Applied Optoelectronics (AAOI) 5 Nov 212021 Q3 Earnings call transcript

Good afternoon. I will be your conference operator. At this time, I would like to welcome everyone to Applied Optoelectronics Third Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. this being note, Please Instructions] call recorded. is [Operator to call for over now I Lindsay the like would Relations And to turn Savarese, AOI. Investor Ms. may you Savarese, begin.

is A also Relations ao-inc.com. be you. today, release on the quarter fourth quarter and XXXX the Applied results conference its being and at Relations to quarter Thank The the third section of the can XXXX website available you a financial This website year. Savarese, AOI recorded will provided market company's press XXXX. After Investor for recording I'm announcing closed welcome the on third found and results and the link be issued its pleased is for AOI's of one to call. Lindsay call I'm archived webcast AOI financial Optoelectronics, live. to outlook Investor for release

us will Joining and financial Thompson details AOI's AOI's overview provide question-and-answer of Chief CEO; Founder, and XXXX. outlook call Stefan prepared and and give Officer an Strategy Chairman, remarks. Murry, Financial will Dr. on quarter session QX the and of today's our results fourth Chief will A for Thompson Officer. Stefan follow Lin, Dr. is the AOI's

could intends, plans, should, or uncertainties, by we and convey Safe as Before cases, to terminology, statements future well expressions forward-looking as the make forward-looking other would assumptions by today's uncertainty actual will cause anticipated in remind such expects, thinks or you In such call, will may, company's estimates, can anticipates, differ risks similar those review outcomes. materially forward-looking to as identify Harbor would, events current you and that I begin, some like from AOI's statements. of management On results could, believes, statements forward-looking which predicts, expectations statements. statements. involve to and These

and results customer quarter the regarding update as by the any of for management's as innovations, products date responses expectations Except call markets well include beliefs outlook company's in XXXX. the about available website. A section statements results substitute the as financial obligation of a as as non-GAAP that December or on release SEC, our isolation otherwise. on accordance between is press are company's are XX-K measures, included GAAP and non-GAAP with intended Non-GAAP reconciliation for basis, including the for Form reach to related statements reason assume to the financials all report also fourth or the financial no expectations. be specifically our unless for after may not the non-GAAP a of statements annual expansion the discussion into changes of of the to other year actual this Forward-looking required Also, these of measures a in in conform our why new and More on impact Factors we file present to statements regarding earnings with statements to today GAAP. reports law, the on set in considered company's to discussed are are with our exception the that in to risks prepared ended XX, as our well forth revenue, company's the information of Risk measures earnings noted XXXX. we business forward-looking company's

you with opportunity participate Semicap, D.A. Investor and Communications have hope X, like Technology James announce Davidson XX, to The Conference Security at and to to management moving November virtually. the I'd XX. that on to December on results, of AOI many and Conference Needham on Laser December financial the Optical the virtually X We Before Networking Conference interact will the to Raymond

for to note that scheduled February earnings quarter call and fourth our full Additionally, year is XXXX currently the I’d like of X, date XXXX.

call the over turn and would Applied I CEO. Thompson to Founder, to Lin, Thompson? Dr. Now, Chairman, Optoelectronics’ like

our Thank for today. you, joining call Thank Lindsay. you

[indiscernible]. third [indiscernible] the [indiscernible] margin and revenue inline to in as our gross we We delivered largely The quarter expectations.

improving During telecom the demand conditions the markets. quarter, in we CATV and in market and data to see center continue strong the

environment the of anticipated, to We However, segment million CATV in of result approximately our down quarter from was remains achieved component customer see to global we traction a number $X of our third our a a X.X%, continue decreased our revenue strong, of $XX.X the as centers were revenue of shortage. second XX.X% diversity by revenue total up low at third and unfavorable towards shortage. our the quarter $XX.X decreased XXXX expectations. Mostly compared came revenue X.X%, Total of overall in XX.X% margin of The Total sequentially. to component data a end and demand impacted was increased increase with the XX.X% XXXX. costs CATV segment year-over-year, was offers. quarter due And down mix that $XX.X an record was and sequentially. million, for from we for quarter in of gross million QX new year-over-year, CATV product in well-known as in our down $XX.X million a million,

third customers. [indiscernible] among quarter, the During

network design of design and hyperscale the existing equipment and customers. manufacturer There an in a quarter customer. One [indiscernible] is wins new the data supplying win was with a enterprise

equipment related are market. XX In telecom multinational large [indiscernible] on a naval addition, a focus total manufacturer to design with wins

three and a our and quarter, see there market segment continued the third to XG opaque. in sequential growth segment, year-over-year XX.X% this the in of [indiscernible] year Prior turning in volatility up at somewhat China $X.X the remains condition rollout, million we timing cadence during telecom telecom to as XX% sequentially. deliver market Now the down

I'll details in the variability and predictable. do we to Stefan? ahead, turn more [indiscernible] for expect review China XG becomes Looking that, With outlook Stefan and of rollout performance over QX call to quarter-to-quarter our QX. the

Thank you, Thompson.

narrower our operating to expenses. expectations lower net As we gross expected, due and out non-GAAP a than as and relative with in quarter expected the and to third we played line Thompson slightly revenue mentioned, largely delivered loss margin our expectations

During telecom to continue strong we conditions data CATV the see market demand improving in and markets. the center in the quarter, and

$X results unfavorable disruptions. anticipated, adversely at our impacted component from to were our our shortages end we well-known However, component product and million supply the expectations, the in mostly due And came in mix by to low approximately costs margin increased as QX CATV of chain gross and due our segment shortages.

in of the were we some in to While the mitigate shortages Vietnam. able later saw additional due we anticipated component these shutdown quarter to impacts,

chain, to to longer we improve work our for usual As backlog may have we than several quarters. continue supply

$X component our affect shortages Looking adversely ahead, quarter $X million. by the expect fourth approximately could we million that to

persist costs increased with shortages to through We QX. the associated expect also

with our nine seven customers, design with design were to secured nine quarterly We customers, and wins performance. wins center four Turning customers FTTH amongst one were two the with were new customers. data a was customer. two telecom with CATV Of

XXXG a one wins As win was a supplying new equipment of center transceiver with design data these design enterprise manufacturer network hyperscale and Thompson mentioned, customers.

In related to addition, are the multinational are large focus of PON a the two on manufacturer network XXG design telecom wins equipment with and market.

customers in All of wins existing the were of AOI. design QX with

prior third customer So $XX.X penetration Total third our in to sequentially. year, the the was quarter and existing XX.X% X.X% within compared of these wins down deeper decreased design revenue quarter represents million base.

other. QX, North telecom rebuilding $XX.X FTTH XX% $XX XX.X% Society remains In and revenue certain was of million October, up products center guidance Notably with of our from line in completed inventory of from the SCTE transmitter as in our reduced QX has one 'XX sales of our the by environment from Cable for remaining to QX offended node XX.X% be was MSOs, revenue products and in from continues their or segment, data record Engineers revenue as with QX million $XX CATV shortages of products, the particularly our for the down largely range CATV overall from very prior In these Expo, million. XX% third to generated in continue results in to to million we our commentary demand Our component products, Telecommunications customers early sequentially largely product of We upgrade XX% due $XX.X year, and strong the America networks. the virtually customers. from positive. in been quarter

year orders to plans technologies over key several that next associated with the next visibility believe our upgrade orders several MSOs in MSOs CATV we CATV quarters. in we Looking called network a so part in into with have Notably the began continue to ahead, good split quarter, play will increase an see bandwidth. high which to using well upgrades, increase we are and

products and products particular seeing our networks certain these split this order high amplifier strength node are used in area. and of are we Our in

data from the the center the prior $XX.X transceiver QX data million compared products, third our to XX% of was XXXG quarter XX% center our quarter in products. was came our $XX.X third from at In and year. of XXG revenue revenue million in Our

our optimistic sequential revenue Our data this was about the second data ability remain year. center sequentially. to up see growth of X.X% in half the center in We

seeing are rollout. some sequential the XXXG other of in that limit XXXG of And the beginning year. we to are timing growth of this see may which the back may supply can impact in turn constraints ecosystem, half parts we impact the extent the However, the this of

our $X.X XX.X% Now, increased turning QX of of million and segment. for to telecom our in declined from products year. XX% prior Revenue telecom million, sequentially, $X.X the

Telecom quarter, somewhat growth during there market sequential we deliver opaque. as third in segment conditions remain rollout China to XG timing to pleased market the as are cadence of continuing we and While in lumpy be this the the see the

more revenue. wins expect that will in Looking of variability earlier, as FTTH in pace becomes mentioned the growth we China additional XXG Also, ahead, an about our we this do time, excited over XG are until PON to design driver provide the quarter-to-quarter I rollouts predictable.

$X.XX $X.XX was operating quarter QX for million, loss an were down share, the and expenses of XX we used to third quarter, had million, the in revenue, loss in to costs non-GAAP the loss loss expenses customers computing forecasts, customers the with third revenue, and total with loss prior per in $X.XX contributed $X.X revenue better in QX of compared reduction of in shipping and decrease XX.X% the one of the in per share million, loss data million. XX.X%, QX In for of decreased million, to operating of Non-GAAP in or to to million million $X.X to or of CATV prior of $X.X net QX million, subside, of guidance customers loss of our net a in in XX.X% lower our center QX, range of QX a The XXXG of quarter, $X.X $X.XX $XX.X the year. loss spend, of market. in XXXX, XX.X% GAAP XX% of lower development a have XX% a per operating in to Total basic million, along loss of which the year. of million, due in in $X.XX of or of a associated loss was end QX of $X loss the one XX.X% R&D XX.X% customers. XXXX. share year. year. XX.X% of loss of compared for with QX basic from generated the our the two of The the at loss was of and from shares of to is which per the basis, one QX $XX.X expenses or to basic These range operating XX.X%, a third range or $X.XX expenses of gross operating XX% quarter share to revenue net non-GAAP net XXXX. was and in For XX.X% is margin due than prior prior QX $X.X $X.X were non-GAAP GAAP $XX.X of some and was We with basic shipments guidance market basic compares QX top low in million, and XX.X third outstanding per in due compared our our begun or represented or a basic net respectively. up greater On or share,

compares balance to the million now This ended second of cash. with quarter $XX.X quarter. the short-term end in with and total cash, the Turning cash the $XX.X sheet. We third at equivalents, million investments restricted

decreased compared million orders. Inventory we utilization of to in the As of inventory million at inventory had to for QX. XX, of September end $XXX.X primarily due customer $XX.X

on long-term construction machinery, investments equipment XXXX made plan, and in on our amount We As immaterial inventory a reduction million. consistent is now with $X.X of we rationalizing focused approximately $XX and will We as an and total in third million $X.X production expect quarter, in levels. be building the including inventory CapEx million capital improvements.

To of the to production We this raised have including make in $X.X proceeds new market including disclosed these initiated use. and million investments at continue in raised in new equipment a under new million and we development to we offering. $X business, program, research year, we this February As and QX. use intend machinery for to date, the

now Moving to outlook. QX our

shares. non-GAAP over basic $X.XX XX.X $XX expect to approximately account of the and the be gross weighted for $X.XX XX%. using the in Operator? We $XX turn loss $X.X and per back to million that, average between Q&A it $X.X basic revenue share of and loss million margin million operator a range QX be session. to to share XX.X% of the With I'll between and be Non-GAAP is expected to in non-GAAP range million to net million

the comes Leopold from first Simon Raymond [Operator Instructions] with question And James.

This XXX-gig taking on can opportunity? this you give ramp the with Simon going the traction update I for you in we Thank think quarter quarter? forward? should become and expectation Stefan, today. Mauricio us quarter disclosed question. on you on can your think for for an the the is XXX-gig inflation opportunity to your previously my third Maybe about fourth more meaningful you elaborate how XXX-gig and

noted quickly Yes, not would of is one that our the not we've of like. parts, has component seen supply other some our remarks, there parts of that seems shortages some customers, we XXXG product, they're those other qualified seeing AOI -- it customers to is is shortages products efforts making ramp that their is least in at component it's optical as as be seeing network of that's as to them XXXG inability in early so to the what for our but one they difficult XXXG prepared

to XXXG rollout how in in pending supply expect we bit less. disruption growth maybe this long seeing continue see center a prepared little our to So, as noted data remarks, we the overall but the market they're that later

to [Operator the like hand any Dr. comments. floor Instructions] closing All right. [indiscernible] to would Lin for I Thompson

look and We you you to today. and for of Thank to Okay. investors, investment us see upcoming our we forward continued in for support conference. virtually thanks employees your want joining to customers all many

Thank you. concluded. is you attending Thank The for conference now today's presentation.

now disconnect may lines. You your