Applied Optoelectronics (AAOI) 6 Aug 242024 Q2 Earnings call transcript

Good afternoon. I'll be your conference operator. At this time, I would like to welcome everyone to Applied Optoelectronics Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please also note, today's call is being recorded.

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

Lindsay to Relations Second 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 second the release outlook press link is the found XXXX announcing the today, call third 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 third 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

things the convey future such of believe, intends, expects, could, other or predicts, uncertainty In or potential would, should, some identify suggest, that or outcomes. estimates, events expressions negative cases, forecast, plans, anticipates, by by you of terms statements or as can those similar forward-looking may, terminology 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 and the company's of management's our include statements new responses the as statements third reach of well also into regarding related products of our the expansion as to for quarter customer Forward-looking XXXX. beliefs statements outlook regarding the and markets

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

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

moving Before earnings Technology on November XXXX. date of AI, Communications participate Age management XX announce August & also like results, for third X, the is scheduled is the Hardware to at August AOI like to and our I'd IT Xth The Semi, call of to Technology financial that I'd Jefferies' attending that the Summit, XXXX note Summit on Annual currently XX. will quarter Rosenblatt the virtually

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

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

in with was expectations. line Our revenue for the second quarter our

primarily mix. came below our margin due in expectations, gross to non-GAAP product our While

per non-GAAP Our expectations. loss compared to favorable share was

We million. gross range guidance quarter, $XX.X XX.X%, XX.X% was which which to million, revenue XX.X%. of delivered second our the $XX.X of guided within margin our to was below non-GAAP range of delivered $XX.X of we During million

favorable guidance which per Our per $X.XX, to compared loss $X.XX our was range of of share share. non-GAAP were $X.XX a to loss

products and XXXG $XX.X product for XX% XXXG same million up of for our year-over-year for XX% our products than Revenue year-over-year doubled was sequentially. Our increased revenue and datacenter period. in more the revenue our XX%

We this are from hyperscale excited orders receive we new report pleased XXXG that customer very to And to have interaction. products are about for customer. large initial we begun another

products XX% XXXG X sequentially, down slow U.S. With this driven the hyperscale new million, DOCSIS largest of XX% the customers which largely was revenue are we by $X.X of Total now in in X.X year-over-year customer, datacenter to CATV and generally out sales segment was shipping X our continuing equipment.

believe prepares industry CATV that we expect to transition to this ramp our QX. transition the and underway to to X.X, sales in DOCSIS begin is As

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

you, Thank Thompson.

expectations. our As for in our second Thompson mentioned, was quarter with revenue line the

due non-GAAP in expectations. product mix, non-GAAP largely our was our below share to came to per compared While margin favorable our expectations, gross loss our

the reasons the As of slow optimistic a beyond. second on despite report a why discussed and and year QX key we continue the optimism that us half reminder, give we about initiatives the a that of company the year to XXXX. for of start felt to on we're we we second for have call, pleased long-term Today, number executed our believe these half of to position many will success

orders hyperscale ship XXXG to from Thompson customer, mentioned begun in we and for we've another to QX. expect products initial receive orders large these As earlier,

X we the U.S. this customer While X orders datacenter the this are very out new of interaction. customers in are initial largest products we With shipping small, the hyperscale relatively to new XXXG customer, are now about excited

have to provided optical We our QX last on development forecasted the orders Microsoft VCSEL-based call we year. how for begun discussed funding cables, previously receive active for which XXXG

our business see improvements year. started continued see expect the by results, and datacenter we demonstrated As throughout have QX to to improvement

recent QX beyond. and anticipate usage We finally indicate to datacenters. anticipated, than will been this longer-term transition in business While that a our increase excited for sustainable originally to this substantial represent are in QX revenue wider product slower in forecasts customers' the and initial into a and improvement within ramp late has

finalized The of to major in Lastly, results the out CATV gigahertz models expect as new QX business, of a our our these testing our X.X result. customers. to markedly amplifier first MSO we have has gone X individual testing have the qualification one and in negotiate orders with our for and improve amplifiers with begun X CATV well, we

the Turning to quarter.

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

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

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

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

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

we improvement, business we In QX. will began and business in to see believe ramp some QX, continue to that QX and this

work customers XXXG XXXG efforts products orders data of active hyperscale point. QX out year, in will on datacenter building we have several We believe customers. a next-generation, AI-focused been begin qualification for for center that from with this architectures, our As ramp in their very that our us with

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

significant XXXX, upgrades X.X business their will in products, encouraging customer additional we and starting ramp improvement customer results the into begin as in an QX, earnest. CATV to new our in our and networks With our amplifier we with in from gigahertz believe QX expect qualification

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

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

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

of decrease range gross QX, below margin down in of of In and from in XX.X% generated XX.X% up XX.X% product and was in was guidance gross from was by XX.X%, QX of QX our to which mainly mix. XXXX. The driven XXXX XX.X% non-GAAP margin we

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

X.X to operating R&D QX to improve expenses center data terabit year million revenue, our $XX of quarter products. of in XX% in XX% XXXG prior non-GAAP compared or the for of market higher to million and which Total revenue second the to time $XX or were due spend

Looking R&D the non-GAAP expenses $XX acceleration operating to ahead, per we account to to million quarter to range expenses. for million $XX continue expect from of

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

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

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

case the end including quarter. that $XX shortly the the of within X-week collections roughly last we quarter, cash end period was following the had million after As of the the significant quarter, came collections in in

$XX.X of debt cash quarter $XX.X down debt quarter, with interest order the the quarter. million, to ended of debt, million to We to last During control compared the in we end at used our pay excluding total also some expense. convertible

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

outlook. Moving QX now to our

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

in to we to had due gross CATV gain to gigahertz we in for The in we these as what our the products. manufacturing and for anticipated, the earlier is ramp X.X our products margin believe new of economies than efficiency due costs We gross process these expand will rapid expect mainly QX products the in lower scale incur QX additional somewhat quarter. of that margin

both CATV of be about well benefit revenue trends. and the in XX% demand sequentially. we and are we growth guidance businesses projecting from range, for midpoint ahead, we long-term Looking excess that continue the are At quarter growing these optimistic positioned of drivers our to to datacenter our third

require we rate from QX, the that will by While infrastructure, customers believe QX, optical generative position benefiting to which the we provide deploy datacenter tailwinds more to continue accelerate a in more will from we AI, to yet this to for driven are adoption QX of believe not including interconnect. our growth guidance

DOCSIS and that X.X. our positioned capabilities Also, our production we uniquely are U.S.-based significant ability like and believe technologies we automated as right positioned product in our and to the believe customers experience, very manufacturing architecture the team, new well we to with meet demand. our next-generation help to implement portfolio strategy CATV and transition are customers we place Due

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

from James. Leopold with And Raymond comes [Operator Simon question Instructions] today's first

handful. a I've got

of me -- guys new of and sounds a you the bit hyperscale bit. for color more out I something the this been Then the award? this another us the Let segment. which kind this Can Is with can to -- you're win, on color of project? little new on I've a this content CATV type shooting got AOC what on on this any you nice, have you device? start give in follow-up Or guess, give us a selling of nature

Yes. it mean but with product. transceiver more a disclose type it's can't that's product. really product much confidentiality it, for datacenter I in reasons, I a our And line XXX-gig about too is standard

CATV... the Great. And then on

Go ahead.

kind CATV side, we thought I the were On last bottoming of quarter.

coming, suggests once still maybe everything ramp but So DOCSIS is that expected. slower the a bit X.X we just of than little surprised,

I'm expect of a guidance of you product a help. Or segment event? just And maybe 'XX do can level I'm million quarterly terms that give Any develop? ramp you could us timing maybe second of set Is that if artificial how figure get than bit metric, a of that to would earlier So could to run but is this that? around kind us in wondering half kind out to $XX you we where rate. happen the the trying CATV an of little back

in as substantial our CATV I Well, QX. in revenue improvement remarks, we in said a expect prepared

million range. back the end So I at expect the of that $XX before In we'll year. the be number

things product. right gross come higher to we start cost challenge the our to you we than have the QX, now, on expected we some cable business. The is noted ramp datacenter TV guide, in, cable section, really margin TV in and as in QX. we on had this Based gross significantly And the overruns was margin that in as what

be expecting to that margin wanted ultimately to gross So we're we not out. where settle

in those are in real. because the muted excitement that So around little QX It's ramp the revenue expenses but for additional bit the us, a incurring, CATV is of temporary. we're

just share just jumping quarter. the the guidance And explain Great. third for last hopefully that? help The is the easy. Could count one, you in

some grants a I stock and additional already it's Yes. of that of mean combination have shares. been for provisions issuance made

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

new Congrats wins. on the and particular outlook the in

the sounds your it's any into about XX-XX looking is of to this for on go I you're I to coming into maybe QX.. follow-up. think right guess, as expect on back we for the last in sequential we million color we accelerate on kind where maybe question, a -- Just solid increase but look then you Do thinking for, guidance, based accelerate QX well, QX, it And $XX like answer to about expect datacenter -- and more like it's increase from? -- cable, sorry, have that this

be will answers basis true. outgrow cable Hope revenue additional will think QX on the more dollar your QX, we is And is in of coming That a sequentially. the and TV QX, cables that in question? In data opposite, center. from datacenter

gig. that's It in from pop you And you just sure the on customer, dollar it data but a flat assume increase XXX did not an standpoint, like super an though XX% had quarter, is in I a then And did. customer new center see new and up looks Microsoft absolute pretty helpful.

I that one internal but running assume not of we for should maybe So big guess, of hyperscale, kind internal, the capabilities. datacenters

entirely bill on XXX a and that few might joining pulling big of but associated or a any AI and fit You've those more gig? of I names the lot that Or customer list with doing along guys had business. can there? color the maybe of that investing few not a internal, think

us XX% not to. The topped that's No. referring has customer above the been while, a that new customer that customer up of a were for so we

However, well. AI gig. infrastructure out they're that And not their it because XXX XXX as another is they're predominantly gig, customer. building hyperscale And buying aggressively they're doing

here, Okay. And but well be is not to dense this not...

customer revenue basis, on grown way of customer QX that by terms almost purchasing. that in is the up Xx -- a their And since they've

the referencing? new is But not it? color. hyperscaler that Awesome that's you're Great. Or

It's not.

not. It's

much Okay. And I last the newer parse so to you but semantic here, customer. question, sorry mentioned guess XXX-gig

new this to customer a a applied for Or come that referred but as is Thompson offer? net think as historical that's customer referred it to is customer, new I back? better a

is So we hasn't customer a done a for us us. would classify a in while, a or because it that interaction X business really years with as customer new something new

least Do guidance, is not of out you've one you hear QX the idea guess in margin revenue. last I And margin the this, on the and you'll said those you do to able gross the you at but given I for cable. QX to in issues -- margin QX on, some with gross ramp in coming drive on of pressure maybe gross and directional be target. some think cable you think resolve

for it that's Sorry, me.

Yes.

think the that I of really costs we're a incurring in the are QX. lot production extra

us most to It I which XX%, be get settle where think term, circa to longer other quarter bit have out back it we'll of that recovered. may higher. expect QX, would a to maybe take entirely by little we

I driving extra So resolved the margin. will by of QX. expense That's bulk the gross be think

question from B. next [Operator Cheng FBR. Instructions] Dave Riley with Our comes

a about question the as third quarter well on is Tim's follow-up quarter as for fourth question First that just matter.

comp to drive strong fourth growth, data You quarter. in expect especially

Just is appreciated. color, would gig, more more gig. it provide XXX can you color bit additional a flavor, be gig, XXX XXX little whether Any

gig and in contribution Sure. some XXX from gig It's expected mostly to be XXX QX.

I think it stable. relatively is

just to program, like million. you're starting $XXX sticking with sounds it And Microsoft it. AOC ramp still Got and then

us do you million think give do to million comfort at what year? this I by year? Or can some you can wondering I $XX are if million, you next guess, exiting level you what do Just $XX forecasting? they $XXX I maybe think mean exiting one maybe

I I seen. it be think remains mean to

let's I in noted in as sticking think that gotten are the to in however, up aggregate than a we get million, project $XXX things it QX. our starting what slower chart we're all number. They would way with $XX tough that Things, off expected. be earlier, remarks to still had to to say million ramp, so we prepared have

to a expected. we than bit get little later Just started

you then it. ramping in third previous Got about quarter. And gig hyperscalers in XXX meeting, X our on talked

correctly? different Did quarter. to Now now I in about the same customers? it's said or talking think that remarks, hyperscalers prepared you are fourth hear I we pushed And

correctly, I late you XXX-gig that was expect we for customers that's the heard would with in X or commentary QX. or consistent Yes. remember And sales pretty hyperscale X early QX what we're thing. I literally but could QX I'm get more enough are orders where saying now. think small QX, putting some There it'd into be scenarios in the we that comfortable

not it a had from what about we dramatic it's change talked early. But

is margin. on question last And gross

year? I is like think what said XX%. the of if And you hit the long-term we Are half you so, second next require for you talking target? kind of volume to would target your

not we as the much were have excess have the talking to of about XXs. I will in that's about about range the Dave, year within It's next mix. portfolio, or that it we gross we that so, what have our in from low as volume our product products in earlier. XX% somewhere mean margins portfolio is in

a in a in, between margin that TV in range gross at DOCSIS I that those products, ago. upper mix are are probably come of to mentioned the the going few so higher the minute X.X generally towards end of there's especially products it's particular, come products products. major that the that. a And even below But in cable actually, terms the And products

will the single And at multi-mode drive And well. to XXX-gig in margins as that's optics. shift come factor up predominantly optics some high the to in the XXX-gig is the third mode from gross products margins pretty of going gross

that margin mode the in are interactions So better we've multimode of which interest than customer optics, have gross seen optics. single particular, expensive the and significantly we about Those XXX-gig some talked some earlier. new been customer more for have for

combine all of what those drive margins So to will gross are X forward. things

the closing ladies question-and-answer gentlemen, back remarks. I'd this over to to Thompson call like concludes Dr. turn you. Lin for And Thank and session. our

Thank you us for Okay. joining today.

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

on we our As discussed remain drivers we CATV for both to these we well and and demand datacenter today, believe business, capitalize positioned are believe long-term we you. opportunities. strong Thank the

This attending all Lin. for Dr. today's you, We today's presentation. you Thank concludes call. conference thank

and evening. You a may disconnect have your now lines, wonderful