Applied Optoelectronics (AAOI) 7 Nov 242024 Q3 Earnings call transcript

Good day, and welcome to the Applied Optoelectronics Third 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 [ Cassidy Patterson ], Investor Relations for AOI. Mrs. Patterson, you may begin.

you. Thank Investor Optoelectronics. Patterson, for Relations Cassidy Applied I'm I'm XXXX Financial welcome you Third Quarter to AOI's Results pleased to Conference Call. After XXXX provided AOI its fourth the issued a XXXX. press today, market release quarter of third 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. Founder, call Stefan of today's us of give Stefan Lin, financial and and and Financial Dr. Joining will an results, and is Dr. quarter details Chairman XXXX. Thompson the Murry, Officer on CEO; and Thompson overview Chief for AOI's outlook QX fourth provide Chief AOI's Strategy will the

prepared session will our question-and-answer follow remarks. A

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

the projections. forward-looking of as convey can has statements of statements that identify company by assumptions, some or predicts, In you those these cases, anticipates, expressions by believes, terminology terms events current similar uncertainty estimates, plans, should, negative on estimates forward-looking or expectations, outcomes. could, or potentially and based thinks such may, forecasts, or expects, intends, suggest, future The its would, will,

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

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

More noted may information about other measures reports the on are in for the and report as risks on financial in today with of all businesses the set and Factors not unless are Non-GAAP XX-K financial with GAAP. on forth basis, company's to on SEC, discussed AOI's the impact company's financial XX-Q. section including measures intended that be file are Risk specifically Form accordance prepared report results annual Form in a Also, otherwise. other considered results substitute a non-GAAP or isolation quarterly

as non-GAAP as non-GAAP release is of present we measures our well a the why available reconciliation are measures website. GAAP AOI's financial A and earnings included that on press in between discussion company's

Event on Northland's TMT Virtual Raymond Before Security, Technology York in the December moving York; Conference attending on the note November AOI on financial Virtual on is results, and XX. XX Communications the New Needham November that in ROTH XXth the XX, Conference like to Consumer Networking, December James Growth I'd management XX and & to Conference Annual New

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

Founder, turn to CEO. Lin, Thompson AOI's and over like the Chairman Now to Thompson? I'd Dr. call

our meet production tripled and capacity transitioned new solid CATV products, customers XXXG second center architectures. business actively We we to thank our new you Cassidy, our ramp up sequential quarter to driven schedules. a growth call in than our more our quarter our by data the for third business, from you, We as recorded Thank while wins rollout double-digit customer performance joining strong as today. for had

We the our of quarter, line XX%. million we gross of guidance revenue $XX end of XX% range of third million. high at guidance $XX non-GAAP range of to to in our which million, During with was was which recorded $XX.X the delivered margin XX%,

per expected in and $X.XX than anticipate of customer notable primarily above loss interest of due was X.X greater we per center to to R&D to our range Our data business, requests, non-GAAP $X.XX our saw terabit in $X.XX loss due transceivers. accelerated larger spending share share a guidance where new of especially that our

data increased center products same sequentially. for XX% down our but Total for the was revenue period. our while million our revenue year-over-year, Revenue up $XX.X XX% XXX% products year-over-year, products in XX% for XXXG XXXG of decreased

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

We have shipment initial small begun on relative already orders. this

We shipment and by expect and largely low our revenue X.X sequentially, Total gigahertz MSO in this and XXX% year-over-year up from amplifiers quarter major this was in both driven additional XXXX million, of $XX.X for for orders was which our customer products. XXXG XXX% into XXXG our segment customers. CATV

next customers As as initial process our upgrades to earnings X.X. increase prior are we and expect in CATV was ramp we sales in MSO MSO discussed of to on transition This additional the have year. in DOCSIS from line expectations, continue in calls, our in intensity our with growth QX DOCSIS X.X

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

Thompson. you, Thank

quarter in mentioned, revenue our gross for with third were expectations. and Thompson line our As non-GAAP the margin

our at requests, expectations per the business, our in Conference European transceivers non-GAAP as compared showing strong especially in to notable our share accelerated in after due saw Frankfurt data Communications where to we higher-than-expected on unfavorable loss X.X Our center terabit our new interest R&D spending expenses to September. operating we in was due greater-than-anticipated customer

laid call hyperscale discussed we have customer. the the earlier QX orders many XXXG continued our quarter, this the year. products from large another to we receive we During on We out third to of initiatives on how that begun execute for

excited remain opportunity. about to this orders This quarter, new from we continued and this receive customer, we very

these XXXX and XXXG shipments begun orders, initial additional XXXG on quarter in products. we already relatively from both small orders customer expect this for and and have the fourth We into

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

and for We additional to new products stronger our AOC XXXX. continued forecasts see shipments orders in and have that indicate growth

CATV our our in expectations, business, line in saw QX. improvement with vast Lastly, in our results a in CATV we

ahead orders more place customers MSO in their stock distribution of these upgrade Our their plans aggressive pipelines in to XXXX. to order need

our to results. Turning quarter third

was range XX% $XX.X million, revenue high million was $XX up at X% and and year-over-year million. $XX total sequentially Our to end the was which our guidance of up of

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

came year, increase the with to certain nonrecurring business, QX with XX% and due along XXXG in not took year, earlier price in customer which is increased at to with $XX.X engineering center continued did this revenue existing XXXX quarters, wins year-over-year The effect last In Microsoft sequential is million, sequentially. reductions which The growth XX% the new largely recur QX decreased year. with along of customers. several from past from our data customers revenue due decline revenue this in that

In products from XX% XXXG was the and from XXXG quarter, was data XXXG revenue transceiver products, transceiver X% from third center XX% products. and was of XXG

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

longer believe suggests we exceed duration that In contribution continue revenue business products we guaranteed, years for QX, this XXXG the saw during the increase the to over of saw the the for not which are in than peak of million slight our our revenue $XXX products. began products XXXG we and While to shipments build-outs. greater may report revenue received cycle, that additional be several a and that we product AOC these orders and from from pleased opportunity XXG customer as we could these

further and we that business continue ahead, ramp believe Looking will QX into to in XXXX. this

several on out architectures, next-generation building work data our very center customers with their remain customers. active center data efforts AI-focused hyperscale our in XXXG qualification As we

to We and our up year business, for third will expected In CATV quarter with XXX% orders ramp a continue thereafter. begin of was year-over-year QX XXX% products the in in to believe up this revenue that receive XXXG was $XX.X we sequentially. which million,

I increase our mentioned the for is in As significant before, due the orders products. to X.X amplifier ramp gigahertz

I'd to revenue X.X believe continue like to in and ramp CATV on additional provide moment upcoming DOCSIS XXXX. color into a some take transition. to further We the QX will our

current As for change upstream MSOs expand nodes. the and available upstream increasing frequency look transmission, they to need by their bandwidth amplifiers and to replace content

MSOs are gigahertz, up using downstream without current X.X, which frequencies to DOCSIS expands into to cutting their X.X their By replace bandwidth. able hardware

they deployment not of MSO does deployments timing of our depend by the before, upgrades until mentioned MSOs some our of that X.X ready while they transition. do XXXX With we delivering the when of mind, later, have that have begun capable DOCSIS to however, timing they or make not As so this in initial to are DOCSIS amplifiers orders the customers are stated deploy on I plan X.X.

new X.X In needed of will enable believe MSO an AMPs, RPDs of AMP-first bandwidth future. capable an can one the higher which to ahead much X.X By and fact, whereby direction, is are the nodes be in additional provides the committed fully splits we deploying needed strategy, least deployed at upstream amplifiers DOCSIS MSO bandwidth. DOCSIS enable major that in to

into customers' addition, maintenance nodes experience could take while waiting improve In QuantumLink believe all to revolutionary operation hardware while to network RPD AOI's of X.X advantage DOCSIS for we gain and insight reducing available. be and their technology spend, MSOs their

of down XX% Revenue from sequentially. was $X.X and up telecom to Now our telecom our turning products million X% year-over-year segment.

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

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

In and have these position with down XXXX. from has of in X to conversations meaningful customer margin up to future in of small ramp preparation into our begun had to QX, XX% In center XX.X% addition to expected have which XXXX data We and for meet some we initial QX QX production orders and XXXX. additional with XX%, we in needs in gross an hyperscale non-GAAP received of reengage XX.X% to who are and in guidance generated additional their QX a already range was believe customers, from with was us within orders upgrades. XX% we of

XX.X% of goal we CATV mix. gross Total efficiencies long-term manufacturing improving non-GAAP We that quarter requests, expect especially of our around margins primarily to which returning XX.X% achievable. saw in where the impact the or R&D and were committed or operating margin to center transceivers. non-GAAP our our to this prior new compared continue to accelerated ahead, revenue, see as our million expenses customer product third the $XX.X in XX% notable QX million is we to and of gross to in greater-than-anticipated Looking believe remain to terabit X.X improve due year, of of interest business, spending we production $XX.X our revenue in data goal due in

we the R&D additional for incur related nonrecurring these third to expenses of expenses trade Also shipping gigahertz not quarter. show which fourth and that X.X ramp-up expenses were in and amplifier to the costs production expedited in quarter, increasing year-over-year our expect products products to were CATV the do incurred related

non-GAAP customer pursuing. expenses spend, R&D new higher range operating opportunities up from to $XX million quarter next by slightly due are and million expect tick we additional largely to ahead, generated we to Looking $XX

was to Non-GAAP million net to GAAP million in loss was our an share. for share, million guidance of million million third a or per range per operating loss in loss was the net loss XXXX. $XX.X share or $X.X basic QX a million or basis, the per in range of a per of compared of for loss basic of was or net share prior $X.XX of the $X.X On $X.XX unfavorable loss of with loss GAAP QX a which $X.XX per QX compared million share $X $X.XX loss loss to to of $X.X $X $XX.X in quarter of non-GAAP operating QX basic year. a $X.XX

QX a of to million or per year. the $X.X non-GAAP The outstanding loss QX used share in basic $X.XX compares of for earnings of loss prior computing This per shares diluted were share a XX.X net the million. in fully

equivalents, short-term with quarter balance in total cash, the third and restricted Turning now to investments the We $XX.X ended sheet. cash million cash.

at end We debt This total $XX.X of excluding the $XX.X $XX.X million million debt, the with compared end quarter. quarter with of to at million of convertible compares the quarter. second ended last the

made which end XX, September $XX.X inventory anticipated primarily to QX we in compared of of for for million As is to in in investments The production QX. production. as was and materials of inventory, a raw the We new capacity. $XX.X total million third as had million mainly increase at be used production the well to used accommodate which equipment improvements R&D capital quarter, $XX.X in for building

ahead, quarters increased X.X XXXX. product XXXG, we as the expect data to XXXG over make Looking terabit CapEx several investments and we for sizable production prepare center next in

discussing. are investments and of finance from sales, some expect We including through on combination operations these investments equity possible a to we generated strategic cash cash that hand,

both a businesses our company be on center these are We as execute poised opportunities. capital our in we that believe to that and data commitments these growth sustained will period CATV of and transformational we for

in we million program, including size we a $XX.X date, this of have QX. of in million August, our raised million existing raised new offering disclosed net of As commissions and the authorized. we under increased fees with total $XX.X $XX at-the-market To

our Moving outlook. QX now to

be between We million and to million $XX of revenue in to non-GAAP to gross expect and $XXX be the XX.X% QX XX.X%. range margin

the per and a share remain net $XX term expenses income range of shares. a We earnings of the a to in loss in expect million count to range in weighted average per to $XX of be elevated to between near million the $X.X million, million expected loss $X.X in earnings $X.XX of $X.XX approximately income of operating using share and basic resulting non-GAAP share share XX per of million of non-GAAP

about driven we generative benefit remain our of optical tailwinds optimistic our to positioned adoption more AI, we're CATV by to Looking the which long-term to believe customers both that data demand businesses. ahead, more and drivers including infrastructure, believe center data we We the for well from require deploy continue the will interconnects. center

and experience, we Due our performance. technologies are implement the right to significant CATV and we network transition place help believe ability to well and demands. believe Also, to with next-generation architectures product their U.S.-based our we are production capabilities as positioned customers manufacturing in very meet improve customers new we positioned to these automated our our team, portfolio strategy uniquely and that

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

Rosenblatt. our question from comes Instructions] first Genovese from [Operator Michael

the seems on while on maybe the customers. right? from XXXG outlook. revenues guess I Congratulations now question multiple a higher for my that coming first and seen like is XXXG, just I it there's little this mean demand you've

it you to do Or you when is do sustainable? what off we driving that, go that? think think higher to Just will start And that's speeds? roll

architectures our even we not expect for is to primarily here. demand being for or continue term AI next-generation the for perhaps their data interconnections, It's to demand near networks. grow I what from even applications, term. going from by No. decrease driven these would center the gig is And medium using demand that, XXX for that in they're or customers and their anticipate

to I gets only As customer have gig in that we market think ramp AI room us. growth XXX deployed. customer as at new overall mentioned, significant as that's as an purchase And well more one potentially least the I to from there's beginning with

discussion what comment Will X on kind other? VCSELs, all XXXG, the expect X silicon within and of And to can you you than I of or you be selling more participate guess photonics? X this or in transceivers EMLs

the historical been technology. on us, emitting Our primary focus edge has for mainly

the most those ones aggressively. solutions. that electro-absorption Both of modulated So are and pursuing also that photonics-based the lasers we're silicon the on would be

some for own VCSEL-based have have do solutions, capability VCSELs. our we interest and do manufacturing We in

So the longer there'll some we're to the sales, probably be we're transmitters. expecting that of satisfy going but to bulk the on demand distance be

talking Is if fair? and kind based -- on then are we X now household all talking like guess hyperscalers, names X, it you're like Oracle's the customers on that seems other the it mean, sounds we're if to. your but I And one really comments, X I number maybe include of about

about X of I we customers, talking without X data center we names, Again, yes. do have out top the think different think

finally then helpful. mean, just bigger. guess I it's margins us does will And pass help you what's for that drive Any understand, then that good, then the And XXXG of X.X, and cable margins? for it Like kind there be I get me, on. And outlook would is I'll just and over time? give higher the detail

Sure.

margins to higher are TV now data We margins do TV cable than center cable So expect the improve. right margins.

need the efficiencies couple prepared things expect over in our earlier, we of we the to there, that scale, there's and economies of and process remarks happen wring As we quarters. that noted out to manufacturing of next

some on So room TV margins. cable there's for improvement the

be transition data to margin center, respect and XXXG X.X to accretive terabit gross well. yes, the With to should as

as a think we to again, and terabits going there. margin remarks, prepared we get really cable that's, to both have it's X.X and So good in growth target XXXG, for said to in us long-term is a our XX% take what is

The next question Tim from Savageaux Markets. Northland from Capital comes

I to talk about just the guidance want here.

You're pretty uptick looking in obviously for QX. a here sharp

growth the think QX, QX expected a last center be back you maybe to you shifting in call, in which like was it over data primary to driver. it driver and on is said cable the looks primary I

at So transceiver also is, details and try sounds AOCs your Microsoft And some be up, remain should customer. It the on question that the does comment XXX-gig new what's that. driving on ramping maybe case? then like

You XXX-gig mentioned you some expect revenue. also

the are different customers $XX I at that? Can look you of a million know if increase or sequential in factors give center. you data so what driving don't it's that, sense If us and/or

Yes.

last see cable, we continued as strong largely actually at expectations XXXG by So XXXG data the the what this We time. We do center, has much a well, in growth for are growth but do regarding continuing see pretty been some also as while QX case in see enough. overall, for we interestingly point, communicated our us. driven in strength

XXXG a -- won't be factor to should start ramp in in little in won't QX. it then but will it us And for be be bit a but QX, the material likely QX,

of that's cable, of start out. well. in again, margins how as the things on should cable QX earlier, then, as to improve and said break the And kind QX I So course,

your the customer sure hyperscaler if there I understand a comments. just want in know don't to make commentary. I you in new I snuck

another you've in outside quarters these Microsoft of last I a XX% of couple hyperscaler described you've customer past. So had that as think the

perspective? I fairly gather missing sorts about in XXX-gig engagements rise terms to are level? would X, that customer QX? of of outside volumes you early we advanced might given days new XX% you your guess, a your yet. haven't seen else hyperscale I in commentary the expect to those that anybody And from customer of And those in

So customer one if customer imply It's customer of that on that brand-new which is with customer that the new the was to not the had for we're last XX% sort customer is have we us, I reengaging us. reengaging XX% pretty hyperscale that quarter that this it's -- a customer, same but And really them. a from mean formerly data helps. that sizable would we this a center quarter,

few to customer grow customer ramp that given XX% becomes we're that It's in them XX% the unclear think revenue XX% a a to quarters. we certainly seeing, definitely I to would likely be the QX. But QX, expect going especially can to higher. that the get they're to in bar grow. be next growth they in think I not they'll

And maybe me. last for one

to me estimated one. kind let well, -- You've of go another

these quarters? the in And expansion. a the take over perspective, are will mentioned you You right investments and From few revenue where capacity elevated next capacity where capacity U.S. now? you CapEx

the We the haven't of coming specific revenue U.S. out disclosed number

integrated As the in capacity growth revenue to we continue different we for different execute the pretty Taiwan you operations trajectory continue imagine, primarily noted we remarks. In us on manufacturing our quarters, prepared we're can our few and But to invest do different to allow manufacturing across will places. doing that the other U.S. that over in locations. operations are outlined. next And multiple expect words, as to in

the Congrats on and outlook, the results especially.

Thank you.

[Operator Instructions] Jeff Koche Raymond from Our comes next James. question from

is was maybe what up, it It it Simon. but we in only like confident Microsoft it was like It business? you supply low for $X up. next was know, quarter that this still. that than was $XX quarter on are like sounded I were misheard, like the to million don't Jeff reach, less than rate maybe like slightly mean that but maybe revenue run fair? sounds do you And think the maybe thinking. -- weaker it for million that Is sounded trying case, reaching if I I -- still

So at -- than are quarter, statement. quarter. below hard that it's this yes, a level. That It's million expected. in still But a $XX per It's say. it next quarter to to respect we slower $X is we little ramping just was we going reaching in occur that's With do this fair million unclear point. to which quarter to committed

So more timing. about it's

lot What in a well. as increase for XXX-gig solutions. some seeing earlier, demand, strength is the I And in we transceiver are mentioned surprisingly, as XXXG again, of

was the wants guess back XXX end. the XXX I is everybody going that gig I that, the especially And thinking there's for about too. to -- Yes. ask gig,

guys sounds maybe that investment. XXX legacy, So the there's at a guess, not seeing XXX And maybe catch-up then I end. gig, all? the I'm But strength front gig are like, surprised more data you it's in in center like legacy

Yes.

I different focus I to easy think growth new say, just the for this is AI-focused ways, be. They're the at their time. they're thing existing infrastructure I that doing. It's and growing multiple infrastructure one going many to okay, think, mean they're accounts, their reality technology, and where our infrastructure on But hyperscale yes. is right? growing are their of people the one customers both is in it's same not on growing

outside AI to gig I some just to fact there's want the I reason is people's opportunities significant in that focus on opportunities. growth. I highlighted really our -- and growth efforts the those all still most business draw the while about excited even XXX we're the the industry attention So continue AI we to that why of

then that this to is point. like -- little that CATV part? as go running -- we help on Or above versus improvement? of help be the you the biggest is And is maybe the just you where Is -- to margin next, of up next gross at should do quarter, think the on bit a average that Where again? magnitude the said

of up I margins and I'm you you're asking you gross asked. gig this growth that, product a Jeff, hope gross question just ramping sorry, mean kind broke ahead earlier, X.X line. was I little margin and bit CATV, there. about QX. we as driving started the I go what's answer that in the I'll understood and mentioned that I

quarter see almost in to almost mean $XX a going I from for those that's could the You X products. million sizable ramp.

be the can the you phases -- not efficiency is not of it manufacturing in initially. everything ramp, as that the where is imagine, initial we in to And when -- we want

we forward margin we in CATV. as so expect do quarters, later there gross the QX in be expansion to And go in continued and in

seeing expect to well. the from ramp XXXG, and year margins especially data as from which In in segment initial contribution that addition, will on side, center Again, improve gross contribution some next XXXG we more

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

Again, us for thank you joining today.

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

both data we As we demand you. center and capitalize for strong CATV we opportunity. believe believe we business, our well driver long-term remains are the Thank discussed positioned to this and on today,

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

You may disconnect. now