Applied Optoelectronics (AAOI) 4 May 232023 Q1 Earnings call transcript

Good afternoon. I will be your conference operator. At this time I would like to welcome everyone to the Applied Optoelectronics’ First Quarter 2023 Earnings Conference Call. [Operator instructions] Please note that this event is being recorded.

I would now like to turn the conference over to Lindsay Savarese, Investor Relations for AOI. Ms. begin. may you Savarese

Lindsay to Relations first welcome conference financial I'm And quarter Applied I'm results pleased you call. Savarese, you. for Investor Optoelectronics. XXXX Thank to AOI's

closed results and at the its release market After XXXX. a quarter the company's ao-inc.com. provided AOI also The quarter financial first website release outlook press is the XXXX announcing today, second its of for issued on available

Investor be Relations live. webcast of This call found link the and on recording recorded the for website is AOI A can archived one section to the and be being will year.

on is Chief AOI's today's Chief Joining Officer. Lin, us Murry, CEO; and Officer call Strategy AOI's and Founder, Chairman, Financial Stefan Thompson Dr. and Dr.

financial of Thompson the outlook an will AOI's remarks. A our XXXX. QX give of and provide second details for overview quarter will session results, prepared will question-and-answer follow the Stefan and

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

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

regarding of outlook statements related management's customer of and beliefs the responses products regarding for quarter statements include also XXXX. second our the the new company's to as statements of as expansion and our expectations innovation, Forward-looking into to well the markets reach

to reason no these in actual statements update we changes obligation required the company's call of expectations. Except earnings this assume after to statements the results to law, any for as date by forward-looking to conform or

including in the section for that More December year may company's reports SEC, report of XX-K with file Risk Form XXXX. the other on business the the the company's forth risks are set information about Factors the XX, company's annual on impact ended

are as Also, a substitute are basis as otherwise. results or and to today non-GAAP unless financial website. present on isolation discussed not our other our in that specifically we our financial a measures earnings of considered between GAAP a reconciliation as non-GAAP all why included non-GAAP on available A Non-GAAP GAAP. with results well press noted is be discussion measures measures for financial in are financial prepared and intended measures, release accordance in

for earnings call our August date currently is of the XXXX. I'd like to X, quarter scheduled note second

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

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

margin due gross expectations in faster exchange non-GAAP loss losses, quarter expectations, were U.S. mainly dollar. foreign than RMB below per due be with first our unexpected our revenue our to the share to line relative to and non-GAAP expected can while Our of currency Chinese appreciation

We business, by by improvement progress margin, for gross made are in of have QX. our XXXG we on the demand and are improving we our products our the pleased saw encouraged during datacenter

We generated good CATV of another quarter results.

However, notified expect with customers negatively inventory some our were impact CATV recently we QX build-up of will we revenue. certain which

and of revenue XX% $XX of XX.X% We to quarter non-GAAP of line range of reduction due target $XX with loss $X.XX credit $X.XX, impacts first million. range cost loss to of credit net our line per non-GAAP XX% the exchange to $XX share of we by million foreign in was driven mentioned. the delivered a favorable delivered gross product I million mix During in credit our just margin with to below range $X.XX, our

the during year-over-year segment revenue our sequentially Total negative by million, XX% in down and in CATV $XX.X loss China. days occurred up production the New the Year of record was holidays QX, that impact largely XX% due to the Lunar of

product products. revenue the for largely and center increased XX% to data Total our sequentially, for increased $XX.X demand year-over-year X% million, decrease due of our XXXG

X-K for on term call, key our agreement for details a XXXG Microsoft, signed give each beyond. with we data major agreement last I’ll discussed have been this who with development to for to additional ours. next operator hyperscale an filing a do make On generation has and center, customer of program a some datacenter we lasers both long

products validation complete, new as of review laser quarters ability. contract and several of this take development the to award will core the be strength quality our of the While fabrication

to of Stephen? call turn With outlook performance QX. for details that, the review I Stefan QX our and will to over

Thompson. you, Thank

were gross margin expectations. Our revenue non-GAAP line and in with first quarter our

due to loss appreciation mainly share currency in came non-GAAP renminbi foreign dollar. losses expectations expected to Chinese the wider While our than per the of our relative than due to unexpected U.S. exchange faster

our XXXG the of quarter business Further, results. and good products for generated continued saw pleased are in to center made QX. improve we encouraged gross our demand We're have CATV increased data our the another we we by by progress during margin

we our However, customers, with will some CATV recently notified were expect negatively inventory QX of we revenue. certain build-up which impact

provide results with our outlook, I on and Optoelectronic discuss we to transaction turning that an last the Yuhan want to Before Technology. September announced update

price As we entered sale sub-assembly telecom discussed, with facilities Optoelectronic into our for transceiver $XXX Republic optical an for datacenter, FTTH of to in business purchase markets manufacturing Yuhan we the People's and the the assets located have of our million. and and a agreement Technology multi-channel related previously products of for China certain

made information to finalize that that approvals divestiture. the both in the quarter the AOI order various file be required and the order to regulatory in During for progress Yuhan in be needed preparing will will

transaction conditions closing approvals, regulatory CFIUS this reminder, is subject a including customary to As and ODI. and

next filings early few transaction The do complete, year process not are end these timing within closing uncertain, although timeframe application schedule push before XXXX. is we the Although is our approval that the but submit regulatory current believe still could the to months. possible, yet we based our expect of into on the closing

quarter; revenue to million, increased million. of first with the X% $XX which range million quarter total to was the $XX year-over-year for $XX to Turning our line our in guidance

secured in design we quarter first win business. the CATV our During one

we potential. focus expect due margin gross to spend projects intentional revenue to R&D higher better to efforts our that ahead Looking on our and have

reduced result design aggregate indicative a business in R&D reduction discipline number to design expect activity, this of but compared of reduced We view periods. greater prior wins efforts. to applying rather are of be We as to not as we wins our the a do

was FTTH, X% of During the from down bandwidth. XX% products data our customers return which QX quarter, CATV improve our the sequentially in year-over-year by was from was and remaining XX% XX% XX% upstream million, for first with record was products, The a CATV revenue demand path quarter $XX.X to other. off our designed telecom center driven revenue from or CATV from products first was the up and

believe mentioned customers I by distribution we up some inventory earlier, CATV built various has they notified among As their that excess certain channels. were recently that

As a is our reflected customers in these which guidance. their reduce in result, orders QX,

excess future to working are extent evaluate of this inventory. We the

buildup robust, be demand that continue the products will believe overall remains transitory. to CATV We MSOs expect that any and for inventory from

ahead, plans to carefully X.X monitoring DOCSIS to MSO Looking are we move networks.

cycles a cautiously positioned we well believe new remains spend. infrastructure are of can nature lengthy, While capture this as these upgrade of be AOI optimistic portion to we the

times development the elements later for of their when We meet product amplifiers MSOs or we and team push demands year happen this believe U.S. other this met the with as several as suited our install in to to largest network in Our XXXX. has be well DOCSIS early numerous begins. the believe could early will products X.X and

center XXXG XXXG center our from year-over-year down million, $XX.X products, by XX% our for quarter, our came products, X% XXG was XX% up Our and products. and our data of from the data was demand QX sequentially in revenue and first center XXXG at customer. driven from XXXG products, especially revenue data from increased largest was our transceiver our transceiver X% In X%

we increased of ahead, by and are business sequential have data Looking been encouraged growth seeing our we continued QX. demand in expect the center

discussed hyperscale for As lasers operator signed an a QX with datacenter, beyond. generation we XXXG its earnings Thompson for datacenter make program and call development how we our mentioned both a on major agreement for to next

Filing ours. a been X-K key Microsoft additional long-term details agreement gives Our of this has who on recent customer with

value core While validation the completed, laser ability. new be our as several we award to view fabrication will take quarters these products contract development of the this of of

provide approximately in to $X phase the in R&D of million with funding QX. million a first paid the Microsoft As has reminder, $X first this agreed for project

the Lunar revenue $X.X and down our customers, by down segment; XX% Telecom and sequentially. turning Now year-over-year was to XX% due buildup our the telecom inventory from New our impact products Year some of telecom of million from negative to

down sequential needed. that to expect to point we to be stronger be ahead, drawn as see will inventory QX in begins the demand deliveries new Looking

market represented the top from revenue quarter, the one which total data of market, customers in We XX in QX contributed center year. two revenue, than our XX% one customers, had XX% in respectively. For XX% of last and XX% of and our XX% CATV first up greater

several on XX% increase which with efforts, we generated discussed of some our from QX in QX of gross XX% XX.X% prior of and we some benefit in focus executing exit XXXX. can margin, from some from of that the of of and low included by areas the operating non-GAAP reduction expectations, XX.X% on price and some the shifting our expenses guidance QX, which XX.X% we margin bottom in margin success QX in product of profit QX or was resources with up R&D our XX.X% million, with The mainly products, year. was intentional our up $XX.X the to gross increases compared of we driven in In line our XXXX, actions of In legacy were range call. low improve million our customers. where revenue cost total mix, in quarter in line line maximize XX.X%, to favorable projects resources took of to margin our away or was revenue, $XX.X non-GAAP These first to our actions and

of I discussed expenses investments as R&D year-over-year more a $X.X minute decreased million R&D a the XX% to focused result ago.

of operating $X.X million operating share compared QX year. share million or the net $X.XX $XX.X was per basic Looking of continue to in between loss forward, loss Non-GAAP million loss basic $XX loss GAAP million for prior of quarter. per $XX.X with first GAAP we QX operating non-GAAP to expenses a compared an and $XX XXXX. of of will million net in was in the loss loss million per $X.XX in or $XX.X range QX expect quarter

QX to On year. net prior $X.XX of loss per of $X.XX used compares million per net million. a loss loss share basic QX shares the below $X.X The $X.X a million, was loss was and to of loss for basic $X.XX a of $X.X per or or in range guidance per share our in the of $X.X or which were million $X.XX outstanding basic a basic QX non-GAAP to range of loss basis, for share, of computing a in a $XX.X share million loss net the

million, $XX.X with compares $X.X $X.X sheet, with cash Changes to accounts in increase at investments of cash. a $X.X the receivable with ended payables which quarter This in the in the $XX.X of equivalent, balance quarter. now inventory included offset cash, decrease an decrease and fourth restricted the in by total million Turning million. end million of of current a we in first accounts million, was short-term along

excluding million convertible million, debt $XX.X We ended at the with quarter total end of up $XX.X debt the last of quarter. from slightly

orders customer of due and total million R&D had inventory Inventory in As decreased of the capital inventory of million compared to and March quarter, in the the for first for of which QX. million end was XXst, we made virtually to $XX.X production. all a in in investments of in utilization used machinery $X.X We $XX.X at period. equipment

that approximately we program. sold a of XXXX, the the We've March, program by under only in disclosed ATM million $X.X worth at Under expired. shares new program, million our we initiated authorized in sell an had to $XX As million board When $XX offering. the ongoing January market ATM up previously also of expired old SX the out old we authorized. this to

use. we authorization. these to new the proceeds put production development We for fresh a investments equipment new to a and program So make machinery place million with continue intend and use in business, to and in $XX research including

$XX.X we $X.X the Non-GAAP of non-GAAP million our now outlook; loss net QX in for to share approximately million XX.X%. to share weighted to a to million to be and in count expect and basic is between loss be revenue and of shares. XX.X% the expected margin to gross be million between range range $X.XX and non-GAAP average QX Moving $XX.X million $X.XX $X XX.X using of basic

back the for to session. operator over the With Operator? will turn I that, Q&A it

first James. Raymond Simon [Operator go ahead. Please with comes Leopold question Instructions] The from

Great. for the Thanks. taking Thanks question.

terms wanted company. by – to going all but – pending I assume bit transaction the if So things some the sale around about of us entire deal is this, the language fourth of the I in Microsoft you indication a insight I of, R&D One in guess to it's at better some quarter, I of arrangement control, a in affected Because transaction can China? couple of some get saw the other you're of get this understand give asset some and funding this I scope change little means which the on.

be would there clarification little a Just helpful?

Simon. Sure,

the announcement it, that Regarding recently in more kind the the of released respect of really do has to question details your we that to with it made first of the but with beyond – we fabrication on scope December, in of that's certain prepared remarks. data used the products creation type noted device center XXXG specifically laser our a of for as new be in use to we within of center transmission Microsoft's going for data and

future and As that really starts deployments we and think should into XXXG on then later ramp with this we also said, XXXX year it to along beyond. the grow

change and Clearly Microsoft your timeframe regarding, respect aware to everything, respect the the announcement the subsequent it was question details about transaction with that of and transaction? With of second was anything does to to given that we transaction the the the presented this transaction. announcement clearly so of

far. this control provisions – that respect changes read that With to change not not, that. of change of on the can to refer company, I of a changing you no, analysis So control nothing to company would respect control, with our entire alone based the would of there nothing so which transaction the transaction the does represent mean,

want that that. I that's checking I exactly – was That's thought. what what I

over I pay total help Could you're ask wanted – that got me of thank And quarter was or last roadmap $XXX now I down understand for the that. you've then was you I $XX debt thing the current sort schedule think is your to is you about believe million because plan current around to debt to going debt? other how the So and million.

we some should in from to that us noted, that amount service transaction in the it's come that think I to gives timeframe which mean, due. and $XXX the be certainly the debt million going I that ability minus Yes. the holdback, proceeds of

we're certainly pushed cash what the that options have to possible gets would transaction from servicing transaction debt. other that also instrumental out be that very be But other exploring of terms things you. the course if or Of in might

XX where So is that there this essentially scenario this year. maybe odd a if, during loan calendar the you'd if there's year, – get a bridge million comes guess I due county some

gap, year, have am if you'd So until next close with, the [indiscernible] a misunderstanding that? I doesn't deal

of course, lot our long that we debt often this is debt the over has – A tends a real basis of Asia the excluding been and a company Asia for of in always has annual the plant or a example, convertible this been – in for lot time. lot revolve have the Well revolved. true Asian for we our to on there. of backed It's have debt equipment debt and generally assets by an estate property it's that and that

And that it so it's that. always revolve to had the expect and would continue we to ability does

current just a up rolls but would year. over it this we what does show up it and a it and So almost yes, of expect liability as that's always current kind as liability, again, shows

you With could of we are majority to what could there respect do Sure, that things loan get that to about options? to would or there plan, respect lots your the things enhance go the to don't debt, with liquidity is but according a bridge question if expect. we of that's

I not one just the That's is talk I No, the could X.X Great. for And about and your gigahertz cable me market. that. really helpful. amplifiers rollover for plans last of finances. from Asian appreciate the the then expectations about if you thought TV have

Right.

and So mentioned we their do prepared pretty have our with DOCSIS also next been their DOCSIS think publicly generation is networks using plans explicit marks but with we cable that various X.X to X.X. in upgrade us, respect the the MSOs to in TV that

by the talking Full still are is on gigahertz. for are most predominant are depending technologies. I seems others the technology would of other that are majority would the I Now But preferred of that say X.X to to X.X or you planning FDX, MSOs There say to at gigahertz. Duplex DOCSIS, MSOs looking about which the MSO go be some example, that

to And X.X some an had plans on development that. for time. proceeding well ongoing gigahertz for we're we've according active our Now program

And we've like our feel remarks, numerous noted with technology. positioned major pretty are as discussions well again later had as MSOs we prepared that we this we expect the year. early to deploy in As this technology, that for we

for Great. taking the Thanks questions.

My pleasure.

Instructions] Please [Operator with Markets. next The from go question ahead. Tim Capital Northland Savageaux comes

Excuse me. good Hi, afternoon. couple questions. of A

of an think a you NRE that. but mentioned kind kind beyond deal of you million, payment numbers First, I there? total the with associated Do sense maybe have of some Microsoft of value $X the

may you side, quarters. on whether there driven? up months customer brought then inventory manufacturer I or kind whether And discern the that all has customer know cable Can an recent having your another of contract impact, Thanks. separately it's in top and be

throughout about respect we so a total with that So, now according to of It's revenue which rules this been the throughout of the question Because as particular tranche NRE, the prepaid of paid Microsoft $X right And, the already will the the record to progresses that's that actually recognize we'll project year. million in as already noted. of asset. is year. million we million that revenue it's a most $X as has NRE paid recognition been for $X

the With way the in any that. an contract respect I the fairly to additional inventory It is trying in your chain believe the not question simply far been in responsible have is supply manufacturer buildup we cable And discern do to can involved that we as really inventory. for tell. about as

relatively continue at robust to believe do purchase the that a clip. We MSOs gear

partners interest like up, everybody really of explanation closely think I rates I do as of it. the looking any contract terms is bit have I at And maybe for got little a additional manufacturing. forecasts. levels that out more it in over of and and their don't anything think to things the their that's has with their skis distribution ticked competition in that think terms some inventory

Thanks Got it. very much.

pleasure. My

to no further the At for over Thompson closing have questions. this will turn Dr. Lin we I remarks. time, call

us for you thank And joining Okay. today.

extend we on you investors, next and We you always, a forward thank earnings employees to look customers, for want call. to support. As to your continuous our update our

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

You may now disconnect.