Date: May 7, 2026 | Source: Motley Fool (fool.com) / company press release
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Stephen Daly (President & CEO): Thank you, and good morning. I will begin today's call with a general company update. After that, Jack Kober, our Chief Financial Officer, will review our Q2 results for fiscal year 2026. When Jack is finished, I will provide revenue and earnings guidance for the third quarter of FY '26, and then we will be happy to take some questions.
Revenue for the second quarter of fiscal 2026 was $289 million, and adjusted EPS was $1.09 per diluted share. Demand for our products is strong across our 3 end markets, and our backlog continues to build. Our sequential financial performance improved across most key metrics in Q2, including gross and operating margins. Our Q2 book-to-bill ratio was 1.5:1, and orders booked and shipped within the quarter was 18% of total revenue. All 3 end markets had exceptional bookings with notable outperformance in the Data Center. Our backlog remains at a record level, and we believe this strength reflects that we are in the right markets with the right products at the right time.
Q2 revenue performance by end market was as expected, with all end markets growing sequentially. Industrial and Defense was $120.7 million, Data Center was $98.2 million, and Telecom was $70.1 million. Data Center was up approximately 14.5% sequentially, Telecom was up 3% sequentially, and I&D was up 2.5% sequentially. Both I&D and Data Center revenues are at record levels. As we look to the second half of our fiscal year, we expect Data Center and I&D revenues to continue to lead our growth. Additionally, we expect to see momentum from our Telecom segment as we enter our fiscal 2027 due to the anticipated timing of LEO space production programs.
Next, I'll quickly summarize progress on our 5 goals for FY '26. First, taking advantage of the data center opportunity. We are pleased to raise our Data Center FY '26 revenue growth base case from 35% to 40%, over 60%. Second, expanding our 5G market share. GaN 4 is our next-generation process for high-power linear amplifiers for 5G base stations, and we expect our new IPD processes will enable us to in-source these components at lower cost. Third, extending our leadership in I&D. We recently received a Defense Manufacturing Technology Achievement Award sponsored by the Joint Defense Manufacturing Technology panel, reflecting our progress to increase manufacturability of advanced GaN technology. Fourth, continued development of advanced III-V semiconductor technologies. We continue to strengthen our semiconductor processing expertise, including developing advanced indium phosphide epitaxial stacks for our next-generation optical products for the data center. And last, management of our capital and investments.
Turning to each of our 3 core markets in more depth. Data Center. We expect 1.6T deployments inside the Data Center to continue to be strong throughout calendar 2026. Today, our revenue growth is primarily being driven by increased pluggable optical modules and optical cable production volumes using our 800 and 1.6T PAM4 products. Demand for our 200 gig per lane photodetectors continues to grow, supporting 800G and 1.6T optical connectivity. Part of our near-term and long-term growth strategy is to expand our photonics portfolio with both higher-speed photodetectors and CW lasers. We are seeing growing interest in coherent light solutions, as coherent modulation can enable higher bandwidth performance with significantly improved power efficiency. We continue to promote linear equalizer products to help extend the reach of copper interconnects at 800G and 1.6T. In many cases, our newest products are designed for co-packaged and highly integrated architectures like CPO and NPO.
I&D. We are seeing many growth opportunities across the Industrial and Defense markets, primarily in the Defense segment. Comparing our first half results of FY '26 with the first half of FY '25, our I&D business grew by 22%. Overall demand remains healthy, and notably, we expect revenues from our top 25 defense customers to significantly increase from FY '25 to FY '26. The DoD is pushing our customers for rapid design and deployment of new systems, from modern radars to better electronic warfare systems to new space-based sensors. These demanding requirements play directly to MACOM's strengths.
Telecom. Satellite-based broadband access and direct-to-device opportunities remain robust with numerous LEO networks in the planning and production stages. Today, we are supporting LEO broadband constellations and D2D programs that are either in development, low rate initial production, or full production. The 40-nanometer GaN technology, which MACOM recently licensed from Hughes Research Lab, is being transferred to MACOM's fab, enabling high-capacity satellite links using E-band, W-Band and D-band. In 5G, our RF power team is now sampling our new GaN 4 products to customers. We expect the global RAN market will be flat in 2026, with our future 5G growth driven by content and market share gains. And we believe the cable TV infrastructure market is also improving, with new products supporting the upgrade from DOCSIS 3.1 to DOCSIS 4.0.
I would like to quickly highlight how teamwork across the organization directly impacts our financial results. Our North Carolina fab has been increasing wafer production while simultaneously improving yields and lowering cycle times. Our Massachusetts fab has been installing complex processing equipment to support production ramps. These examples illustrate how dedication to manufacturing excellence is directly leading to market share gains. In summary, our strategy is to continue to build a best-in-class diversified semiconductor portfolio that will enable MACOM to capture a larger share of the 3 markets we focus on. Jack will now provide a more detailed review of our financial results.
John Kober (CFO): Thanks, Steve, and good morning to everyone. Fiscal Q2 revenue was $289 million, up 6.4% sequentially and up over 22% year-on-year, driven by growth across all 3 of our end markets, with Data Center leading followed by I&D and Telecom. The strong bookings across all our end markets resulted in a book-to-bill of 1.5:1, the largest quarterly bookings in the company's history. Adjusted gross profit for fiscal Q2 was $169 million or 58.5% of revenue, a gross margin increase of 90 basis points over the prior quarter. We expect ongoing sequential gross margin improvements through the remainder of fiscal 2026.
Total adjusted operating expense for our second quarter was $88.6 million, consisting of research and development expense of $59.1 million and selling, general and administrative expenses of $29.5 million. Adjusted operating income in fiscal Q2 was another record at $80.5 million, up 8.8% sequentially and up 34.5% year-over-year. Our Q2 adjusted operating margin was 27.8% and has increased over the last 3 fiscal quarters. We expect our adjusted operating margin to be approximately 30% next quarter, highlighting the leverage in our financial operating model.
For fiscal Q2, we had adjusted net interest income of $6.5 million. The slight decrease was primarily due to the planned repayment of $161 million of our 2026 convertible notes during the quarter. We are pleased to have been able to retire this debt and further delever our balance sheet. Our adjusted income tax rate in fiscal Q2 was 3%, resulting in an expense of approximately $2.6 million. We expect our adjusted income tax rate to remain at 3% for the remainder of fiscal 2026. Fiscal Q2 adjusted net income increased approximately 7.8% to $84.3 million. Adjusted earnings per fully diluted share was $1.09, utilizing a share count of 77.6 million shares, compared to $1.02 in fiscal Q1 2026. We continue to contribute to sequential increases in our adjusted operating income and EPS over the past 11 quarters.
Our Q2 accounts receivable balance was $160 million, with days sales outstanding averaging 50 days compared to 54 days in the previous quarter. Inventories were $252.2 million, up sequentially from $238.9 million, largely driven by additional work-in-process inventory at our fabs. Inventory turns remained steady at 1.9x. Fiscal Q2 cash flow from operations was approximately $78.7 million, up $35.8 million sequentially. We believe we are on track for our cash flow from operations to exceed $300 million for fiscal year 2026. Capital expenditures totaled $13.2 million for fiscal Q2. We estimate fiscal year 2026 CapEx to be in the range of $55 million to $65 million as we expand capacity. Cash, cash equivalents and short-term investments as of the end of the second fiscal quarter were $664.9 million. We are in a net cash position of approximately $325 million as of April 3, 2026, when comparing cash and short-term investments to the book value of our remaining $340 million of convertible notes, which mature in December 2029. I will now turn the discussion back over to Steve.
Stephen Daly: Thank you, Jack. MACOM expects revenue in fiscal Q3 ending July 3, 2026, to be in the range of $331 million to $339 million. Adjusted gross margin is expected to be in the range of 59% to 60%, and adjusted earnings per share is expected to be between $1.31 and $1.37 based on 78.5 million fully diluted shares. We expect sequential revenue growth in each of our 3 end markets. We expect Data Center to achieve approximately 35% sequential growth, Industrial and Defense growth approaching 10%, and Telecom low single-digit sequential growth. As we continue to scale the business, we expect to see increased operating margins and profitability. I would now like to ask the operator to take any questions.
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Blayne Curtis (Jefferies): Can you talk about gross margin — volume and mix — and how to think about it as you go through the rest of the calendar year?
Stephen Daly: Volume is contributing to the improvements in the gross margins. Our Lowell and North Carolina fabs have been increasing outputs. Data Center as a percentage of revenue is increasing, which in some instances contributes to margin improvements. The team has been focused on yield enhancement and cost reductions. A few quarters ago we set a target to exit the year around 59%; today we're updating that to be most likely closer to 60%.
Blayne Curtis: You mentioned coherent light. How is that market developing, and is it in Data Center or Telecom?
Stephen Daly: We would put coherent light in the Data Center category. Historically, metro/long-haul (DCI) is in Telecom. Platforms have gone from 64 gigabaud up to 128 gigabaud, with people talking as high as 192 gigabaud. This is an area of strength for MACOM, touching a number of our product lines where we have differentiated technology.
Thomas O'Malley (Barclays): On SATCOM/LEO — do you agree with 7,000-10,000 launches over the next 3 years? Content per satellite? Timing?
Stephen Daly: MACOM has been servicing the space market for decades. There's growth in the number of LEOs being launched, typically smaller satellites on affordable launch vehicles. We don't comment on absolute quantities, but we are absolutely engaged with the major players. We have active LEO production programs today, with one larger program delivering EM modules expected to go into full rate production later this year or early next year. Don't expect a step-up—expect a ramp-up during calendar 2027.
Tore Svanberg (Stifel): Above and beyond higher capex from end customers, what's the delta driving the >60% Data Center growth?
Stephen Daly: Very much the expansion of our product portfolio. Over the last 12 months we've seen the ramp of our optical components, which has helped drive growth. Our focus is on 1.6T, 800G. For fiscal '27, higher data rates (3.2T), possibly some coherent light ramp-ups, and possibly CW lasers. We've also been engaged with people deploying copper and providing equalizers.
Quinn Bolton (Needham): Any update on the CW laser opportunity — more confident it could ramp and contribute to fiscal '27 growth?
Stephen Daly: Not too much has changed in the last 3 months. We have excellent optical performance of our 75-milliwatt class lasers. Our fab is dialing in a process of record, with reliability the focus. When we're ready, we'll work with module customers for quals, then hyperscaler qualification. Realistically a fiscal '27 or '28 time frame. Do not put CW laser in your models for '26 or even '27 — there are a lot of other irons in the fire.
Sean O'Loughlin (TD Cowen): Updated thoughts on fiscal '26 segment growth beyond datacom?
Stephen Daly: We have a solid plan for 2026 driven by Data Center and Defense. Today we're trending toward top line in that 30% range. Last year we did about 32%—it would be nice to beat that. We'd like to exit the year with at least 60% margin. We're thinking above 20% for I&D today and pushing Telecom to low double digit.
William Stein (Truist): On user terminal market within LEO — a big change in strategy?
Stephen Daly: We're looking to be opportunistic. We are seeing some AESA technology using a wide range of control products that fit nicely into our AlGaAs diode-based portfolio. We're not chasing SoCs or receivers or highly-integrated chips for user terminals. We will opportunistically look at that.
Christopher Rolland (Susquehanna): What's driving the over $30 million inflection in Data Center sequentially? Why now?
Stephen Daly: In 2024 we grew Data Center by 35%, in 2025 by 48%, and in '26 we're forecasting over 60%. We were one of the early suppliers to the 1.6T rollout, which is paying big dividends as that use case expands. We're overlaying our optical components—the PDs, and working on lasers. It's not really an inflection point—it's consistent with unit growth within the market, plus SAM expansion and portfolio expansion.
Timothy Savageaux (Northland): Does the photonics/optical device business get to 10% of Data Center revenue in the second half?
Stephen Daly: We don't typically break out revenue by product line, mainly for competitive reasons. Our PD has definite advantages—industry-leading dark currents, lens-integrated devices, and a very strong epi recipe in our Ann Arbor fab providing high levels of sensitivity. We demonstrated stacking PDs on our TIAs at OFC. But we have a diversified portfolio and won't break out concentration.
Karl Ackerman (BNP): With the 1.5 book-to-bill, should we expect meaningful capital investment in fabs?
Stephen Daly: We are investing in our fabs. About a year ago we talked about increasing wafer production capacity in our North Carolina fab by 30% over 15 months—that work should be done by the end of this calendar year, at a cost of $15-16 million. In Massachusetts we're investing in advanced GaN and expanding indium phosphide capacity. In France we're moving the entire product line from 3-inch to 6-inch. We will not greenfield a new fab. Now that we hit $1 billion of revenue, we want to hit $2 billion without buying or building a fab—expanding incrementally within existing facilities. Capital should be in that 4% to 5% of revenue range.
John Kober: The guide for the remainder of fiscal '26 is $55-65 million. We've been very disciplined and don't expect CapEx to exceed that 5% of revenue.
Karl Ackerman: Does your competitor's exit from RF power remain a tailwind?
Stephen Daly: The benefit has not been realized yet and won't happen in '26. The revenue will start to shine through in '27. As customers pivot to MACOM on new platforms, it takes time for design wins to translate to revenue—best case a back half of '27 contribution.