Welcome to MACOM's Fourth Fiscal Quarter 2025 Conference Call. This call is being recorded today, Thursday, November 6, 2025. I will now turn the call over to Mr. Steve Ferranti, MACOM's Vice President of Corporate Development and Investor Relations. Mr. Ferranti, please go ahead.

Thank you, Olivia. Good morning, and welcome to our call today to discuss MACOM's fourth quarter and year-end financial results for fiscal year 2025. 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 a more detailed discussion of the risks and uncertainties that could result in those differences, we refer you to MACOM's filings with the SEC. Management's statements during this call will also include discussion of certain adjusted non-GAAP financial information. A reconciliation of GAAP to adjusted non-GAAP results is provided in the company's press release and related Form 8-K, which was filed with the SEC today. With that, I'll turn over the call to Steve Daly, President and CEO of MACOM.

Thank you, and good morning. I will start today's call with a general update about the company. Following that, Jack Kober, our Chief Financial Officer, will discuss our Q4 and full year results for fiscal 2025. After Jack finishes, I will give guidance on revenue and earnings for the first quarter of fiscal 2026, and then we will open the floor to questions. Revenue for the fourth quarter of fiscal 2025 was $261.2 million, and adjusted earnings per share was $0.94 per diluted share. For the full year, fiscal year 2025 revenue reached $967 million, a year-over-year increase of over 32%, with an earnings per share of $3.47, up more than 35% year-over-year. We generated $193 million in free cash flow and closed the year with approximately $786 million in cash and short-term investments on our balance sheet. Our book-to-bill ratio for Q4 was just above 1.0:1. In our turns business, orders booked and shipped within the quarter made up 14.5% of total revenue. For the entire fiscal year 2025, our book-to-bill was 1.1:1, and our current backlog is at an all-time high. Looking at our recent booking trends and end markets, revenue performance for Q4 by end market met our expectations, with Industrial & Defense at $115.6 million, Telecom at $66 million, and Data Center at $79.6 million. In this quarter, Industrial & Defense revenues increased approximately 7% sequentially, Data Center was up about 5% sequentially, and Telecom saw a slight decline sequentially. Both Industrial & Defense and Data Center revenues set records both annually and quarterly. A few years back, we set a target of achieving $1 billion in annual revenues, and I am happy to report that with our guidance for Q1 of 2026, we expect to reach this milestone based on our trailing 12-month performance. Congratulations to all our employees as we approach this significant achievement and, more importantly, for strengthening our foundation to foster ongoing growth and improved profitability. New products are essential for future growth. In fiscal year 2025, we launched over 200 new products, setting a record. Additionally, we executed numerous custom design projects across our three primary markets. Our capability to provide competitive new products promptly ultimately boosts our financial performance. Metrics indicate that our new product introductions, which are products less than three years old, have outpaced MACOM's overall revenue growth and positively impacted our gross margins. We remain focused on technology and product differentiation across our portfolio, often leading to the development of integrated circuit products that work at the highest frequencies, powers, or data rates. The growing trends across our end markets, combined with our expertise in integrated circuit design and manufacturing, are generating more revenue opportunities. To leverage these trends, we have been increasing our R&D spending, hiring additional engineers, and acquiring companies with specialized complementary design skills. In connection with this, we plan to launch two more IC design centers in the coming months, one in Southern California and the other in Central Europe, where we have secured specialized talent and teams. Hiring top-tier engineers with complementary skills will support our efforts to increase our addressable market and seize upcoming growth opportunities. We prioritize recruiting designers with advanced silicon design expertise. On Tuesday, we announced an agreement with Hughes Research Laboratories to transfer their 40-nanometer GaN on Silicon Carbide process known as T3L to MACOM. With this agreement, MACOM will be the exclusive licensee with manufacturing rights for the T3L process, which is an industry-leading high-frequency GaN on Silicon Carbide technology developed with funding from DARPA, the Department of Defense, and HRL. T3L was designed to deliver outstanding high-power performance at very high frequencies. HRL has completed long-term reliability studies and has qualified the process, making it ready for production. The T3L 40-nanometer process fits seamlessly with our existing GaN portfolio as it allows us to target applications at higher frequencies than our 140-nanometer GaN process. We believe that licensing this technology will accelerate our launch of other sub-100-nanometer GaN processes, including 90-nanometer. This transaction benefits both parties: HRL can commercialize the process technology they have developed, while MACOM can industrialize and scale it into production. Many of our shared customers in defense and space markets require the T3L process to be in a production wafer fab to meet their volume demands. This strategic move aligns with our core principle of producing the highest frequency semiconductors in the industry. We see growth within the GaN MMIC market, driven by new requirements in Q, V, E, and W bands for both commercial and defense applications. In terms of GaN on Silicon Carbide, we have secured several new and additional development programs for advanced GaN on Silicon Carbide technologies over the past few quarters. Within the Department of Defense agencies, MACOM is recognized as a leader in developing advanced compound semiconductors, and our pipeline of funded technology development contracts is expanding. For context, our GaN-based components and products in the defense, radar, and electronic warfare markets experienced over 50% year-over-year revenue growth. This growth takes advantage of our high-power GaN portfolio, which maintains a competitive position in low and mid-band applications. Our aim is to penetrate the higher frequency airborne radar market, where we see potential for market share gains. To support this strategy, we have recently enhanced the RTP Fab's G28V5 150-nanometer GaN on Silicon Carbide process to incorporate atomic layer deposition passivation, which prepares MMIC products for moisture and HASS tests. This method is among the most reliable and robust in the industry, well-suited for ground-based radar systems and SATCOM links, and it is ready for airborne applications. Across the defense sector, there is a shift towards systems exhibiting higher frequencies, power levels, bandwidth, and integration, all strengths of MACOM. We collaborate with several major U.S. defense contractors across various applications. For instance, we are working with a customer producing a drone defense system, and we anticipate their production ramp-up in 2026 using our high-power GaN technology. Additionally, we are forming new relationships with prominent European defense contractors who are increasingly focused on securing a domestic supply of critical semiconductors. We believe our manufacturing facility in France can significantly enhance MACOM's ability to gain market share with these customers. Regarding industrial markets, conditions are stable and starting to improve, although we do not foresee substantial growth in the near term compared to the Data Center, defense, 5G, and SATCOM sectors. In the telecom market, opportunities in satellite-based broadband access and direct-to-cell are strong, with many LEO networks in the planning and development phases. These networks commonly deploy microwave or millimeter wave frequencies and free space optics for communication links. Certain satellite transmitters may require analog microwave linearization to enhance the transmitted signal and improve link margin. It's worth noting that the number of LEO constellations is rising, and numerous companies are competing to offer commercial data, voice, and video communications via satellite. Almost a dozen companies are currently planning launches of LEO constellations that support direct-to-cell or direct-to-device communications. Again, there are numerous areas where MACOM can contribute to these initiatives, including direct-to-device links operating at UHF or S-band, backhaul links at Ka, Q, V, and E-band, high-speed optical links for data transfer within satellites, and free space optics for satellite-to-satellite communications or gateway linearization for high-power transmitters. Depending on customer needs and capabilities, we position ourselves to support them at any level of the supply chain, from foundry services and custom IC design to standard products and complete module and subsystem design and manufacturing. Demand from our cable TV infrastructure market is also on the rise. Cable networks are beginning their transition from DOCSIS 3.1 to DOCSIS 4.0. Over the past two years, we have developed new products and collaborated with customers on design wins to facilitate this upgrade. We are starting to see new orders for our DOCSIS 4.0 products. Our current portfolio includes amplifiers, baluns, couplers, and filters for line amplifiers and nodes in these deployments. We expect the cable TV market to contribute to our Telecom revenue growth in fiscal year 2026. We continue to see robust demand from our Data Center offerings, especially within 800G and 1.6T applications. We anticipate that the ramp-up of 1.6T optical solutions will continue to support both scale-up and scale-out interconnects, and we believe demand is accelerating quickly. Within these solutions, MACOM provides drivers and TIAs that are compatible with EML and silicon photonic architectures. Moreover, we foresee a significant year-on-year increase in demand for our photonics semiconductor products throughout fiscal year 2026. Notably, we are encouraged by the increasing acceptance of our 200-gig per lane photodetector products, which facilitate advanced 800G and 1.6T optical connectivity. MACOM's 200-gig photodetector boasts industry-leading sensitivity and dark current performance, empowering our customers to achieve better manufacturing margins and optical receiver sensitivity. We believe we have achieved a breakthrough as our cloud customers and their supply chains recognize MACOM's proprietary indium phosphide technology and high-volume manufacturing capabilities for photonic product production. We are pleased to have secured design wins for photodetectors across all major module manufacturers for 800G and/or 1.6T applications. A few quarters ago, we began moving the 200-gig photodetector process from our smaller Michigan facility to our larger Massachusetts facility to meet forecasted demand. Currently, our Ann Arbor facility is nearing full capacity, while our Massachusetts facility is qualified and ramping up volume production. In addition to focusing on increasing production of photodetectors, we have intensified our development efforts for continuous wave laser technology as customers and the industry seek reliable suppliers with high-volume capabilities. We also observe steady adoption of single-mode LPO 100-gig per lane solutions, with multiple customers currently in production and more expected to transition into production in fiscal year 2026. Additionally, we continue to support emerging architectures, including near-packaged optics, utilizing non-retimed LPO solutions. As data centers move towards disaggregating memory and compute, we foresee an adoption surge for PCIe 6 solutions, presenting an opportunity for MACOM. At this year’s ECOC trade show in September, we showcased our latest linear optical PCIe chipset, which consists of a VCSEL driver and TIA that supports sideband data streams over fiber. We are also broadening our portfolio in high-speed electrical connectivity. As data speeds climb to 200-gig per lane and beyond, copper-based solutions, such as direct-attached cables, approach their functional limits. MACOM offers a range of linear equalizer products that can enhance the reach of copper interconnects at 1.6T. As we progress through fiscal year 2026, we believe these solutions will attract interest from major cloud vendors implementing next-generation technologies. Additionally, we are identifying opportunities for these products in backplane applications to improve onboard signal integrity. As we set our sights on fiscal year 2026, our priorities will include fully capitalizing on the data center growth opportunity and providing our customers with differentiated solutions. This encompasses expanding our portfolio into new product areas such as photodetectors and lasers where we can add value. In the short term, we aim to increase our market share in 800G and 1.6T high-speed analog solutions, broaden our customer base for linear equalizers and PCIe solutions, ramp up production of photonic products, and support customer LPO launches. We will also continue our design work to establish leadership in 300 and 400-gig per lane connectivity ICs for future 1.6T and 3.2T systems. Secondly, we will seek to enhance our market share in the 5G space by leveraging our new and improved GaN4 process. Our next-generation base station products will be refined with in-sourced IPD and matching circuits to improve performance and lower manufacturing costs. Thirdly, we will focus on extending our leadership in aerospace and defense while gaining market share in microwave and optical RF over fiber applications across key U.S. accounts and working to broaden our business in Europe, supporting new defense and space programs like IRIS2. Fourth, we will continue advancing semiconductor technologies for high-frequency MMICs, high-power diodes, and high-speed optical semiconductors. Our goal in fiscal year 2026 is to make significant progress on hot-via flip-chip and bump technologies, such as copper pillars, to position MACOM as a leader in advanced chip-scale package solutions. Lastly, we will manage our capital expenditures prudently, prioritizing investments that expand our manufacturing capabilities and support new technology developments. For instance, we plan to purchase and install a modern MOCVD epi reactor in our European Semiconductor Center, which will facilitate our transition to 6-inch production and increase volumes of GaN on Silicon and other gas processes. In summary, our strategy focuses on developing a diverse semiconductor portfolio that allows MACOM to capture a larger share of our target markets. Our strong organizational foundation, combined with our speed and flexibility, enables us to seize opportunities and outperform competitors that often have more resources. Jack will now provide a detailed review of our financial results.

Thank you, Steve, and good morning, everyone. Before getting into our fourth quarter results, I would like to summarize a few items regarding our full fiscal year, which ended on October 3, 2025. We achieved record revenue of $967 million, which grew more than 32% over fiscal 2024. Our annual adjusted operating margin grew by 140 basis points to 25.4%. Adjusted earnings per share grew by more than 35% to $3.47. Cash flow from operations continued to strengthen and increased by 45% to $235.4 million. We refinanced and extended the maturity of the majority of our convertible note debt at favorable rates. Our workforce, which now totals approximately 2,000 employees, grew by 17% over the past year as we have expanded our research and development and production employees to support our growing business. Now on to fourth quarter results as well as some additional commentary on the full fiscal year 2025 and outlook on fiscal year 2026. Q4 revenue again reached record levels with strong financial performance across all three end markets and record revenue across Data Center and Industrial & Defense. This sustains a trend of consistent revenue growth, improving operating income, and ongoing cash generation. Fiscal Q4 revenue was a new quarterly record of $261.2 million, up 3.6% sequentially and up 30.1% year-over-year, driven by growth across all three of our end markets. Our overall book-to-bill for Q4 was 1:1. On a geographic basis, revenue from U.S. domestic customers represented approximately 43% of our fiscal Q4 results. Our full fiscal year 2025 U.S.-based revenue was approximately 44%. Adjusted gross profit for fiscal Q4 was $149.1 million or 57.1% of revenue. Through the hard work and our dedicated operations team, we have continued to increase capacity and improve yields, and we expect to see ongoing incremental progress across all four of our fab operations. I'll note, we are seeing an improvement in product demand across our internal fabs, which is driving higher production volumes and associated utilization. As a result, we expect sequential quarterly gross margin improvements of between 25 to 50 basis points as we move through fiscal 2026. These gross margin improvements include any offsets to cost increases, such as gold and other precious metals, depreciation, and labor costs. Total adjusted operating expense for our fourth quarter was $82.1 million, consisting of research and development expense of $55.6 million and selling, general and administrative expenses of $26.6 million. The sequential increase in adjusted operating expenses compared to Q3 was primarily driven by ongoing R&D investments and employee-related costs. As we continue to grow our revenue, we will remain very focused on managing our OpEx. Depreciation expense for fiscal Q4 2025 was $8.7 million compared to $6.9 million in Q3 2025. The increase was primarily due to taking control of the RTP Fab during the quarter. As a reminder, since we have taken control of the RTP Fab, we have shifted from purchasing wafers from a third party to manufacturing wafers, resulting in MACOM now incurring all of the associated manufacturing costs, including labor, facilities and depreciation, to mention a few. Adjusted operating income in fiscal Q4 was $67 million, up 5.5% sequentially from $63.5 million in fiscal Q3 2025 and up 32.1% year-over-year. For fiscal Q4, we had adjusted net interest income of $6.6 million, a net decrease of $200,000 sequentially from $6.8 million in Q3, primarily driven by lower interest rates and interest expense associated with new leases. Our adjusted income tax rate in fiscal Q4 was 3% and resulted in an expense of approximately $2.2 million. As of October 3, 2025, our deferred tax asset balances, which includes R&D tax credits, were $208 million as compared to $212 million at the end of fiscal 2024. We anticipate further utilizing our deferred tax asset balances through fiscal 2026 and beyond, helping to keep our cash tax payments relatively low over these periods. We expect our adjusted income tax rate to remain at 3% as we enter fiscal 2026. Depending on the jurisdictional mix of our income, we expect the U.S. government's recent tax legislation to support a low to mid-single-digit adjusted tax rate for the next few fiscal years. Fiscal Q4 adjusted net income increased approximately 4.7% to $71.4 million compared to $68.2 million in fiscal Q3 2025. Adjusted earnings per fully diluted share was $0.94, utilizing a share count of 76.2 million shares compared to $0.90 of adjusted earnings per share in fiscal Q3 2025. Our team continues to optimize the business' performance, which has resulted in sequential increases in our adjusted operating income and EPS over the past nine quarters. Before moving on to balance sheet items, I would like to note that during the fourth fiscal quarter, in connection with the RTP Fab transfer, we recorded a $10.1 million gain on acquired assets, which is recorded below operating income on our income statement. This gain, which has been excluded from our adjusted operating results, primarily represents the difference between the fair value of inventory we received from the prior fab owner on July 25, 2025 as compared to the estimated value we established in December 2023 at the time of the RF business acquisition. Now on to operational balance sheet and cash flow items. Our Q4 accounts receivable balance was $148.6 million, up from $129.5 million in fiscal Q3 2025. The increase in our accounts receivable balance was driven by revenue growth as well as the timing of customer shipments and payments. Our day sales outstanding averaged 52 days as compared to our previous quarter at 47 days. Inventories were $237.8 million at quarter end, up sequentially from $215.4 million, largely driven by additional work-in-process inventory at the RTP Fab as well as higher balances to support anticipated future demand across the business. Inventory turns decreased to 1.9x from 2.0x in the preceding quarter. Our fiscal Q4 cash flow from operations was approximately $69.6 million, up $9.2 million sequentially and an increase of more than $7.3 million over fiscal Q4 2024. The sequential increase was primarily due to increased net income combined with fluctuations in working capital. Capital expenditures totaled $20.2 million for fiscal Q4, up $11.5 million sequentially. The major driver of this increase was the anticipated purchase of $12 million of surplus equipment at the RTP Fab from the previous owner. We anticipate that the installation of this and other equipment will allow us to expand our RTP Fab capacity and capabilities by up to 30% over the next 12 to 18 months. Our fiscal year 2025 CapEx was $42.6 million, and we estimate fiscal year 2026 CapEx to be $50 million to $55 million as we upgrade and enhance our production equipment, facilities and expand capacity where needed. Next, moving on to other balance sheet items. Cash, cash equivalents and short-term investments for the fourth fiscal quarter were $786 million, up $50.7 million from Q3. We are in a net cash position of more than $285 million as of October 3, 2025, when comparing our cash and short-term investments to the book value of our convertible notes. Over the next couple of quarters, we anticipate paying off the $161 million of principal value of our remaining March 2026 notes as they become due under the terms of the original agreement from 2021. And finally, I'd like to recognize that the results we have achieved during fiscal year 2025 would not have been possible without the contributions from the entire MACOM team. We remain committed to investing in our employees through annual merit increases, promotions, bonuses and stock awards as well as offering competitive healthcare, retirement and other benefits. I will now turn the conversation back over to Steve.

Thank you, Jack. MACOM expects revenue in fiscal Q1 ending January 2, 2026, to be in the range of $265 million to $273 million. Adjusted gross margin is expected to be in the range of 56.5% to 58.5%, and adjusted earnings per share is expected to be between $0.98 and $1.02, based on 76.6 million fully diluted shares. We expect sequential revenue growth in all our end markets. Data center will lead with approximately 5% sequential growth, followed by Telecom and Industrial & Defense with low single-digit sequential growth. As Jack mentioned, we expect to see increased operating leverage over the course of fiscal '26, through a combination of top line growth and improving gross margins due to increased fab utilization and launching more profitable products. We will maintain operating discipline even as we continue to invest in the growth of the business. Given our talented and experienced team, our core technologies and the secular growth trends in our market, we are confident we will achieve our goals. I would now like to ask the operator to take any questions.

Our first question comes from Tom O'Malley with Barclays.

This is Kyle Bleustein on for Tom O'Malley. I just wanted to start off with the Telecom business. I think through earnings, you've seen a couple of companies point to traditional telecom being better. So I just wanted to kind of get your sense of how you think about that business through the fiscal year kind of the biggest pull factors you're seeing there?

Thank you for the question. The two main pull factors for MACOM this year will be 5G continuing to grow, and that's a core business for MACOM. And second would be the satellite communications and LEO business. If you're referring to the RF-related telecom part of the market, if you're talking about the metro long-haul piece, we are seeing continued growth in that business, and we expect that trend to continue during the year.

And then just for my follow-up, last quarter, I think you talked about broadening some of the ACC engagements. Can we kind of get an update on how that's been progressing over the past 90 days? Have you seen any of those engagements turn into the customers? And just how we should kind of think about that business through the next fiscal year?

Yes, we continue to be engaged across the industry with all different product lines, including the chipset we put inside the ACC product line. I would say, generally speaking, we have great engagements with the major hyperscalers, and we're certainly excited about some of the potential within that product set. And we'll see how that plays out as we move into the course of the year. We don't generally comment on, let's say, pre-revenue topics. We would always talk about our successes retrospectively, and that would be our approach here as well.

Our next question coming from the line of David Williams with the Benchmark Company.

Congrats on the $1 billion run rate. Maybe first, just kind of the transition and the demand pull between the 100G and 200-gig that next-gen kind of solution, how are you seeing that? And maybe are the demand trends developing as you would have expected or maybe accelerated a bit?

Thank you for the question. So our core 100G business, last year, was very stable and actually grew quite nicely. And as we look out into our fiscal '26, we would expect the 100G growth trend to continue. However, the massive growth is really at the higher data rates. So that would be 200 gig per lane servicing primarily 1.6T. And we are very early in the cycle of the rollout of those interconnects. And so that is one of the fastest-growing parts of our Data Center business. It was last year, and we believe it will be as well again in fiscal '26.

Great. And then just maybe on some of the new capabilities you talked about the acquisition in the quarter, just any color there around the magnitude of that and really the capabilities you think that brings. And you talked about some of them. But just any additional color, I think, would be helpful.

Yes. You were referring to the HRL IP license agreement. Is that right?

Yes, yes, I'm sorry. That's correct.

Thank you for the question. This technology complements our GSIC140 process that we launched a couple of years ago, which we are still improving. The HRL technology was jointly funded by the U.S. government and HRL to develop a capability that can operate at higher power levels and frequencies, particularly above 40 gigahertz. This transaction is crucial as it enables us to serve the increasingly important higher-frequency SATCOM bands for LEO constellations. We expect a shift from pHEMT gas technology to GaN technology at these frequencies, and we are positioned to lead that transition. The advantages of switching include a GaN amplifier with nearly double the power density compared to pHEMT and 10 points higher efficiency. Therefore, we believe that LEO constellations and our customers will want to adopt this technology as soon as it is available in our facility.

Our next question coming from the line of Harsh Kumar with Piper Sandler.

Congratulations on some great results. Steve, if I look at your guidance, I think there's a little bit of a step-up in growth. Just at a broad level, I mean you talked about multiple drivers. But if I had to specifically ask you about what is driving the step-up in growth, how would you characterize that? And I have a follow-up.

Are you referring to Q1 specifically or in general?

Yes, yes, the December quarter.

Well, I think it's, first and foremost, driven by the continued rollout of 1.6T and 800-gig platforms across various customers with various products. That is absolutely driving the growth. And then I would say the other factor is we're seeing a little bit of a bounce back in Telecom. As you know, going Q3 to Q4, it was sequentially down a little bit, really due to the timing of orders and also just continued strength in our Defense business. And then the other thing I'll add, as we really are at the beginning of our fiscal '26, our October bookings were one of the best months we've had in years. And so we're really excited to start the year with a strong backlog and a lot of momentum.

Fair enough. Steve, you've discussed satellites in depth during this call, which is something you haven't done before. You've mentioned satellite, but not to this extent, particularly regarding LEO satellites. Could you help us understand the timing for these new products and the scale of the business? Where do we currently stand, and how large could it potentially grow? Additionally, regarding LPO, it seems you've started shipping. Could you provide insights on the market size for 2026?

Thank you, Harsh. The current LEO business is included in our Telecom numbers, and we prefer not to separate that specific sub-market within Telecom. The timing is right, and we are ramping up. We expect our LEO business to grow over the next 12 to 18 months, potentially reaching hundreds of millions of dollars, indicating it is a significant market. We support this business at the chip, module, and subsystem levels. When discussing LEO constellations, it's important to note that this includes not only the satellite payload but also the ground gateways and terminals, which are valuable products. Regarding the LPO question, we previously mentioned having one customer in production, and that number has now tripled to three and continues to grow. We expect this number to keep increasing as the industry adopts LPO. We prefer not to estimate the market size because it heavily relies on customer deployments, which is hard to predict. We have our internal models, but we're aware there could be inaccuracies in those estimates. Our competitive advantage with LPO is significant since it does not utilize DSP, which alters the competitive dynamics considerably. Additionally, our LPO solutions are currently operating at 100-gig per lane.

Our next question coming from the line of Karl Ackerman with BNP Paribas.

Steve, you spoke of record backlog, but does that include a record backlog for datacom products such as TIAs, drivers and PDs? And as you address that, can you quantify the level of order visibility with your customers, perhaps in terms of quarters as you seek to add capacity to fulfill this customer demand?

Yes. Thank you. We don't really break the backlog out by product line or market per se. But you can imagine that coming off of a year where we had 50% year-over-year growth in the data center, and there's a lot of momentum that the data center backlog is growing nicely. Some of our other end-markets like defense, they typically have longer lead times and manufacturing cycle times. So we typically would build backlog with our defense customers at the beginning of the year. So overall, a healthy backlog, and we really can't break it out any further than that.

Got it. That's fair. Jack, perhaps one for you, if I may. Just on the RF business, any updated thoughts on the timing of yield enhancements and operational performance? Would you anticipate this business going to be margin neutral once these yield enhancements are complete perhaps before you add the planned 30% of wafer capacity?

Yes, I think what you're referring to, Karl, is some of the gross margin improvements, and we talked about it in our prepared remarks, the sequential improvements that we expect to see on a quarterly basis of anywhere from 25 to 50 basis points. As we've also discussed, we've completed the RTP Fab conveyance. So that's part of the MACOM portfolio. And through a combination of enhancements to our gross profits and cost reductions and yield improvements across all of MACOM, including facilities like Lowell and our other two fab manufacturing locations, are going to be helping to contribute to some of those gross margin improvements that we had talked about earlier. So it's more of a global effort that we have as opposed to being focused on any one area of the business.

Our next question coming from the line of Tore Svanberg with Stifel.

And let me add my congrats on the record results. Steve, I know you typically don't guide more than a quarter out, but just so many irons in the fire here across all three segments. So directionally, how should we think about growth in the three segments next year, especially also in light of the more than 40% growth in both Data Center and Telecom this year?

Thank you for the question, Tore. As you know, we don't typically give full-year guidance. But I'd be happy to make some general comments on our expectations for 2026. And maybe before I do so, I think there's some important trends to highlight, and I think you mentioned a few. Number one, we had very strong growth year-over-year, 32% growth on the top line. And that really represented the four out of six years in a row, we've had double-digit growth, and we're excited about that. Our CAGR over the last six years has been in the mid-teens, and we're pleased with that type of performance. As we think about '26, we have various scenarios, we have our base case scenarios and our improved or best case scenarios. But if I just focus on the base case for a minute, we would certainly expect double-digit growth with no less than mid-teens on the top line. We believe the growth will be driven by the Data Center business. It will be our strongest market, then followed by Industrial & Defense and Telecom. And it will be a year where you begin to see leverage of our business model and improved operating income and earnings growth. So we're very excited about that as well.

Great. And as my follow-up, it sounds like you turned about 14%, 15% of the revenue this quarter. I'm just curious, given the strong momentum, the order rates, are you starting to see some tightness, whether that's with your own fabs or lead times starting to stretch? Because obviously, the growth momentum seems to be accelerating. So I just want to make sure that everything is on track as far as capacity is concerned.

Yes. Well, we're growing as quickly as we are. There's always stress points throughout our operations and supply chain, and we have an outstanding team that can manage those tactical and strategic issues quite well. So we're very pleased with the team's performance, and we're able to get the things we need and have the capacity available. I highlighted as an example with our 200-gig per lane photodetector. We recognized last year that we were going to have some very strong growth in the next 24 months. And so we took actions to move that product to our large Lowell facility here, where we have really unlimited manufacturing capability to produce PDs to support the industry. So we're taking those steps. A lot of those things you see behind the scenes, where we're making sure we have a front-end, back-end test capacity in place, there's always areas where we need to do more and pinch points. And the team is managing those very well. So yes, it's always a challenge in a high-growth environment, but I think we have it under control.

Our next question coming from the line of Blayne Curtis with Jefferies.

I want to ask you, I mean, obviously, very strong comments about growth in fiscal '26. The book-to-bill just over 1, I guess, I think you said maybe there's some function with the Defense business. But I'm just kind of curious, is that the case across all three segments? Is there something that's down? Or is that just timing-wise and if that should improve?

We monitor the book-to-bill ratio for each of our markets, submarkets, and customers in detail. Each quarter presents unique conditions. What truly matters is the long-term trend. For fiscal year '25, our book-to-bill ratio was 1.1, which is quite strong. We began fiscal '26 in October with one of our best Octobers in recent memory. It's important not to get overly focused on any specific quarter's book-to-bill. A few years back, we experienced a quarter with a book-to-bill ratio of 0.5, and we managed that situation well. This is the nature of our business; some markets can be a bit volatile, with varying order timings and customer schedules. We aim to integrate all these factors and provide our results.

And then I wanted to ask on the gross margin, the 25 to 50 basis points improvement. Obviously, you took over the Wolfspeed fab, and there was some lifting to do there. Maybe you could just talk about the contribution from those improvements versus just what it looks like overall, volumes are going up as well.

Yes. Thanks for that. And I'll just highlight on a go-forward basis, we don't really want to talk about the gross margins by fab. I think that our business is too complicated than that. I know, before the closing of the fab and during the transition, we were very transparent about the puts and the takes on the RTP site specifically. But now that it's in the MACOM tent and we're changing so many things, including the mix, the customer base, the focus, as I highlighted as an example, we took one of the RTP 150-nanometer GaN on Silicon Carbide processes and we upgraded it by adding an ALD covering and now that's going to open up a new market segment and that will lead to great things; so there's just a lot of moving parts at each one of the fabs. And to get fixated on any particular fab's near-term performance could be limiting. So I think we take a broader approach, and we're not really going to be discussing gross margins by fab because that could be a tell on the profitability of those associated products, which we don't want to disclose. Now the other thing I'll highlight is a big part of our business uses external fabs. And we are working with the leading fabs across the U.S., Europe, and Asia to support a lot of our high-speed business, primarily data center centric, as well as very high-performance test chips or products for broadcast video or other high-speed trading-type chips that are very high-speed matrices that are used in high-speed trading. So we have a lot of high-end chips that we externally source from four to five different fabs, depending on the technology. And those product lines also contribute quite nicely to our business and can also affect the overall corporate gross margins. Jack, I don't know whether you want to add to that?

I think just maybe just providing a little bit more color in terms of RTP, right, when we had talked about it last quarter, we had only had it for two weeks. So it came in line with our expectations. It allowed us to also derisk the business in terms of being able to take control of that business. So the team has done a fantastic job with everything that's going on there.

And our next question coming from the line of Sean O'Loughlin with TD Cowen.

Like my peers, I'll congratulate you on the excellent results. I wanted to ask about the merger announced last week between two of your competitors. A question we've received from investors is whether you expect any significant changes in the competitive landscape as a result of that merger. While you don't compete in the handset market, do you think the combination of those companies' broader market businesses will have an impact, or is it too soon to say for sure?

Yes. Thank you for the question, and congratulations to both companies. And you're right, we're not in the handset business, so it shouldn't affect us. Neither companies are customers or suppliers to us, so there's no sort of impact there. So we don't really see a direct impact. We have noticed that each of those companies is closing down their fabs, and I imagine over the course of time, there'll be some restructuring. And so it's possible that, that could create an opportunity for us to maybe win some more sockets or hire some great talent. So we'll see how it goes. And we again, congratulate both companies on that deal.

Great. As a follow-up, I wanted to ask a question about AI that isn't related to the data center market. In telecom, one of the topics our colleagues in the communications infrastructure sector have been examining is the potential impact of new deployments and data center expansions on access and long-haul networks, especially as bandwidth increases due to distributed training or more two-way inference traffic. Are you seeing any signs of this now, or do you expect to in the future? Additionally, how should we approach the ups and downs of these trends in relation to MACOM?

We maintain strong relationships with key RAN manufacturers involved in 5G and 6G development. Our expertise in the front-haul network is significant, as it forms an essential part of our business. We excel in RF over fiber technology, and future advancements may see more RF over fiber directly linked to the radio. These factors will aid in the rapid transfer of high-speed or large volumes of data. We are actively collaborating with customers to keep pace with their explorations of various architectures. It's important to note that this trend is likely to be long-term, and we believe we are well-positioned with the right technology focusing on the highest speeds, data rates, and frequencies. Many of these future applications may also require the use of very high frequencies, placing us in a favorable position to leverage these developments.

And our next question coming from the line of William Stein with Truist Securities.

And also congratulations on the strong results and outlook and perhaps especially on the fiscal '26 commentary, which sounds good. Steve, I was hoping that you might reflect on the one hand, relatively light comments about the industrial end market performance, while on the other hand, gross margin sounds like they're going to be tracking better consistently over the coming year. I've historically sort of associated these two things together that a lull in the industrial end market has been sort of a weight on gross margins. Is that still the case? Is that part of the thinking behind expanding gross margins next year or recovery in that market? And if any other details you could provide around that thinking would be helpful.

Yes, I believe you're considering it correctly. Historically, a substantial portion of our industrial revenue has been generated internally, primarily by serving markets such as test and measurement and medical sectors where our non-magnetic high-voltage diodes have a strong market presence. Additionally, this includes factory automation and other wireless platforms. As that market improves, it will enhance our loading and could positively impact our gross margins. Looking ahead to 2026, we anticipate some positive developments in the industrial sector, but more significantly, we expect stronger trends in defense, which will also support our gross margins.

That's helpful. Maybe as a follow-up, can you maybe help us understand the diversification in the data center end market? And maybe explore a little bit where the design wins come from. Are they more from module makers, from semiconductor suppliers, from the cloud service providers? And maybe give us an idea of the diversification and the types of customers that you're actually getting design wins from and transacting with.

Thank you for your question. We address the latter part of your inquiry regarding our customer categories, which include module manufacturers, cable manufacturers, semiconductor companies, and cloud or hyperscale providers. We engage with all of these groups. When you analyze that comprehensively, you'll notice a diverse array of products that those companies require from MACOM. We categorize the market into three main segments: the multi-mode market, primarily for short reach; single mode for medium to long reach; and metro long-haul and coherent applications. As we support these different companies based on their specific needs, we aim to be a merchant supplier, providing them with chips that could be drivers, lasers, photodetectors, or TIAs. Overall, we have about six key product lines that we offer to data centers, which defines our market approach.

Our next question coming from the line of Peter Pang with JPMorgan.

Okay, just made it. Congrats on the results. And indeed, we've seen some pretty positive results across this AI optical landscape thus far this week, even with a lot of references to step-function accelerations and demands, I think, both inside and outside the data center. And I think maybe that marries up well with your very strong October bookings commentary, I think. I guess the question is, in that environment, so you're guiding data center to high 20s growth, maybe 28% growth in Q1; and I guess given this environment that we're seeing and what seems to be a bit of a tidal wave of demand, is that type of growth rate sustainable for the year in fiscal '26? Or can it even increase?

Yes, I think it can increase. And we have a base case, and then we have our sort of best case. And we're setting guidance on it, I would say, our base case are more conservative which even provides strong sequential growth coming off of a very strong Q4. And so we would expect that to continue. There are scenarios, as we model our fiscal '26, where our data center can actually really outperform and have very strong performance similar to last year. But we're not forecasting that now. We know a lot of things have to happen, including various ramps have to occur and things of that nature. So we're not forecasting that sort of super strong growth. We're going to start the year and look at our backlog and plan accordingly. But you're correct, and those trends are there, and it's primarily around 1.6T. That's where the volume is, that's where the demand is, that's where the shortage of supply in some key technologies is. And quite frankly, that's where MACOM can be a strategic partner.

Our next question coming from the line of Quinn Bolton with Needham & Company.

I guess maybe, Steve, just coming out of the ECOC optical show a few weeks back, there was some chatter about market share shifts in the TIA and the driver side at 800-gig and 1.6T modules. I just wonder if you could address how do you feel about your relative share position across TIAs drivers? Have you seen any shifts? Do you feel like you're still pretty well holding share or maybe even taking share? But any commentary just how you're doing in the PMDs for optical modules at 800 and 1.6T?

Thank you for the question. I think we're doing well. I think we have differentiated product, and it's a very competitive landscape. So you have to earn every socket based on performance, timing, price and I think we're bringing our best game to the market.

And there are no further questions at this time. I will now turn the call back over to Mr. Steve Daly for any closing remarks.

Thank you. In closing, Jack and I would like to thank the entire MACOM team for their continued dedication, which made our FY '25 results possible. We will continue to work as a team to meet our customers' needs and execute our strategic plan as we start fiscal year '26. Thank you very much, and have a nice day.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.