MACOM Technology Solutions Holdings Inc (MTSI) 2014 Q4 法說會逐字稿

Good afternoon and welcome to MACOM Technology Solutions fourth-quarter 2014 financial results conference call.

(Operator Instructions)

As a reminder this conference call is being recorded today, Tuesday, November 18, 2014.

I would now like to turn the call to Leanne Sievers of Shelton Group, the Investor Relations agency for MACOM. Leanne, please go ahead.

Good afternoon and welcome to MACOM Technology Solutions' fourth-quarter 2014 earnings conference call. I'm Leanne Sievers, Executive Vice President of Shelton Group, MACOM's Investor Relations firm. With us today are MACOM's President and Chief Executive Officer, John Croteau and Senior Vice President and Chief Financial Officer, Bob McMullan. If you've not yet received a copy of the press release, you can obtain a copy of MACOM's website alt www.MACOM.com, under the Investor Relations section.

Before I turn call over to Mr. Croteau, I'd like to remind our listeners that Management's prepared remarks and answers to your questions contain forward-looking statements, which is are subject to risks and uncertainties. Because actual results may differ materially from those discussed today, MACOM claims the protection of the Safe Harbor for forward-looking statements, contained in the Private Securities Litigation Reform Act of 1995 and refers you to a more detailed discussion of risks and uncertainties that could result in those differences in MACOM's filings with the Securities and Exchange Commission, including its Form 8-K, filed today, and its quarterly report on form 10-Q filed on August 1, 2014. Any projections as to the Company's future performance represent Management's estimates as of today, November 18, 2014 and MACOM assumes no obligation to update these projections in the future.

The Company's press release and Management's statements during this conference will include discussions of certain non-GAAP measure and financial information. These financial measures and 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 MACOM's website. For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 30 days in the Investor Relations section of MACOM's website.

Now I'd like to turn the call over to MACOM's President and CEO, John Croteau. John, please go ahead.

Thank you, Leanne. Welcome, everyone, and thanks for joining us today.

I'll begin today's call with an overview of our fourth-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 of our execution during the quarter, followed by guidance for the fiscal first quarter of 2015.

Diving straight into the results, revenue for the fourth quarter was $114.3 million. Non-GAAP gross margin was 54.1%, with non-GAAP net income of $17.2 million, or $0.35 earnings per diluted share. During the quarter, gross margin and earnings per share beat the top end of our guidance. Non-GAAP gross margin improved 240 basis points from the prior quarter and 870 basis points from the prior-year quarter, due to our favorable mix, with our new high-margin Networks products exceeding all expectations.

Looking at our results for the quarter, excluding the impact of $5 million of Q3 revenue, which we sold to Freescale during the previous fiscal quarter, revenue growth was strong sequentially and broadly distributed across end markets. Networks grew 12% quarter on quarter, driven by major customer wins and share gains in the optical space.

Multi-Market was up 7% due to continued growth in our catalog business and Automotive was up 9% within the normal range of fluctuations we expect from Ford. This growth was slightly offset by Aerospace and Defense, which was down 5% due to timing of certain radar programs.

Let me now turn it over to Bob to review our fiscal fourth-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 to the most comparable GAAP measure is included in today's earnings Press Release. As this is both our fiscal fourth quarter and fiscal year end, my comments will be first on the quarterly results, followed by the fiscal year.

Revenue was $114.3 million, representing a sequential increase of 1.7%, compared to the reported revenues of $112.4 million in the prior quarter and an increase of 37%, compared to $83.7 million in the fiscal fourth quarter of 2013. Adjusting for the $5 million sale of the business to Freescale in May, sequential revenue growth was actually 6.8%. Revenue by end markets were Networks $55.9 million and 49%, A& D was $21 million and 18%, Automotive was $20.5 million and 18%, and Multi-Market was $16.9 million and 15%.

Gross profit in the fiscal fourth quarter was $61.9 million, or 54.1% of revenue, compared to $58.1 million, or 51.7% of revenues in the prior quarter and $38 million, or 45.4% in the fiscal fourth quarter of 2013. Continued growth margin expansion benefited from selling higher gross margin products. In terms of operating expenses for the fiscal forth quarter, total operating expenses were $35.2 million compared to $34.2 million in the prior quarter and $21 million in the prior-year quarter.

Research and development expense for the fiscal fourth quarter was $18.7 million. This compared to R&D expense of $18.8 million in the prior quarter and $10.1 million in the fiscal fourth quarter of 2013. R&D as a percentage of revenue represented 16.3% in the fiscal fourth quarter compared to 16.7% in the previous quarter and 12.1% in the prior year's quarter.

Selling, general and administrative expenses for the fiscal fourth quarter was $16.5 million. This compared to SG&A expense of $15.4 million in the prior quarter and $10.9 million in the prior year's quarter. SG&A as a percentage of revenue represented 14.4% in the fiscal fourth quarter compared to 13.7% in the previous quarter and 13% in the prior year's quarter.

Income from operations was $26.7 million, or 23.3% of revenue. This compares to $23.9 million, or 21.3% of revenue, in the prior quarter and $17 million, or 20.3% of revenue, in the prior year's quarter. Higher gross profits and margins drove the improvement in operating income and margin in the fiscal fourth quarter.

EBITDA, or earnings before interest, taxes, depreciation, and amortization, was $30 million, up from $27.2 million in the prior fiscal quarter. Interest expense of $4.2 million during the fiscal fourth quarter increased from $3.2 million in the fiscal third quarter as a Term B debt was outstanding for the full fiscal quarter.

Turning to income taxes, our effective income tax rate for the fiscal fourth quarter was 23.5%. This tax rate compares to 23.5% in the prior fiscal quarter and 29% in the year-ago quarter. Before moving on from our income statement, based upon our estimate of utilization of tax and oils from the Mindspeed acquisition, our non-GAAP tax rate for FY15 is expected to be 18%, down from 23.5% in 2014.

Our fiscal quarter net income was $17.2 million, or $0.35 per diluted share, above the high end of our previous guidance range, compared to the fiscal third quarter net income of $15.8 million, or $0.33 per diluted share and net income of $12 million, or $0.25 per diluted share, in the prior year's quarter. The share count used to compute EPS was 48.9 million shares in the fiscal fourth quarter, 48.5 million shares for the third quarter and 48.5 million shares in the fiscal fourth quarter of 2013.

For the fiscal year ended 2014, revenue was $417.6 million, growing 31% over FY13 revenue of $318.7 million. Gross margin expanded 590 basis points to 50.7% over 44.8%. EPS grew to $1.25, or 34% from $0.93 in FY13. We generated $101.1 million of EBITDA in FY14 compared to $72.5 million in FY13. Importantly, in keeping with our reputation as a disciplined acquirer and proven integrator, MACOM's FY14 included four acquisitions, where we delivered on our commitment to investors that acquisitions will be neutral to accretive in the first year to our non-GAAP EPS.

In summary, in FY14 revenues grew 31%, gross margins expanded 590 basis points to above 50% and we delivered 34% EPS growth.

Summing up an excellent year of growth for MACOM, I would like to mention that we were named to Deloitte & Touche's 2014 Technology Fast 500 fastest growing companies in North America. Recognizing the relative youth of the other companies on the list, this award really highlights the is successful rebirth of MACOM as a growth Company.

Back to the fiscal fourth quarter, cash flows from operations were $15.3 million, compared to $14 million in the fiscal third quarter and $1.3 million in the fiscal fourth quarter of 2013. Cash flow from operations for FY14 was $25 million.

Turning to the balance sheet, at fiscal quarter end our cash and cash equivalents were approximately $173.9 million. Outstanding long term debt was $347 million and we had a $100 million in credit availability. Accounts receivable of $75.2 million compares to $75.8 million at the end of the prior quarter and $63.5 million at the end of the year-ago quarter. Day sales outstanding was 60 days compared to 61 days at the end of the prior fiscal quarter and 68 days at the end of the year-ago quarter.

Inventory was $73.6 million, compared to $69.9 million in the prior quarter and $54.9 million in the year-ago quarter. Inventory turns were 2.9 times compared to 3.1 times in the prior fiscal quarter and 3.3 times in the year-ago quarter. Capital expenditures in the fiscal fourth quarter was $6.7 million, or 5.9% of revenue, compared to 3.8% of revenue in the fiscal third quarter and 6.1% of revenues in the fiscal fourth quarter of 2013. Depreciation expense on property and equipment for the fiscal fourth quarter was approximately $3.3 million and $12.9 million for FY14.

I'll now turn it back over to John who will provide our business outlook for the fiscal first quarter of FY15.

Thanks, Bob.

I'd like to begin by underscoring that we believe we're extremely well positioned to benefit from a new infrastructure buildout as global video production and broadcast transitions from high-def to ultra-high-def 4k video resolutions. Market research firm, Strategy Analytics, expects 4k television sales to increase 10 fold by 2020. We believe this trend will be a strong secular growth driver for MACOM in the coming years and that we hold the preeminent position in high performance SDI and cross point switch solutions for 4k video.

Two weeks ago Bob and I had the honor to join our high performance analog team in LA to receive the 2014 Award for Engineering Excellence from the Hollywood Post-Production Alliance. Our 12 gig SDI chip set was recognized as the industry's first to enable 4k video production. Our award-winning portfolio uniquely supports 4k video resolutions at 60 frames per second over a single coax cable or optical fiber.

This award is a wonderful endorsement of our growth strategy in action. We've established an unrivalled technology and product portfolio and a pre-imminent market position in a space that will see strong secular growth for many years to come.

Moving on, last quarter we completed refinancing of our bank facility with an institutional Term B loan and a $100 million revolving credit agreement, which provided us capital to pursue further acquisitions. M & A remains a central element of our growth strategy, serving as an accelerate to success in our target markets. I'm proud to say that since our last earnings call we pulled the trigger on three acquisitions that will expand and accelerate MACOM's success in the optical space.

Starting with the most tactical first, we acquired IKE Micro, a specialized build-to-print house based in Nashua, New Hampshire. The primary purpose of this transaction is to drive COGS reductions and further improve gross margin in our opto-electronics business. The other two transactions represent a much more strategic move to expand MACOM's footprint from purely opto-electronics to now include photonic content, thereby doubling our SAM in the optical component space: same customers, same applications, from fiber to the home to wireless backhaul and big data centers, now double the content.

After the close of trading today we announced the acquisition of BinOptics, based in Ithaca, New York. With this move we anchor our new photonic portfolio with indium phosphide lasers. This placed MACOM's long term strength in manufacturing compound semiconductors in large volume, with high quality and at low costs. As part of MACOM, we plan to scale laser production capacity and drive market share gains in what has been a supply constrained part of our customers' supply chain.

BinOptics is, in fact, the largest pure-play high speed communication laser supplier in the world. Their are highly differentiated etched facet technology, backed by broad patens and strong intellectual property, delivers customers significant system cost savings and a semiconductor cost structure that's consistent with our gross margin aspirations. Sticking to our stated M&A discipline, we expect this transaction will be accretive to gross margin, operating margin and earnings per share in fiscal Q2, our expected first quarter of combined operations.

In September, we acquired Photonic Controls, a small design company based in Corning, New York, bringing core competence in photonic IC, or PIC, design and manufacturing. This part of our business will remain fabless, instead building upon IP and foundry services from large, proven suppliers in this field.

Joining the forces of these two strategic assets, BinOptics and Photonic Controls, with IKE Micro and our already preeminent position in 100 gig optical further distances MACOM from our fragmented competition. We expect this strategy to enable us to provide the lowest cost per bit and the highest speed optical networks for many, many years to come. As we embark on FY15, with these acquisitions, strategic customer wins, and rapidly expanding design wins share in these markets we serve, we believe MACOM is poised to once again deliver double-digit growth on revenue, gross margin expansion, and earnings per share.

Moving to our guidance for the fiscal first quarter ending, January 2, 2015, MACOM expects another quarter of solid performance, with revenue expected to be in the range of $112 million to $115 million. Non-GAAP gross margin is expected to be between 51% and 53% and non-GAAP earnings per diluted share between $0.33 and $0.36 on an anticipated 50 million shares outstanding.

Operator? You may now open the call to questions.

(Operator Instructions)

The first question comes from Quinn Bolton from Needham & Company.

Hello. Congratulations on the nice results. John, wanted to start off with a little bit more information if you could on BinOptics. Could you give us a sense where they play? You also mentioned some capacity constraints in the industry. Is that affecting BinOptics and if so, are you going to have to spend CapEx to increase the production of their lasers?

Yes, thanks by the way, Quinn. Great question, very insightful. We've been tracking BinOptics for the better part of the last year or so. We were aware of the market -- industry dynamics, I should say in the laser space. They're one of three primary semiconductor laser suppliers in the world. The others being Mitsubishi and CyOptics, which was recently acquired by Avago, and what's been evolving is the acquisition of CyOptics was really an integration play for Avago, and Mitsubishi really has, let's just say that this application market space is not of strategic interest to Mitsubishi. I suspect it's rather old technology and not very profitable for them.

In any case, what's evolved is BinOptics really stepped in with the latest, most modern technology, superior cost structure, great products, great performance, and we had noticed that they had been taking an inordinate share of reference design wins as well as customer selections and design wins, to the point where they've been posting actually, I think, close to 100% growth with sustainable models that could sustain as much as 50% growth over the next couple of years.

Very nice profitability models in terms of gross margin and operating margins, consistent with our aspirations so accretive to our current model, and then the opportunity came where they needed to dramatically expand capacity. They were a VC-funded start-up by background, so it naturally came the time for a company like MACOM to acquire and scale the operational capability of the Company. And that's what we plan to do.

Are they capacity constrained currently?

Yes.

Okay.

They've been capacity constrained, the whole industry has been capacity constrained to the point where there's really been supply limitations in the access part of the market, but they also service big data centers, so high growth potential at the end-market level, again with suppliers that have been fading away, so they've got somewhat of an open playing field. To give you the sense of what we plan to do with them, our internal goals, which we are working to underpin, are you can think about integer multiples increases in capacity. So doubling in six months, quadrupling in a year, exponential growth potential and our sense through the customer diligence process is that could all just -- the revenues could scale accordingly. So it's a great upside possibility, even beyond their own internal aspirations.

Great, just two more questions on BinOptics then I'll hand it over to the next caller. BinOptics, are these lasers mostly going into things like PON? Is it more long haul 40,100 gig networks and can you talk a little bit about the synergies with the existing MACOM optical product portfolio? Then for Bob, Bob, is there any financial data you can share about BinOptics and how it comes into the models as we start to think about FY15 and FY16 models, some kind of revenue metric, gross margin target? Anything you could provide would be helpful, thanks.

So they're coming from the more access space that's been historically where the bulk of their revenue was, so 2.5-gig, 10-gig type PON applications, and again very nice profitability even in that more cost-driven space. But absolutely moved up now to 100-gig, a lot of fabulous design wins in the data center space. Actually a lot of the growth this year was driven by wireless backhaul, the buildout over in China, so fabulous position with the who's-who list over there. And then on the data center side, fabulous customer list in terms of the guys who are building out the big data centers. So really teed up for success.

In terms of synergy with our portfolio, it was striking when we went out to do customer diligence for their five top customers, we ended up already with strategic, very personal relationships with executives at all five customers. Literally you can look at our designs for those customers and the lasers sitting right next to our TIAs and modulator drivers, so it's same customer, same applications, but literally doubling the available content for us. Bob?

Quinn, we're looking to close a transaction as -- probably towards the end of the calendar year here in our fiscal first quarter. We plan to update everybody with more specifics around the model at that time. But obviously it's very positive and it will deliver us above the double-digit growth, as John said in his remarks, both on the revenue top line as well as EPS.

Got it. Thank you.

You're welcome.

The next question comes from Erik Rasmussen from Stifel.

Hi this is Erik calling in for Tore. Nice results and great gross margin.

Wanted to just one question on BinOptics and then kind of move on, but -- and then just some of the acquisitions in general. Are we talking about, in terms of revenue for them, are we in the just get a sense of just overall scale of the business. Are we kind of in the millions of dollars type of business, or is it something a little bit smaller than that? It sounds like when you say aspirational is that towards your 60/30 gross and operating margin target model?

Exactly. Good interpretation on the latter part of the question. I would say think about the revenue levels in the tens of millions, scaling through the tens of millions over the next year or two.

Okay. That's annually, correct?

Yes, annually.

And on the optical side, obviously most of the growth has been on the long haul, but what are you hearing from your customers with regards to metro and timing of this market? It sounded like a lot of the growth in the quarter was driven by Networks business.

Oh, there's no question our optical business is off to the races and this BinOptics move and the two other tuck-ins we talked about are all a process of doubling down. One of the things I firmly believe in is when you see the break out you pour it on and that's exactly what we're doing in the space. The customer wins, mega customer wins and all the right guys for all the right products with all the right profitability models, it's all strong up and to the right with, I would suspect to say, no losses.

We're batting a thousand against our traditional competitors. So doubling down is a logical thing to do. Broadening our footprint is a logical thing to do, and I can tell you, I happened to be in China last week as our team was out doing the customer diligence on BinOptics, and there's no question that this elevates us to yet another degree of strategic value to them. Solving the supply chain issues, for this critical component is a big, big, big deal and doing it with a high performance, high quality product is what it's all about.

Great and then just on the other two acquisitions, it sounded like those were more of COGS or reduction, but were there any, is there any kind of revenue contribution baked into your outlook for the December quarter?

I would say to the first approximation, no. The context of the IKE Micro acquisition was, it is a spectacular build-to-print house, great technology, great people, right up the street here in Nashua, New Hampshire. It ended up with our break out in opto, we could pay back on the acquisition within a year, year and a half, less than a year, just on the back of bringing that build-to-print capability in house, just for that business, never mind all the technology and the capability that can now serve as an advanced development, advanced business for us, not just in optical but in aerospace and defense as well.

It's the precursor and then as things scale into production, we can move them over to our Asian subs. So it has a lot of tangible value to us but it's not in the form of big revenue from other customers, at least not yet, but a strategic enabler for growth.

The other one, Photonic Controls, there's a lot of hype around silicon photonics out there in the industry. Photonic Controls is one of the companies, it's really a design house. This is isn't about buying IP and investing in your own proprietary silicon photonics capability. It's building upon the big guys who now have that under their belt and really bringing that to bear within our optical portfolio and again with the transceiver type devices, the PIC devises that we're talking about on the transmit and receive chains, it's just, again, doubling down and piling in the content in that space we're already addressing.

Thank you very much. I'll jump back in.

No problem, thanks.

(Operator Instructions)

The next question comes from Mark Lipacis from Jefferies.

Great, thanks for taking my questions. The first one is for John. What's driving the break out in the optical business? Is it lower cost? Is it the systems coming down lower cost or is it just the demand for the bandwidth continues to grow?

Well the break outs are really twofold. One is, prior to the Mindspeed acquisition last year we had developed a great position in long haul modulator drivers, these are gallium arsenide and indium phosphide based modulated drivers. We had great customer footprint developing even prior to Mindspeed.

Once the Mindspeed team came in, the HPA portfolio came in with transimpedance amplifiers and Clock and data recovery devises and cross point switches, which are coming more from the access market and into big data centers and then both converge on the metro. So it's really all fronts breaking out simultaneously. In the prepared remarks, I talked about the 4k video SDI chip sets and that's one example. On the enterprise side, the CDRs that we have are doing a great job in terms of new customers, entirely new growth areas for that business, for both, obviously for MACOM but also the previous Mindspeed business. It's really break outs on all fronts, simultaneously.

I think the common denominator in a lot of cases are the large telecommunications customers and I think, in fact I know, we're now front and center. Where MACOM was relatively unknown a couple years ago, we're now viewed as a strategic asset that's delivering various flavors of strategically important components. High value, so this is, for the most part, especially when you move beyond the access space, big iron so big ASPs, high profitability, high value, very sticky, long life cycles and so on, so exactly the kind of stuff that we aspire to. Again, to the extent we feel doubling down with more acquisitions is a very logical thing to do.

That's helpful, thank you.

Then perhaps for Bob, could you just review the use of cash going forward? Sounds like you have some -- you're going to be, with BinOptics you'll be signing up for some CapEx uses. To the extent you can quantify that, that would be helpful. And do you have a target leverage ratio or something like this? How should we think about your balance sheet going forward? Should we expect you -- do you have a view of paying down the debt with the new cash or maybe continuing to lever up with more acquisitions? How should we think about that? Thank you.

Mark, to the last question first, we target a comfortable leverage ratio of four times net cash and we're well within that with the acquisition of BinOptics here. Notwithstanding the overall discussion of expanding capacity here, we're still going to be in the general range of 4% of revenues on our overall CapEx for 2015.

I would emphasize that our CapEx primarily is going to support expansion of the GaN capabilities here in Lowell as well as now indium phosphide in Lowell as well as in Ithaca, so it's all within our general financial model, our framework for reinvestment in the business. Short-term, from a cash perspective, the balance sheet, we have growing EBITDA with the acquisition of BinOptics and obviously, we will continue to look at acquisitions as the core element, one of the core elements of growing MACOM and so there are different opportunities to refinance what we have and I think we'll continue to pursue those as -- when the markets are available.

If can add a little more color, too. One of the things that I failed to make clear is in Ithaca, New York, the BinOptics folks have a great factory currently producing the indium phosphide lasers. The first stage of capacity expansion has to do with adding a few tools, improving the operational efficiencies, using what I would suspect would be a little more mature and operational management approaches to maximizing yields, maximizing throughput and so on. The belief is, generally, that we could as much as double the laser capacity within six months just through those very few million dollars of CapEx.

The second thing that was very interesting that we found was our tool set here in Lowell, for our production facility, is 100% compatible with producing the lasers. There is again just a couple of additional tools, couple million dollars needed and we can replicate everything that will be in Ithaca, doubling yet again capacity and producing, yielding a dual source copy exact for these lasers which is a big, big deal to the telecommunications industry.

As you can imagine, we don't breath earthquakes here but fires have been known to happen in factories and blizzards and what have you and having uninterrupted supply with multiple factories copy exact is a big selling point. So that synergy with our core competence and compound semiconductor manufacturing and very sophisticated stuff. This isn't just indium phosphide but this is black art laser production, is right in our strong suit.

That's very helpful. Thanks for the color, John and Bob.

Thanks.

The next question comes from Blayne Curtis from Barclays.

Hey. Can you hear me?

Yes. How are you doing?

Thanks. I'm doing all right. Busy week here. Great quarter. I just apologize if this was asked earlier, John, but I just was curious, the applications of the indium phosphide as far as other products of the synergies there.

Sorry, the synergies and leverage with our side of the portfolio with BinOptics? Was that the question?

Would you have other semiconductor applications for the indium phosphide?

Oh. Beyond the optical laser stuff. Yes, there's some very, very interesting things that BinOptics, as a privately held company, could not pursue, fairly explosive stuff like disk drives, reading heads, would be one of them. But they have actually GaN-based lighting drivers for automotive and other applications, as well as indium phosphide-based similar type things, so it is not just an optical communications technology.

They also talk a lot about silicon photonics, but the silicon photonics, they are on the other side and I'd describe it more as connectivity, so photonic connectivity. If you read about what Intel is interested and ST Micro is interested with silicon photonics, they are basically needing to get the point of using photonics for connectivity between chips and the etched facet technology that they have is ideal to service that application for various reasons. This has upside potential that's just geometrically exciting. Very, very exciting and we, I think we have the wherewithal to really bring that to fruition, whereas a private company they could not.

And then just second question, and once again I apologize if this is already, asked but on the GaN side, in terms of next milestones, clearly your competitor doing GaN on carbide laid out some applications in cable and base stations. Where are you in terms of ramping your supply partners and bringing products to market?

Yes, so we've got the material supply under our belt with IQE. That's a big, big deal because material cost is actually the dominant factor when you talk about GaN on silicon versus GaN on silicon carbide, because it's the substrate material that costs so much. From a wafer processing standpoint, we've got the four-inch production already under our belt. We've got six-inch, eight-inch partners with wafers in process and I'm hopeful that in the coming month or few months we'll be able to come public with those. We're really aligning that supply chain with the key application requirements.

You mentioned base stations, with GaN on silicon carbide, especially as you look forward as a replacement for more mainstream LDMOS, and as you start getting into 4G LTE moving to 4.5 and 5G, it really plays into an economic model that really requires the GaN on silicon cost structure, so one of the things, given my background in that space, I wanted to make sure is that I've got a supply chain that can scale properly. You're probably aware of the supply constraints in the base station world this year, so you can understand why customers consider supply chain flexibility paramount. That has to be done properly and the ground work has to be laid with the right people with the right economic incentives to have the capacity in place to service that upside. It just takes time to get those partners lined up with lines proving yielding wafers appropriately. We don't want to publicize something before it's ready, but lots of progress behind the scenes both on the customer front, as well as supply chain partner front.

Great. That's all I have. Thanks.

Super. Thanks, Blayne.

I am showing no further questions. I would now like to turn the call back over to John Croteau.

Very good. A couple of final notes to close today's call. We'll be attending the Barclays conference in San Francisco on Tuesday, December 9, and we would like to welcome the opportunity to meet with any investors that are planning to attend. Additionally, we also plan to host investor meetings in Los Angeles and San Diego areas in early December. Please feel free to send us an e-mail at ir@macom.com if you're interested attending any of these meetings. Thanks again for joining us for today's call and I look forward to reporting our fiscal first-quarter results in early 2015. Operator, you may now disconnect the call.

Ladies and gentlemen, that does conclude the conference for today. Again, thank you for your participation. You may all disconnect. Have a good day.