Good afternoon, and welcome to Marvell Technology’s Fiscal First Quarter 2023 Earnings Conference Call. At this time, all participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Ashish Saran, Senior Vice President of Investor Relations. Please go ahead.

Thank you. And good afternoon, everyone. Welcome to Marvell's first quarter fiscal year 2023 earnings call. Joining me today are Matt Murphy, Marvell's President and CEO; and Jean Hu, our CFO. Let me remind everyone that certain comments made today may include forward-looking statements, which are subject to significant risks and uncertainties that could cause our actual results to differ materially from management's current expectations. Please review the cautionary statements and risk factors contained in our earnings press release, which we filed with the SEC today and posted on our website as well as our most recent 10-K and 10-Q filings. We do not intend to update our forward-looking statements. During our call today, we will refer to certain non-GAAP financial measures. A reconciliation between our GAAP and non-GAAP financial measures is available in the Investor Relations section of our website. With that, I'll turn the call over to Matt for his comments on our performance. Matt?

Thanks, Ashish. And good afternoon, everyone. In the first quarter of fiscal 2023, the Marvell team drove another record level of revenue at $1.45 billion, exceeding the midpoint of guidance growing 8% sequentially and 74% year-over-year. We saw continued strength in bookings in all our data infrastructure end markets. Higher revenue achievement was primarily driven by our datacenter market with additional strength from carrier infrastructure and automotive results, both of which were also above forecast. Due to supply-chain-related impacts, results from our enterprise networking market were below our guidance. However, growth was still very strong with revenue growing a robust 64% year-over-year and 9% sequentially. The Marvell operations team did a great job in navigating a tight supply environment that was further compounded by COVID-related manufacturing challenges at our suppliers in certain geographies. Our team's efforts were a key enabler of our first quarter revenue, exceeding the midpoint of our forecast. We continue to make progress in securing additional capacity with our strategic partners to enable sustained revenue growth. Let me now move on to discussing our five end markets, starting with datacenter. In our datacenter end market, revenue for the first quarter was $640.5 million leading our guidance, having grown 12% sequentially and 131% year-over-year. Strong performance was broad based with multiple product lines contributing to excellent results. Cloud continues to be a source of Marvell's strength in the datacenter. We are enabling our hyperscale customers to add new use cases, bringing the benefits of AI and machine learning to businesses, increased process automation and productivity, and drive deeper relationships with their customers. Let me now discuss a number of Marvell product cycles driving strong growth in cloud, starting with electro optics. We are seeing strong demand for our PAM solutions inside datacenters and ZR pluggables between data centers.…

Thanks, Matt, and good afternoon, everyone. I'll start with a review of our financial results for the first quarter and then provide our current outlook for the second quarter of fiscal 2023. Revenue in the fourth quarter was $1.447 billion, exceeding the middle point of our guidance, growing 8% sequentially and 74% year-over-year. Datacenter was our largest end market driving 44% of consolidated revenue. Enterprise networking was next largest to be 20% of total revenue, followed by carrier infrastructure at 18%. Consumer added 12% and the auto industrial at 6%. GAAP gross margin was 51.9%. Non-GAAP gross profit was $947 million or 65.5% of revenue, another record driven by rich product mix. GAAP operating expenses were $681 million and include the cost of share-based compensation expenses. Amortization of acquired intangible assets, legal segment and acquisition and divestiture-related costs. Non-GAAP operating expenses were $435 million reflecting the increase in R&D headcount and project expenses to execute design wins across all our data infrastructure end market. As we outlined at our Investor Day last year, we plan to continue to invest in R&D, given the tremendous opportunities we have in front of us, while keeping OpEx growth well below top line revenue growth to drive to our long-term target model. GAAP operating income was $70 million, we achieved record non-GAAP operating profit of $512 million, up 123% from a year ago, and our non-GAAP operating margin was 35.4%. During the first quarter, our GAAP income tax expense was $205 million. This included the impact from a onetime non-cash tax charge of $240 million offset by other tax benefits in the quarter. The $240 million non-cash tax charge was due to the measurement of our net deferred tax asset as a result for obtaining and expansion of a lower foreign restriction tax incentives.…

We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Toshiya Hari with Goldman Sachs. Please go ahead.

Good afternoon. Thank you so much for taking the question, and congrats on the strong execution. Matt, I was hoping you could speak to your expectations for the second half, both from a demand perspective and a supply perspective. I think last quarter, there was a little bit of confusion as it pertains to the full year outlook. So, if you can kind of confirm how you're thinking about your overall business, but particularly datacenter into the second half, that would be super helpful and then again if you have the supply to support the strong outlook. Thank you.

Yeah. Thanks, Toshiya. Great to hear from you. Yeah, so we're pleased with the results and execution in Q2. And -- I'm sorry, in Q1. And as you saw, we had a very strong quarter in datacenter, which I'll come back to in a minute. But just to kind of reframe from the demand side in all of our end markets, except consumer, we see very strong demand trends, Toshiya. Bookings have been very strong in the last two quarters. Demand -- our demand outlook for the year continues to be strong. And with respect to datacenter specifically, we did have a strong Q1 better than expected. We still have pent-up demand and lack of supply there for the second quarter, but we expect actually a reacceleration in the datacenter in terms of our growth in Q3 and Q4, i.e., the second half. And on top of that, we have incremental new design wins that we've secured over the last 12 to 18 months, which we've sized roughly at, call it, $400 million incremental next year and $800 million the year after. That's actually going to start layering in as well in the second half. So from our perspective, ex-consumer demand continues to be very strong. Datacenter in particular is going to have a great first half and a great second half. And then relative to supply, we really, first of all, credit to our operations team doing a great job in the first quarter, navigating all of the different impacts going on, in particular, in China and delivering a strong quarter. Looking forward, we're starting to see the benefit of all the investment we put in over the last year into our supply chain. Whether that be the improvement in systems and tools, the relationships and the capacity that we've secured, and so we believe that, that's going to continue. And we do see a much improved supply outlook not only in the short term as you can see from our results both beating in our Q1 and then guiding strongly for Q2, but also in the second half, Toshiya. And again, I think that's the result of a lot of hard work and transformation in our supply chain to meet our growth plans. So, in summary, we have very strong demand driven by datacenter but also in 5G and automotive and the other things we've talked about and we've seen real improvements in our visibility into the supply we're going to get to go meet that customer demand.

Great. Thanks for all the details.

Yep.

The next question is from Chris Caso with Raymond James. Please go ahead.

Yeah. Thank you. I wonder if you could talk a little bit about the enterprise networking business. And I guess it came in a little below your expectations, but yet you're still speaking about supply constraints in that area. Is that a situation where your customers are supply constrained elsewhere and you're waiting for them? Maybe just give some explanation of the dynamics in that part of the business.

Yeah. Thanks, Chris. Yeah, this was definitely a quarter where the mix wasn't exactly where we thought it was going to be from when we guided. As you could see, we overachieved in datacenter and we underachieved on enterprise. But as I pointed out in my comments, the delinquency and kind of the unfulfilled backlog relative to the size of the business is actually still the highest in enterprise. So this was really a case of just us being unable to execute our supply plan for the quarter nothing to do with demand. In fact, the demand from our enterprise customers continues to be very robust looking into the second quarter and throughout the year. So it was nothing to do with them. They want more of our product, and you can see somewhat of a catch-up in Q2 with a very strong guide sequentially into the second quarter. But we see that continuing, Chris. So, I know there's been a lot of noise out there around enterprise, but from our perspective and talking to our customers, demand remains very strong. And in fact, we're behind in terms of our supply to catch up. But I think consistent with what Toshi was asking, we are looking to improve that in the second quarter and also through the second half.

Thank you.

Yep.

The next question is from Gary Mobley with Wells Fargo Securities. Please go ahead.

Hey, thanks for taking my question. Congratulations on the good results. Wanted to ask about the supply situation and you just articulated improving supply coming online for the balance of the year. To what extent is that being driven by you perhaps giving your foundry partners a better forecast? How much of it is being driven by maybe you growing some more money their way in prepayments? And to what extent is it being influenced by some shifting of fungible capacity as the semiconductor market is no longer universally strong. So maybe you're benefiting for redistribution of supply?

Yeah. Excellent question. And I think there's probably a piece of all of that. I think when I look back over what we've accomplished, one is we had to do a fairly significant education process across the supply chain of Marvell's prospects, how all the different pieces have come together from the different M&A we've done, our end market focus, et cetera. And so I think we did a good job of that of getting the broader supply chain ecosystem to understand the Marvell opportunity. And so, to a large extent, they're betting on us and they're supporting our growth. And you can see that, right, just in terms of the year-over-year growth we're achieving, which by the way is off of a pretty strong year we had last year. So that's clearly a factor. We have also signed agreements relative to securing capacity. And you can see some of those that have shown up in our Q or 8-Ks we've issued partnerships we've entered into. So some of that has been down payments and supply agreements to ensure that we have the right capacity. I think that's some part of it. And then it's hard to say, but on the last part of it, the sort of fungibility that may be coming into play a little bit, but it's too early to say. And quite frankly, the supply we're seeing today is we can really mostly attribute that to sort of our own effort. I will say, and just to be very clear for everybody on the call, we're not out of the woods here. Our unfulfilled backlog has continued to grow each quarter. We're definitely working that down. We're focused very much on the end demand and shipping to the right people. And we feel like we've done a good job of that in terms of keeping our customers' lines moving and not causing impacts and being very agile. But I think to the extent that on that third point, the fungibility side, if there were to be a true reduction or capitulation, let's call it, the PC and consumer end market and not needing all the supply they've consumed, that certainly could be an incremental thing we could look at in the second half. But that -- that's not quite there yet, but maybe some of it is. We do see pockets of things opening up, but it's really hard when you sort of drill into it where it exactly came from. Hope that's helpful. Kind of a combination that you sort of nailed it comes of the mid.

Thanks, Matt.

The next question is from Timothy Arcuri with UBS. Please go ahead.

Thanks. Matt, I have just a broad question kind of on demand signals. To some degree, because supply has been so tight, it does create the potential that some of the orders, and I'm not saying for you, but I'm just saying broadly, are being placed just to secure their spot in line and not really backed by underlying sell-through at the customer or even the customer's customer level. And it sort of creates the risk that the chip companies are going to see more of a delay in sort of the demand signals at this time. I think it's less of a risk for you. But I guess my question is, how do you assess that as a risk? And really, the question, I guess, is on the tenor of your discussions with your customers? Do you get the sense that there are some examples of customers placing bookings just to get in the queue because you have such long lead times? I asked because some of the big large cloud customers are beginning to slow some of their hiring, things like that. So I'm just wondering what the tenor is of your talks with them. Thanks.

Sure, Tim. Yeah. No, it's not unlike other cycles, where certainly the phenomena you point out, and this is the investor concern, right, more broadly in semis is have customers over-indexed on their order placements. And what happens when demand stops or slows down. So we've taken this very seriously. I mean I just did a pretty much half a day review in the last few weeks with my entire team going through each of our product lines, going through to the customers and really kind of working through at an individual level where we still see the demand? Do we see any inventory building up? If so, what does it look like in that type of an exercise? And what I can tell you is there's no real examples I could point to, Tim, or anything thematic. I guess in some ways, we may have the benefit that we've been somewhat behind although I think we've done a good job of keeping everybody's lines moving. But certainly, we haven't been the company that's been swimming in capacity. So I think as we look out now, especially where the kind of global economy is beginning to moderate. We're able to kind of take a look now and do a refresh, especially with our improved supply situation and really make sure we're allocating it to the right people. So it's a very active process, Tim, but I can't give you any nuggets of specific examples where I think thematically inventory may be building. But I guess I would conclude by saying we did -- we were pretty transparent in the prepared remarks about what we saw in the consumer segment, which albeit it's 12% of the business. And of that, a smaller portion of it is really exposed to what I would call kind of true consumer like PCs and things like that, but that did very much slow down. There definitely was a change in demand. And as a result, some supply that had there some inventory that had built up but we've got other moving pieces even with consumer that's sort of offsetting it. So a long way of answering it. I don't have any great examples, but we're on it. We're watching it. But I'd say the bulk of the meeting, to be honest, when I had it was the demand signals being very strong, right, across the cloud companies across our 5G business, enterprise wired. There's a lot of great opportunities for us. And a lot of this, Tim, is driven on Marvell's product cycles. It's not necessarily an end market phenomena we're dealing with here. It's really the new product ramps that you're very aware of across these different segments, and those seem very much intact in aggregate.

Thanks, Matt. Yes, I mean, I think in the continuum of companies that have risk, you're at the kind of bottom of the list. But thanks for the questions or the answers. Thanks.

Yeah.

The next question is from Vivek Arya with Bank of America Securities. Please go ahead.

Yeah. Thank you for taking my question. Just wanted to clarify, Matt, if you have seen already or are baking in any supply or demand effects of the China lockdown or Europe turmoil. But my bigger question is, how do we conceptually align this notion of rising delinquency or unmet demand with rising inventory at both on semiconductor company balance sheet and even at some of the large networking OEMs, at what point does this rising inventory across the supply chain start to become a concern?

Great. Thanks, Vivek. Yes. On the first question, again, we're -- as you know, based on the timing of our reporting, we're like everybody else who's going right now. We had the month of April to comprehend in there relative to the China lockdown. And we navigated it really well. I think one of the reasons for us is that when COVID first happened, when the pandemic first began and there was major lockdowns everywhere China, including and also Southeast Asia, our operations team did a really good job of building up supply chain redundancy and resiliency over the last two years. So effectively dual sourced almost everything we can coming in and out of China and even some of the other regions over there. So there was some impact. There was a little bit of product revenue where could we have gotten supply out of China, we could have fulfilled it, but it was very small, Vivek, to be honest with you. So we're able to be fairly agile in terms of moving things around. So that was a positive. On the war in Ukraine and the impact on kind of in the again, I think you're hearing the data points, right? We don't see it directly, but certainly on the slowdown in the consumer segment, people's budgets being pinched, things like that. I think that's part of the issue with some of the consumer end market commentary. Again, we're not really in there. And we don't have operations in Ukraine or Russia. So we didn't really have any impact on that. So I think we're okay there. On the commentary on rising inventory, look, I'm very aware of this. You can pull everybody's Qs out and look at -- and one simple thing we do is look and OEM companies’ inventory growth. And you can see across a wide range of companies and industries, growth in inventory far exceeding revenue growth. So that is something we're paying attention to. We're using that to dive in deep with our customers. But I would say that our view tends to be like a lot of our customers, which is the end demand, especially in enterprise, in cloud and in our product cycle in 5G, the demand looks pretty strong. But there is -- there are missing pieces. There is the golden screw issue for sure that some of our customers have. We're just trying not to be the golden screw and also be very kind of clear eyed about where the inventory is and what does that mean for Marvell. And so I can tell you is we're digging into it at a part level detail and making sure that we're being prudent about where we allocate the supply. But it is something we got to keep watching for sure.

Yeah. And to add to what Matt said is we actually chose to increase our inventory to support the revenue growth in the second half. We have a very broad set of product lines, and we see strong demand. So the flexibility we need to have raw materials and the way to support the revenue growth is really critical. So we did choose that to make sure we can support the customers and the future revenue growth.

Do you have a target Jean on days of inventory?

The current level is what we are comfortable. We think we can help and manage the supplies for the second half. I think if the environment is normalized, we definitely will have a lower inventory like 120 days. That's what we think we should keep. But right now, we definitely chose to increase it to provide more flexibility.

Thanks very much.

Yeah. Vivek, just to chime in on Jean's comments, I fully agree. If you look at just the steepness of the revenue ramp we're dealing with. Clearly, the WIP has to go up, right, just to sort of support the growth. So that part we're comfortable with. And given the given the lockdowns and all the volatility, I think having that extra inventory carry for us is very prudent. And we watch it, and we'll certainly work it down. But I don't think you're going to see many companies go back to the good old days of 80 days or something like that, unless they truly get into trouble. I just think for a while, we're all going to have to be mindful that there's a lot of volatility in the world. But we're sort of in the range now, and we're very conscious in terms of what we're doing here.

Thank you.

The next question is from Matt Ramsay with Cowen. Please go ahead.

Yes. Thank you very much. Good afternoon. Matt, in part of your script, you had talked about the upcoming server launches that include a couple of new technologies, right, and then some CXL support for shared memory. And I think you guys have done a great job of articulating what that might mean for your Accelerator business and given us some outlook there. I was curious if you might explain a little bit about what PCIe 5 might drive for support of that technology into the storage and network peripherals. Is that material to the growth in the back half? And how much visibility do you have there? Just -- and then just a quick follow-up, question I get all the time is visibility on cloud CapEx. If you guys look out in your cloud business, is it quarters, years? Like how long are we talking that you feel like you have visibility because there's definitely some concerns there. I appreciate it. Thank you.

Hey, Matt. Good to hear from you, and good questions. Yes, I think you did nail it on one of the more important aspects of the upcoming CPU cycles is the IO, right, and the release of PCIe Gen 5 and we've certainly been preparing for that. That is a key part of the equation for us, particularly, as you can imagine, in our storage business and our datacenter storage business, which One of the key things we have to align to on our product roadmap is obviously nailing the PCIe IO road map, and it's not a trivial thing, not only the controller, but obviously the PHY and getting everything qualified and working. And so our team has done a great job there. We're very well positioned in storage on PCIe Gen 5 actually said in my remarks, we've already got wins lined up on Gen 6. That's still a ways out, but that's going to be another leg of growth. And you're right, the PCIe standard is really going to be the fabric and the interconnect that CXL runs on top of. And so a lot of the effort we put in on both Gen 5 and in the future, Gen 6 is going to give us tremendous leverage as we think about disaggregation, particularly of memory and these different solutions that are going to emerge around CXL. So it's very strategic. We do -- we always make make-or-buy decisions on things in terms of make versus buy, sorry, on technologies, but this is one, particularly on the PHY layer for PCIe that we've -- we do ourselves, and we have -- we're best-in-class in what we do here, and then we leverage that into our larger SOCs. So -- but I think the biggest impact from Marvell…

Thanks, Matt. Appreciate all the color.

Yeah.

The next question is from Ross Seymore with Deutsche Bank. Please go ahead.

Hey, guys. Thanks for letting us ask a question. Jean, I wanted to ask you one on the margin side of the equation. You guys always run a very tight ship in this, but there's lots of moving parts. Matt's talked a lot about more supply coming on in the back half of this year. Sometimes that can come at a higher price these days. And then even the OpEx side of things, wage inflation, et cetera, and some acquisition integration that you talked about. So generally speaking, can you walk us through the puts and takes on the gross margin and the OpEx side of things for the rest of the year?

Yeah. Ross, thanks for the question. I think our team has been very disciplined to manage OpEx to make sure we follow our overall business model right, grow revenue significantly faster than OpEx growth and keep the gross margin right in the middle or even above the middle of our long-term target model, so we can drive the earnings expansion much faster than top line revenue growth. When you look at the OpEx in Q1, as I said earlier, we increased headcount and project expense to really execute on all the design wins we have won. Q2, it's we keep it flat. In the second half, it's going to go a little bit higher, slightly higher, but it's largely because we are going to grow revenue in second half to support the revenue growth, you have certain variable expenses that will increase slightly in second half. In the longer term, you should continue to expect us to drive top-line revenue growth and OpEx around 50% slower than top line revenue growth. So we can continue to get the earnings expansion. So in Q2, if you look at the midpoint of our guide, our operating margin is already above 36%. We are very, very driven to get our operating model to the 38% to 40% range.

Thank you.

Next question is from Tore Svanberg with Stifel. Please go ahead.

Yeah, thank you. And Congratulations on the strong results. Just had a follow-up on the storage question, but this time on Gen 6, not on Gen 5. So just, Matt, can you maybe frame a little bit Marvell's positioning here? I mean I think about the PAM4 IP you have, obviously, you talked about CXL. I know it's still early days, but if you could just frame a little bit sort of layman's terms, you’re positioned for PCI Gen 6, that would be great. Thank you.

Sure, Tore. Yeah, Gen 6, as it relates to storage, you're absolutely right. Given the increase in IO throughput and data rate, you had to move to a PAM-based architecture. So that's played right into our strengths. We've coupled that with our -- and we were early to do this, by the way, with our 5-nanometer technology platform. And so there's just a whole lot of goodness and reuse there, as you can imagine. And it really put us in a strong position to get there early, and I give our storage business unit, a lot of credit for really having thought leadership here. I mean they probably jumped like two nodes on everybody, not that it's a whole node game, but in terms of just the power and the performance that we're getting out of these solutions. And then, of course, the benefit we get to take the IO down to 5-nanometer and leveraging PAM is actually a huge help, right, just given the given the complexity. And you saw that in our optical business, right, and kind of how Inphi drove performance over time as they've driven PAM on new process node, same thing over here. So I think that's going to be very strategic. And yeah, I think that that platform now -- again, we're early, right? We're just talking about launch today, but we do like to give color on our future leaning roadmap. But it definitely plays to our strengths. And I think as you think about also what's going to be required in CXL. I think even things like closing the link and the need for retimers and re-drivers, accelerators, pooling applications, they're all going to require robust Gen 6 IP and then be able to integrate those into various different SoCs. And I would just say even today, the CXL activity we're seeing in terms of our design opportunities is pretty broad, and it's almost all -- it really is all in our 5-nanometer platform. So it all kind of hangs together, Tore, and maybe I think you sort of see this, but I think others are as well. The combination of all the IPs that we brought together through the different acquisitions plus the Marvell technology platform has really created an opportunity for us to go-to-market with these semi-custom solutions and be very successful in this next wave of cloud optimized silicon.

Excellent, thank you.

Next question is from Harlan Sur with JPMorgan. Please go ahead.

Good afternoon. Great job on the quarterly execution. I saw the announcement on -- and you mentioned this map on shipping 100,000 400-gig coherent DSP chipsets. You're pretty early days in this transition, but you guys have already shipped like according to my calculation, almost $200 million plus worth of products. And the great thing about this family of products is that they've got the same underlying architecture and you've taken that and you're going after different markets, right? Datacenter interconnect with for 400 ZR, long-haul metro with your 400-gig Canopus solution. The adoption seems to be actually on a faster curve. Is this a driver of the upside in your datacenter and carrier franchises? And then I believe that your deployment is being driven by just one cloud titan, are you guys anticipating other cloud titans starting to fire as the year unfolds?

Yeah. Thanks, Harlan, for the question. And maybe just to start at the top on coherent DSP. I'm not sure everybody quite understood. Even the Inphi people that followed Inphi closely, how strategic this technology is. A little bit of background. They had had their own effort in coherent Inphi, and they ended up acquiring a company called ClariPhy a few years before we acquired Inphi. And ultimately, they chose to ClariPhy coherent DSP road map. This is very, very difficult stuff to do, Harlan. And once you get it right and get it designed in, these are very, very long product life cycles, particularly in the metro long-haul type of markets, the telco type markets. And that's really what's driving -- that's really where the revenue is showing up today for this. The added benefit is obviously the same technology and chips are used in the ZR 400 the ZR market as well for DCI. So there's a double benefit here. And so on the merchant side, we're a strong leader. We have a road map, obviously, beyond this to 800-gig. That's going to play in well to our next-generation DCI products as well. And then even longer term, there's discussions longer term about the modulation technology eventually inside datacenter moving to coherent. So it's a very strategic technology for Marvell. And to answer your question on the ZR DCI side, we -- and I said it in my prepared remarks that it might have begun lost, but we do have multiple customers for this, not just one. And those will be ramping up over the next year or so, the additional customers. We're already shipping and putting out record results on the DCI products as it is. We're really driven by one customer, but there's more coming. So we're pretty excited about this. And we have a whole ecosystem lined up, right? We have a number of module partners for different applications. And so -- anyway, yes, it's something we'll be talking about more. Maybe we'll do a tech talk on that one, too, Harlan, but it's actually a really important technology that we got from Inphi. And it's obviously an outstanding team that really feeds a lot of the other things that we do inside the company.

Yeah. Great insights. Thank you, Matt.

Yeah. And just 1 final thing, I would say, remember, too, this is a chip set as well. So it's not just the DSP, it's the driver, it's the TIA and there's even other components we're looking at to really optimize the solution. So when you hang all that together and you can deliver it as a platform. It’s very powerful.

Perfect. Thank you.

Welcome.

The final question today will be from C.J. Muse with Evercore. Please go ahead.

Yeah, good afternoon. Thank you for taking the questions and squeezing me in. I guess a question on gross margins. You guided down 25 bps sequentially. Obviously, a very small amount. But just curious if there's anything mix-wise and/or higher input costs that we should be thinking about there? And then just as a quick follow-up to Jean, are we at the net leverage level now where you plan to return free cash flow via buybacks? Or is that still in more of the opportunistic phase? Thank you.

Yeah. So CJ, thanks for the question. First, on the net leverage, if you look at our Q2 guidance at the middle point of our guidance our net leverage ratio will be below 2, gross debt-to-EBITDA ratio will be around 2, but the net leverage will be below 2. As I said earlier, we have restarted share repurchase program even after end of Q1, subsequently, we did purchase additional $50 million through our 10b-5 program. So our capital allocation principle is still the same, right? We want to invest, but we are also committed to return more than 50% free cash flow to shareholders, primarily through share repurchase. On the gross margin, our gross margin, we are very pleased with the Q1 gross margin, which is a record in the Q2 guide it's all both above middle point for our long-term target. So the Q2 is really just a mix. We have so many different product lines quarter-over-quarter, you will see the mix change up and down of our middle point I would not predict that closely. But in general, it should be around 65% sometimes higher.

I'll just add, C.J. I totally agree with Jean, obviously. And just to remind everybody, we set a range of -- on gross margins as our target model of 64% to 66%. We had a record 65.3% in Q4. Then we had another record of 65.5% in Q1, and then we're guiding 65.25% if you look at the midpoint in Q2. So it's kind of in in the range, if you know what I mean, I think run the company around that 65-ish is a really good place to be. If we can continue to grow the company the way we're growing it and drive leverage and drive design wins and stay competitive. So I think it's -- I think we're in pretty good shape. I think obviously reasonable to ask the question, but I think, as Jean said, we're going to have little movements here and there on mix. And we're ultimately just focused on keeping it in the right range in the right strike zone and then just driving really strong top-line growth and driving operating leverage through the cycle we're in here.

Thank you.

This concludes our question-and-answer session, and the conference has also now concluded. Thank you for attending today's presentation. You may now disconnect.