Applied Optoelectronics (AAOI) 4 Nov 222022 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 2022 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 [Operator Instructions]. the to turn Relations Savarese, now AOI. for will call Lindsay over Investor I Ms. begin. may you Savarese,

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

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

it's of or you which begin, the company expressed of forward-looking of outcomes. events estimate call, to Before expectations, actual activity, or to company's achievements company trends forward-looking other uncertainty convey such implied those future as such expectations, should, On can intend, or as anticipates, by results, will, or materially in statements uncertainties, projections. you well These or could, cause AOI's current could of like I predict, and things, similar industries, The those the In terminology updates expects, statements some forward-looking or to from identify assumptions forecasts, forward-looking may, performance current its involve that cases estimates, statements. we forward-looking statements the differ these management potential levels assumptions, Safe Harbor or would on statements. review would, make remind expressions plan, believes, negative statements. today's and as will risks by and

projections required and of not While expectations, relating or statements known could complete control, occurrence described and to the the company reasonable, certain transaction; transaction. timely change schedule circumstance delay terms unknown at uncertainties. conditions may termination estimates event failure satisfied involve are rise give company's or these that receive such closing regulatory such are the call and the the looking on risks risk including all; other any predictions be and to only or or of the that beyond and the transaction ability as government Many are assumptions, related forward other waived; factors, which important risks the the of the on this company's the approvals to the to proposed or believes and to

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

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

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

below a margin in and delivered expectations. line quarter, our gross non-GAAP our within third share the loss narrow For expectations. We in revenue came per total

optical with an As XXth, AOI the entered have Technology business in Republic China of related People's September on products. of may certain into have you facilities Optoelectronic transceiver for announced assets agreement located and Yuhan we multiple that sale subassembly to seen and we our channel manufacturing

for FTD a price For holdback edge $XXX the and less purchase of Internet, amount. datacenter, telecom million, markets

positive. customary capability transition will be We and completed higher in supply of most investments We anticipate been of and the [divestiture] is appreciate will this believe utmost in enable significant generate behind in and [Indiscernible] that our proceeds, fabrication proposed operation customers, of our the from will growth has continuity feedback the our and regulatory transaction customers to subject and opportunities. parents XXXX, which to transceiver make higher continue and conditions is closing to We Early of believe believe chain [import]. margin the rationale chip our our that to serious the manufacturing and them approvals. us understand we importance in

open We we contract focused existing have to CATV that of the [Taiwan] maintained portfolio production, current believe laser composed Sugar Taiwan current transaction a Ningbo lasers have as opportunity were datacenter for business. our with Luckily, Land, on facilities customer able as in will will our up with utilizing well facility AOI for facility our product big transaction, the expansion manufacturing our Following Texas. portfolio, basis. a and

of a in tripled move segment which lifecycle, $XX.X our up of the Relative revenue decline to nearing to third We CATV to year-over-year products markets. datacenter of at was of quarter of is anticipated our to the in in operating better of increase and million, expenses. We slightly loss Total Total beginning Turning delivered to end expected push partially than revenue gross our sequentially, from sales. of XXXG This a by record $X.XX which a range to end the non-GAAP faster smaller results. XXG to decline XXG, guidance a million XX.X%, and share million per QX. margin $XX.X XX% an we XX.X% as XX% million delivered $X.XX mainly XX% million, demand decline than to due in our than revenue CATV due year-over-year guidance robust its in $XX of due decreased offset largely and was for XXXG, our continue customers to current of more non-GAAP is to sequentially, XX% below slowly $XX.X sequentially range $XX $X.XX. high see XXXG. and company of to our range as XX% loss a of

turn of anticipated, call and With performance newer As the our over that line. believe trend beginning in product in Stefan? revenue of the QX increase is for this XXXG I'll of that, we this the Stefan a increase review to QX. to outlook sustained from details

Thank you Thompson.

mentioned, loss we and expectations. per our gross in share As smaller non-GAAP while our margin below our line relative delivered to in Thompson with a revenue came expectations expectations, our

by telecom shipments we seeing encouraged environment, demand the in of our We’re CATV products. early the robust market XXXG the and the in are strength the

total third to was increased faster due a in million of $XX quarter million, sales. our than slightly $XX.X below anticipated Our primarily XXG for to to range the million, $XX which X% decline guidance revenue year-over-year

business we manufacturing to XXth, as of an company the and markets $XXX for detail entered few more to Optoelectronic as million, post for AOI cash for located the transaction. looks a rationale provide we related less and FTTH on close telecom what moments well that approximately consideration transceiver be announced at of for of is price the China, it holdback variable total a divestiture optical mentioned purchase conditions the million, that and facilities of and Yuhan multichannel depending Thompson seen, have a other with on time on Currently, capital the Technology you working today's strategic I subassembly spend the the sale approximately the into may certain making our as like will datacenter September assets as in have products Republic million. a As to call $XXX our agreement discuss People's and $X the closing. on of would amount

a and CFIUS of have As would is be ODI. believe anticipate continue a XXXX, benefits closing will including to AOI. for transaction we and We that the completed approvals, subject reminder, in and that the conditions transaction regulatory to customary number

for margin produced in the currently the of There concentrate First, a chip on manufacturers are number optical typically our production business. our with it products vast higher market in optical internal would an transceivers. of who for we components optical to would are growing that component that our compete feel products, longer our our of fab transaction us of on our Currently, earn higher additional gross allow this majority ours efforts competitors the significantly used us customers margins. are Texas once believe transceiver component production. them which could become no transceiver to If unlock successful, component we potential optical we allow

the revenue high sales transceivers transceivers to in business production purchasing US many into be putting may that manufacturing AOI have key these new also new of of components Chinese our Chinese a our domestic transceiver of Due of in the entity to from owner companies companies. the US, degree We enable potential that to customers. greater like this unlock optical believe believe we benefit The a Second, new China. potentially with gain tensions domestic should sensitivity component with transaction for business additional customers. is to Chinese hands used the chips to

grown business that in ongoing for challenging operations the US is companies believe given a events, foreseeable no as our in has company dependence on will tensions reducing ease we increasingly assurance there The future. there China, Third, is these that and prudent. environment recent

transaction business, we would the in make would Taiwan by EBITDA the laser cash Finally, It new and retain AOI would transceiver for in and and of CATV instead we optical datacenter and the close significant our broadband such believe generate markets, that well would future of product cash strengthen development market existing our as and balance to focus datacenter After business our the Sugar markets, to businesses enable breakeven facilities the transaction, ones. flow components should can Land closes. these manufacturing sheet. also We us resources achieve other in transaction as our allow our the would free us once generated our as FTTH potential investments exit sensing. Texas. on remaining manufacturing

look our optical overall datacenter Turning to It to profile transceivers. used revenue given our optical components difficult our is transceivers, what manufacture once would break revenue to transaction is closed. versus is of like out components that what our are the percentage

XX% components. XX of ended in-house the manufactured to on optical estimate we our September over optical that However, datacenter usage is these months revenue roughly attributable internal XX based components, trailing our of

the sales our million. Post direct to addition this our significant noted of components and component both XX direct datacenter that approximately we above revenue component $XX of sales months, believe as In opportunities increase over business, are optical optical transaction to we've optical embedded components. of there trailing had

a margin we closes, Lastly, we with transaction margin approaching the afterwards, at upper can XX% gross profile, precision with believe the few to that respect or margins our close within XX%. perhaps in we structure achieve our range, after while quarters cannot estimate

a We be over robust to quarter typical, The design to continue than is completed in qualifications one we the single back is the secured telecom Turning next pipeline quarter. lower we expect to for new the quarters. that in new our but segment. win design, few have is which

third continue traction shipments customer We expect on in continued growth expected and in orders quarter up to QX. we good as XXXG, in we begin see ramp to

CATV from of products, other. datacenter revenue which with our was see products Further quarter continue Turning to the the QX additional was overall our FTTH visibility robust XX% CATV America, out, XXXX. into have with MSOs, product our results. backlog $XX.X CATV remains to products environment stretching was their XX% quarter from telecom remaining from as the XX% orders record networking CATV sequentially. million, was third purchasing our order our of segment, third in XX% In particularly up North as in XX% networks. and we mid continue our the and good revenue to we upgrade company in year-over-year demand

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

datacenter revenue was year-over-year third and In transceiver transceiver XX% down XX% in X% sequentially. from datacenter products. $XX.X of products QX the our million, revenue XXXG our products, and Our quarter, our XXXG XX% from was XXXG XXG and came at was from our XX%

these products, up Telecom from $X.X quarters. we Now the next segment. products revenue turning will telecom telecom up to relatively mostly XG over that our driven related million believe year-over-year of was continues Revenue products revenue be consistent to our sequentially. X% few remain from and XX% and by

initiated reduction customers the was by XX XX.X% to generated we end For the impact in revenue the with customers third of XX%, a of in QX the XX% percentage of XX.X%, market gross QX, of of that non-GAAP two year. The cost the year. expenses XX% R&D we or of QX down from $X.X expenses guidance of contributed in third up XX.X% million prior or are in gross XX% QX our the at to in anticipated of flat of which non-GAAP revenue, XXXX. revenue, represented X% the driven revenue range was one quarter XX% high total $XX.X our the margin increase We XX.X% of third These of one datacenter million or in XX.X% $XX.X market. year. top the in operating was million. prior of XXXX in customers CATV respectively. and In total early and Total and and over margin as efforts decreased year from had revenue year to quarter, the quarter, compared QX in XX.X% of mainly the greater

employee the Looking non-GAAP approximately of driven operating increase is QX $X $X.XX $X.X forward, share million or additional by bonus increase per we expect about by million. accrual approximately to in This expenses to related announcement it QX. after China in to conform is the divestiture. bonus accrual not to transaction, of expected total accrual our to after year up This catch but end QX necessary expectations is the recur current

million loss which and or to to $X.X guidance share of per expenses year. were GAAP outstanding and share basic operating the $XX a in million. moderate per range a per of basic non-GAAP million or to year. QX $X.XX $X.XX a of net basic QX better $X.XX loss share QX $X.XX to used quarter. a of Non-GAAP expect loss compared per non-GAAP net in $X.X compares of $X.X a loss an of $XX compared million was million million next share $XX.X loss was or $X.X of $X.XX we than basis, per prior ahead, On loss loss for XXXX. the a million a for per million loss range year Looking of third QX for share, loss GAAP the in million of basic in in operating share computing to to loss operating of QX the $X.X was between million of prior net loss per or in net quarter was or million XX.X of QX The $X.XX basic our the basic loss with a a shares in loss $XX.X net $X.X

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

third almost decreased utilization shipments of XXth, the a $X.X million and to We compared in made in of end we the at investments of to construction due inventory capital all larger September QX. during As building inventory the $XX.X Inventory million quarter, quarter. for had improvements. total in of $XX.X in million primarily

million ahead CapEx. total between we the $X Looking million $X year and for expect in

Moving now to our QX outlook.

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

Instructions] Ethan Widell of from question We a have B. [Operator Riley.

This have one on for Dave calling my Ethan Kang. in is end. I just

we've seen infrastructure scalars buildout. So hyper pretty plans robust surrounding data their CapEx some announcing

was overall you to as little hyper especially additional regarding I So scalars? a could hoping provide color optical demand, it pertains

seeing Well, to business that what I as times than up we think market with was is X it our the as scalers prepared we now, right hyper beginning our noted, ramp, remarks the mean, in particularly noted, more is sequentially. I XXXG earlier. in we're

quarters We I backlog pretty that the have to we've of couple second that anticipated we've half expected of gig last ramping the communicated XXX and a see strong in products, the those for we year. which think order

projected it's good that to the year. see So we're earlier we experiencing actually what in

you of a We're viewpoint sort XXX crystallize So robust scalers gig little monitoring fairly good we I hyper going are to generally stand, terms But going for now spent. we customers. on forward spending things. based be affect bit optical the that a positive right conditions moving is like on spending noted, that's to in us on that's think of the our and looks how is, that the macro ramp next moving to it environment as components for where the forward. again, evidence part the And for our plans year think starting of

question-and-answer like I conference Dr. Thompson to turn would the concludes This Instructions] Lin our [Operator over to session. for closing back remarks.

us Okay. you for Thank joining today.

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

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

may now disconnect. You