AAOI - Earnings call transcript Q2 2019 | Applied Optoelectronics, Inc.

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Operator

Good afternoon. I will be your conference operator. At this time, I would like to welcome everyone to the Applied Optoelectronics Second Quarter 2019 Earnings Conference Call. All lines have been placed in mute to prevent any background noise. [Operator Instructions] Please note this event is being recorded.

call Maria the for Investor turn AOI. now over Riley, to Relations I Ms. begin. you Riley, may

Maria Riley

on results is I'm second for you. of I'm to XXXX press its market welcome and Applied outlook issued AOI financial also pleased you After at The ao-inc.com. the a financial XXXX. results closed quarter provided today, second announcing company's Thank quarter AOI's Riley, XXXX website to the Maria its available third Optoelectronics' release call. release the quarter conference Investor Relations, and

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

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

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

like differ to Before forward-looking I remind today's statements anticipated actual could These management and cause will expectations, as as current such review statement. those to Harbor the assumptions involve we statements. On forward-looking well would results AOI's statements. and make Safe materially which uncertainties, from call, begin, to risks in company's you forward-looking

that may, or expressions some you similar would, statements plans, In outcomes. should, thinks estimates, expects, by can by forward-looking others could, terminologies identify of anticipates, will, cases, uncertainty predicts, such as future intends, believes, and convey or events

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

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

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

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

financial New attend Before September Company XXXX results, on announce to Xrd. of opportunity hope that moving Technology to many the Institutional AOI in you there. I'd York Conference Davidson D.A. Minneapolis in the and Dougherty will Xth, the We to like have Conference September see to on & Investor the management

Additionally, date XXXX I'd for currently like earnings of our third quarter Wednesday, November to note XXXX. the is X, scheduled call

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

Thompson Lin

for Maria. today. you, And joining Thank you, us everyone, thank

execution. pleased are We with our

expected revenue delivered line guidance we than the with quarter, on During in our achieved the better results and bottom-line.

the of In consistent AOI share. dynamics looking XX.X%, per at revenue of loss remained delivered $X.XX the in million. our expectations. margin and with Non-GAAP gross non-GAAP $XX.X quarter, the demand of datacenter environment

hyperscale our begin signs recovery. yet customer early see to a starting of among has datacenter one customers, are to while recovery We two of

term growth. and encouraged will drive the by are hyperscale need fundamental higher We [indiscernible] believe long within bandwidth for datacenter recovery

customers. term we optimistic the on our in the and dynamics the short to remain stabilize among cautiously market demand continue However, environment hyperscale

Remote our a interest by in encouraged remain specialty we CATV, activity, In customer PHY products. the

market CATV demand product. some in of tepid resulted soft, [ph] overall demand our for legacy continued the However, be to

trade of than including four weaker is a wins, a OEM secured priority result customer base design diversifying one for new tensions, AOI. datacenter datacenters with with China in demand equipment we the a CATV five In had operator. as quarter our an Additionally, top remain we for expected, and

to with to results. We technology are execution existing our this our innovation pleased success in and technologies. In confident monetize next integration market as are fostering and expected manufacturing platform; our to expanding new with the summary, proprietary bottom-line than we’d contributed which the process quarter better on market relationship to and our ability believe remain keys and vertical customers our our remain in we improve We lealerships. and both our move focused generation

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

Stefan Murry

demand Thank you, was revenue consistent of the above quarter guidance was range $XX for was of $XX.X $XX which million, the our in Thompson. Total second to million. midpoint environment million quarter the with the Overall expectations. our

from in Our million $XX in datacenter datacenter was revenue $XX.X In XXXG came of compared our the our was XX% products transceiver at our XXG QX with and revenue quarter, from products. year. XX% of million, last

market dynamics out QX in as datacenter expected. The played

We but early continues demand. are while our to to with datacenter customer see reduced starting customers, hyperscale product of purchase of recovery two among one signs from us,

mentioned, Thompson by encouraged near-term dynamics. the remain are we of market on these while we early As optimistic signs cautiously recovery,

hyperscale their have fundamental that we optical speed to with We and need relationships business. good to high customers all their our continue datacenter believe for remains connectivity that of

believe relationships focusing and our position AOI when are both foster growth technology conditions market we on improve. which new for our continuing expanding efforts to and will with existing best leadership, customers We

equipment datacenter We and whom operators the of with are supply vertical. seeing also we or many wins datacenter the of quality pace the customers, that are encouraged design OEMs by are new

advanced transceivers our terabyte as into fabric AOIs of out the strong QSFP per to technology, transceivers FR XX.X in basic a switch break interoperate foundation we ability XXXG optical ASIC. individual second a leader recently four XXXG upon with Building leading showcase and

to will the architecture. from be migration bandwidth, operators the to in datacenter continue step As major demand datacenter XXXG next greater XXXG

confidence timelines. to are connectivity and solutions XXXG infrastructure, add and their XXXG to deployment validated for customers looking datacenter reduce As they gain interoperable

pleased the very solution a with our that to customers are have demand. demonstrated interoperability We

compared to and cable with $XX.X of China the Turning and to American million with continues from in about domestic year, North television MSOs China. somewhat concerns million, CATV due XX% CATV expectations demand trade to products growth to our market. tensions weakened QX as market decreased Revenue has $X.X lag last year-over-year economic in

technologies near-term PHY. product those to in excited North PHY our we Despite MSOs, a distributed these new for and customer that about for in challenges, key plans are these particularly America access interest We the distributed Remote forge access Remote believe architectures. networks is enabling continue

soon. significant our receive to expect for orders our We first PHY Remote product

$X.X optical poised compared the lower million develops, XG factor $X.X of QX as given deep driving In million, given with in industry process. our outdoor see as geopolitical optics China, our for continue in products is a tensions. to last reflecting production environments in a we We become year, whole. the large believe optical XG telecom of telecom, module highly to deployments Our revenue network to sales delivered and market AOI harsh our share grow expertise well-positioned automated trade

in and qualification emerging said, With predict. for to a that remain applications. market, given in front deployment is mid that keep and of the haul an both We vendors qualification please timing of are this mind schedules with difficult number

we FTTH revenue. in respectively, XX% that from or revenue the of datacenter with two quarter, telecom XX% XX% second products, of other. quarter three contributed one in products, business of greater from contributed had In XX% total was total X% datacenter the and the customers, that and CATV business our revenue XX% the from XX% the For and remaining CATV

and earlier have our pleased on build success wins, our based that of two a is will base new progress secured these design among to also which of an operator. In we markets. enterprise new OEM relationship continued last note supplier a of we total quarter one customer made. several on quarter, wins the customer datacenter and customers, secured U.S. are the five datacenter to with We in steady the diversifying we I design with a expand hyperscale

XX.X% quarter higher we million quarter. were point of improvement XXX Total and revenue with revenue, last compared in XX.X% of XX.X%, $XX.X XX.X% guidance. operating our the a expenses or quarter million basis beyond Moving margin gross or reported the in $XX.X generated from of than revenue, slightly prior

our next also tightly to generation expenses. optical while be investments with our on products, an managing emphasis We of and developing with enhancing targeted continued

million, tax than income of for loss after with net an QX share million the million was loss compared in $XX.X This per of diluted operating basic to was XXXX. $X.X better QX or net per of compares loss second of $X.X QX. or which Non-GAAAP $X.XX Operating quarter our guidance. was in loss in $X.X $X.XX million a share,

year. or QX basic for The $X.XX million share, million computing of loss diluted a the net were share or million $X.XX shares XX.X $XX.X loss QX income compared of in of used GAAP in QX outstanding loss last shares. net per with for GAAP per basic net was $X

$XX QX the of now Turning cash, million restricted generated million in with to with $XX.X the cash equivalents, at million operations. compared cash and from ended short quarter. term balance previous cash investments reflects end $X.X in the sheet. This We total

million machinery construction as As of decrease is inventory $XX.X in a investments QX. including million million million we building to We and long-term XX, we our consistent and levels. inventory, production rationalize the capital million in of a $X.X on $X.X continue June improvements. had quarter, from $X equipment This plan in $XX.X total reduction of with inventory in made and

capital expenditures in XXXX factors be million, factory in our of China. approximately in expect Looking which new the to ahead, now a of construction we $XX continuation

and monitor to adjust continue may We plans end market spending our as conditions necessary.

to our outlook. now QX Moving

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

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

Operator

Instructions] [Operator with The Yes, James. from Raymond comes first thank you. Simon question Leopold

Simon Leopold

question. Great. taking Thank the you for

I you color might, you that comment? Just just get XX% I Could like mentioned you repeat on I offered your think customers, a quick that. clarification didn't down the if

Stefan Murry

there revenue. three the was customers Yeah. XX% XX% during CATV datacenter were business in total And We business customer that then quarter, they respectively contributed the the one was of two in XX% total XX% of revenue. had and

Simon Leopold

that, Great. for sorry. Thank very you much

clearly, Remote less we're business, spending TV if PHY. the early in from but the the fiber operators cable major still money, as very heard we've it on seems So deep

getting quarter third XXXX? and both through And just And the then a playing Remote a you of PHY only your how you could you think see this suggesting to ship that if us made comment give sense guess I so of trending we near-term looking were you out. is, business beginning kind boxes, think I'm about should really what of how I at really at this

Stefan Murry

Yeah.

think would our calls So I comment the to we've last made ongoing that business would an we is term beginning larger products. know, PHY significant mentioned comment hope you over we that something of we're we for one have those grow the products first few expecting orders, we that start number is be Remote made, time. and of getting conference know, you into that that The that we selling what - that the on - PHY would of a that more sort been Remote

slowing we've last the in seen far to in two. think I year-over-year America slowdown the some look, what China related We've cable as quarter is overall TV, primarily seen or you if cadence As on North know, you down.

in on a terms looking if basis sequential So year-over-year of what's you're downturn. causing or it the depends

a when Remote to And remarks, moving know, in these in look begin our in looking these prepared North key you to distributed leader distributed ahead, architectures I access aspect MSOs I've PHY, forward. the American technology You architectures. invest think, as which a we're is mentioned for access know, we're we of

it's know, when they're to you going to do hard So exactly that. say

poised to. they're think I

to we're I - of North seeing kind now architecture add is that you in you their networks, the they think investments their while PHY. some this they're minimizing that Remote transition American to MSOs to Remote of probably among know, is the immediacy look related of know, the legacy slowdown based PHY

behind that timing precise to is The difficult predict.

to probably QX we're this thing or not predict see QX think at start we it's of a a real hard before But - to resurgence. it's point. little probably I kind a

Simon Leopold

XXXX reflecting So I'm oriented. much sort I was in cable on very it guess, transmission business TV of the where back

timeframe where should You as did XXXX at reasonable think really we a a get expectation reasonable wondering think if $XX business? just or way about about the initiatives about to that Is that I'm for line that least of million. these going.

Stefan Murry

number. of you you I mean, to I again, precise know, give a want sort

similar levels Remote reason every there's to we get think back historical I to period. or does greater in this we've to transition It PHY. to what require at can been believe than the

I would America cable expect timing you is get happen said TV know, when to to like would that and I think market happened specifically the that the XXXX, North they difficult that start project, in going. although of in I notoriously

certain I and going think be can bit the it's still of, ramp fast up forecast. how overall but they exactly fairly they trend get we to when tough a

Simon Leopold

just more one Thank you. And I if might.

to the products mentioned starting come XXX gig out. You

some you if of us you Just from out versus could companies. variants larger the the the help how silicon semiconductor of about that could coming OEMs be photonics think and competitive some are

you're Thank market XXX Just landscape wondering you. competitive how sort inside of silicon in a when plays photonics into datacenter? the the at gig

Stefan Murry

silicon Sure. a photonics technology. I is not mean, new

at gig there's data photonics at silicon solutions know, been even rates you that. before As photonic had know, lower you XXX silicon we've and

competitive manufacture the significant port cost driving our expertise. is the built upon vertical is on ability in-house our and a Our manufacturing of elements integration that advantage of to also our transceiver

processes. talked we've platform automated has automate us technology think in that know, those to allowed the I you past processes extensively our and about manufacturing our

can itself, to our manufacturing a XXXG gives not very products in compete our we but technologies. and products and even automated a manufacture an way the with automation So generations design just having for it's process what other future ability in effective cost and those that's those us the it's XXXG where

Thompson Lin

strong DMA growth and I give right, And [ph] emphasize in compared Simon. DMA. AOI – used and the XXXG to all us This give Thompson XXXG for is advantage, would in-house want making to XXXG

Simon Leopold

much you my for Thank very Appreciate taking Great. questions. that.

Stefan Murry

Simon. Thanks,

Operator

the comes Chatterjee And you. JPMorgan. question next with Thank from Samik

Samik Chatterjee

clarification XX that? Could in repeat with Hi. revenues. that. you datacenter missed my a I Sorry off mentioned just Thanks makes If know question. - well, gig for XXX could taking start I XXX gig as the just you the I and

Stefan Murry

revenue The quarter. the the problem. of XXG XX% and XX% no Sure, from datacenter in XXXG was was

Samik Chatterjee

it. Got

that by implies XXX I recovery so kind strong Is the driven overall a a think kind the of of the gig the you not And or the call customers you of in that of in I'm revenues. by saw was mix, lack - hyperscale else primarily driven that decline or decline that you thinking one datacenter really them more as see customer something with about. that

Stefan Murry

who No, has yet it's recover. almost one entirely the to driven customer by

to XXG, much We've new and our and use in thing time. very good continuing I think some We find at quantities us. fact is our is - been XXG think actually is to significant to cases one interested a leader for to a are other downturn customers XXG seeing customer. its the isolated related that continue The XXXG for strength which XXG it's of not be I are for AOI. continue XXG customers, pretty But for very, buy good to in

Samik Chatterjee

to on in the any I pickup believe you tariff gross impact your that expand tariffs, goods have if would facility now expecting their from – facility. it. ask China. just incremental Additionally in expanding XX% there Are a kind there? of Got you capacity from you seeing And on question like do coming how - to And business imported interest propose you it from customers flexible any in Taiwan, much or capacity and have were you are expanding margins? to

Stefan Murry

transceivers. Taiwan the we do are - we a in datacenter can manufacturer that have facility So,

already datacenter of manufacturing - does our it fact, transceivers. In a portion

in on needed that add our and we of board. factories to these tariffs is between We ability additional our have operations manufacturing significant Taiwan China some interest and capacity had from we as come customers do move can can what the such if in manufacture Taiwan

manufacturing capacity China what datacenter those ancillary are Taiwan for that In products. other mean datacenter the take some move the I related, we increase can of not to products and maybe other the is words, for in

that usage think actually where I for even everyone in At to to we're that we I based. their are asking customers want customers right all to be what well Taiwan stand And is the least now, among in we the remind manufacture transceiver U.S. of the customers, hyperscale factory. not know, you positioned are us U.S. pretty able U.S. mean, the

So we should for to need Taiwan, of manufacture Taiwan manufacturing tariffs those be won't U.S., that us transceivers it's into our that's the to datacenter necessarily the in ones but the a possibility and come certainly our in all imported in for be place. plan,

Samik Chatterjee

Got question. it. Thank you for my taking

Stefan Murry

You're welcome.

Operator

Thank you. [Operator comes Instructions] Cowen Fahad and And from the next Najam question with Company.

Fahad Najam

did Hi, of other I XXXG hear correctly that Thompson. Stefan. Hi, XX% question, was but the apologize for tough revenue? total the I you

Stefan Murry

Yes, you did.

Fahad Najam

XXX you should in gig when little I issue of if question, you – XXX how the the in would gig, hope XX XXX no would and gig, any meaningful had just forward, - story? for rolls would and success in leaders you XXX look late are your but meaningfully gig? succeeding Apologies believe in you to broader how that what you at what struggling your have am in success if investors. Do will what quality with gig you why tell going - landscape succeed you ended have off see not to have broad investors so I

Stefan Murry

Well, say I a XXX think gig. it's mischaracterization not we're in succeeding that to

last sales noted, XXX you sizable As have gig we of year.

different selling largest What success. fact, is that call I I not would data at by different rates was different for times. not that, line applications say it applications In know, you having different and product customers our purchase different would far.

be – you XXXG, recovery our cycle large they part a Not if every a and to that haven't has that. of if purchasing we've that would cycle in to then moved we quantities noted and recovery on is still expect we'd prepared know, that remarks customer as yet expect begun of XXXG they're

we right involved of you a We player sort your blunt number qualifications more to are now. XXXG? question in respect be know, a with would about of why Now, actively

had use weren't attracted weren't with on offer, they if what going us to these decided waste AOI effort their resource and they're by customers I going they AOI working think not had efforts. to or to qualification

can't are good that to least would maybe them them. and Now I going you be, those the know, tell of of are far, results would but concluded for are would of at perhaps some qualifications sure be all and those the ongoing, I they - all expect results what so you successfully,

a the and thing involved a I'd say know, rates, and I The mean, been see market market datacenter the you long datacenter XXG for in our different. a why other for first materially in time time. be we've long weren’t like We've data reason leader I is, been XXXG any long, XXXG would don't

to Thompson earlier, performance, technology are we we not as a technology cost only as we really a the be like were the future. that technologies critical XXXG in structure that to at as we think to -absorption expect gives XXXG or mentioned in-house at As but our were cost us a a position in good leader, the not when fruition XXG, and to to modulated electro leader XXG, comes by the to at we only be that XXXG, XXXG, having but laser as were EAML of transceivers a

customers. I which the why is haven't have we So XXXG that qualifications to with very we ongoing is compelling, and we've successful developed wrong technology think say it's going been for

Thompson Lin

EAML what maybe I'll But are for in-house. add EAML, two does very surprise, One, okay, EAML, make EAML compared there So XXG to I further points.

transceiver, bigger Of or EAML course, one. than much number XXG much, be, it’s XXXG very

and including company solved operator, Number okay, we in problem design worldwide. many in the OEM few of customer, equipment many quarters we U.S., hyperscale past have many XXXG okay, the Asia, big have many with new had it, we including we two, yes, and managed only wins not quality transceiver issues,

not confident demand suppliers, major sometime And related the that be specific slow issues, All year. in we’ll future, okay. of be come slowdown we quality down, this demand to that really are and back, is when we is right. believe the one The customer okay, it could next the

Fahad Najam

your they is gig, them know of second are of XXX one XXX [indiscernible] shipping have half customers, doing titans customer a be XXX a to hyperscale moving the on two happens at I any you you still of All but XXX gig I in gig XXX the XXXX moment? you, with may yours. are any gig, right. If in largest of the for add do most gig, cloud Are share XXX gig the

Stefan Murry

at XXX design since to Obviously the we but Yes, and year. we've been with gig you XXX for huge gig, a percentages shipping have the do XX last It's not gigs if XXX look gig. quantity.

Operator

Thank the you. Waller from comes Michelle Company. next And question with & Needham

Michelle Waller

with on for I'm guys. Henderson. Hi, Alex

you XXX XXX are can any to question gig. a the or gross quick know, We're no? any wonder gig gig positive XX give on trying give do margins, on margins color just Just you - margins color for or guys gross here you gross guys

Stefan Murry

gross for but don't on individual you positive they're Oh, they are specific definitely XXX give margins, gig. positive. We certainly guidance product, know,

Michelle Waller

Okay.

Thompson Lin

know, goal pretty gig [indiscernible] are You the good. XXX

So suppliers the we cost of Taiwan in automation of because we have compared the best integration China. advantage because of and other say manufacture vertical to transceiver the

Stefan Murry

I a on follow am sorry, question? there was

Michelle Waller

me. good That's for No. Thanks.

Stefan Murry

All you. right. Very good. Thank

Operator

the Thank you. to like I there more turn would are And no closing questions, any for to Thompson Lin remarks. back call as

Thompson Lin

you today. thank us for Again, joining

we always, investors, our customers you our for upcoming we your at the seeing and support to look conference. continuing forward employees As thank and

Operator

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

disconnect now lines. may your You

Applied Optoelectronics (AAOI) 7 Aug 192019 Q2 Earnings call transcript