching capability and a high-gain, low-loss, low-noise figure receive side functionality.And lastly, we expanded our mimic portfolio to include a family of high-performance space shifters. MACOM’s engineering did an outstanding job designing all of these unique and best-in-class products.

Supplementing our design engineering efforts, our operations team is working to improve our gross margins, including launching new projects, targeting wafer fab, yield enhancements, reduction of scrap, cycle time reduction and lowering the costs from our key suppliers.We expect that these behind the scenes efforts will generate new profits directly create shareholder value it will appear in our financial results in the coming quarters.

Our purchasing and logistics team have done a great job embracing aggressive cost saving goals.The management team continues to evaluate all aspects of our business, including technology roadmaps, R&D investments, product line strategies, sales and pricing strategies, operational and supply chain activities and company positioning within our three core markets.Jack will now provide a more detailed review of our Q4 and full-year financial results..

Thanks, Steve, and good afternoon, everyone. We are pleased that we have returned to non-GAAP profitability here in our fiscal fourth quarter after reporting two quarters of non-GAAP losses.

I would like to thank all of the MACOM employees who’ve been working hard to help achieve this.Revenue in fiscal Q4 was $112.2 million, up 4% sequentially and down 26% from $151.2 million in Q4 fiscal 2018.

The year-over-year decline was primarily driven by a combination of softness in data center demand and a decline in PON sales.Adjusted gross profit and adjusted gross margin in fiscal Q4 were $59.5 million and 53% of revenue, respectively.

Gross margin remains a key focal point for us, and we see opportunities for continued improvements beyond Q4 levels.

As revenue improves over time, and depending on our product mix, we expect to see an associated improvement in gross margin.Total adjusted operating expense was $51.1 million, which consisted of R&D expense of $32.4 million and SG&A expense of $18.7 million.

Total operating expense was down approximately $13.9 million, or 21% sequentially, primarily due to the impact of the restructuring actions we took in fiscal Q3 of 2019.

We are on plan to realize the full $50 million of annualized savings from these actions by the end of fiscal Q2 2020.Adjusted operating income in the fourth quarter was $8.5 million, translating into 7.6% operating margin.

We incurred $2.5 million of restructuring charges in the fourth fiscal quarter and expect to incur additional restructuring charges of approximately $3 million during fiscal 2020, as we complete these actions.

Depreciation expense for fiscal Q4 was $7.3 million and adjusted EBITDA was $15.8 million.Adjusted net interest expense was approximately $7.6 million. Our non-GAAP adjusted income tax rate in fiscal Q4 continued at 8% and resulted in an expense of less than $100,000.

Fiscal Q4 adjusted net income was $806,000, translating into $0.01 of earnings per fully diluted share utilizing a share count of 66.7 million fully diluted shares.Now moving on to cash flow and balance items.

Cash flow from operations was negative $7.6 million in fiscal Q4, attributed mainly to a reduction in payables, as well as severance-related restructuring cash payments.We have taken steps to improve cash generation going forward, including the previously announced restructuring action, focused capital spending, tight operating expense management, as well as managing our working capital.

As a result of these actions, we expect positive operating cash flow in Q1 of fiscal 2020.Fiscal Q4 capital expenditures totaled $6.1 million, or 5.4% of revenue. We continue to closely manage all of our spending during the quarter and rescheduled certain capital expenditures into the first-half of fiscal 2020.

Despite this, we expect overall capital expenditures in fiscal 2020 to be below fiscal 2019 levels.We remain closely focused on achieving appropriate returns on capital that we employed.

Q4 free cash flow was negative $13.6 million, as compared to negative $7.9 million in Q3, primarily as a result of the lower Q4 cash flow from operations, partially offset by lower capital expenditures in the fourth quarter.Inventories were $107.9 million at quarter-end, down $2.7 million sequentially.

Inventory turns were 2.0 times during the fourth quarter.

We continue to prioritize inventory management and do see opportunities for continued improvement in our inventory metrics going forward.As of September 2019 fiscal year-end, cash, cash equivalents and short-term investments were $176.7 million, down $9.1 million from $185.8 million at the end of fiscal Q3.

As a reminder, our short-term investments are comprised of corporate bonds and commercial paper and are classified as held-for-sale.Total long-term debt was $684.7 million, inclusive of capital leases. Our long-term debt of $655 million, which is covenant-light has minimal annual principal repayment until its maturity in May 2024.

MACOM also has an undrawn $160 million credit line available through November 2021.Before turning it back to Steve, there are a couple of accounting items I would like to provide commentary on.

We had a one-time non-cash GAAP tax benefit of approximately $37 million in Q4 associated with a planned intercompany transfer of assets between two of our international legal entities.

We do not expect this to affect our non-GAAP tax rate going forward.Also, in keeping with best practices going forward, we will no longer report non-GAAP revenue and we have updated historical periods. This has resulted in the shift of revenue of $7 million and adjusted EPS of $0.10 from the third quarter 2018 to the second quarter of 2019.

This update is reflected on our earnings release and impacts year-to-date amounts.As such, for the full-year ended September 2019, revenue was $499.7 million, adjusted operating income was $10.9 million and adjusted diluted earnings per share was a negative $0.29.So in summary, we are pleased with our progress in Q4 2019.

As Steve previously noted, we recently prepared our fiscal year 2020 internal annual operating plan, which lays out a path towards continued improvements in profitability and cash flow.

While there’s still a lot of work for us to do in order to achieve our longer-term objectives, we believe that we are entering fiscal 2020 with positive momentum.I will now turn the discussion back over to Steve..

Thank you, Jack. MACOM expects revenue in Q1 FY 2020, ending January 3, 2020 to be in the range of $113 million to $117 million.

Adjusted gross margin is expected to be in the range of 53% to 55% and adjusted earnings per share is expected to be between $0.01 and $0.05 per share, based on $67.5 million fully diluted shares.Our Q1 revenue projections include expectations that all three of our end markets will grow sequentially.

Growth will be led by our data center end market, followed by growth in our telecom and industrial and defense end markets.In summary, we are excited about the multiple revenue growth opportunities in front of us and we are focused on execution and planning.

We continue to evaluate all aspects of the business, including technology roadmaps, R&D investments, product line strategies, sales strategies, operational and supply chain activities and company positioning within the markets we serve.I would now like to ask the operator to take any questions..

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

Yes. Hey, guys, congratulations on very strong results and continued progress here. I think, Steve, when you’re talking about the guidance, you’re saying all end markets will grow.

I get the data center side, we’re getting a lot of data points about the data center side growing.But I was curious what is turning around in the – particularly in the telecom side for you and that is coming back us from, I mean, I guess, from such a deficit that you reported in the September quarter, I’d be curious.

And then also, perhaps what is working on the defense and industrial side?.

Sure. So on the telecom side, our growth is being driven primarily by 5G front haul. We’re seeing some of our high-performance analog products have success there. So we’re pleased about that. And then on our defense side, it has, as I pointed out in the script, a lot to do with our radar programs and airborne receiver programs that we support..

Okay, great. And then is – a lot of the companies are now saying parts of Huawei business can be recognized.

I would just wanted to clarify is, is Huawei one of the things that’s coming back for you, or how are you looking at that particular piece of a particular customer?.

I would say, it’s not coming back. I would say it’s going down, that’s the trend. So as we look forward in terms of our growth, we think we’ll continue to grow, even as our Huawei business declines. We’d like to think this is temporary.

And perhaps in the future, when – if and when they come off the entity list, then we’ll certainly reengage and that could provide us some potential upside. But all of our planning, all of our focus right now is certainly ex-Huawei..

Okay. And last one for me. Data Center was a big number two or three quarters ago and dropped down to about 16, 17 now it’s back up in the 20s.

What is the real number that we should be thinking about that you can – that’s a legitimate number for us to think about in terms of you getting back – your company getting back to that level?.

Well, I think there’s going to be two phases. The near-term phase will be, I would say, incremental growth due to our contributions to 100G platforms, where we have very competitive CDRs, TIAs and drivers.

I think, as we look out, maybe two or three quarters, we’ll supplement that with leading TIAs, as well as what I would consider, high frequency opto drivers.

And then a little bit further out from there, we think our photodetectors and our silicon photonics will start to contribute.So the near-term, it’s going to be a lot of the HPA products that we’ve been very successful with.

As the data rates go up, specifically 400G, we have products that are winning sockets, as I mentioned, the TIA is the drivers in some of our detectors and then long-term silicon photonics..

Our next question comes from Blayne Curtis with Barclays. Your line is now open..

Hey guys. This is Tom O’Malley on for Blayne Curtis, congratulations on the nice results here. I wanted to start with just forming of the new organization.

And you guys have done a good job of kind of describing here how you have a top 10 priority list and different areas where you’re focused on the business and you highlighted a couple in the script.Can you talk about just in terms of growth of those opportunities that you laid out, where you’re most excited and where you could see the most growth? Obviously, data center is starting to reaccelerate now, but is there an area where you think that you could really see a revenue profile change in the business overall?.

Right. So yes, I think there is and I think some of those transformational step ups in revenue are certainly out in the future.

In terms of the near-term, which is what we’re really focused on, I think, we’re going to see incremental growth from product-driven strategies based on our existing portfolio.So we’re looking at things like the front-end modules that I talked about. We’re looking at all sorts of components for 5G front haul.

When I look at our mimic product line, I think, there’s tremendous opportunities to embellish the current portfolio set.

So I wouldn’t want to necessarily call out any one particular product area or technology group, I think, they all have tremendous growth opportunity.Remember, MACOM right now, as Jack said, last year, we were just under $500 million. We are very small relative to the size of the markets that we serve.

So with our breadth of technology, including the diodes, the mimics, the high-performance analog components, as well as then the lightweight components, when we look at the laser portfolio, when we look at our photodetectors and then the silicon photonics, which is certainly very interesting and then, of course, the power.

I’ll mention that.We are very active. And part of our reorganization was certainly, updating the organization and the strategy around our power and GaN activities. So each one of these groups has tremendous opportunity for growth.

We have put in place what I believe very rational and aggressive business savvy leaders that will drive the technology roadmaps, as well as keep a keen eye on budget. So I think we have the right team. I think we have the right technology set. And our goal here is to certainly win more market share than we’ve done in the past..

Great. That’s really helpful. And then I just wanted to dive into some of the longer-term opportunities you talked about as well. You mentioned the PAM4 DSP, silicon photonics, GaN-on-Silicon. I think, before the transition, there was a policy of focusing on things a little further out.

But I think that people have continued to ask on the opportunity with GaN-on-Silicon just given how present 5G is going into 2020.And at a time, I think that was one of your – the businesses larger drivers.

Can you update us on where that stands with you today from a more conservative view? And what do you guys think you have in terms of technology and what the size of that market may be for you?.

Sure. Maybe I’ll just give a quick GaN update. So just to remind everybody, we are today shipping, again, on silicon amplifiers and components, primarily for 4G and high reliability mobile radios, military manpack type radios. And that’s a very – these are very successful sockets that customers are really enjoying the performance of the products.

I think over the next 12 months, we’ll see incremental growth within this product set.The second area, perhaps that you’ve alluded to, is our activity with – working with ST. That program continues. The recent update is the capital equipment is now moving towards ST.

We are focused very much on really polishing the specifications that were Looking at in terms of process technology, as well as working with ST on schedules.We’ve recently done a complete review of pricing with ST to make sure we fully understand the cost of the technology when we’re at high volume production.

And I think those conversations were very productive. And so that, that program is on schedule.

I won’t go any further than that other than to remind everybody that this is a significant technology development.The third item is, I’ll point out regarding GaN-on, as we reorganized, we combined our traditional GaN-on-Silicon team with our group that was focused on bipolar transistors.

We put them all under one organization and that has a benefit, because now we’re bringing a broader capability to the engineering team.We are also, I’ll point out, opening up the aperture slightly regarding our GaN-on-Silicon and GaN-on-Silicon carbide strategy.

We’re now having our technologists do baseline characterization on different GaN-on-Silicon carbide transistors.

We believe that there is a place for this technology in our portfolio, especially at the higher powers, the higher frequencies and some of our military and satellite customers are very interested in having MACOM participate here.So we are opening up the aperture and we’re bringing engineering efforts to really establish a baseline of where the industry is regarding, I’ll say half micron, 0.4 micron, as well as 0.25 and even 0.1 micron GaN-on-Silicon carbide.

And so we believe over the long-term, our engineers should have access to the best technologies there are.As I mentioned, actually, on our last call, we have two foundries internally, but we also deal with nine external foundries. And so we want our power amplifier group to be able to have access to the best technologies.

Now this will absolutely complement our GaN-on-Silicon efforts. We today still believe that GaN-on-Silicon is the right process for massive MIMO, given the volumes, given the price points and given the low power levels. So this is not going to take away from that effort, it will certainly be additive..

Our next question comes from Quinn Bolton with Needham & Company. Your line is now open..

Hey, Steve. I wanted just to get an update on the lasers, I think, when you took over as CEO, you’ve sort of implemented a review of the laser manufacturing and with an effort to try and reduce some of the scrap.

Can you sort of tell us where you are in that effort to raise yields on the 25-gig lasers?And then a follow-up question, you had mentioned some new products that FEMs and space shifters for sort of the 5G applications.

What kind of timeframe should we be thinking about in terms of revenue generation from those FEMs and space shifters?.

Sure. So on the laser front, as you know, we have three different markets we service with our lasers. We have different data rates. We have different laser structures. And these lasers are used in different modulation schemes.

So when we talk about 25G lasers, there’s probably about six different versions of that.So let me talk about the near-term and the laser revenues that we think will generate over the next 12 months, let’s say. Certainly, 2.5G PON is an important market for the company. It’s been soft recently.

We’ve had a lot of inventory in the channel over the last couple of quarters. So we – it really hasn’t been contributing to our top line. We think that’ll change in about a quarter or two. Things will start to pick up. And that’s an area where we’ve been very successful.

That’s, of course, for the access market, let’s say.We think over time, the market will move to 10G, and we are working on the development of a laser for that market. It’s early days. We’re still in development mode, let’s say.

And I would put that towards, maybe nine to 12 months away, we should be in a position, where we’re having traction in the market with some of our products.When you talk about 25G lasers, I’ll focus the conversation on 25G FP. This is a growth area for the company. We do expect to see new revenue to the – to our top line in the next 12 months.

This is primarily for 5G front haul applications. We think that we have some technical advantages over the competitors, and so we’re taking advantage of that.

And it will absolutely – it’ll probably be the shining, the bright shining light of the laser portfolio in the next 12 months.And then the last product I’ll talk about specifically is our 10G FP lasers, which have historically been very strong in the market, supporting 4G LTE backhaul.

And that volume has been coming down for obvious reasons as those base station deployments are declining and other deployments are taking over.In terms of the CW lasers and the DFB lasers for the data center, I would put all of those lasers in the category of R&D and product development.

We still have a lot of work to do within our fab to dial things in with those lasers.

One mistake we won’t make again is starting production before we have a product that’s fully qualified and will run a high yield.So it’s absolutely unacceptable to be having these large scraps or write-offs due to starting production and then ultimately having the product fail the call or have a very low yield.

So we won’t be doing that again.I guess, you added – sorry, you added also a question about our FEMs and space shifters. The FEM revenue, we expect in this fiscal year. The space shifters also this fiscal year, I’ll just highlight the space shifters. These are low-to-medium volume, high ASP-type products. So it’s – it’ll be buried within the portfolio..

Our next question comes from Tore Svanberg with Stifel. Your line is now open..

Yes. Thank you, and congratulations on the diligent process here.

Steve, could you talk a little bit about any sort of product or product lines you may have shutdown or pruned, I mean, obviously, you have a $50 million OpEx reduction? So any visibility you can share with us on product lines, or technologies that may have been shutdown or prudent at this point?.

I can only mention the one that we previously discussed on our last call, which was the optical modules for data centers. That’s one we – that we’ve highlighted that we have exited that business. We think that was the right decision even today. But I can’t really add any more comments in terms of pruning, or focusing, or deemphasizing product lines.

That’s certainly part of our strategic planning process. And our internal reviews are, these are things we constantly do. And so, we’ve not made any announcements at this point on that particular question..

That’s very clear. As a follow-up and when you talked about sort of the long-term and technologies that have potential, you mentioned PAM4 DSP, that I think, near-term you kind of also working more on PAM4 more from an analog perspective.

So could you reconcile those two for us? And do you intend to actually invest in both analog and potential with PAM4 DSP?.

Yes. We have, as you know, we have a few DSP programs underway. We have actually two captured customers. And we plan on adding a third DSP at some point in time to our portfolio. And so, there’s a coherent version and there’s a PAM4 DSP version. I really don’t want to go into any more details on that.

So that’s – those are programs that the company has been working on for a number of years. We’re not providing any updates tonight in terms of the status of those programs other than we continue to work on them.Regarding other areas where we contribute to sort of PAM4 products, 200G and 400G areas, where we have, what I consider, the HPA products.

These are CDRs, drivers, TIAs. These would all fit nicely inside of a – an analog PAM4 solution..

Our next question comes from Harlan Sur with JPMorgan. Your line is now open..

Good afternoon, and congrats on the solid execution. I’m thinking about the longer-term gross margin potential for MACOM.

And if I look at your catalog products of mimics and diodes and switches and whatnot, most of these products that are probably situated in your IND business and maybe some in your telecom business, in your prior company, these parts are driving 70%-plus gross margins.

What’s the gross margin profile of MACOM’s catalog business relative to that 70%-plus profile? And if there is a large difference, if you can, maybe help us understand why?.

Okay. So I’m not sure we typically provide the gross margin by product line or by product set, as an example, the catalog business that you mentioned. And I will say that we have the continuum of gross margins. We have products that are above 70%. We have products that are below our corporate average.

So what you’re, of course, seeing is a blended average.

Jack, do you want to comment more on that?.

Just – I mean, with regard to our overall margins, look into to definitely make improvements over time. We realized where we’re at, from an industry perspective, and we want to get to that, that above average phase at some point in time in the future. So, focusing on the margin improvement is an area that we have with our guidance here in Q1.

We’ve got a bit of an uptick in the guidance range that we’ve put for the gross margin..

Yes. An I appreciate the insights there. And the team has been engaged in a number of active antenna programs for both civil and defense-related initiatives with the SPAR power architecture.

Can you guys just give us an update on these programs and revenue contribution or maybe potential timing of tangible revenue contribution?.

Yes, I would – we look at the – that particular program, the sensor program that you’re talking about is a long-term program. I don’t think it will be adding any material revenue to our top line in the next 12 months. We continue to engage customers that are interested in the technology.

We’ve put together what we think is a very interesting architecture.We have done an outstanding job with the packaging technology that’s associated with this platform. And so we continue to share our information and our technology with the major primes.

But I would say, for the next 12 months, I would temper expectations there.The main radar programs that we are looking at are really long-term programs that are, I would characterize as being in their infancy regarding having the end customer define the requirement. So we’re talking about many years before significant contribution to the top line..

Our next question comes from Mark Delaney with Goldman Sachs. Your line is now open..

Yes, good afternoon. Thanks for taking the questions and thanks for all the details on the efforts underway at the company. The first question was on the 2020 plan. Steve, you mentioned the company has a plan in place for, I think, you said revenue cost and potentially free cash flow.

Are there any more details you can share with investors about what those metrics may look like?.

Not specifically..

Okay. Maybe just a follow-up on – then on our bookings. If my math is right, I think you said book-to-bill was 1.1 and a second quarter in a row, I think, of a positive book-to-bill, which is nice to see.

I think the absolute bookings numbers may be down a little bit in terms of dollars, maybe down about 5% quarter-on-quarter, but obviously with a positive book-to-bill.

Anything you can share in terms of kind of the absolute change in bookings versus last quarter, or is it just sort of normal quarter-to-quarter fluctuations or any areas where we’re bookings were a bit softer?.

Yes, Mark, this is Jack. So quarter-over-quarter the bookings were about flat, maybe a little bit up. But based on the lower revenue we had last quarter in Q3, that drove obviously a higher book-to-build ratio of 1.2..

Okay, all right. That’s helpful clarification. And my last one, Jack, I think, you guided for positive operating cash flow for next quarter, which very nice to see after kind of what was reported this current quarter, and there’s a lot of work underway to get there.

In terms of free cash flow, when should we think about the positive free cash flow? Thanks..

Yes, obviously, cash flow continues to be an area of focus and historically has been an area of focus for us. Even if you look at our full-year 2019, we did generate positive operating cash flow of around $20 million to $21 million.

So we want to make sure we’re staying focused on that piece of it.Here in the fourth quarter, we did have some cash flow headwinds, as I had described, including some cash payments associated with the restructuring action. So that was a bit of a headwind here in Q4.

Some of that will linger on, as we’ve noted, with some of those restructuring costs working the way into the remainder of 2020. But we do feel relatively confident about our cash flow, specifically the operating cash flow side of things.

Capital can tend to be a bit lumpy, as we had described, so you know that, that would obviously impact our free cash flow.So it’s going to continue to be a – an area of focus for us as we go out into the future.

And, as Stephen and I had mentioned, our internal operating plan does provide for cash flow improvements, as we work our way through the years..

We have a follow-up question from the line of Tore Svanberg with Stifel. Your line is now open..

Yes, thank you. I just had a follow-up for Jack. So just to clarify, because you’re going to be reporting GAAP numbers going forward.

The guidance you gave, is that a GAAP guidance or a non-GAAP guidance, especially on the EPS number?.

I know that was non-GAAP guidance between $0.01 and $0.05 for Q1?.

Very good. Okay, very good.

And will you be sharing with us some of your non-cash items, stock comp and things like that when you do publish the GAAP numbers?.

Yes, as we’ve – as detailed in the earnings release, there is a full reconciliation between GAAP and non-GAAP. All those items are listed out..

Now that I mean, since you’re moving to GAAP-only, I’m just – I want to make – just wondering what the – what you will be sharing with us going forward?.

I think the clarification there then is, in terms of our guidance, it’s non-GAAP-related. I think the point that you might be making is, we did make an adjustment here in terms of our GAAP revenue to non-GAAP revenue. We had historically had some differences and we clean that legacy item up here in the fourth quarter.

It had no impact on the current quarter, it was more of a legacy item that we were addressing with the change..

Sounds good. Thank you..

We have a follow-up question from the line of Harsh Kumar with Piper Jaffray. Your line is now open..

Yes. Hey, thanks for opportunity to ask a follow-up. Clearly, I mean, your comments sound like things are moving, your company should be able to grow revenues.

I was curious how we should think about operating expenses going forward, particularly into December and then also beyond that as revenue goes?And then my second question was, if you, Jack, maybe if you take out the severance piece, how does the free cash flow look a quarter two, quarters out or whatever timeframe you want to pick to talk about it?.

Yes. So from an operating expense perspective, we came in here in the fourth quarter around $51 million, a little bit north of that. Our guidance kind of get you to that rough range for the Q1 time period. Q1 does have some headwinds that, that we would be facing at the beginning of our merit process.

So, I think coming in at that level feels right.And from a cash flow perspective, as we had mentioned, some of those restructuring items was a headwind that hit us here in the fourth quarter. It’s roughly about $5 million to $6 million that hit us in Q4. So, that should not repeat at those same levels in Q1 and beyond..

Thanks..

And that concludes today’s question-and-answer session. I’d like to turn the call back to Mr. Daly for closing remarks..

Thank you. In closing, Jack and I would like to thank our employees for their efforts throughout the past quarter in the last fiscal year. We have a talented management team, a world-class employee base, and together, I’m confident we can achieve our objectives. Thank you..

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect..