Applied Optoelectronics (AAOI) 9 Nov 232023 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 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I will now turn the call over to Lindsay Savarese, Investor Relations for AOI. Ms. begin. may you Savarese,

Lindsay to Relations Third welcome Conference Financial I'm I Quarter Applied am Results pleased you Call. Savarese, you. for Investor Optoelectronics. XXXX Thank to AOI's

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

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

company's the well statements. differ performance Before or results, like its implied statements such harbor will assumptions to safe to forward-looking AOI's and materially call, review today's uncertainties or On in statement. forward-looking which could would industry from of the current expectations, cause begin, and levels activity, to achievements as of actual or company risks statements. These make those I expressed involve remind forward-looking you we as management

think the convey future such of believes, intends, expects, could, other or predicts, uncertainty In or potential would, should, some identify suggest, that or outcomes. estimates, events expressions negative cases, forecasts, plans, anticipates, by by you of terms statements or as can those similar forward-looking may, terminologies will,

these forward-looking expectations, on The assumptions, estimates company current and projections. has its based statements

projections such company's are unknown known While many reasonable, the statements assumptions, and predictions only involve risks control. these which beyond are forward-looking the and are and estimates and uncertainties, believes expectations, company of

expectations innovation to of and the company's date of reason management's our earnings we include conform actual no this statements forward-looking assume new responses the as call by statements fourth the reach expectations. these of any change well after also into regarding related statements company's products our the expansion update results as as to for quarter Except customer for Forward-looking beliefs statements outlook of regarding the and statements it XXXX. to obligation to required or in the law, to to markets

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

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

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

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

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

EPS quarter in revenue third with line expectations. Our and were our non-GAAP

XXXG datacenter continued saw pleased in While for the have by on our expectations, QX. XXXG improving continued gross business gross progress the we products we strong margin are better and our our our was by than margin our we made non-GAAP and during growth

adjusted growth revenue generate EBITDA to in us gross million $X allow of margins quarter. and improving combination during The the

revenue of of Microsoft. was range range delivered recognized nonrecurring we delivered above XX.X% within XX.X%, $XX our contribution margin of We to our the $XX.X quarter, revenue shift mix and favorable our XX%, part non-GAAP revenue of $XX as from to gross of During guidance million million. a driven by product guidance million which third mainly from

non-GAAP Our to was was of guidance within share per $X.XX. loss loss range a of $X.XX of our $X.XX which earnings

and revenue of up Total sequentially, expectations. datacenter increased our segment in for products. due $XX.X to increased largely CATV XXXG double Our as million, our demand and of million continue our run-up the our sequentially, with XXXG to see down year-over-year more in for we XXXG products our was XX% $XX.X revenue than XX% line year-over-year and products XX%

tripled XXXG I Revenue that, Stefan same will to our than nearly the details our over call turn of XXx and review Stefan? more increased products for to XXXG the performance outlook our period. the QX With for products for year-over-year revenue while QX. in

you, Thank Thompson.

third better than revenue mentioned, non-GAAP expectations our and non-GAAP line margin gross was quarter expectations. As our in Thompson while our with EPS were our

in have progress quarter. business pleased we datacenter margin margin, gross allowed adjusted improving The and we generate our and strong revenue the QX. XXXG continued growth our We XXXG million of are on during in the during and made by products our for by EBITDA improving us demand continued the gross $X to saw combination

certain products the to an I China of People's subassembly discuss detailed on in Internet fiber-to-the-home provide outlook, optical of related want and and our manufacturing sale for to markets. facilities our located the telecom update turning our transceiver datacenter, multichannel assets business and Republic to Before the and results

deadlines, meet confidence in termination transaction. XXXX, failure XX, agreement agreed decision to our Yuhan This announced upon September on Yuhan's On ability complete we the lost their of based we Technology. Optoelectronics purchase the and with to was

are options exploring with potential additional We new buyers.

quarter. the to Turning

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

to the in business. and increase our mentioned, of was Thompson datacenter due revenue As XXXG XXXG largely growth

our and with in revenue CATV quarter and from the remaining sequentially. the our telecom During quarter, down million, was XX% XX% expectations, was which from with X% was revenue CATV products third the third of XX% year-over-year FTTH, products, up was line In $XX.X our datacenter from XX% our other.

growth CATV the that saw we QX. business sequential by are We our in in encouraged

Looking expect to CATV saw place next-generation the we our that XXXX to We XXXX. highs will this to transition in XXXX compared MSOs forward, in historic transition anticipate the near-term begin take architecture. as down we and business be to will continue

for technologies Looking to are to we further enable that push leader ahead, plans and install to will well is X.X networks. when and X.X elements that X.X a begins. other we believe our monitor to the MSO amplifiers to And continue carefully products move in for continue DOCSIS suited DOCSIS DOCSIS AOI network

directly with of MSOs, we In have new selling product to strategy our the to continued our expand line portfolio.

remotely line month, Link, of remote of monitoring Just the we market. Quantum amplifiers, reshape era ability have our announced of for products, amplifiers now enhanced our service cable convenience to manage that cable Operators using in the Quantum within will designed management ushering a latest new solution customers. we provide quality the will Link broadband to cable last broadband and Quantum of launch efficiency, believe and bandwidth the

asked control of our where customers. are the industry. various Expo, and customers many the of positive to demonstrated including interested a Last or from month, Quantum our solution, which SCTE we attended Society CATV our for Cable Quantum Telecommunications bandwidth amplifiers in We've solution quantum products, Link line particularly become Link the of complete above. received Engineering They have reactions mentioned standard very I several we

the are deployments. for pursuing be upcoming anticipate may by their and their this preferred with We architecture standardization MSOs Labs that technology Cable as chosen control

extenders. Digicom we are new enables strategy, and to Lastly, latest gain performance go-to-market lead balance line network equipment the with the high and same be triple delivery Quantum providing will relationship high industry's supplier receive and they distribution a pleased our stocking best This our system distributor. with and with times. dual a amplifiers of quality while in expect XX, have exclusive secured an to gain product customers the relationship line Digicom,

Turning our datacenter to business.

quarter, X% continue the from datacenter XXG QX was our demand and [ year-over-year which our million, purchase our In XXXG was in products. products. datacenter $XX.X ] Tresiba sequentially, of existing came products, XXXG as XX% from largely our was customers our up our and XXXG XXXG XX% our to third and products XX% Our to was from revenue revenue and transceiver due than more XXXG increased products for at doubled

products Notably, our for revenue XX% sequentially XX% in while XXXG QX. accounted revenue increased products and of for XXXG just under our for increased datacenter XX% sequentially revenue total our

been to QX. Looking ahead, and we're expect to encouraged demand the similar we be we strong QX by have seeing

and next-generation on both a beyond earlier Microsoft with year, we their to as for discussed the of including development program and its next-generation signed XXXG and active X have lasers calls, for a cables. earnings we of development for our prior As optical reminder, agreements this datacenter, XXXG make couple

XXXG of the revenue revenue While which our over to could may we million than XXXG exceed and build-outs. believe several the peak products and cycle, suggests XXG not greater opportunity that these $XXX guaranteed, these be continue of duration revenue customer we that a this product products the longer for from during from the saw contribution the years

rather During request these attempting Based which ramp we remain for these for to planned. teams accommodate. products, to than this Microsoft to allow a we this the late very later now for are as production these expect originally expedite from quarter, begin expedite hard products we our production, on which we us and add capacity are requests, month received December strong will to demand in believe working production our shipments

mostly we increase quarter Microsoft saw for revenue existing this from is the Notably, products.

by of related their to this mentioned, shipping As believe that to products begin and of we the December. month to expect in I Microsoft begin end will agreements production initial the still for these ramp new just testing to quantities

strong that XXXG with with that This is includes also qualify offer our of are working the them several our to to Microsoft proposition operators, products. we our datacenter We evaluate just value believe other technology and we and products. as

to quarter, would by to X datacenter customers. customers. products our XXXG to into datacenter the X we X be datacenter different bring year-end. we total our year, XXXG customers samples During our different expect the of of This additional evaluating to ship samples products XXXG would Riding products who shipped

demand, our from our year-over-year Now segment. down of in XX% was China. XX% XG turning down Telecom $X and Revenue in particularly products largely to by Telecom sequentially, softness driven million

sales we Telecom around current ahead, expect fluctuate Looking levels. to

of total than third market last XX% X contributed X quarter, of We QX from our of year. in and customers, had and the our the datacenter which greater market XX% For up XX% X respectively. the XX% in XX XX% in revenue, represented customers revenue, CATV top

Microsoft. gross in from margin gross in we QX XX.X% XXXX QX, of to up which and of in was above and non-GAAP was QX We generated favorable In margin recognized by XX.X% of committed long-term our increase XX% XX% as The revenue was is believe contribution of guidance to range XX.X%, up XXXX. product of margin XX% from nonrecurring achievable. to mainly from the from remain gross and returning driven around goal our mix revenue of part this our goal and that shift

quarter Total products. expenses $XX.X shipping year, non-GAAP costs, of our or driven largely in compared revenue, the third marketing costs, or in and operating increasing million commensurate which were increased spend revenue XX.X% XX.X% by prior of the $XX.X to increased with promote to QX CATV million increased revenue of legal our

expect from expenses non-GAAP we million $XX ahead, $XX Looking per to range million to quarter. operating

of loss share QX per operating GAAP loss of was quarter was GAAP or compared to million in million loss $X million basic $X.XX loss per loss million net year. in a QX Non-GAAP the basic of in $X.XX with compared of prior of net share in the or third loss XXXX. a an QX $X a $XX.X $X.X operating for

basis, a our basic $X.XX with per of which guidance loss million, On to a was $X.X share, line or of loss million a loss for or $X.X was non-GAAP net of million $X.X a of range QX compares share in loss the of in net of per $X.XX $X.X a loss or QX of prior year. $X.XX and basic to share of $X.XX million per to of loss the range a earnings share per basic a in profit

million. loss the XX.X basic shares for outstanding computing QX net were in The used

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

total the for $XX.X in in As to million capital equipment. end of had made third million which XX, a used R&D $XX.X QX. we the million inventory quarter, September in production at of and $X.X compared was We of mainly investments

and we quarter. million have QX net a raised of raised $XX.X after To date, disclosed fees including end As we new the $XX commissions raised March, in under of this at-the-market the $XX.X we million program, and in million offering. initiated new

to outlook. our QX now Moving

to gross XX.X% revenue be of expect Non-GAAP the million income in range range and $XX We to a to $XX $X.XX per of non-GAAP basic $X.X and $X.X expected share, non-GAAP between QX per $X.XX and million be basic income be XX.X margin of count share weighted million, loss is shares. of income approximately of and in average of million to XX%. the income between net to loss million of a a using basic share

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

[Operator [ with Raymond from Jeff James. comes Instructions] first The ] question Coach

Yes. In for Simon.

the we think to the would you -- quarter on that's like nonrecurring. Just talk ramp for it and should for in how the and Microsoft income built that helpful. Can about quantify quickly really relative what's about be maybe guidance

comment exact nonrecurring nondisclosure Microsoft. I amount of with be on costs covered Well, our engineering can't the under would agreement Yes. that

was gross it the to increase [indiscernible]. primary the margin So contributor not in

you And on color you're segments into of just the Okay. thinking of Great. December? going give segments, then maybe like other how some the can some about kind

sure. Yes. we noted there as Yes, --

excited we're datacenter on about that noted, we as we're pretty progress making So business. the the

accelerating is up we can based products us. demand that to how that's mean Microsoft the new mentioned, the contracts we course. speed discussing I that new for fast limit And of been production, positive we really for their As a the there's have. we've on

that quarter, we're in going by but our So increase seeing. demand to the change the not in revenue it's encouraged we're dramatically fourth picture

really by encouraged that the also we've on XXXG. made progress We're

noted, we more and sample already to we've expect As customers, several we year-end. several sampled it to before that to customers

on front. we're both making So those, that really of about progress we're excited the that

made side the was to new cable has that On new had for progress we've the compared we Quantum of revenue And across made the the Link, you've in about situation muted the where already, have other really there board of really, that directly year acceptance things, really now of it we encouraged in phenomenal. have we're we've talked model our as reported sure. did companies of the to terms our in as selling we're about the in the have technologies uptick sequential or But seen which prepared and earlier, the that TV that cable -- been MSOs like the And excited right the ago, by a MSOs well. remarks progress is X there. from

our those muted. So somewhat for X obviously Telecom business. think, be segments, account The I will the vast majority of market

China in X for been As are in we heading recovery the direction. a of that of account XG in at short I noted, majority segments least. the certainly, business business revenue term, relatively and both that see necessarily But the our the the right slow, vast has don't

see we -- DOCSIS it do like for that sequentially you you is X.X, inflection an it So then were 'XX? could when sequential -- -- into think to from do saying, see is you is that cable see And more growth. you TV -- Or continue December? there

Right.

opportunity there for but Do guide, I growth So you're be in bit, on QX. I we growth dramatic the some and in there's some you sequential some to like a but understood cable expect tell think probably see out your there. I question cutting into expect little cable, And don't growth we TV. think could from to

or next expect substantially which we the DOCSIS will market in happen middle As the -- year. market introduction, to discussed, we of cable the recover part X.X during recover will cable the

starting gigahertz. the customers of some through seeing inventory are X.X burn are we meantime, X.X finally DOCSIS to that the products, their In

that part expect there, but with sort DOCSIS we improvement I to be dramatic expect year. the the uptick will next of modest in X.X see of see middle some to So

Yes.

be from, is this the [indiscernible], margin the -- year. basically That's or much margin it's not will in believe gross strong growth sometime year So I QX in see Thompson. can the gross QX would very very, more better. And We CATV, end improvement. important, say, key. we of It's next next

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

particular. a the up from love AOC like? look a can give you're a about if is given positive your of assume, XXX-gig that for what sense guidance you standpoint? and And on have factor I guys I type of QX. the ramping guess we're production this And I'd through terms month a in December, Or kind us up results production, one full the in looks would to be, Microsoft to for of in question pull for what set seeing a congrats like And might in that extent what EBITDA I QX. you of from that that that and revenue perhaps demands. in looks like you quarter And

Sure.

QX, beginning QX. question So your is I that about we're that just the to is the answer production think, in --

in meaningfully the commentary strong other that giving we talked we from well don't Microsoft. to just as fact, it And still So demand very believe fact expect QX. for revenue the for we've is that contribute operators is to the illustrate about. as in to been The datacenter I reason

production There'll to year. continued asked production even the be increasing in a It's capacity or QX our a to to time but increase not to that the there, to ability bit either. can, fact, they've production much month next us best the -- quarter. QX. pretty we're ramped going be be will be that some during it's right And we ramp So targets doing going right? capacity not However, get to at there is meet, of us fully throughout the little going on a take beginning in we're of done based some

of some So there'll capacity in there. improvement year be throughout terms our the

to faster greater respect is and really on make progress how in us. be overall QX, for thing we and we exciting really looking our that. is, much timing of again, over and for the these for But next lot that's products to month this exactly terms thing is into believe QX, us X. A that QX rate excited quantities for make certainly, we given yet. positive that incrementally production an in us haven't in will the guidance depend about will or we're Microsoft encouraging The With

but a you XXX pending in that Great. products? terms Wanted are customer in up where this ship start these when some samples do you the think you're follow at customer of evaluation early in of you front probably realizing and or gig progress stages, to Is to on noticed point could calendar 'XX? -- pretty something

Yes.

was that clear. And again then That Okay. any further, timing or try then, on within is sense I'll pretty which calendar 'XX. is which -- of

Yes, too to now. it's think I that, early a little right say

out, we're pretty XXXG long with be stages it strong, that and the for early do pointed to say demand customers. is it little I certainly picture you process take qualification but early the and XXXX. how and would in I expect we're to very in As will I it. constructive say, looks having mean, discussions But a the on too

Yes.

maybe I we per QX next X.XX to are or X [ to and XXX ] longer. will close is easily cash will the from it about working with other very I be the want thing year. maybe customers QX, think strong big ] [indiscernible] QX demand And the emphasize are [ I believe ] technology year. leader. lambda [ next and several to So X in that we with take sometime QX very But months or

[indiscernible] really So it's AI. the of AI transceiver ] space technology because lot [ there's datacenter, XXXG, thing for strong. high-speed going the really, is only on

even sometime and to only in we start [indiscernible] we say QX, in not now, right [indiscernible] the will XXXG XXXG, jumping QX see to from year, year. are we X.XX volume [ next hardly, next QX, some ] but we do can So

topic products. on OEMs, the operators, stay let's Stefan, of cloud X give any have a you Can customers described type you might what those And it. networking us for of second. you? be the Got And this large, customers evaluating indications

cloud least the operators at large large OEM cloud operators. with Mostly some that supplies X of

[indiscernible]. it's So an OEM related, it's hyperscale cloud -- through all whether that cloud it's was or all directly

[indiscernible].

I'm know talking You about. what

operator, I the don't will the they It's not identify customer become [indiscernible] -- really ] but it. it's [ transceiver. So in maybe world. #X core

for it's last can sense for evolve how how that dollars, of And to of Okay. AI-related, but I call one that, over or for Great. AOCs? know past assess of market transceivers you I give And and do the a you related it opportunity kind assessment mean, whether would don't kind or revenue quarter unit of volumes opportunity the has you -- total me of us or maybe kind guys so?

talking what next $XXX so than maybe X heard we [indiscernible] minimum year. at see million I number very ASP, is of good [indiscernible] [indiscernible], $XXX, think The can the opportunity about X are volume more you or to we with next year.

] higher And if I'll [ ] some than [indiscernible] are LNG up are very volume sure, That's X.X And is for and that's up is I coming people our [indiscernible]. we [ why even that's is be The customers. happy why business. the very into hear true, see come is big all even we -- [ and jump this committed. AI-related putting but for for business. the very ] final some what we [indiscernible] resources That really XXXG our existing.

Kang The FBR is Dave from [ Riley B. next ]. question with

on TV. is question cable First

year, should recovery. we said strong you next of by expecting very be middle So

talking that we quarter. $XX be should or yet? million we expecting not like Is prior like, are So quite about say, so of, or peak there what per

exceed I in peak prior upgrade cycle, specific weren't point, because is mean business quarter right? can putting that really we even as of without expectation It the just sort the a a at yes, that it, certainly, usual was case. levels a on we an

growth DOCSIS sure. significantly I is say the As upgrade previous think there happen would the that is in X.X, opportunity for larger than into we which move the an what we will cycle, protends peak

because the not our that higher are we're because change, the essentially. business to going mention be to of ASPs model Not selling middleman through fact a

well. have higher but will unit be will so higher only And as demand, not ASPs

next year, be, gross $XX should our that good than year, by QX in which would QX very say say say, me I CATV margin. will say would -- XX%. million next around I Let more business I

the Okay. is a because was gig, weak. be so And really of which enjoying that's then AI, datacenter, it's strong why XXX just is not are whereas considered really that strong XXX part others XXX saying gig gig on demand, to little gig, XXX surprised

market just how eventually you should flat And you what think are we So next going expect be share? we about about XXX couple to Can of be talk [indiscernible]. the should gaining over you and expecting next forward, the -- gig just years?

Sure.

So I think in XXX gig, we're taking market share.

attract, I competition maybe some about of purchasing I increase think of some of market manufacturer that's gives customers, gaining been We've there's our of there. in to we're in us that a in advantages with some maybe think the interest a the example, share. but than I say, able us some past for for China. couple in gaining relative share there more being would this in market terms being And to talked U.S.-based helpful dynamics,

what as I the there's technology on a And Street it's mean, to comes think right? caution but we Wall saw to well. as going the how As transition, -- XXX I eventually, well, not older lasts in like plays has every what XX dramatic. time and that, with mean, that that very technology X gig I technology we think, tell to other be long of gig out X I XXX-gig that tail. the look, and always feel I it long what that's no, I decline expect kind think, I far that's mean don't the we will a think mean try I as same it's time, to begins XXX-gig at future, right? immediately. I -- a is goes happens, away tends story grow

It's but relatively a number for relatively time are of switches, shift. long come because tends one maybe to fully those going would out a been The there quickly, last a that there's those I flattish demand. flattish example, on tends already gradual yet. that new populated to and that technology They're old portends down switches. fill the of, slightly, to a but say, long period And haven't ports out relatively

as would XXX from might I gig tempted not So you to as to. quickly caution the remove picture be

clarify, right? just did quarter, third fourth with regarding wanted to mix revenue Did similar say it. Got expect I you hear And for that quarter? that --

just We're consistent that the QX, with right? saying will of datacenter be portion it

can It's but much [indiscernible] than the same. we Yes, be the will [indiscernible] more mix grow growth not [ XXXG. [indiscernible] lot, the down. will will ] but different, XXXG see [indiscernible] a some in go

Got is for my the of it. who is the And fee regarding termination, question last $X that? responsible million,

We believe We're that. of Yuhan payment responsible for breakup them for the pursuing the fee. that is

[ ] Next, James. we have Jeff a follow-up question Coach from Raymond with

Yes.

again, Just really your it quickly, sequentially, know on be to historically, I just want that not I March. Is strongest datacenter into thoughts could going up think you talk that's about to ridiculous the seasonally?

new ramping programs again, quarter. the we're that the will be I during with talking mean I think Microsoft XXX-gig think it's to about, because, business not ridiculous the

in that and Taiwan. products of products New case, both China Taiwan producing large you're even that datacenter Chinese just of this in our do sort part made So of of have we're because is QX in we quarter, have most a Year, historically, China, and ordinarily these is A challenging historically and more correct the In seasonally. in U.S. been

Lunar Year March with quarter paints the capacity And that combination so a be the in the for us. ramping impact of for I production be fact That XXX-gig of think. the good pretty in terms will us, New picture should less in

call no Founder, Lin, At over closing and AOI's the Thompson for questions. turn And to time, Dr. have we remarks. Chairman CEO, this I will further

for Okay, joining us thank you today.

want As we extend and always, our what customers to a investors, to thank employees. you

updating forward look you We support. next on to earnings continue will to our We call.

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

disconnect. now may You