AAOI - Earnings call transcript Q3 2020 | 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 Applied Optoelectronics' Third Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the call over to Monica Gould, Investor Relations of AOI. Ms. begin. may you Gould,

Monica Gould

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

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

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

are results press annual to GAAP. the period quarter expansion in Forward-looking statements assume discussion we of responses Form Except XX, management's with intended products of reconciliation outlook the markets for as to as any specifically the included financial and are our required the not this report the the the with into for risks on to the to forth business also financial obligation new earnings statements financials company's reports in basis, we that and measures XX-K ended statements the statements on information today GAAP fourth non-GAAP release the measures call changes to on isolation between for accordance available by of and the beliefs customer on substitute why measures present the to innovations prepared in statements regarding December a date are to regarding reason or be of noted our as otherwise. company's and is Risk law, well earnings of related reach ended of More our well as expectations impact considered SEC, revenue, include XXXX. Factors year forward-looking set may XX, expectations. company's those XX-Q our as other update XXXX, for about company's our XXXX. A after in June section website. company's as of a non-GAAP are discussed on all that actual unless results no a report non-GAAP quarterly including the with exception in or file conform the Also for Form Non-GAAP company's the

We Relations December at be James the hope XX; section that the results, to and December webcast on to the these AOI to the XX. I'd available financial will on Conference management webcast live Partners The announce on November Investor to virtually. MKM website. Cybersecurity X; you at and Technology interact be and links of with and Cowen December AOI virtually Conference XX; many presentations like the Raymond to present Security, the on Conference Communications have and Conference moving the Networking Networking Before Needham will conferences will of opportunity the the on

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

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

Thompson Lin

you, joining thank and Monica, you, Thank today. for everybody, us

as of QX, a demand mix XX.X% most softness in digestion customers due was see was and to market of to coupled the a today, Non-GAAP to good line was million. to see home chain supply some expect to Our be third that expectations later data we slowing our third guidance response segments. this related grew QX was QX our seen part downward our we per range is each by And cost of we that quarter of XX% end Toward as the Similar above quarter. inventory our of compared in what adjust what We center guidance to action. the $X.XX the XX% earlier to started was were in than saw range levels in surge with to of certain quarter to severe less but normalization orders during loss major demand net guidance third due driven based margin QX, from our believe XX.X% of in payers in that at which disruption of end last loss the in of hyperscale see customers in previous year the from began earlier low we appear the our center in results believe third customers the inventory good orders. reduction to share loss data $XX business the our our currently year. orders million, on of from the $X.XX. was XX% in we their of working with slowdown gross certain quarter. within by to X revenue achieved to Non-GAAP of the $XX.X following benefit shift of million year. growth of to driven We $XX of headwinds product favorable from QX and some in sequentially, we revenue $X.XX

Our customer and would of center strong relationship continued higher long-term believe data we market bandwidth share need growth. the position drive within remains the and

Additionally, efforts our cost and to further we continuing QX. our mix expect margin reduction improve favorable in gross product

will are the be this We and seeing which quarter. in technical product as we are qualification customer customer, for This pleased to from product once report order this happen we expect design from that are secured qualification XXXG win X a product. recorded XXXG Tier an interest encouraged an a who we our on is center recently sizable operator second the receive this will existing with we by customer we data

XXXG products. year-over-year our XXX% products to wins the for CATV design Total revenue revenue XX% the During segment, to last QX, be we were sequentially. demand continue had X we've and broad-based environment increased X strong. for in products and overall of from in Total quarter, with our X datacenter continued In of XX% almost segment, QX demand CATV see X in segment. for XXXG segment the increased XX% sequentially. to X design our the CATV customers. year our Similar wins and telecom our

our to almost $X.X from increased in telecom a we demand driven by million, sequentially anticipated, XX% revenue record products China. XG tripled in As year-over-year nearly QX

they by telecom XG However, by caused their component Huawei's several recently, following deployment, we operators paused while supply network have have shortage. a customers been by China large replan that been they several informed disruption chain

Year. as the in continue expect and about XXXX this business confident we New Overall, that growth QX to to will our China our manage telecom the will demand optimistic spend pause in We demand We address efficiently shareholder into Lunar telecom us drive a optics reduction to competitive after lead deployment resume long-term We'll that technology leadership we gives strong vigor in remain expect position therefore as and value. QX. with in improves. a needs believe customer remain advanced

your Before to of call details team Stefan? to our performance you to to and Thank With Stefan, work of well continued that QX. suppliers. call I our this for to over proud employees the want outlook our deliver. the we to emphasize turn customers will of prioritize as during safety I'm that well-being as over the that AOI continue I hard QX I work health, period. challenging for the team Stefan of and review and the that, turn exceptional

Stefan Murry

Thank you, Thompson.

with improvement Thompson in to Similar and last line XXXG our our XXX% results in our our we reflect As X the demand XX% data during business QX, We across Notably, and continued our our growth segments. good third center good year in from revenue QX were quarter. and progress nearly on revenue expectations margin. market the increased efforts saw major broadly mentioned, QX customer each diversification gross and sequentially. saw of

the year started first customers we some to as quarter, digesting in in surge began the previous we the their headwinds demand orders. that on and up focused However, catch of normal will later be revenue in in Based QX customers see the of deliveries see to with softness our to on today, we sequentially We adjust down QX. what as inventory levels. in anticipate hyperscale our certain more half in expect

customers will next However, normal as this level, we resume returns segment. the believe inventory to at in growth few we our that revenue quarters, in

our growth, relationships bandwidth time needs related traffic good our shift increased focused particularly product reduction to we home. from data center customers. within towards have higher on expect data believe in We margins to hyperscale remain favorable continue working efforts. customers continued the and the And this QX with improving long-term to of for light in performance benefit drive further our our fundamental as cost the We center will network from gross mix during

growth for line increased guidance quarterly Turning in XX% by performance. was our to driven range. million of sequentially, in and all segments. third year-over-year the XX% of our Revenue $XX.X Total quarter business with our revenue

revenue from $XX.X X% accounted the our of In and XX% revenue transceiver products Our XXG revenue. from and million products. quarter, XXXG was rose of for center data third our data total our and sequentially year-over-year XX% our was to XX% center XX%

pleased to or are of the year. efforts. customer XX% customers greater We of respectively. progress represented total last which our were diversification XX% both our quarter, customers in XX the XX.X% QX in compares of for segment. revenue, contributed our X customers XX.X% We the of These top with and revenue, Overall datacenter XX% had quarter, on in which

each greater total greater in contributed other XX% datacenter X% of This X third X% XX% who X or During addition segment X QX to between our XX% and the customers, were CATV. customer last customers of X in had or year. and quarter, of and and revenue. in customers the compared customers these we XX% in X to between

of XX% Our top QX X last of customers to compared our XX% revenue represented year. in

million, million year. segment. XX% of up and generated products sequentially XX% $X.X CATV our to last Turning from We QX up of revenue $XX.X in

to reflecting quarter the QX. in expected, plan initial North in million margin basis from years XXX year. currently guidance several telecom and for to As Revenue products one revenue that also amplifier HFC and in favorable and driven than XG of newly the million QX our least gross margin products it segment total margin by shipping last our up from expect factors extender from telecom Gross we American to exceed expand, products XXX% as designed XX% line to been points several combined system QX. Demand stronger China. revenue, in that return the demand XX% in quarter a networks, congestion we products our their record quarters second growth in the in contributed than continue to from address the accounted of last to with the gross particularly telecom an of equipment our began sequentially. QX appears path. is from for to has for Revenue in year, demand ship this increased upgrade allowed of amplifier $X.X quantities of increase be MSOs mix product from MSOs in at to us of increase tripled This $X.X next more in continued

as the supply of will by Overall, Asia that several Huawei's However, after with will XXGS-PON chains they QX. there XG China We replan recent Lunar by about operators telecom disruption large highlight in as that the has notable resume in we component recently FTTH Thompson been customers caused spend will on vigor deployment earlier, down segment by their have service in The deployments in as growth QX, that our our X we involvement believe China several our is Nokia be sequentially we optimistic telecom been paused XXXX anticipate remain the alongside informed New resume mentioned following shortages. that Pacific providers. we Year. believe MSA working and however, network revenue

to we are a We we fiber to our the segment. this due actions. be could in XX.X% positions XX% for coupled and a long-term growth the to pleased range home QX benefits with the on PON reduction believe which us gross working driver be margin non-GAAP guidance XX.X% well mix next-generation margin cost our Gross QX, of in this MSA generated In above compared of from to prior to was favorable of year. XX.X% ecosystem, product our

operating We of further in QX loss improve which were of of loss net XX.X% compared was basic $X.X with of mix share QX or with million loss our of from product compared third $X.XX basic the QX, basis, for non-GAAP net $X.X year. which in $X.X On shares an million share the net non-GAAP a approach loss loss $X.X of and $X.XX revenue we a loss loss QX of for revenue basic million revenue our overall year. in the million expenses million per for a $X.XX per million a or last last share $XX.X basic as $X.X percent was a to margin expect loss $X.X end at range reflect of or last of and XX.X management. expenses of of per The loss the basic year. anticipate was decreased a of operating GAAP of compared GAAP QX a $X.X of used or these high our million guidance share, last million net Operating per Total QX $X.X year. computing $X.XX compares in efficient was our QX and benefits Non-GAAP per or operating to could or outstanding to or $X.XX QX quarter basic in loss loss quarter $X.XX third gross a of XX%. of to share $XX.X in were million to in year last net in a XX.X% loss million. expense

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

machinery of including driven material New As on We total as Year which $XX.X we $XXX.X tightly expectations below year-end September to we anticipation improvements. increase of million made in million continue million and capital was in our the holiday. a by the building Lunar of in of inventory equipment prior semi-finished preparing we construction to $X.X in and The mainly investments XX, compared was in inventory, $X.X million $X.X manage and to million buildup in CapEx. had QX. raw the and goods production and This quarter, are

continue as expect $XX tightly new to discussed our down prior we work estimate did purchases below total now in previous Currently, we in on due as The XXXX mostly our spending from XXXG China on QX XXXX as next CapEx of we plans. approximately the timing our customers expect expenditures However, we we equipment expectations million. reduction reduction of We anticipate be be QX. to our to the million, $XX call, to our resume with is the a capital building facility manage and to year. ramp CapEx improvements

as needs spending to our continue our will We reevaluate plans evolve.

to to machinery including intend quick proceeds turn production The for our update this to offering to million new these stated would on $XX.X we development in February. and and I To continue date, a under announced business, use as in raised outlook, million have $X.X like use. and we at-the-market Before in the we program, to including we provide make investments QX. proceeds equipment research the have we raised in previously, gross

our to QX now outlook. Moving

loss over in of $XX basic back QX operator margin million weighted it share of revenue $X.XX to non-GAAP between I in to shares. session. and to range loss non-GAAP share be the that, approximately XX.X% turn expected expect We $X.X the to to between Net $X.XX With basic and to the using be Q&A of the XX.X million and for a average Operator? range million will per $XX million gross million count is and $X.X be XX.X%.

Operator

[Operator B. Instructions] with Kang question Dave Riley. Our first from comes

Dave Kang

customers' guys there? product? Like a XXXG demand could have forward? wondering like give strength that? around guys Also, the any going just pricing you if any on in XXXG what and is give looking? looking products. how see one quick you little And I was the around guys color Can Do do are you environment. in I how that the a you demands pricing view color guys weakness

Stefan Murry

Sure.

your the stable. in expectations. pretty been It's environment. our mean regarding within pricing that. No So I question first on change big

as I headwinds hyperscale more chain some think seen near-term of several on actually during about Regarding some the COVID your think what's of of prepared remarks, our I question on We've anticipated disruption we -- demand, from than them supply here kind that occurred. in there's is talked in basically, customers. going --

prepared in more So didn't be inventories problems extra much they inventory as they adjust some to back maybe their as that and going they're to problems. there levels. so anticipation Those normal thought they materialize would might

that And think. on. to going itself, will what's quarters normalize that's couple the we of take next Now

Dave Kang

along? on looking? And XXX- how XXX-gig And forward? How are and that products, was going does look for the pricing how demand and Great. qualifications Okay. progress the coming environment

Stefan Murry

Sure.

relatively earnings XXX-gig is as they're we've where pretty minor. mean, land products product, talked have and squarely. the next-generation communications. really I previous in investor -- it's XXX-gig We about the are calls other do to think our sales not is going probably So XXX-gig next but mainstream some We

completed qualifications had We this good our of data XXXG. finish second ongoing as this some well did successfully one That's on operators XXX qualification progress that quarter for effort center far quarter. we a As from -- are qualification. our a that there, gigs, the

I one our QX in in was other our The in announced QX for QX it -- was sorry, I'm announced believe -- call.

We're some next solid So that's the part and think to that we our exact see ability to to of frame part the earnest probably traction pretty more to We our in ascertain qualification. But up XXX-gig market. starting beginning it's next do the in see feel working to there. middle gain our year. highly XXX-gig technology customers middle with the our start second And that in we'll speaks of year. orders time market that still of pick

Dave Kang

Okay.

ahead. go Sorry,

Stefan Murry

it. no. That's No,

I think the answered I question.

Operator

next from comes question Cowen. with Our Paul Silverstein

Paul Silverstein

Stefan, Thompson, how China? of for outside demand does look XG

Stefan Murry

now, Right demand I not in probably have There's demand mean, something that but much that the is this point. primarily we're we seeing exposure to at that it's outside China. of

Paul Silverstein

of So I leveraged it's Stefan, much XG your little XG more that's very if you outside have China, correctly, in don't is so -- to revenue of you why or outside China. just highly China hear exposure much not

Stefan Murry

But we to suspicion on There's XG in -- really going outside that for I what Yes. are of the to about most talk but activity mid-haul China, part, I when areas talking is in deployments in my not XG, XG. similar about XG. is be on XG obviously clear mean really links applications but we're China, going that ultra-wideband front-haul clearly the those there's there's want and

in is optics there's right So Those of primarily a high-bandwidth for that optics are kind needed we're now XG China. in deployed supplying. which ultra-wideband the not being need the

have world, the that in deployments or just we don't not ultra-wideband China. outside not type to inroads really it's of the capability active of other that of it's XG parts the So are that necessarily sell

Operator

will Lin closing this call further At Dr. no to [Operator Thompson turn the we I Instructions] questions. over now for time, remarks. have

Thompson Lin

us today. for Okay. joining Thank you

virtually at for As your thank many look we our forward support upcoming you continued customers of to seeing you investors, our conference. to and employees investment always, and

Operator

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

You may now disconnect.

Applied Optoelectronics (AAOI) 7 Nov 202020 Q3 Earnings call transcript