Applied Optoelectronics (AAOI) 9 May 242024 Q1 Earnings call transcript

Good day, and welcome to the Applied Optoelectronics First Quarter 2024 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Ms. Lindsay Savarese, Investor Relations for AOI. Please go ahead.

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

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

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

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

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

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

no conform or risks Except as that required may the company's of set company's to to file Form Risk expectations. the company's with statements by Form update section these the and are on impact actual the call on reports forward-looking date on we the other any the including in changes after forth this quarterly More statements of law, business SEC, annual reports Factors in earnings the results for reason about to obligation information report XX-K XX-Q. company's company's to the assume

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

Media announce call Needham date the note XXXX. Conference to will our AOI like for I'd the that virtually quarter of results, financial the to XXXX second participate to X, currently that and XX. moving May at Technology like I'd Before earnings August scheduled management And on Consumer is

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

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

very interactions, improvement our very in line of constructive fourth Our along with positive EPS year. half margin revenue expectations the expectations, in the and in on slow forecast for net came second start the our to remain we current the despite on and was below customer our year. gross and the Based quarter

of million, $XX to XX%, $XX which quarter, gross XX% our fourth delivered million. the of delivered margin range difference guidance of mainly We of $XX.X by below which range million XX.X%, balance we just was to our driven revenue During in was non-GAAP mix. below product

our to was per non-GAAP and per prepares our as loss of increased guidance $X.XX for range to in Our by continuing down XX% which X.X. for than within million more of sequentially, down was was down $X.XX DOCSIS $XX sales and doses our revenue up to per period. XX% a our our sequentially. a X.X largely was industry million, was slow revenue center finished loss XX% loss of equipment share revenue of same products $X.XX generally Total the and $X.X for CATV the year-over-year share. was doubled share, transition Total product year-over-year segment Revenue products in data driven XX% year-over-year which XX% of

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

Thank you, Thompson.

positive Based in Thompson both came center margin first with very well As expectations. strong of believe data on our revenue drivers we our we mentioned, positioned our capitalize to non-GAAP on non-GAAP interactions, constructive very forecast and We on second believe current quarter for our long-term line our remain the businesses, below the CATV gross and in improvements our EPS demand are year. customer remain while the these was half we opportunities. in and that expectations, and

despite a of key optimistic give year. us the back items basis Looking our start slow are year, few half there to note to a outlook the for that the to the

is for cables XXXG that funding for development forecasted orders have provided begun the year. active receive first to last optical The VCSEL-based Microsoft which we

While has in seeing in delivery now that of adoption for for a forecast anticipated, pace product somewhat products these is the significant fact improvement. business are step QX slower been that meaningful than receiving we the we we believe

for been that our our projects an our to AI. is address X.X infrastructure products around specifically with XXXG they demand XXXG The program, AOC follow-on as customers second acceleration tracked have in and for terabit fast

this asked production accelerated the meet possible compress to We as to being demand. to order from scale time much are development as in

with meaningful large XXXG data experience products. multiple third many and to not we center The that continued have of years, some terabit with to specifically AOI in customers, customers that we have are our new and for XXXG, worked to is continue X.X which discussions customers have significant are traction

expect begin revenue more to or these to will contribute meaningfully in starting We one customers of QX.

transition network X.X our believe samples take shipped lastly, X.X in And last has QX been deployment that and will products fully DOCSIS of positive. begin a customer major feedback to we and to to exceedingly the week, X.X. designed production-ready early other our DOCSIS place while the for apply for amplifiers DOCSIS are amplifier and We elements first required that the

that expect full year first continue non-GAAP be believe improvement With our the profitability we XXXX we can in second the XXXX. of since half, to

Turning to quarter. the

total was down revenue which range was Our below XX% and for and million which $XX.X quarter $XX was of to the guidance million. our sequentially, just year-over-year $XX first million, XX%

in due As price holiday the New to of effects the was with the quarter. our we reductions, effect had in Year largely in which earnings prior combined the Asian discussed softness QX call, some took on our Lunar along factories

and During remaining XX% FTTH revenue CATV our X% was XX% of our the the products, first quarter, telecom from from was with our data other. products from center

center data to Turning business. our

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

center optical on data we we lasers for earnings products next-generation As agreements the beyond. a calls, and make discussed the of have XXXG Microsoft development with cables. next-generation to XXXG several active its This for in development X prior its program included signed and of XXXX and development for

While for shipments these several years not and to this and we XXG $XXX guaranteed, QX last duration QX, the believe that later strongly customer we orders, these cycle, year may receive of believe of we contribute products to and will our the late the ramp to longer began revenue than QX. continue exceed in expect suggests the XXXG be and revenue during in greater million the saw products which forecasted build-outs. product revenue which XXXG revenue begun new opportunity that continue we for from to and contribution could peak a have to We over

different XXXG X and we positive a of initial Also as customers feedback. to have reminder, received samples our shipped in XXXX, center data products

discussed been in starting in the products detailed AI operators discussions These products. center to in reaping terabit data being several X.X workflows. QX dates are and driven is and for and believe we technology deployment had by schedule about X.X by we of hyperscale several XXXG terabit with acceleration XXXG QX early are above, production for faster As deliver, the earlier than for we the needed we XXXX our months previously requested of

year-over-year XX% to by X.X. sales quarter X.X the CATV revenue largely business. Turning equipment $X.X was to sequentially, in prepares our DOCSIS DOCSIS down million, was generally first down which transition to the industry driven XX% slow of as CATV and

half Looking expect begin in in business forward, the year architecture. take we MSOs historic anticipate second We this our XXXX. to XXXX of highs as CATV saw and about and to to to we the optimistic transition to X.X will XXXX transition be QX, continue next-generation the down near-term are that the DOCSIS will compared and place we

and As and their MSOs feedback amplifier a to gigahertz reminder, we QX year, products encouraging X.X shipped our received of performance major of initial last we samples X in test on pricing.

we final qualification expect increase for units report ramp various We the to new would early last manufacturing the capacity begin that these are and revenue in as products. QX as to end shipped of pleased half as week, second we significant with of we amplifiers

DOCSIS portfolio and X.X in to we will to continue enable right to believe will that we that in have we and monitor a to mentioned, Thompson is networks, MSO DOCSIS continue X.X place technologies our the address needs. upgrade plans As to carefully customers' leader AOI

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

sales expect to from continue we ahead, to quarter-to-quarter. fluctuate telecom Looking

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

in and the generated gross from our price some The QX driven reductions, in by XX% to QX XXXX decrease took QX, margin down XX.X%, in gross from during below of quarter. non-GAAP mainly XX.X% XXXX. In we which was and of product which mix was range margin guidance XX% down effect was and XX.X% of of

mix ahead, committed business gross year throughout returning we improves begins revenue that the remain margin achievable. to improving and product data center the of We ramp. to this margins our goal long-term to believe XX% in gross Looking CATV around is as expect goal and

QX in first due of the in which million $XX.X XX% were quarter expenses or the of operating to $XX.X or revenue, spend. compared R&D non-GAAP revenue year million higher prior Total to XX.X% of

market continue expenses acceleration products. from ahead, improve to non-GAAP expect to per quarter expenses to our and data of Looking $XX for to we terabit time to R&D to operating for million center range $XX the account XXXG X.X million

a loss a in This for in share. share net of loss loss $XX.X to QX million GAAP in basic loss Non-GAAP or $X.X compared in compares for were $X.XX loss of basis, and million The operating of of $XX.X was $XX.X prior was to operating per net QX the diluted $X.XX $XX.X of QX a computing or to million. loss loss $XX or our net a net of the the $X.XX within was per share $X.XX year. with On which million per in year. in to QX $X.XX share, per basic basic share first of XXXX. a line GAAP share QX per loss of million a range an outstanding basic loss XX.X of $X.XX used the in QX a fully for per guidance a range of earnings of loss loss guidance a non-GAAP $X.X million loss shares was of a million quarter of in range of prior loss or our $XX.X per with compared million million share the

sheet. in We that totaling to in ended note received X $X debt of quarter the quarter fourth we in a total $XX with the investments with reduce cash convertible subsequently of cash, quarter. compared We $XX.X Turning at were excluding end debt, almost million to the debt balance equivalents, Also used receipts $XX.X of cash. cash first at which restricted the million, the now the last cash This QX. million million slow-paying compares the quarter. to AR weeks of $XX.X reflects during quarter. ended million the and few about million This with total short-term $XX.X balance end first

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

our Moving outlook. now QX to

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

a to the believe provide these increased tailwind these our for of continues customers industry. to Looking ahead, long that to data more meet demands need infrastructure AI adoption as place optical the which ultimately demand generative needs, centers, widespread will will on we of customer deploy

have team this and with puts these X.X, CATV us we and we and are as a competitive believe confident in right manufacturing Our place and address production needs. our on positioned architecture in DOCSIS ability, U.S.-based portfolio, unique experience a technologies next-generation that to have that we combined strategy like to Further, enable implement customers capabilities leader as the transition our to will product we X.X, new in DOCSIS that technologies position capitalize upcoming transition. automated ourselves

they we few We in have years spent market these several go expect next products, to developing and that months. the will

strong we long-term we data and from demand are In positioned remain for believe we center and well believe these sum, trends. long-term that benefit growing businesses, our CATV to both the drivers

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

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

quick ones of maybe. couple A

conference year you on the that given us could call, full $XXX indication million. exceed revenue think prior I you had the some thought

$XXX stronger to half, target? the like how slower does but still second you that year expect million the you much feel start about it do Given sound year, a full

we that Well, be what for profitable said we've the can is year. think we

really. So run don't give can on guidance we if guidance you annual that, the numbers --

back let's but achievable, to started it's where say wouldn't very challenging considering So a the say going I on I we're falling that. little we think It's anything. still more be obviously year,

anticipating indication I be Okay. And quarter. much year expense R&D? forecast. spend more to then what Did per a think we quarter, operating you $XX the some did quarter from on to give of the expectations million $XX sales in us terms that $XX just change at And the too of $XX million for of and per and million marketing first were that expectation simply something extrapolating may your of to you and million need

in in talked spend because prepared about, that kidding noted to getting months little remarks, our we're R&D for we I request increased pulling we're schedule. As are bit we've of a their -- as product customers ahead development our

additional would. we additional say it's so overall, wouldn't we And but need to otherwise I than spending R&D. we're it quicker spend

much R&D. Sales to slight increase So marketing. and and it increase our marketing, sales represent a in does not too

had OFC, to channel us to the product a of EMLs about you higher meeting next sort in an going from VCSELs road ramping over year the VCSEL-based terms expect map launches And map I and plus? at of remember Could solutions road at talked and up you speeds. then give you our the per overview of

Right.

that lane QX. late With have production VCSEL-based portfolio The we to now. we'll in add the with will EML products production, respect based the products, and products higher next EMLs center into likely QX, to already products speed higher-speed So early production VCSELs are go in data in year. some

that? in And I gig was quarter? the what your -- your missed XXX

of data the XXX center gig XX% revenue. --

XX% million, of $XX that. So

was XXX Okay. not gig, XXX... just that And

Correct.

again? that Say

-- over was that doubling compared slightly over doubling it last same little -- from well, almost period a year. That's

will next with from The Genovese question come Michael Securities. Rosenblatt

you if I then month sounds guess quarter? trend how ask $XXX any a than I to it. it your color to expect XXXG bullish, Do see some second do that maybe maybe the gotten secondly, Like, month going Is I that? you of added there have start on above overall because can questions that's you've wanted more you you then why finally, had to expected. orders size initially just with, And think more comments orders But about in any Microsoft. the it's but million visibility the like of of little to plus in June the this being bit May? on slower

So if you us as help understand could well. that

Sorry, reminding why was I delay. just the first one the

that's particular take I program, sounded and in delay. the forecasts remarks fact not that. with a way, respect shipments I it's than really delay longer it's I now Yes, expected. If one just can quickly overall product in trying new to and would wouldn't beginning that QX what in was new then that reflects getting that updated is point a which new It QX. There an positive say later little that just particular product we're to a prepared was There's really say. launches sometimes indicate nothing slight QX that ramping and to my

much the revenue business So that's wouldn't in center where we QX. in all positive. into about itself. Overall, data expected it I read to the our is delay be

not is the from a compensated That change for by earlier small significant delay data our center being other in more there's customers. So Microsoft business than thinking. really

that's not just got So point trying that that one I'm to to one anything some the delay. overall particular it's there, of product

whether the and we're Your mentioned faster. XXX-gig with question million to No, that target a second represents flowing you other that do fundamentally, that and terabits change. X.X $XXX had to than having

then And What it year, your But certainly be there. was question Now, year. that to in third to it? early goal. forgot is gig X.X terabits won't be XXX -- next helpful this sorry, a I the will acceleration factor meet but try

next my with question. in and last that tie I'll

this instance, as think them said If at kind trending But in which seeing were where to customer. XQ be. that I if you June since see about address XQ trend you're that you it is of you from How them there's that? to that then from reason if mean May, So April, expected forecasts about ask, you I... a might you're be data and for could was And -- center I just revenues the think but XQ, seeing these for you up would orders. do if up

center Well, QX QX to want numbers lighter we we that to cable we what data didn't not some -- mentioned had was expected. Yes. be. what QX that earlier, was QX Cable is of one to QX, slightly about a it in the thinking -- with TV, that than our center guidance to be the there going to I little in Microsoft to clear delay that that And almost TV of maybe one and are ahead data but are a now earlier, of plan is coming other I to in more had I had I in Data do compared by all, growth misspoke first expected them in customers. we fine, change the compensated mean, product, than actually for -- in in explains until doing extent but give in thought extent was rest overall where slightly it be. going and them product center.

respect to... So with

we months compared in The let say center, think data customers, we me is reason to XXXG. the for especially big the Right to positive So for see main can several feel now, right I approving now the overall ago. few more think that on schedule a customers the hyperscale data -- I

working X.X it's is slow TV cable for TV, cable because products. Our customers all quite

So cable not TV delay is the in surprising. usually

other companies. can you from think I from other see costs

a to Are touch answer to the kind more want yes. there, seeing orders just directly. answer And of of month. on last I your trend try we question by it month Yes. is Michael, I'll

Microsoft As delayed. quarter. end I from towards one do program, that to this mentioned up that's pick of earlier, expect We example, for somewhat it the

bigger months April. than certainly than May, and that would was bigger mean So that be June would

we So we But overall, somewhat trend trend to that quarter. expect are see the seeing with throughout product. that that

center especially in data the would Although, the most some XXX-gig of relatively again, new later this at outside consistent point. the these a for the products year, programs and part, business business I say, it's

question next Markets. Capital with from The will come Northland Tim Savageaux

seems OpEx new $XXX Yes, get you with I'd say would something is it to forecast, there. reasonably million you maybe like what need the over

the couple And in almost so ramp seen at different second coherent. recently, pretty significant although places, a first, that's the most we've a over that of half, recently Xx

you guess about data I one that talking Or you old fashion around the also size So back. in And customers might as hoping Microsoft is you've coming center this ramp in assume to a discussion us may opportunity. or and XXX-gig to the similar question. how applies customers focused gig on able opportunities, you've players? XXX-gig be talked to new those That's and analogous for the center been look at particular, be some more about Should we new data Microsoft? it or XXX X.XX I'm

for No. remarks, I mean, new but gig we totally it maybe have and the specifically our clear -- that it's products. the customers terabit now, from XXX wasn't prepared existing X.X -- plus we those customers

So Microsoft XXX-gig And is the large the as category right of customers. several the now included of the XXX as seeing opportunity. is in would we're times far market, that gig existing what as be size as clearly

that's the within represents it And expansion. a customer. same dramatic So

that there gets commensurately the customers referring If we're new on market you add larger. to, size the

Great.

don't how the ramp? that that ramp know, your So current as imagine XXX you would part Or cable extent you -- material center half as mean, second And half, at of contribution to gig half, gig? TV look looking to you be, you I data you at that networking I at it the looking imagine in between now? are XXX into are what a would second

Yes.

and we some were but little the the in we that TV Thompson just, mentioned, QX, course. been it's mainly optimistic been of TV slower would that's significantly through contribute training gross them that's have is faster it we kind the Cable than improve higher to second qualification there's the But than get that X.X, is that us a the a little to it's the the I disappointment of what which longer MSOs I the key taken in done. and get expected. it has in as year, all the towards extent really -- ramp in that's of par and you to the necessary ramping half the meaningfully do revenue think is point but will Cable in center. margin, segment cable a And data mean also that will move ramp, for the help is TV the expect

I can AOI... add something this are for million, million the for X than XXXG or business, we at think Microsoft, since more as X, I least can for with say including I see customers, we sure, $XXX -- $XXX seen discussing would

kind around Thompson, more I brackets that what that heard you the some we maybe or can of period? or can I XXX, Sorry. say. we in Or time -- is aggregate XXX, put think

I a are quite think case. we doing

we would even just should next or current... year. next by auto more think -- year, I get million is million I only to than some late say QX based order $XXX X so volume this QX for $XXX on QX,

That on was do putting that to front. -- there? and stand about more last terms around in we eyes are the qualification we these actually the the crossing and kind detailed little your of is of or be Or a the ties where color nature dotting question contracts, my going on of that talking discussions

when products, that going they're we're What not product need thing. total about is the deployment play talking I'm of to sort how much scenarios, around to to really planning Well, going sure what now need, into they're contracts pricing, there. come extent

need of the can is the ready us, to from fast product It's how can they Commentary you to we products be deliver deploy for how or some right? customers deploy. fast manufacture amount that to about

as important hundred years a say, lot for is test dollars automations. we very of automation, equipment is few develop million more in been the I key, has XX than a AOI invest And the

fully I Phase doing in line will dual QX, Maybe we now So a or the QX Phase and year line next I II say we mentioned beyond think are will Phase do III II. this Phase year. III

in higher do Houston I or So manufacturer say, cost would we Taiwan XXXG China. can bit in than similar and with,

cost when to I the ago they including are we customer, think back. attractive that's very coming that several the used to years big have

Number customer. VCSEL, I think the component, two, the the a we laser a The key the lean think key EML, technologies. key factor I That's and also XXXG, the Houston. is XXXG, key the very is can for --

for sure, keys, not is risk the the management. think only the cost, I

Instructions] with Our B. next Dave come will [Operator FBR. Kang from question Riley

So regarding you that gig VCSELs lane gig, first So XXX have on do EML? question and status is, the per what's that? XXX

We will X kilometer XXXG higher. share, It's QX go you -- whole for plan. is mall, It's about very the The the okay? is effect higher. I'm the Right or the million more I and that's year. will still now next talking is AOC. about a don't not be I'm the But like And about special like talking have $X.XX quality. $XXX volume customers for through opportunity concerned it's next the year $XXX and not single to million know

next will high-gross shorter all a distance, like together okay? soon. margin The below. X it's product, and early the model multimodal for meter IASB have pretty we But be the will year, So single it's as more and maybe that $X.XX

sticking on with XXX gig. then And it. Got

I customers said think you ramp like that something quarter. X maybe will third

Just wondering that if you've Or been already? is qualified?

The late than QX, early QX. role more

We vacation. quite are doing a

and the and DIA X it's TubaFRXO. single including So the higher, mall, kilometer

trying in just more up would best The are push to volume. for we Hyperscale, so to X customers. than customers, I volume other customers. maybe say say catch So the sure smaller including some just our QX, we X

is Now QX schedule QX with a for bit tight, maybe September.

give Creo. going or even release of OFC with we about production? far the it. jointly developed provide that provide? at guys Can where your regarding And what beginning that you they you -- XXX-gig exactly you sampling what color Got more are and press And then you as AOC as just to

and we the on active we make it. haven't any And DSP, So for. optical create schedules cable around makes commented production

question-and-answer concludes go Lin. Thompson to sir. back conference Dr. the ahead, like would our This to I Please turn session. over

us thank for Again, joining you today.

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

we continue center you. on positioned remains will our as and the and these Thank demand strong we we we capitalize long-term today, to driver opportunities. to data discussed for CATV both are well business, fall We believe believe

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

may You disconnect. now