NPTN - Earnings call transcript Q2 2018

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Operator

Good day and welcome to the NeoPhotonics 2018 second quarter conference call. This call is being webcast live on the NeoPhotonics event calendar webpage at www.neophotonics.com. This call is the property of NeoPhotonics and any recording, reproduction or transmission of this call without the express written consent of NeoPhotonics is prohibited. The webcast will be available on the event calendar page of the NeoPhotonics website. I would now like to turn the call over to Erica Mannion at Sapphire Investor Relations.

Erica Mannion

afternoon. Good joining of NeoPhotonics' for XXXX quarter XXXX. for the results the to of quarter second and us you operating discuss for third Thank our outlook Beth Tim and With Jenks, today Financial Officer. are CEO me and Eby, Chief Chairman review begin quarter and the will of Tim of products discussion new second a with initiatives. a for provide of XXXX. quarter financial then second will third for the quarter the before Beth results providing the outlook the business call for Beth questions. will additional Tim drivers then before market the to opening turn color and for it on back The and company's noted. management's otherwise other and balance statements during of certain percentages this discussions unless press release all and call non-GAAP information, statement and revenue, include financial income amounts measures sheet than including not performance a of for to financial measures in superior prepared substitute are These in non-GAAP accordance are measures or financial with prepared not GAAP. accordance with and GAAP with GAAP These non-GAAP being release related reconciliation website. Forms to X-K company's section be of Investor results NeoPhotonics Relations are today SEC financial a XX-Q press measures in the found at and the and and the and can of provided filed property the sole rights is the reserved. of copyright contained in with Material NeoPhotonics, webcast and all industry Certain statements historical statements may and customer inventory product events, not capital involve and which in development, call, needs projections. forward-looking and levels uncertainties future levels considered availability, include demand, and conference risks and regarding business profitability, subsequent are that statements and be results, facts, sales this of and economic technology cause could actual differ factors Various to materially. results

quarterly SEC X, of our and length and at forth our are in Some in press release have factors XXXX dated August these risk set been annual filings. described

over call to turn will Jenks. I Now, CEO, the Tim

Tim Jenks

growth. in approximately markets, provincial was the shift by exports see grew XX% outside being we at Thus, well $XX level of above for optoelectronic the growth our the broad-based Sequential quarter, data and demand comprised leading period products revenues, in with our interconnect uncertainties XXX sequentially. quarter ZTE us these are there. China strong communications result of as DCI We a not due digital our deployments. high-speed our representing share and XX% from end-customers center as seeing has joining the approximately speed delivered of $XX leading telecom the to and with and highest million impact last second is demand sequential of sequentially, high-end million net American been as trade which data range the well to led ban European for NeoPhotonics in Metro our applications. XX% solutions over revenue today. Thank outlook products up the well of the gigabits $XX to interconnect to of results network and in ongoing of China solutions high-speed China year. and $XX NeoPhotonics for of deployments data subtractive million, High-speed With you in growth or growth our the lifted. to used were XX% million, revenue do In as center second beyond coming ban the the prior despite China, for networks it tensions Shipments rates in same leader any market.

with XXX achieved gross resolved, tenders basis we expansion overall quarter, additional in we and demand topline over growth. Coupled ban the volume expect points With performance second with volume growth. strong the margin our of

customers. revenue are customers the top levered both is rapid from quarter consolidating second in we important, results the in share ramps. margin equipment quarter-over-quarter customers among few XX% is succeeded and in This capacity quarter, to five their those on volume and and that place make leaders is a Our continuing market companies' expansion. NeoPhotonics market the as the demonstrate communication our we progress growth second leading as increased had support volume these market to to In key

at continued coherent for we Further, coherent good of lasers. our demand wavelength, receivers per new Metro XXX systems linewidth the tunable at quarter and and continued in are per ultra-narrow our shipments product in applications. complete which ultra-narrow and CDM suite including progress coherent linewidth rate products on second we on initiatives. of products, new design for second XX being initial micro make for integrated wins lasers our wavelength, for volume driver core shipments to product for progress baud modulator deployed our and receiver, gigabits DCI Beyond tunable gigabits high applications operating gigabaud XXX saw We per currently increased

and For early per key DDQSFP XbyXXX large near which second making gigabit the side Gig are applications. we In gigabit starting single data and center OSFP gigabaud expected are applications. transceivers, applications gigabit term XXX for be XXX XX of intra-data and deployed for to elements now to the year. in next ship inside products XX XXX lasers volumes shipments client in wavelength used gigabaud center, lasers These we continue drivers are

conference next Nano-Tunable gigabaud are our COSA and systems, For Laser we Subassembly the Coherent March we at and DCI transport systems. developing higher next even Optical of for demonstrated rate or in generation components generation OFC baud XX the our and

manage to wins contentionless to DCO volumes. in in positively shipments, data ROADMs increases switching quarter-on-quarter. growth continued module strength deployments of will Switch reflecting that in through the China to see CDC Metro increasing use and both new in the and solutions centers strong We anticipate customer grew We with as densification. of Multi-Cast DCO contribute tenders doubled Coherent revenue volumes quarter our

next-gen on forward to our be We market these to are view for we important forward. developments that going solutions continue press as existing to DCO complementary our modules

XXX demonstrated to will financial performance. the call details and we our over gigabaud into to now DCO as Gig I XX the at further are designing Beth such, components next-gen turn As March we on OFC conference. provide beyond modules, in our

Beth Eby

met leverage is Revenue are gross our our operating Thank metrics. you target. QX, margins inventories In afternoon. up, financial improving, Tim and and increasing good met we is

the $XX improved China China. revenue mentioned, expectations, the above from and represented of the the the quarter, our robust XX% XX% QX Rest million China. demand as of a year-over-year, in the picture in in geographic was strength XX% was quarter continue represented by sequentially driven demand Americas of second up Americas total down World of of relative XX% Tim revenue XX% going demand outside in to and As and of Shipments XX%. forward prior due to breakouts the I these will better splits.

report destination. As does we on geographic based end-customer necessarily revenue match a This reminder, not geography. our shipment

included of as Huawei our in we group was for the largest our its Technologies, the affiliate to Next including Western For for HiSilicon revenue. Mexico customer Thailand example, majority refer including company's to we X. approximately contract customers, the and manufacturers the ship accounted customers XX% of Technologies, and in

X XX% of Huawei Next up customers Our total from revenue, QX. after XX% represented in

from margins up charges Our was X.X our this, about non-GAAP cost up improved inventory slightly expected costs. under of this primarily gross were about X.X% absorption five and approximately inventory points approximately of than fab, write-offs. second QX. on points of costs, primarily margin and point about Within in on we product XX.X%, charges, revaluation lower points approximately of four of utilization sales expected, Other was quarter X.X EML XX%, points quarter-over-quarter three were in the higher as higher manufacturing standard

million gains spends. exchange gain of expense million, $XX.X to down first operating QX. foreign a the the million Moving second Based second the quarter loss forecast second loss the QX $X.X for a charges. translates of quarter was tax count quarterly was net loss drove project total R&D of from than compared $X.XX $XX.X operating to $X was to fully share the operating expenses, on million, expected timing for the Non-GAAP in foreign non-GAAP the to quarter. same negative revenue, of In exchange interest the in cents, quarter. a or interest to provision Non-GAAP million, more by That in for a on $X.XX higher offset loss in XX% loss million share other, quarter. per shares, this non-GAAP diluted driven negative X% XX.X compared $X.X gross and QX, million than the of of compared in margin improvement $X.X quarter

the close statement our of the a results. quarter, with my income positive GAAP a million, EBITDA $X.X the million to $X in was second out of adjusted of first quarter second discussion will loss I review For a compared quarter.

of prior expense, $X.X a opposed was approximately the $X.X of of amortization net million intangibles million the stock-based from First million for Net in prior margin loss which restructuring and in preceding million to $XX.X up in million to $XX.X primarily quarter. from was quarter, down Operating million, quarter million the projects. XX%, the the R&D due XX% quarter, as was charges. period. $XX.X related Operating for $XX.X gross $X.X the acquisition-related million second of $X.X compensation of loss expense quarter, was timing included loss of

quarter $XX investments Turning down million $XX to in debt of million to quarter demand, as days the was than and expenditures our days restricted $XX finished of million used lower the Net mostly the approximately capital We approximately on cash, in quarter higher hand, China. the balance due, $X down with were first inventory resulting million million, the in XX in due on cash, operations repayment $X million. slightly and became of sheet. from XX it $XX inventory Cash million in first was of target $X inventory. from

down it we on Optoelectronics If the be our not as became Subsequent third discussions. the reported have latest until We to dispute, to to do to We paid occurs, that in impact value. received material gain do dispute letter free China the have previously to As in approximately of cash intent plan credit legal China with or debt $X the gross and This resolved. does it cash adding a re-borrow we Russia our available This on for we $XX a potential of as APAT expect the negative million We a of China purchase transaction. trade U.S tariff have slightly the and our result, in is million. this Lastly, of is remaining accretive transaction operations, XX-Q. for not flow any not factory book monitor continue would our was additional margin. loss an due. the quarter, end

set have U. material the first impact reviewed NeoPhotonics of and there $XX We billion no is office totaling from the Trade S. tariffs products. to Representative

vast spending customers relative majority risk the to is in We our and tariffs. are infrastructure risk monitoring in of believe the to of U.S. shipments larger see the the of outside and economy U.S. the We recent go China. both contract the minimal to most rates, manufacturers proposed set as We West

future outlook I statement risks performance in included causing discuss and our the want third affect the to I materially forward-looking of SEC from the discusses filings statements. revenue to everyone Safe release public earnings results press of remind quarter Harbor our uncertainties for differ actual with our our fiscal our Before XXXX, that and and could that

For expect outs third the Metro the we Americas in provincial quarter, strength in China. build and continued and in demand

not yet supply for its We to partners. ZTE or any material shipments planned have chain

Given range margin in to $X.XX the diluted factors, per XX%, are, net net loss XX%, shares. company's in range XX.X to of of revenue $XX gross share of GAAP approximately $XX diluted and non-GAAP million, these per gross GAAP of XX% are in loss million range diluted the the the reflective the September XXXX $X.XX. fully These XX% share the margin range $X.XX to for numbers to quarter of expectations in in $X.XX non-GAAP million the of to range

to quarter. expect operating breakeven in be We fourth profit the

quarter. our met Tim. leverage Revenue I we we call back improving, start, to financial inventories metrics target the the turn at is met and the our up, increasing, are for operating will gross debt. reduced noted now is I margins As

Tim Jenks

Beth. you Thank

the business data in As highest high speed a applications, telecom communications and growth remain in solutions compelling. network center networks speed for our the for digital leader drivers interconnect optoelectronic

prospects envelope Our containment, profitability. successes the about by to in remain introductions in suite path term line remain increased growth speed business product our enthusiastic on demand pushing long broad performance to product top and driving mid are accelerate complemented well. as operational XXXX. we including our as We execution high and new our We existing cost focused leverage

focused data has which leading benefit modules XXX performance, delivering gigabit First, us well the current in the puts industry acceleration as as to on transition from demand components rates. NeoPhotonics with and position to

we We for bandwidth data distances. XXXX will leading are the even we in low And XXX are for vendor expected and higher gigabits we too all future, key integrated, speeds expect the power working customers develop a not a distant global standard as products. higher in block see we that center speed, for highly building are become with which

demand across applications beyond North its support continue the normalized XXX XG has of to continues is of and coherent returned America of coherent multicast and vehicles. globe. in years. the systems. metro-edge will LIDAR gigabit center increasingly And and into wireless continuing, resolution, new with Second, Industry happening deployments roll-out include product believe of a first that momentum systems application applications as And to with in we environment builds toward network metro ZTE the actively China third, expect we fully which that to drive contentionless suite growth will markets networks certain adoptions such switches our are build we for adjacent to of autonomous multiple engaged over to data and extend

to concludes ask our we metrics increasing product line to are comments for optimistic new our formal financial momentum I forward. met operator questions. improvement with the we core for said, our markets, traction and now Carina? open Beth our up the and and going continued like This As would in

Operator

Instructions]. [Operator

our from with Simon first Leopold ahead. James. We will Raymond question go take Please

Simon Leopold

taking very for Thank my question. you much

First, the get two housekeeping of way. out to wanted items I just

First [indiscernible]? us little you other you bit one a have is, XX% that? Can customers did color than on give more

Beth Eby

We we out a for about Top are just couple to X. and of did two been talking to But Huawei customers. what have have about we stick talking plus going XX% quarters other

Simon Leopold

without Can necessarily big you us were the tell how us identities? others the two telling

Tim Jenks

Let's see.

Beth Eby

of one other was one was them and XX%. the So XX%

Simon Leopold

thought at of, where And call check wanted be a I in million Appreciate terms talked breakeven. would breakeven on the as Great. level, last the level then about on update that. mid-$XX the we earnings you sales you to

expected. next the margin, get kind quarter's gross this gross for there, of margin looks the lighter, little the we bit bit lighter was it and had but forecast little you a quarter like Given outlook closer the than

on to breakeven So update you is? get where think just wanted an

Beth Eby

talking So a breakeven we on said, have couple are as underload expect as I in last charges. the the underload [indiscernible]. of be we have about EML in in is, operating our little QX. been for expected just charges are we What fab. we And breakeven consistently get we profit than as quarters, we we breakeven the lighter once million, still are we taking said mid-$XX to through

Simon Leopold

Okay.

unchanged So [indiscernible].

Beth Eby

we in get gross profit to on [Indiscernible] and margin op QX. breakeven will

Simon Leopold

what same am guess I verify I the quarter? to was Right. it try it's as last is,

Beth Eby

It's a gross expected. on that lighter margin we than little

Simon Leopold

on and thought certainly surprised given you this sandbagging. it's And understand great quarter, Okay. last thing reasonable evidently then presumably I that you to outperformed were was but would like forecast bit is, not you your sales that

not So the I could benefiting from was the that better up did the there of a help you demand? elements it's understanding look why quarter? the in get bridge what wanted of second ended like pull were quarter? So upside you because What in miss third to it you does better a

Tim Jenks

Yes.

our but so customers I were than forecasts. bit remarks, As certainly stronger my said Western and a in strong our quite that above forecast, Simon, China was was also

of that stronger upside saw. both resulted So the coming them in than in we forecast

Simon Leopold

of might issues? you at that Or to as would look that completely that fear possible it upside independent? is related tariff And of

Tim Jenks

level, inventory is on say any The that. very and in were, say had in demand the with will couple shipment is carefully, is we they would from running quite and a that we probably quarter. that thing And the products. and mix really appreciable as not the be both that I at things products I are people of we let's the we the change what lean see. levels coming But first looked essentially as to see respect aligned that second think Well, the don't may with of where are

Simon Leopold

that be suggests. might that potential make may on customers me up concerns inventory understand reflect tariffs? what sure about some suggests let stocking that That I and So

Tim Jenks

the look the released after. the did think forthcoming. is, additional tenders real points question that see I talking We deployment like removed? denial in schedule China after was what's very ZTE there demand are And ban smaller about shortly several

be and seems of consistent So that I to come what's prepping think it's to the group across for more customers.

Simon Leopold

helpful. very you. That's Great. Thank

Tim Jenks

Simon. you Thank

Operator

question Please go will with take Henderson next Alex our we from Needham. And ahead.

Alex Henderson

Thanks.

December to QX get First and imply pretty to am flattish OpEx. assuming would I it gross estimates are ask in seeing for the margins a significant is, QX assuming I the consensus the improvement that quarter, question wanted profitability from you to to if

inventory about are you facilities. an What the So you along waterfall from like your bit second the talk substantially down QX? then would little and looks margins accurate level? QX quite your we underweighting of that can up assume, should QX fallout steps lines, come a it it the and therefore, that up to towards seeing assuming? that to how underabsorption starting you to Is a And same as gross Is ramp result less to be as has read? I a the function

Beth Eby

The the have Pretty facility. refinement is of types separating add close. that we to

the me let do question. to your and back So underabsorption then walk go

margin the the improvement cost by lower So revaluation X.X going QX to it point excess cost. higher have and charge mix by and continue on erosion a that the EML new of some lower but are up at QX inventory be margin volume QX, expect inventory based gross get a we as our price our utilization, revalue and shift cost offset lower higher volume increased QX of by in points did We factory is slightly batter about to lower mainly couple margin, fab. products. offset to capacity to to a reduction, we couple we the of

volume. because estimating points of yet, we the charge are capacity ZTE again fab. our any EML benefit still three are additional we little we from QX, expect excess of come bit We seeing about back estimating, not of a are

come year tail see December. comes chain start back. of start But should to some volume supply see for the as the the hit end next for that to ZTE EML we back will We reductions price

last If of was ZTE chain. was remember what part you supply laser and the of we was part it EML to loss form underload other the said that share quarter factors

expect back. we So would Alex, the chain to ZTE come part does that supply help?

Alex Henderson

does. It

as I into do about what year, supply about we and I off ZTE the of think, correctly, chain talk if like? half might you can look that. ZTE at look X% top were bit So for of out taking back the the you a little the the of I ramp of think remember impact recovery

in then of back Is half first and start three do the get quarter as five December right to in XXXX? we we back percentage think So get the way points or two it? the that about points to all

Beth Eby

it's a figure think I come to what's back ZTE. little early out us to too for when going on

Tim Jenks

I is that or each and What quarter to in changes digest really any us two that with Alex, two reengaged partners. of would there, to chain will has this off, One their happen. supply for It ZTE a time their from manifests is, say certainly secondly, take see plans there, we flow on affecting the then just activity as if orders beginning which our to QX. don't new first the to see the and to is but orders it's get you fact supply things are we And will. chain. inquiries backlog is hard There is through forecast

Alex Henderson

your and into couple million that your that million fourth. products of the a for in one Wouldn't in of worth $XX third customers gave quarter $XX that go sell-through? quarter So $XX to chain of per guidance drive million supply that revenues dollars in of that's million the

Tim Jenks

backlog. is really what companies and ready we their I order our see chain, may go have, in teed are book What or we to we on comment. either supply up referring our and can't other what in to see Well, what

Alex Henderson

Okay.

I then cede one question So and the will floor. last

counterparts, of the service to your degree are the to whether as you particularly on ability of devoid channels been of are of quite to disclosure you with are very Where their And we providers? disclosure? talk talking through still or you clarity Huawei have really the lots that continuum content? communication versus the So little Chinese about getting talk can and

Tim Jenks

Well, let's see.

But were to we also each extent we to and of ministry NeoPhotonics, of They open months a commented moment, an to in but pretty ago, have was what it's share But in see for prepared communication ZTE certainly to and any group as have interesting headed. implies where shift a of three greater shut during remarks, carriers I four in otherwise than of are group connections talk directly or I predicted. now was waiting are pretty a dynamic, the and which China think the that say general, we resolution it environment we China a ZTE were, terms conversations in directions less which suppliers basically companies the the in they point broad some much than telecom largely of ban think where the a significantly my make as down. happened are has dynamic earnest. might customers to our I case didn't therefore equipment network for for

we so what in very now, you the world happens And ZTE having ZTE will, forward. if response, witnessed that, now in will after happens did who tenders. the gets what early ban, see have coordinated those tender we well. And going to see and tenders Certainly of the

the have plans. layering of dynamic also XG We in added

So in and unknowns. level still a of but transparency, lot the I of good there there said, think realm is that more is a communication

Alex Henderson

half still because tenders' timing? amount it's substantially fair back but of improved obviously the of So unknowns a have

Tim Jenks

hear manifests. And how that are Yes. waiting to we

Alex Henderson

All helpful. you right. Thank very much. That's

Tim Jenks

Thanks Alex.

Operator

Silverstein will Paul Okay. go take Cowen ahead. Please with Great. And next.

Paul Silverstein

question, coordinator, It I before but whoever Tim, took call you into your said fire this to using this conference XX them. call. a I are never I on would my have conferencing get minutes before, ask for

item charge I with Beth, word extraordinary help Now that for an up is connection forma. showed once really my in that me an did think I Can out? pro underload? in that questions. you hear the

Tim Jenks

I sorry that anyone Paul, else XX for am first, you waited minutes comment for sorry I am waited, for who and just me Let that.

question. to Now let's the go

Beth Eby

cost model of we standard XX% model. cost expectation and have in loaded have the So we about an standard a

or underload are we where average So that capacity become under an XX% charge. will excess it a loading,

now to that the we under we that charge get for substantively fab, standard we right where majority are EML use means our of underload our average loading set if that have running for our cost. we So

Paul Silverstein

Got it.

Okay.

China China to, understood well, terms So going comments, to your of of is looking make in outside next as huge the you beyond, visibility sure part How I back versus of want ongoing quarter, I but course look of in beyond and ago demand XXX recognized a reckon what you I I think of equation, [indiscernible] the when the XX quarter I do see in would the understood, you ago? days your ramp out today characterized over terms versus demand? says you

Tim Jenks

I think our it to days visibility quite XXX than or moment is, at be XX ago. the better appears bit a

think the optimistic. are are driven deployments by I the the for XXX DCI Gig Gig customers but the on but and certainly opportunities and in more of the also higher market XXX more also products. deployments the There just continued, Metro and prospective not West than being deployments turn existing

And in rather are than layering so additionally, those generally replacing.

together, And adds I all combination a so to opportunities, those up taken I the think of data more rates think of optimistic and the the deployments, the environment.

Paul Silverstein

wrap and by same and China. characterize posed And better, your your responses ask to same? I in up China the But could you I questions in Okay. today, just that you the visibility look heard you of Alex when terms the question, as if would them at worse, Simon in

Tim Jenks

Our to opportunity what? in China today compared

Paul Silverstein

days Compared Compared to days XXX ago? to ago? XX

Tim Jenks

on hold ZTE think the to was I with remarks in my prepared the ban demand. I and that net said Well, China subtractive

in first think, instance, the I it's So with better. resolved, that

in about we meaningful of tenders and that the announcements. this fact significant XXXX Second September some looking later year have to the we saw world tender the in point is, and a we are tender next for think at

visible Now but way, along tenders there they the less tenders. national continuing have are been than provincial

tenders resolved that ban visibility a as bit being better with with it's now think I and think environment, making well. for prospects more and normalized I So of and awarded the the optimistic a

So generally all things positive. those think are I

Paul Silverstein

How how your may. last become does it today? you it's my when revenues for Tim, previously, if DCI not yet, customers question, have meaningful? DCI? you have this said All much If if One right. I meaningful many apologies. And

Tim Jenks

harder that that So that sold XXX there going referred center. components directly the selling are are applications may out pizza two that or little to our customers are used equipment manufacturing are not that obvious coherent something to, by explicitly. solutions solutions assemblies for of sold things so-called is reasons. be extent to to we in of generally components DCI data And to that XX% actually predict accurately actually network revenue are But it's into broken into applications, we or box products that we have a

Paul Silverstein

us referring Can you components customers module DCO customers am your for many have not selling DCO How I module working either the you DCO for but you to suppliers, tell today? are you DSP how have with to other the many other one where the suppliers? DCO module module? or you

Tim Jenks

five customers by range generally think talked to those those XX% way revenue. top represent customers, the it as grew collectively think in to of the I is, top about Well, Beth XX% about, of our our with who XX% sequentially, five customers

look these about among directly customers, DCI we kinds go there So are if just at into half-dozen a top who applications. XX our of

are six I what's those. key ones, relevant There those customers or So total five are think but some smaller here. in for

Paul Silverstein

I will Thanks it I on. it. pass appreciate guys. Okay.

Tim Jenks

Paul. Thanks

your having Sorry to again for wait.

Operator

with take from will Please we And Craig-Hallum. Richard our question next go ahead. Shannon

Richard Shannon

my Tim I Hi Thanks in questions. as and Beth. little for taking well. got a bit

am have I high-level your commentary here, the already are So regarding hear regarding quarter. thought and into guidance but simple the quarter questions question if fourth process did addressed I very these asking you third

both quarters, please? built much growth was Specifically, China into from for how expectation those

Tim Jenks

We actually going growth out, sequential to pointed growth see see additional expect China. As in forward. a did we we would

However, what's not in our third quarter ZTE. forecast revenue is any from material

from the of terms shipment chain, of that's supply ZTE on seen in in have orders but initial quarter. We turn the material not third

reflect worked forward. So nothing out, right as our we now But quarter. included the indicated, as in that third prepared would remarks going it is there to gets expect

China but currently trade really is, we overtones tenders timing the outcome. from don't discussions we releases we that in known that know of the have question tariff new is do not the of and real the the So sooner and do have

Richard Shannon

follow-up Okay. on Tim. And just that to comment, last

assume in potential contribution that you on the an real are assume new to does safe So is level tenders for that coming fourth any quarter, operating in from it breakeven call China?

Tim Jenks

Well, know out. it happen. how in quarter, it going again, will Until could. But we it play happens, don't fourth the to don't certainly know specifically how it's we

Richard Shannon

Okay. any much happen that operating of required you hit to to to breakeven, revenue that get But need of correct? don't to

Tim Jenks

that's able Yes. We the think we as cards. be do think indicated. that in will we We to

Richard Shannon

one and I Okay. for right. Maybe last jump line. enough. of All Fair question will me out

to have long-term about being optimistic on Gig pretty provide to Do category revenues sure hear would contribution higher interesting you I of any about. characterization You any applications. you but in medium sense of from the talked can or am be it's XXX that the small today? faster and

Tim Jenks

So reasons. important a is of the Gig XXX couple for

present, Gig I in It's matters, But in probably data year digits. beyond applications well have of think and single our it's ZR you for have Gig relatively include, center, still side. small. think, or two but next it's how on as XXX as the Gig, you the interconnect online XXX Gig XX Gig XXX XXX because what over plays that will including will rollout XXX is I material at out the

and of components prospects XXXX of alike, between of terms high-speed will important in modules quite XXXX. the products, the all be So and positioning growth the

I quite key developments and think important. these are

Richard Shannon

Okay. fair. That sounds

my questions. Beth. all later the it's think Thanks transcript. I full follow-up when get Tim. will Thanks I I

Operator

go Capital next Markets. will Tim ahead. Please from we Savageaux with And hear Northland

Beth Eby

Hi Tim.

Tim Savageaux

you Hi. Can me? hear Good afternoon.

Tim Jenks

Yes, indeed.

Tim Savageaux

call. on for nothing Great. particular Taking this granted

me quarter, for in on congrats the strong and question the off. first results First

Tim Jenks

you. Thank

Tim Savageaux

are that any of $XX assumptions expense would you toward items be the higher year? the can the in this you expect in million drive that's we be throughout year, on we operating Or closing been side, to have as OpEx might your lower year? range what the that $XX there might million kind or move to the of where assume Is end

Beth Eby

I the would next put spending upon next little profit to more $XX quarter expect as fourth us bit we have be in we to through million for million the $XX a depending and the may dependent quarter results, quarter.

Tim Savageaux

a type perspective. SG&A spending, Well, Right. yes, revenue from

of the exiting high something to sounds that. the Okay. we to may coming assuming, going I charges It even below you if right, a you XX% sounds are extent closer year. Fair feel heard little if to, some like, I don't enough. have you And then, those know, dissipate, like like been it XXs,

you So back that likely At and some and product some it to be reorder? by increase this with most needing to does in driven point, to inventory to some then that sequential ready may growth coming ZTE you having QX lagging be would that imply degree. appears to revenue say is go your customers as bit continuing in a of maybe

Beth Eby

a is Yes. quarter. QX strong traditionally

DCI side, expect That's So the size, amount strength in continuing we on where right. on fair strength also of real QX. the would the came a China but

lighter continue to the little on your we expect are and for And growth accurate. ramp. of, end would gross So into the revenue at than side to shooting were going expectations QX year, the on that general of outline we we expecting margin is

Tim Savageaux

had whether more you with Great. maybe data that in point, And telecom that's customer to the that join on although is. if any traditionally more customer was as traditionally depending I who or we interested associate centers DCI list, had not, networks? maybe XX% to could But associated you it with color on it a new a

Tim Jenks

our So that we that have hover the customers of representing in a XX% on customers Beth of Next X reported revenues. couple range.

So it you way think high But happens great into digits it's several actually that digits. we double I that the there is and have this one can gets moment are in quarters. that a the aha in see single don't just generally that most quarter that. that

Tim Savageaux

expansion moments business grow to an your one looks as outside aha That Is there of Fair Huawei? in enough. continues it well. of in like China

kind China? among at this look again, that We Or maybe seeing to locations that and geographic can Or other quarter? doing is couple expansion seen what far and suppliers thus whatnot? we Huawei China with a at OEMs a of of of relative are CMs total theme once least recurring have as you business your within

Tim Jenks

Yes.

We on China. all OEMs in are the calling

one with being You FiberHome Huawei's in have strength is set also then notable some put in interesting other you on denial the the Technologies. is the then in usually in FiberHome you ban Datang process a because transaction place And things Telecommunications. and China ZTE going of addition aside. in have have China Technologies to

parts of And in a moving the are so there industry. number

Tower last big week. had IPO a here You just China

so And lot parts. are there of a moving

opportunity lot as I of think is well. are a there there

remarks, for the question as I her how think we schedules well prepared grows. Beth And China. really, as in are said deployment and business very positioned biggest continued therefore, the in to overall is growth economic

we are share I the think major it the plays to well-positioned but see relative of each China how we have out new players. and with for tenders

Tim Savageaux

maybe ago? China, at what the maybe you me. XXXX past improved the environment gotten looking visibility both relative to China? or wonder some might days. And closer you peak but years a tender think XXXX, two-thirds XX not you on levels. pretty you timeframe, to might clear of Huawei that with is Great. XXX And seeing now about comment expect So business, And degree in made I XX I substantially has to, your the days over the standpoint last ago, in from and about are it if three for question

You is refer that maybe given chance XXXX? no above now there that re-attain disruption, that seeing to in macro we the assuming are a normalized, growth peak more but calendar in normalized any environment. was and China And that guess levels I you

Tim Jenks

Yes.

products, XXXX quarter, history. you transceiver for were revenue highest the couple in up in reported to which we me But high points the XX% the XXXX in let XXXX, are We the high products, million. China, XXXX, XXXX, when in corresponding sequentially. Back the though the of low-speed of level. refer and were a sold speed approaching our we state out $XXX had a in remarks, number just current actually, essentially $XXX of you transceiver products have So products back the quarters The and my in of if the timeframe, set I not beginning million. quite at levels been assets revenue XXXX, the of noted of low-speed as additionally in million $XX highest prepared speed about peak NeoPhotonics would

are $XX the level. XX% we that just at or two-thirds, not at reported, really we million I So we to think, are of XX%, closer really

rollout think new of question? September Does do year with environment. that prospects we a really kind of so XXX no XG have interesting normalized do XXXX. in of the and a think we after tenders with your We with tenders are that And Gig, since answer that we

Tim Savageaux

It does. Thanks.

Operator

from next go Kang moving our Riley on, ahead. Please FBR. we And will with Dave question take B.

Dave Kang

Thank Good afternoon. you.

First question it as first is, that half? versus in mix XX/XX? as the XX/XX? growth like year. this between maybe previous any like for half for Has XX% quarter's call, you Is port said second color of been something And the number Any on to far the topic? effect changed? the count like comment

Tim Jenks

Yes.

I the is we respect suggested think the would half still XX%. that's half accurate. first You know, had expect was Dave, it With bit the think we ports that first second stronger than half, versus half. about second total We that China up a to

as We ship been environment how And In the think so real at shipped We high-speed have might ship half ports ZTE did undoubtedly to China. call beginning what contribute XX/XX. I well. many of because half second overall say they year. is we are certainly pretty ZTE our would last the second But will ports to are they environment. first of fewer then is does the the will normalized which that beginning ZTE demand in ban. and than to a the perhaps have higher, But re-initiation see consistent. the planning is, seeing balance question the total, that, is expect had then that We with conference being volumes we we now of denial half

Dave Kang

speaking ZTE, Got them to or second you it. will products of you are can which remind them the in And be shipping shipping half? us then to

Tim Jenks

Yes.

specific our haven't talked of are I think we products for sold. that generally each about customers,

of We ZTE also ZTE serve that and we have a to products suppliers. sell range of we a number

both a products client and side of product. coherent span range they So

Operator

will Securities. Please question take Moving Zhang ahead. go with Rosenblatt our Jun from on, we next

Tim Jenks

Did questions? Dave other have any

Operator

am I is sorry. open. line your Dave,

Dave Kang

Okay. Actually one there Thank may yes, or two you. be more.

out I CFP-DCO, you of percentage it, I And said I think Did total sales? have think missed terms you was, I revenue correctly? may give hear in but that the did the doubled. what

Tim Jenks

that what numbers the I doubled the for on I say And did that could it were. sequentially. increase I in We say tenders did that specifically it. say China didn't expected

Dave Kang

know that the have on just main then topic, CFPX-DCO. you that market, as in they And already competitors your that

Tim Jenks

My in where competitor, Denmark? you did say,

Dave Kang

No. Acacia has a already CFPX-DCO.

are So a kind when what have you plan disadvantage to you, versus forward? going CFPX And that CFPX? CFP do of

Tim Jenks

Yes.

to there in a is deployed So large be continuing China CFP factor. that are the form filled base essentially, particularly market, by of ports

receptacle. than domain. expectation the the OSFP applications looking certainly Gig at that then also And are XXX market, in the [indiscernible] in West, so for And some the of newer DD-QSFP and/or we for

So different needs. markets different have

working in my on we are I As gigabaud the that suite. modules use said DCO remarks, prepared next-gen XX

we specific did at this though do announcements, made haven't We past show. product trade demos

with we that a So to respect announcement will have make product, a I when specific product comment. then

Dave Kang

you. it. Thank Got

Operator

And moving take we will next on, our -- question

Tim Jenks

Go you. ahead Okay. Thank Jun.

Operator

Sure. Certainly.

Securities. take will Zhang We from Jun Rosenblatt

Jun Zhang

Thanks question. my for taking Hi.

So the first question, Tim.

million. QX You guided reported $XX $XX revenue about and in of million mid-point you

market the like break markets could U.S. your China, like down in talk, by guidance? Thanks. looks what's seasonality and So you for the European

Tim Jenks

here, yet. ZTE for thing think Jun, is I the big Well, any that Yes. we QX in don't loading have

we it yet. as have uplift. could level some be of loads, But then knowledge So don't providing that that

Jun Zhang

When Beth, away? cost happen? the you And that go do little Thanks. could actually the bit that's also, EML Japan Great. think a for to you talk Okay. about when will underload going

Beth Eby

talked have gigabaud of that of will in is are capacity thing products we XX some about, The next XXXX. of for generation the the specifically set ramp Tim plenty products that

the another could orders couple that got comes chain we that. there. have with We products absolutely as of expect ZTE And back, supply would ramp additional

Jun Zhang

is Great. Okay. last tariff. about the And question

clients, going those So increased cost about back environment structure? to your made your in you to to the have tariff the modules the optical thoughts affect potential pricing the to over increase do you Tim, the bit tariff and on U.S. lower U.S. So you the your little China? cost think If could modules a you ship that clients? talk or price potentially Thanks. tariff how

Beth Eby

most and the will can directly two, Tim Well, that And We on. one back U.S. one, into shipments take ship do ship come I add of we parts. don't modules. our not So

we looking said So through, I the that's were when at. went what that classification reviews we

Tim Jenks

customers, Western including preponderance that her of think we ship customers. that or in contract the remarks prepared to are may Yes. for for Thailand Mexico Beth Western said generally And manufacturers places I

reason it's interesting and why. World of would in And Western our so when for the classification revenue part to, geographically of we exactly refer customers, be that's Rest

module the customers, we we a component, of U.S.A. is generally today of and ship business of do when small. inclusive ship very for a we Western inclusive to U.S. it ship or destination customers, ship NeoPhotonics So business with where the speaking, we

Jun Zhang

questions. a lot. my Thanks Okay. Great. That's Thanks. all

Beth Eby

Jun, -- before you

Tim Jenks

Do you specific Because other any go have ahead. Jun? questions,

Jun Zhang

lot. No. That's Thanks a questions. my all

Tim Jenks

Yes.

to one had on numbers we our of We million assets And pointing is out comment which just clarity China, official thing think past on in that $XXX me calls we have are China. the of through is, balance in about in do prior I respect real conference asked couple it's other worth in over about gone the you that property a quarter last range number valuations now with Let the at China. have of us that $XX activities a in had asked on question million. assets have you the $XX sheet to you versus million to looking

asked you past. that's question the had And that just a in so

you let And know. so I think I will

Jun Zhang

a lot. Thanks Great.

Tim Jenks

there back? else Operator, are cycling anyone Okay.

Operator

And am D.A. sorry. our from Davidson. Kelleher go with question I Certainly. Please final Mark will ahead. take we

Tim Jenks

Hi Mark.

Mark Kelleher

any the DCI Hi great just out doing as could business, to Beth. Congrats well? was Hi particularly that quarter. squeezing me call for Tim. business products in the strong. Great. Are Thanks wanted here. there very on you Americas a I

Tim Jenks

Yes.

million this So generally, is rapidly. DCI, And of approaching XXX are lot are XX% single-digit are percent essentially products. pretty and those and but and for currently the a millions, said they $XX coherent gigabit ramping single-digit I they

it's So But we grow. rate. that growth continue to healthy to expect a

matters. that So

Mark Kelleher

a inflow that? of Does coming imply cash Russian factory. Okay. mentioned And from Beth, selling that you

Beth Eby

of but have we end the transaction, received was potential quarter. approximates that value on the offer for it interest a is it book our The Well, of it.

modest on loss May of cash. amount don't we a gain it. be any So expect or

Mark Kelleher

That's all have Great. Okay. got. I thanks.

Tim Jenks

Mark. you Thank

Operator

Mr. would call any to I for or And over to like the back closing remarks. turn Jenks additional

Tim Jenks

Have and good Thanks your our to appreciate the you in the future. interest I a forward on NeoPhotonics. progress look the Thank and discussion we evening. for questions Carina. in time updating all and you Bye.

Operator

Once again, participation. Thank your conference. does today's conclude for you that

You may now disconnect.

Neophotonics (NPTN) 6 Aug 182018 Q2 Earnings call transcript