MACOM Technology Solutions Holdings, Inc. (MTSI) Earnings

Management highlights

- General Strategic & Workforce Updates - The company completed a successful internship program tied to long-term workforce development, and published an updated 2026-2030 growth strategy plan to the board of directors, refined based on market dynamics, lessons learned, and evolving priorities. - MACOM maintains a strategy of building a best-in-class, diversified business focused on capturing growth in large, expanding end markets. - Financial Performance Highlights - Fiscal Q3 2026 set multiple company records: total revenue of $342.2 million, all-time high quarterly bookings, and a book-to-bill ratio of 1.6:1, providing strong business visibility. - Adjusted gross profit hit $204.2 million (59.7% margin), up 120 basis points sequentially, driven by higher fab utilization from increased product demand and operational efficiency improvements. Adjusted operating income reached a record $107.7 million (31.5% margin), up 33.9% sequentially and 69.6% year-over-year. Adjusted net income rose 30.2% sequentially to $109.8 million, with adjusted diluted EPS of $1.40, up from $1.09 in Q2. - Cash flow from operations was $80 million, up $1.3 million sequentially. Inventory turns increased to 2.0x, up 0.1 from the prior quarter, and day sales outstanding improved to 48 days from 50 days in Q2. - Operational & Capital Updates - The company is actively expanding manufacturing capacity across its fabs, with new capacity coming online through the remainder of fiscal 2026 and into 2027. New capacity projects typically come online within one year of initiation, limiting execution risk. - Fiscal 2026 capital expenditures are projected to total $60-$65 million, with most spending allocated to expanding production capacity and enhancing R&D capabilities to meet growing customer demand. - MACOM completed a $61 million strategic investment in IQE during Q3, which is expected to strengthen supply chain resilience and competitive positioning. As of quarter-end, the company held $663 million in cash, cash equivalents, and short-term investments, with a net cash position of ~$322.5 million. - R&D investment has doubled over three years, rising from ~$132 million in 2023 to a projected ~$250 million in fiscal 2026, to support new product development and capacity expansion.

Guidance

- Fiscal Q4 2026 (ending October 2, 2026): Revenue is guided to $415-$425 million, adjusted gross margin to 60%-61%, adjusted operating margin to approximately 37%, and adjusted diluted EPS to $1.97-$2.03 based on 78.9 million fully diluted shares. Cash flow from operations is expected to exceed $100 million. - Fiscal 2026 full-year capital expenditures are expected to land in the $60-$65 million range, and the adjusted income tax rate is expected to remain at 3% for Q4 2026. - Management expects sequential gross margin improvements through the remainder of fiscal 2026 and into fiscal 2027, with 25-50 basis point of sequential improvement per quarter expected after Q4 2026. - The adjusted income tax rate is expected to rise from the current 3% to mid-single digits during fiscal 2027, driven by increasing profitability and jurisdictional income mix changes. - For full fiscal 2027, annualized growth from the Q4 2026 guidance midpoint projects mid-20s (27-28%) total company year-over-year growth, with 50% year-over-year growth projected for the high-growth Data Center segment as a base case. - Fiscal 2027 capital expenditures are expected to be similar to fiscal 2026, remaining around the $60 million range, including infrastructure for the planned CW laser ramp. The company targets breaching the 40% adjusted operating margin threshold in fiscal 2027. - LEO satellite programs for the Telecom segment are expected to start production at the end of 2026 and early 2027, driving growth through 2028 and beyond. Material growth in European defense revenue from the company's European fab is expected to begin in 2028, following 6-inch production line conversion completion.

Segment performance

MACOM operates three product end-market segments: Data Center, Industrial & Defense (IND), and Telecom. Aggregate fiscal Q3 2026 total company revenue was $342.2 million, up 18.4% sequentially and 35.8% year-over-year, with growth led by Data Center, followed by IND, then Telecom. For the upcoming fiscal Q4 2026, management guided: ~35% sequential revenue growth for Data Center, ~20% sequential growth for Industrial & Defense, and low single-digit sequential growth for Telecom. No absolute revenue figures or revenue contribution percentages were provided for individual segments in the call transcript.

Risks & headwinds

- NPO development programs carry inherent uncertainty: not all active development projects are expected to reach mass production, with commercial revenue not projected to begin until 2028 at the earliest. - Negotiations with the U.S. CHIPS Program Office currently include non-negotiable terms in the draft definitive agreement that remain unresolved, creating uncertainty around the expected government co-funding for fab expansion. - Input cost inflation for labor, electricity, utilities, and raw materials is ongoing, and full cost pass-through to customers is not always possible. - Strong demand has increased fab utilization, leading to longer quoted lead times for in-house manufactured products, which could create customer satisfaction or order risk if not managed. - Proposed regulatory restrictions on Chinese pluggable transceiver manufacturers create uncertainty around customer mix shifts, even as management expects MACOM to follow demand to new transceiver suppliers.

Analyst Q&A

• Q: Tom O'Malley (Barclays) asked what specific products are driving Data Center strength and the 1.6 segment book-to-bill, and what the baseline growth expectation is for fiscal 2027. /

  A: Management stated Data Center growth is broad-based across all product lines and data rates: the primary driver is 200G PAM4 products for pluggable optical modules, with 100% year-over-year growth in ZR/ZR Lite products and strong double-digit growth in 100G per lane products and legacy 25G per lane products. The high book-to-bill is primarily driven by 1.6T and 800G platforms. For fiscal 2027, annualizing the Q4 guidance midpoint gives a baseline of 27-28% total company growth and 50% year-over-year Data Center growth, with the strong book-to-bill through 2026 putting the business in a strong position to start 2027.\n\nQ: Blaine Curtis (Jefferies) asked when the Telecom segment will accelerate and how LEO satellite growth will roll out, and what incremental gross margin improvements will look like going forward. / A: Management said Telecom is on track for double-digit growth in 2026, with similar or better growth expected in 2027. Multiple major LEO programs will launch production in late 2026/early 2027, driving growth for 2-3 years across direct-to-sell RF products, millimeter-wave backhaul, free-space optics, and optical ground station amplifiers. For gross margins, sequential quarterly improvements are expected to continue, but will moderate to 25-50 basis points per quarter after Q4 2026 as margins rise, compared to 120 basis points of improvement in Q3 2026.\n\nQ: Vivek Arya (Bank of America) asked how a potential ban on Chinese pluggable module manufacturers would impact MACOM, what 2026 SAM is and if share gains are expected in 2027. / A: Management noted MACOM's Data Center growth is driven by U.S. hyperscalers that select components directly, so if regulations force a shift to non-Chinese module suppliers, MACOM will follow the demand to the new suppliers. MACOM has relationships across all industry transceiver suppliers, and only has 85 China-based employees focused on sales and logistics with no China-based manufacturing, with most products sold into China ultimately exported to the U.S. The 2027 total SAM increased 20-30% from 2026 to $15 billion, split evenly as $6 billion each for Data Center and Industrial & Defense and $3 billion for Telecom, driven by growing end-market demand, new product programs, and expanding addressable market, with share gains expected across all segments.\n\nQ: Quinn Bolton (Needham) asked what MACOM's position is in the emerging NPO market, and what could drive further Data Center growth acceleration in 2027. / A: Management confirmed MACOM will remain a component supplier for NPO and will not build full optical engines, supplying the required driver and TIA components that meet new, higher density and lower power requirements for NPO. MACOM has 10-20 active NPO development projects with most leading OEMs, with revenue not expected until 2028. Further 2027 Data Center acceleration will depend on existing design wins ramping to production as capacity expands. MACOM has doubled R&D spending in three years to support new product development including CW lasers, where qualification testing data is currently exceptional, building confidence in future market traction.