Applied Optoelectronics (AAOI) 4 Aug 222022 Q2 Earnings call transcript

Good afternoon and welcome to the Applied Optoelectronics Second 2022 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Lindsay Savarese. ahead. go Please

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

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

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

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

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

discuss third Stefan the financial second detailed who outlook and quarter call joining the over Murry, and today. Lindsay, our thank I will Thank a with begin would you our the I quarter before. for you, call some review from result to more for highlights of quarter. turn

delay a in Our customer second by quarter we several QX. to completion adversely orders in from that ship CATV of revenue expect was affected

supply to these slid quarter, due changes customer quarter we certain end orders, and prior revenue chain to several to and QX. address the the the to but change requested During were into issues, therefore raw to production unable procure well-known material adjust

shipped order negative the We our We million. substantially and by have all revenue QX since late. this revenue, this shipping in also $X.X result delays recognized impact approximately

second revenue year-over-year our result, $XX.X a quarter expectations. which million, our As total was for X.X% to below the decreased

and expectations above of expectations. was rest to our margin line was with result, our our in Turning non-GAAP gross our EPS

revenue $XX.X was above to down late reasons the mentioned due CATV down related XX.X% sequentially I to and in the For million of the X.X% shipping. our year-over-year segment was

particularly environment network. center Total overall decreased year-over-year data their order main purchasing revenue So, in upgrade what continue America network product the in essentially remind our million, MSO, X% $XX.X [indiscernible]. to of robust additional for and North phrase products as

lifecycle. for total discussed to end have is increase This by an partially June. we was the in As and growth we ramp year our a which due finally, is revenue the in previously, total later revenue its to with continue nearly the year-over-year slight decline XXX-g in XX-g, year-over-year to offset of decline this

in on received this nearly We million continue and Today orders to we see $X in have QX products, XXX-g good to of be XXX-g. of customer expected for we QX traction which year. shipped most all

existing design with both with customers. wins EBITDA hyperscale XXX, center wins quarter, lift second operator the our During XXX-g data products, few of

design for to our had also XXX-g products with We customers. wins hyperscale

review and QX center The in two Stefan? wins design outlook equipment of on supplying were over two data that, industry. call win and with telecom details have I'll remainder Fiber-to-the-Home, Stefan turn QX. XXX-g the We performance categories. With network our our the other manufacturers, to the to

Thank you, Thompson.

completion ship was a that orders customer affected mentioned, of several large Thompson a to adversely CATV by revenue from delay quarter had second QX. in we expected our As the in

several were end, raw revenue the and supply well-known we production to these customer orders, During issues, therefore address certain changes slipped prior quarter to to but QX. materials adjust to the and the due changes quarter, chain requested unable the procure to into

delayed, of the although revenue and all by negatively QX. recognized resulting million. since $X.X impacted revenue these we shipment QX orders shipped These our approximately in have delays We have substantially

for year-over-year revenue was the quarter essentially second below million, to total our result, a expectations compared our and X.X% decreased flat $XX.X which QX. to As

came While our recovery we above and non-GAAP gross products. expectations. encouraged the margin telecom line expectations below and in CATV our traction our EPS our in by in our expectations, the with We're delivered with the seeing revenue strong environment, XXX-g market, we are the

quarter, design the During XXX-g two data products, new with were design operator secured these center existing wins. eight Of both wins, customers. our hyperscale we

manufacturer remaining were two XXX-g center data category. XXX-g FTTH, in the telecom, The design two We We customers. and products hyperscale also wins industry. our wins had wins for had with our network two equipment with other supplying

up vendor traction to good hyperscale data center of in XXX-g a customer continue expect We as customer year. call, the see our XXX-g second this our orders of half AOI we have a QX will selected and ramp for On products. we discussed major on how several

pleased begun to for to are receive We designs beginning other with for to sizeable have the company's vendors. completed XXX-g was shipments we testing interoperability have the two in orders prospective And addition an new and continued This the in These I the other new with that mentioned. and for ramp into later a with operator. XXXX. hyperscale XXX-g year our operator expectation the smaller this was wins a was quarter further and bolster major One just QX.

the in XX% XX% center products demand purchasing from North product continue CATV MSOs, FTTH, networking telecom XX% and In our additional overall other. was from our CATV particularly the was quarter QX order second results Turning of segment, remains America, networks. data robust our products, to products. upgrade from their remaining and our environment in to revenue

orders slipped revenue related However, for the sequentially. from million of that year-over-year generated reasons down the QX, and mentioned I we down X.X% into QX to earlier XX.X% $XX.X CATV

Further we with strong revenue CATV see continue to in expect throughout in XXXX as our QX. and currently backlog we orders out, visibility have improvement ahead, XXXX. Looking into stretching we CITV sequential good

CATV for We positioned are we have significantly that the are deliver believe we we to well increased products, that and production demand on seeing. capacity

QX in XX% our our XX% was products, the year-over-year, was came transceiver In was up second X.X% products. XXX-g transceiver sequentially. from and revenue from X% Our our XXG million our center data down X.X% at XXX-g and products. quarter XXX-g from $XX.X center data of and revenue

products. orders most XXX-g these production booked QX expect ship of of noted million we As Thompson our to for capacity this earlier, and ramping, $X QX in nearly we in have with And year. already

Now at XX.X% up turning million to and our year-over-year, telecom segments, $X.X revenue from XX.X% was our products telecom sequentially. up of

quarter was market. Our strong Telecom the second performance driven recovery China by in

somewhat Looking ahead, in China telecom, we see revenue fluctuations as continue murky. outlook to in the remains Telecom expect for to

down within the due Customers the XX.X%, the down the continue XX.X% or to the of challenges decline one year, total prior XXXX. the had $XX.X revenue of of gross margin with XX.X%. in XX.X% in customers quarter, contributed million, of was supply operating CATV our Totaled QX guidance million, we XX data to were revenue revenue, chain. customers revenue two quarter XX.X% or reduced And from of The greater and prior range in one in In and XX% QX second non from gross back year. top as second from of the XX% costs up QX XX.X% In shipping our mostly XX% R&D our marketing personnel market. the benefited XX.X% center year certain well sales and was quarter, GAAP was represented or $XX margin XX.X% lower non-GAAP and For generated come of the from projects, will These of which and second in expenses XXXX QX year reflecting respectively. timing costs. of some of decreased over QX, we of which believe R&D expenses quarter. we as market in next XX% in of our expenses

share loss compares loss basic or In loss $X.X the for cents share range Share. which better or basic was per guidance per than net QX or share, QX Looking of in share, was the were the for GAAP $X.X net the loss to the per basic of computing year, of to million loss share and million GAAP prior $X.X per a loss $X.X loss loss year. cents quarter loss of per million, QX to of to expect cents On XX $X.XX the QX for $X.X the basic non GAAP operating per expenses GAAP second in an in loss per quarter for hover of the operating a compared forward, million, of $X.X of of $X.XX net basic million, of around of a $X.XX or our QX $XX.X used QX basic of and $X.XX was a loss non a $XX range with operating basis, million. $X.X a GAAP XXXX. million, $X.XX rest to million $XX.X loss loss a net million, year. Non was outstanding net of compared million in cents shares a of prior or we

at to $XX.X This the $XX.X and quarter the million with the debt cash cash, sheet, term equivalents, in million, restricted end We the total ended quarter. million balance compares from now quarter. $XX.X cash. million Turning down the we second ended with investments total $XX.X of last first with quarter of short

machinery, we construction million in quarter, shipment total million million including orders of equipment of in million investments and in As XX, improvements. second we to increased of building discussed QX. and at of $X.X end to June made Inventory $XX.X and the in CATV We earlier. million dollars in capital $XX inventory, a delay primarily in due $X that the production compared the $X.X had the

spend of has million. half the about our year, first CapEx total the been For $X

CapEx second Looking the ahead slightly would higher expect spending. to we flat to half,

currently the million $X year, for expect So between and million CapEx. $X we total in

on supply like update guidance, an to provide environment. I would turning chain the Before first to

some of in quarters. semiconductors, particularly chain supply We challenges continue areas to prior as our in see

due availability is cost. these for utilize component million reduction $X We not to this higher million shortage. redesigning materials able $X to in cases, always components by see But every shortages. from reduce we and challenges to better have in some qX adapted the to sources. to We approximately revenue with by currently often alternative purchasing impact In are possible cost products potential

to shifted revenue. be will Rather that than lost revenue represents QX amount this However,

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

first Our Instructions] Capital [Operator Markets. session. question-and-answer Savageaux with will the question begin come now will We go Tim Northland Please from ahead.

outlook have on you afternoon. about comment good might calm. in Question data made a Hi, your

your QX, year-over-year look growth principally that? there one all a is should sequential as second I we catch to made color anything any Or going half guiding up? increase the On at the cable on think that's you in Thompson So there? comment the returning assume particular QX hand, or for on TV about else

the to over returning some probably during growth statement specific So is a that year or as we Yes, forecasting related sequential far think but sequential that's sequential growth. second the cable said kind to nature the so of QX QX was in as we'll of that return sequentially. first that half, at revenue. a the And we've year QX, that be question wasn't about Center, QX, to to or TV increase. Data we we're lot of should flattish the increase point the

Okay,

Okay.

Just that, in to design center sounds additional QX of orders in material XXX-g. to to given lower outlook are speed that offsets drive QX? more for that data wins you or seeing the expect It kind any on and and flattish hand in for ramp follow-up like you

XXXG a later shipping going I start orders to of in QX. mean, lot Yes. the are

So might then expect as fluctuation lower be much of was as there's for entire And effect in there's some some it you not quarter. always as would to in QX well. going otherwise, the the if stuff otherwise

the the we more QX. XXXG, see in in expect some end to ramp So, of it'll but be material do towards quarter

to more, top about should guess, historically, the assume one we Maybe just either added customer talk orders, batch we when opportunity should with of major that's of customers? compared And of recently, kind total million your with that one Okay. the two from see customer, in concentrated you cloud customer? that hand historical $X primarily orders kind maybe XXXG just initial how operator? cloud that or kind then in of, And but assume the you I that's major your cloud you've other does top

Yes.

far for It largest So and other a bought so for couple recent, and largest XXXG the major hyperscale the orders that by customer. gotten we've operators. is of not are for large most

how is quarter. as million look As of opportunity, we this that this that the during the far much at $X received mean, very an represents accumulation beginning, orders I we've

to or would say to the our we So or like But this of starting just really, that this be now are the able see orders. run that And happen, sort to orders year. ramping capacity some those of receive not it's purpose of rate. be month to where point and accommodate between we for the a all is week, something expect that we'll just sizable orders on out those and be that presumably, to end that We're delivering additional backlog orders. will production that

Okay. Thanks.

from Paul Cowen. next ahead. Our come question will go Silverstein Please with

being stuff gross impacted included, what visibility, to everyone's to more recognize here?. to to needs for What I if level to -- supply margin the up by happen get improvement? from meaningful Stefan, needs what's Yes. any, what are happen? the margin chain

think affecting I particular issues been the recently our prepared issue we've supply can of that been remarks lot highlighted had. earlier, there's in biggest not us been I as one different has various point factor just that a there's to, -- we that's chain

excuse. an little trajectory But for to the going difficult I prices not predict other those bit exactly to what course, be. it's untypical of think that's not this is companies, is a of

available a in accommodate, redesigning sources, both. products in at of available are components qualifying we've more quite lot or to cost, or that second products be remarks, able work finding alternatives a hopefully, As our lower either or to many we noted done cases, of prepared on portions

had. activity or cases, difficulty we're it's the that or that into a the been burn able that if lot have we we've is there's we in So products margin inventory have that, get gross translating actually to of are all getting In some that The a inventory. costs. -- like through that, something we're activity improved higher to existing the redesign to

So from would what be that otherwise areas. kind of other savings cost offsets

to think meaningfully of of in some the anticipated also time. margin of improvement the I going see some the combination mean, have some we're we end kicking based that in gross contributed revenue cost to the towards I new we the more on had. And that at year reduction products of have the cost of that reduction, So efforts

But But by get a So that knows. expectation I will little worse, unlikely is our uptick current an from supply that in which at chain margin situation of QX. doesn't bit seems point. this in assumes saying that that materially one like the gross is hedge never sort

get What Yes. what about to you're not of back talking XXs to to What high guess happen to about XX-plus supply XX to happen? to before to beyond to supply what And that can And plus, back getting then reparation needs chain, beyond level. trying just to to get the what I what mid the get normalization? impact supply to? get always can you're incremental chain, we're back you talking to supply even chain or that chain, -- getting supply needs was

to our mid contribution us the some products. from -- probably Yes, To supply we see XX%, chain get higher margin think into higher need I of would -- low margin significant gets to to contribution back XXs. newer

a So normalization, the in shift mix to supply addition chain

Specifically to XXX gig…

ahead, No, Okay. I’m sorry. go I’m Paul. sorry.

you're or in Specifically products? to terms more XXX-gig new of generically thinking

well. but to after kick that, start XXXX. meaningfully of new chain any said, probably in but a on is again, new think certainly More into it, there, supply other that probably products timeframe contributor generically, other barring part Again, that's the so but be as we things I QX-ish. And The quarters I normalization, the mean, XXX-gig of can more QX, like in contribute will it'll products, sort in happen.

then pause, in past, And addresses that in does know to but margin breakeven, assumptions? gross your get terms I'll of I to the and assume volume what

operating guidance the going Right. some It's $XX.X of probably gave million, Well, expense. $XX year. the that between on we rest through to million, something hover like

of can -- to consistent We've you meaningfully So, next fairly I change operating that in kind really expect don't expense. either. year and been

the I XX%. and to maybe kind that given We even gross in about. touch take on quarters, revenue trajectory back or likely some get couple happen before, get breakeven. we talked not point, the XXs to So said can to numbers can just next upper to margin the of of you think the the At we do will XX, that math it's

kind you $XX of what if you would can operating get So the revenue idea need rough and assume million-ish in a level that to be. plug on a expense, pretty

I Thank appreciate you. it.

remaining are Thompson session. to no for conference I'd we There back remarks. the this question-and-answer Lin our conclude And questions time. turn at to will with over any that, Dr. closing like

Again, today. thank for you us joining

to you, we for and always, quarter. progress extend We As to you continued the look to forward to investors, customers support. our next want updating employees thank our your on

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

your may disconnect lines. now You