ACIA - Earnings call transcript Q4 2017 | Acacia Communications, Inc.

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Operator

Greetings and welcome to the Acacia Communications Fourth Quarter and Full Year 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Savarese. Lindsay Ms. you Thank begin. may you Savarese,

Lindsay Savarese

Thank you, results XX, Acacia released afternoon this and the fourth good for close. December after everyone. quarter afternoon Communications market operator, and XXXX year-ended

Chief of you With and our obtain If from Relations ir.acacia-inc.com. website Investor Raj on will of the Investor Relations receive being This not a and website. call it earnings be release is Shanmugaraj, you did press our are may call available our Officer. at section copy webcast the Officer; Gavin, me replay John today's a of on Financial and our Executive President section Chief live

our I could for currently filings today undertake we obligation our more refer statements result future statements are risks actual and discussion information information on the the statements, to on statements as of the customers of demand share, call our events. statement based these XXXX Before statements see described uncertainties. cause products, based as of products, environment like today's there I'd are the related forward-looking efforts SEC we Raj, issue and our beyond, materially as such, the announced that references from the first quarter projections the on Any on and are prospects over in of business market risk the no timing and of for Please and to turn and on quality China we results as release new our our forward-looking to and today's markets and, make update to a regarding size and expectations statements or forward-looking ongoing during to note remediation the new discussion. it size other that include to that our about assumptions security this call and factors which DCI our certain in and to for earnings differ regarding specific markets, press

do in of reporting, addition enhance these to to GAAP Reconciliations In We GAAP. measures, can to U.S. the I'd that these measures our earnings we certain to the believe of understanding And call today's performance. found of release. press like measures, non-GAAP the measures be Raj. that, in financial not conform non-GAAP with to measures report GAAP to description addition turn a non-GAAP over

Murugesan Shanmugaraj

Thank guidance call Gavin, of product our business following and and Lindsay. of highlights, a newer detailed products. thanks million today. customers revenue and the who with joining John outlook. new begin XXXX provide which non-GAAP were we'll our everyone of net Good afternoon all from provide range. over for income by $X.XX ramps from update, to us was China a of will and approximately Total the in Weakness fourth I'll in some partially offset line approximately with performance I'll diluted million, the turn non-GAAP more of quarter of EPS and you, then revenue and $XX $XX financial our financial review

half CFPX-ACO the group customer our Revenue offset this customers. our approximately increased from XX% eight together namely original and revenue in As XX% a sufficient year-over-year from on increased group basis, products and updated to senses CFPX-DCO to customer the compared newer not declines the X.X% quarter-over-quarter increase XX% on of basis. in was decline for full-year from newer although of fourth newer XXXX our Revenue the XXXX revenues second XXXX our of our contributed quarter in XXXX.

XXXX. however XX.X% China revenue year XXXX increased full for to customer from Excluding the newer group the compared

reported than than customers hyper-scale four greater was two XX% revenues, customer that been fourth a that During XX% previously each our more had had direct which a represented of one quarters. customer the quarter, in we of

quarter As case the among revenue quarters, top the the in contributors five few fourth has of to XXXX. the newer in X our been were customers of two last Tier

of our contributors X group. from the Additionally, XX ten to X Tier were customer newer revenue customers

current experience reported on by quarter-over-quarter update some telecom DCI. of impacted in we conditions, an same to the and peers, slower continuing in challenges deployment the the to China market of are our the seasonality namely next by market markets in further variability Turning pace the industry traditional

to our some see I remains and discuss driven that it and have the engagements by fiber we the believe as The as throughout remains the support need with in China. this market the of newer will in However challenging largest conditions uncertain. strength for remain to during have this the will driven the reiterated growth us group the customer improvement long-term China deployment that year of carriers in our second XG and half timing call, fundamentals such metro market add we the intact China XXXX and improvement networks we in and met with of as product by XXXX and potential later OEMs to to the offering, services they in provincial We've home. bandwidth China of to was

signaled comments In our network growth expansion. indicated the industry early in addition, one peers robust fourth in of which China sale of XXXX recent historically stages quarter the in from has of

increased on China will continuing meet demand are we for cautious in carriers view could to build their conditions continue this For and metro until Outside rates. XXXX improve to capacity. we in throughout to Europe take of growing although out see order North networks market a China America these reasons,

also of networks was to of us, more on demand as and in The As XG fiber-D. remains being and optics believe they an example, switch somewhat are that speeds from build for to for market MSOs new rollout fees in support out market CapEx led We networks data DCI access as the was spent important inside XXXG an Verizon's higher well. this XXXX. reason have bandwidth client our fiber that the in CapEx overall These increased customers Carriers investments their architectures drive center. we in metro as heard accelerating market XXXX. constrained in proportion an are one increasing services however such generally making this bills metro for

As could to believe and data the enterprise move data longer is increase. between We be trend Acacia. centers away this to cloud traffic continue functions from term processing to storage expected for the positive

X Additionally, building base that we're our customers also DCI expanding sells NIM for Tier networks. the customer to hyper-scale these

on growth rapid requires affect that long technology DCI market period in portion are in shorter there solutions and see any many these coherent term CapEx factors increased specific of capacity specific While spend cycle. we over investment customers expect that continued higher the hyper-scale to of that DCI, trend upgrade traffic driven by a

of our Given the we've the in importance developments market. Acacia, continued DCI to product this market focus to new

start addition ACXXXX we anticipate end which into half had the at with of sampling market. For module, the is expected number five XXXX two selling we we'll example, the our to products This the to first of in DCI start XXXX. increase of

early to an coherent believe you of XX,XXX first which supports DCO market customers modules modules, CFP-DCO towards we're increasing started our vision its seeing Since taking worldwide. Moving market. our We Acacia market many and our of over the module DCO we we stages of modules. know as products have of to selling CFPX-DCO to in share transition CFP-DCO the shipped was XXXX, our

DCO the success entire advantages and trend believe for well position our performance, in power to continue product invest We this DCO continues. portfolio, and cost of DCO that market us as products our will continued

updates Moving to of first the specific to track ACXXXX product some XXXX. on our sample we half remain in module

to performance DCO capacity, high ACXXXX is the module terabits X.X with wavelengths two module, of high up a capacity Our to second. support per designed combined

to for wavelength, suited the module of We small known that's times capacity and smaller our believe power market. maintaining module ACXXXX lower has per that X the the per the while advantages to for. designs size is the form bit continue than maximizing a the factor high modules. well performance low drive Our XX% X wavelength cost become and capacity in competitive offer that XXXG Acacia small the by By designed form per three make DCI we capacity ACXXXX factor

one ACXXXX of three driven will by are will focus gigabit that kinds our on a we features our core innovation, will designed These both DSP wavelengths. which power to is of Pico signals which believe and architecture module splitting XXX crossbar the Our XXXG by switch Ethernet signals across enable of our transmission an internal dual have products. continue the to differentiate the

long In module performance per the addition terabit second even flexibility in to and high submarine and haul X.X mode, the applications. that capacity metro, will believe we offer ACXXXX

two several telling efficient XXXG. For availability example, will and our our been networks the is module XXX extend customers gig baud excited architecture using our let multiple dual and signals of modulation to reach customers long and in our X patented offset are haul eagerly transmission by ACXXXX of core of high rhodium-based wavelengths are you that offer Tier rate QAM their who the awaiting NEM that know hyper-scale in We're designed ACXXXX. us fractional

-- share about conference. who to more at we those module information be those joining in of who March plan at you OFC For the would ACXXXX

introduced allows of providers double a pace our ACXXX and a lower product transmission. fiber. adding faster a and that recently capacity at network module existing Operating new also We variant operators nearly band supports cost of the that L to fiber hyper-scale constrained spectrum are the fiber in their L band transmission at than

of GA available CFPX-DCO December pluggable products, which our commercially our only module remains general or module availability the CFPX-DCO we to Moving in the market. in announced

the know As also not being only ROIF practice to XXXG from many XXXG in of applications. optical currently and metro home standardized but support forum XXXG solutions this you internetworking

being applications. whole applications metro for an factor industry for CFPX-DCO smaller multiple become and adopted are access form believe generation client edge the form and product While will the factors regional standard and we

an DSP During contribution GA team developed believe the XXXX. our CFP-DCO effort our our the are extend We to family. CFP-DCO versions increasing an had that deep NEM circuitry. product can that Xs. to our PGA of module powers of XXXX, and under operating further several differentiate to for leadership our how also DSP than has maintain is this external and XXXX modules Meru well shift to of original our This lower a it fourth customers we further we XX cost a development to position still incorporating CFP-DCO Meru functionality throughout reduce the version positioned module, our in to investments product leveraging competitive version of our integrated A a CFP-DCO eliminating or new from need introduce revenue solutions example our offers of good with CFPX-DCO this make including quarter are Tier combination by of and lifecycle is in

continue will also direct our customers anticipate production XXXX. customer. to and shipments quarter demand ramped fourth for this towards XXXX, During product of We the including increased CFPX-ACO of throughout we module CFPX-ACO our hyper-scale that

DCO coherent on defect Looking to of necessary coherent to products applications We pluggable increased DCO less seeing for of than as edge market. penetrate for a form Achieving DSP targets advanced will edge for coherent factored PAM-X applications power reaches optic coherent DCI other and tightly developing kilometers. design ZR a and factors XXX The this requirements module we the edge in the users directly packaging DCI allowing such next optimized address industry end generation coherent bodies is packaging this optimize requires focus and we solutions, will with interoperability technology ZR XXX To XXX this are watching to play the the with and market, optics. applications power switches these routers. believe us requirements used DCI integrated module, Acacia's standards or defining it optical The are put form low client a are are allow currently direct standard these XXX on and class our technologies. ZR OIF to that module that same for closely. display strengths, as

increasing PIC as standalone and to cycles. help testing is size customers In recent PIC market by faced driving I the of portfolio solutions. as sale to design will bandwidth optical some well concluded product market well both the intact, would I XXXG continue with remain we optical am replacing of and industry, With like to as XXXX and XXXX, and expand this of product call new to in development standalone to this in believe terabyte revenue without the their non-Acacia components our qualification we legacy begin expect the should second Gavin. deployment pleased long-term fundamentals and fourth Acacia and seeing PIC X.X and the ASICs. throughout continuing recovers. Acacia's of we believe DSP such, to merchant efforts XXXX. the that, growth over our our market our growth, positioned the standalone are sales with customers addressable believe per ramp John and grow the us turn bandwidth the drive of Qualification go we quarter our We networking DCO Despite challenges XXXG using saw

John Gavin

I performance year operating good will start will by will the finally back reviewing and Then to full turning XXXX. before XXXX quarter the XXXX of of for financial Thanks, fourth Raj, call afternoon, I results everyone. quarter provide first our for and over and review Raj. our our briefly outlook the I

decrease the of fourth in revenue, diluted non-GAAP $XXX.X of a line of quarter our with and income quarter XXXX earnings $XX.X XXXX. fourth revenue quarter on in range. net from As were million Raj fourth all net non-GAAP was the year-over-year mentioned, share basis XX.X% income XXXX Total guidance a in our million, per

four the customers XXXG During to in was quarter also revenue of our that had the hyper-scale which of a quarter, XX% represented XXXX. direct deploying customer original revenue, product revenue the eight XX% of quarter increased fourth more In the quarter, one than of and in XX% fourth XXXX. our was XX% from compared customers XXXX, XXXX each we total customers outside the total third quarter of of our that fourth fourth of of to of our Flex customer newer revenue

which Turning impact fourth Non-GAAP XX% related of fourth excludes and issue quarter GAAP margin fourth in second to in quarter gross the of margin, was of quality gross the XXXX, the the the XXXX compared XX.X% stock-based XXXX. compared margin, to announced was in XXXX. XXXX gross compensation quarter the expense costs we quarter in to XX.X% to of XX.X% the that quarter fourth in our

to the non-GAAP and to overhead in our related operations impacted margin gross fourth lower and semi-fixed were GAAP revenue quarter of costs costs the related Our production by due XXXX.

was the costs due In anticipated related addition, non-GAAP gross benefit from XXXX reduction the our million X a our the in in prior above margin for to margin GAAP gross a quarter to our fourth from issue quality estimates. reserve

a production product the or of product our based revenue, the our quarter or revenue operating of well products, of costs million, XXXX, with was $XX.X were As compared fourth totaled to to gross on associated levels. the fourth of our compared which payments non for the anticipate fluctuate can margin XXXX. revenue, that XXXX XX% XX% development will expenses to that pricing new of ramp-up to of revenue, the the increase expenses, changes XX.X% XX% quarter. XXXX of impact new associated on exclude increase expense, This is costs quarter of milestone and operations lower during and from manufacturing XXXX reminder, than as came introduction of We quarter mix, million overhead stock-based to a increase and by XXXX. or GAAP as in impact saw relative in year XX.X% expenses, quarterly basis year-over-year GAAP of revenue, of yields full we million, the our compensation $XX or primarily foundry in expenses the of driven operating fourth in quarter due the operating the million, $XX.X XX.X% the fourth which $XX.X XXXX. Non-GAAP scale

million non-GAAP in to to primarily in legal XX% revenue our scale fourth of in fourth or XX.X% down experienced the or the of fourth XX a reduction GAAP operating stock quarter or X.X% in million related that the the fourth R&D development of the fourth the of our XX.X reserve quarter compensation million of revenue X.X% that XX% operating in stock matters. income X.X based or was stock was to costs organization million revenue compensation income and milestone million GAAP to revenue SG&A opportunity was efforts expense the SG&A X.X the for million Non-GAAP of resulting products development revenue quarter the quarter X.X% XXXX quarter X.X from and exclude related in in which well increase XXXX in of quarter fourth million revenue XX.X% XXXX. fourth us. XX.X compared revenue XXXX anticipated to plan expense of fourth ahead X.X% $XX.X the further we of the fourth the in million R&D investment benefit or invest and or was our see foundry during totaled of associated our excludes XXXX. the X.X the roadmap market R&D of fourth XXXX XX.X% XXXX. the to in GAAP revenue payments based key in operating of discussed and continue million as quarter compared of XXXX. and of expense exclude XXXX strategically Non-GAAP income quarter expenses in million due in GAAP or in compared which quarter compensation as previously or of quarter to XX.X Non-GAAP X were As based from X.X were came X.X of of of support XXXX. revenue of in of in revenue The projects, totaled compared quality roadmap SG&A XXXX. million ongoing expenses or continued SG&A million issue operations quarter of of XX.X XX.X% in of we costs Non-GAAP revenue to to of XX.X X.X to the XXXX R&D The million fourth GAAP's XX.X% primarily in XXXX. or compared to increase XX.X% fourth related quarter to with non-GAAP or the expenses X.X in in expenses related litigation or quarter quarter expenses incremental fourth million XXXX, and million ongoing the expenses million of expenses we in

substantially to remediation in of quarter fourth excludes million XX to from our the resulting million from and our some also related the by XX.X residual activity fourth quarter XXXX anticipated the efforts expenses issue as further the in to compared in lower early EBITDA gross driven in reserve of fourth the was expected primarily operating million was million XXXX which of quarter EBITDA the XX.X quarter operations. quarter costs our are compared related the decrease in X our reduction complete fourth of EBITDA fourth the million lower for with volume in in Adjusted the in quarter XXXX. quality was continued Our XXXX. development fourth quarter fourth in the XXXX. X The and in XXXX sales scaling new product a of support increases profit benefit to

XX% GAAP XXXX. in tax Our a to of fourth fourth effective XXX.X% in the XXXX rate negative was quarter the quarter compared of

fourth a Our of to associated XX.X one-time XX%. reflects charge and GAAP tax offshore the enacted of Jobs assets one-time million tax to the quarter due and with the in the U.S. XXXX rate tax write XX% impact which Cuts of Act, transition earnings effective resulted recently deferred Tax from down

the tax fourth rate XXXX XXXX. effective compared positive XX.X% in negative non-GAAP X% quarter fourth Our was to for quarter the

tax or XXXX. and term share non-GAAP income of $X.XX net for in the GAAP income line of rate share diluted or XX.X assessing of effective quarter Non-GAAP share the believe our of loss of diluted net net the net to XX still of XXXX. in will or million diluted term $X.XX XX.X X% XXXX. of per per XX.X tax per goal the fourth of share basic This to compares or diluted with our effective income we're the XXXX change million Although, positive non-GAAP tax in in rate a GAAP fourth million million the in loss to $X.XX of quarter was per law $X.XX fourth our effective non-GAAP we a due long was be tax revenue. XX% federal impact rate, long quarter

million XXX.X to turning and marketable We in the and sheet, with no cash the from debt. balance million Now activities equivalents fourth of quarter securities quarter. ended operating the fourth of cash we XX.X generated cash,

XXX.X Non-GAAP to our was share, XX.X XXX.X diluted share XXXX compares net from XXXX. briefly per which compares XX.X% in XXX.X results, income GAAP million or million during $X.XX year $X.XX activities XXXX. income to per from We per million was net diluted Turning cash decrease share, diluted million total in $X.XX of $X.XX million share, generated to million, per XX.X year in was which or diluted in a the full of revenue XX.X or operating or year-over-year, XXX.X XXXX. XXXX. a million

quarter would first to outlook our Now, like XXXX. turn our turn I of the -- to for

XX and XXXX, today's in on million press million first will between range earnings we some to non-GAAP million, for of revenue $X.XX million of back $X.XX be per in to with I call of diluted based net income noted release the million the X.X to quarter to total anticipated in to Raj XX.X As X.X closing earnings non-GAAP be now expect remarks. XX diluted the turn share shares and outstanding.

Murugesan Shanmugaraj

John. Thanks,

call Before and switch bandwidths XXX believe being conditions per to by will reiterate coherent Acacia would of continues I upgrade gig the XXX that to from second underway to over is drive to continue planning deployments positioned terabit this We operator at market well X.X XXXG interconnect. the for hyper-scale inside is we and questions, to centers MSOs, data in as and that pace turning a like XXXG, grow spending practice remains XXXX. carriers rapid Fiber gig optical deployed improve. believe to

based adoption to we small edge. I a Acacia to the any product throughout their moving DCO to efforts closer to us hyper-scale tier our history, thanking coherent I and continued will also call our We're and have are our power tightly technology turn at innovation more low of we back the factors. base, would the year. company and like by and customers X customer to industry continuing now positioning believe execution from now We in into in form company's trends will the close integrate than ability As benefit for team photonics repeatedly silicon providers. broader the DSP selling diversify the ASIC the well questions. the with for operator time of most demonstrated

Operator

you. Instructions] [Operator the Sachs. question will be conducting Clark this line comes Doug At Our Thank session. time, a Goldman from first we of question-and-answer of

Douglas Clark

it's a one it's question. if parter suppose two a I

the of give is, you aggregate And one do comments you seeing and if first in Is by with the on for of revenues throughout activity of will that definitive Raj, China, the can orders mentioned us kind some secondly, peers overall? kind full-year, you new any context can any some The of XXXX, of near you the just there your yet? for it the at customers. and year happen conversations then is grow some you for point think future? are improvement kind you that said hopeful in Or

John Gavin

income was Dough, this Correct as correction GAAP the make so said John. that sorry. there, the there wanted just I there, full-year that million. is XX.X I quick net that, so my to 'XX it one to just be get a I misspoke second, in XX.X, want script was correction was for in for should

John Gavin

it's Yes, past QX. Dough, are first not all, jumping a to your -- guiding question, yes, we of

as expected the we wins, at you I cautiously other optimistic protecting Go to are It's you through and look can related like that and year. are growth and and And not can we We market the innovation and as is visibility analyst growth. there from after are XX% now, to B year that remains about but till customers have that say XX% want here right the we've factors, they core go it what the some the as we visibility improvement are there. our a beginning are well. below execution. carriers the actually taxes I've between said; we product there through outlook somewhere new should hear to correctly larger to China talked also the control things control and claims said, guidance part a challenging XXXX. However, are And the the market However, some I of if what see should so the since better tell. Acacia we core that Chinese heard point out, taking however, our early improve having be to we XXXX as better customer actually was they visibility OEMs industry customers, some rate

we believe to second market quarter-over-quarter position variability, in On I've are into with the five most ACXXXX said DCI assemble also DCI. have segment the ever markets them then customers more the in expect we in to North ramping fully are products in some self America. this that that and half. the EMEA DSP. aid just of but out in selling And one shipped with resume positioned the to first further are before themselves, we've half believe are are those had that in ramp. We've the CFPX have CFP-DCO we we to new CFPX, early of QX we customers in one and we've the starting both do come DCI the segment have just telecom version NEM terms we of some as the then And market driving products Meru killer so seasonality And products we the we of without throughout 'XX, metro, and ramp QX as in stages to is and XX also expected the the the DCO- then to in new

the half, products ramping and in our of the about in PIC providing ramping us, for and XXXX. in the first opportunity of course ACO-CFPX ACXXXX positioning we're we the TAM half the So second talked and

visibility why visibility we factors can of about, excluding Chinese conditions remains we still New So but that there and better some have are we're talk China's are should control cautiously optimistic. There we there some market slow are and Year. that's

Operator

Alex question and Company. comes proceed line your from with next Needham the Our Please question. Henderson with of

Alex Henderson

should could between pressure gross sequel a quarter-to-quarter change margin? about of be give versus I the expect we lower QX OpEx, should tranches your back bias what’s Huawei? hold revenue if to Are came any we expecting further granularity or a be rate in you mix reverting more up OpEx thinking clarity to the you got able expecting to of little helpful? if your one the to relative other they will be you terms on any us And of gross And to margins on gross to hoping was away on thoughts lower ZTE XXXX question, volumes margins? have our to just whether in after I about bit here could to having the the for normal losing increase the share while are impact heavy

Murugesan Shanmugaraj

take and me the part. then over John part turn second for let it Alex first So first the to

very footprint side short-term strategy. of that on become their several terms customers there to share. some this what could they in hard a it's say variability Huawei, with the There example market more are of be of has and the adding comment all for that changes involved. variability. that’s thing customers But So, in cautious bigger speculate we China of holding about see and ordering all China inventory out the factors

procurement or a position to cautious equipment is ZTE about way over have of become level us there them we position see of well we and normal, indicating a period than QX inventory was in whether to the the year be so. been product lower we're that to and June back time. to, but for normal have all lower multiple QX of with What how rate us QX than QX wait it's outlook. and there that so, and so our to own that they bit, see again with that beginning generations And little we telling are their And have will the continued design before that they and tell, so

their supply positioned well are needs. customer to As

John Gavin

Alex, I and take this is part your OpEx margins. John, about will

movement non raised gross increases So as seen I trends you said the QX, range. increase did QX, first that over in We and milestone on increase somewhere to see we’ve reflect QX, is a of of planned multiple based quickly, current had rough in now, QX. and in mix to. this that's we will higher some payments been. In we be direction In the on XX.X% move believe XX% as obviously and first not terms full for QX have way we QX of be see of some milestone and the in QX, around XX.X% where we starting there believe make half XX.X% we couple view in just margins, our XX% some can think between the deal give year, we you've time OpEx the QX off is some in one total from quarters margin the be, in QX some leveling QX, in remarks, of And will to the it of QX, our think being we actually bit little half in prepared that in year-over-year but so XX progress. as giving could our GAAP, product of then will to continue incremental in that the QX depending of for and kind in do this a we payments for it'll you some some guidance that XX% so the

Operator

proceed of Please comes of Cowen next Co. Paul question. & Our Silverstein line your with the question from

Paul Silverstein

guys. the question Thanks one I'd questioners. like to ask two the same previous just as

sure competition, are I is Oclaro, you're as you tell expecting contributions to you tell I'm not you Lumentum an tell -- what I seeing? update about of want PIC but No know a to the one give third seeing? will type revenue rate to seeing I'm as one win DSP well you well to as ASPs out I And the customers, I'd Inphi And talking of standalone what can Neophotonics, change, we're on about what obviously you're changes? cetera, the First can could can forward say, but and previously. rate as us individually, heard decline comments XX et decline and any you from to you DCO if but about the your the design and talk What you're figured like individual NEL, you clear perspective. were? revenue. know seeing guys, going be talk was each of the the with us with what what off percent to XX% ASPs of Secondly customers, and the revenue on respect you versus us -- respect pricing, don't can your versus aggregate, of

John Gavin

Well, metrics over give Raj. of the I it can back I'll you turn some to quickly then

overall X, it question total, in probably QX number ASP customers the in XX.X XX% also call I'll than terms split roughly and greater the they 'XX XX, of for in close were between So revenues fairly as XX% take 'XX XX.X total so well. of impact.

have would we side a of the as characterize QX annualized end normally the bit terms what did ASP between some into the impact with somewhere in some XX% amounts X% some were spectrum. pricing little some probably, basis I on was in been of So in from QX of changes so always that vector on reductions at we than see maybe them the an of We've in higher to it to with changes saw higher for they seen QX, QX we guide said that ASPs. and the that changes

Murugesan Shanmugaraj

and is the as question into just my in And the shipped I the factors with with other our CEPs. have talk And I on that, our not the any roadmap talk script, of power complete are clear of well with really multiple the XX,XXX we you just because in lower DCO for with layer refresh competitive a like high there really a CEP, generations of root leading is continue main the to competition. terms products. QX that seeing There said product we're points jumping make lifecycle, the in and over engaged competition job product want is Paul, four CFP a chip. of so CFP, years performing of our share is couple QX, DCO design execute with erosion about And with where to we to the some potential about customers the product due as but to slowdown

performance happy positions competitive customers low are our with module. our with we in power our high So

Operator

line question. proceed Our Please with of our Marshall next Morgan question from Stanley. Meta of comes the

Meta Marshall

question… see what ACO get was as seen on the if could to wanted in leading of versus And we you sales CFPX? as just I up sales DCO. any really granularity second DCO pick then just Have far on kind

Murugesan Shanmugaraj

GA indicated went wins of in in really in Yes, about customer we the we a The started two. the indicated, ACO the customers DCO combination over those to stages. of again, approximately was two I about second on are And them, in ramping earlier we talked have the -- as fact first they and shifted so half half. in as early one QX, Meta, and XX XX% which

the of behind up the of is we XXXX but nicely. and but product, we'll DCO throughout So little it part it because availability that a see GA latter the just of XXXX is believe ramp the

Operator

line of next comes Tim proceed Capital Market. from your Our the with question. Northland Please of Savageaux question

Tim Savageaux

actual of optimism. in of And the juxtapose that was. or One you customer question, you're quick I'll how just I have the XX% broader quick I your a Do that then, you operating increases to with grow starting define optimism? kind try housekeeping broader for XX%. cautious question QX? and Or in optimism an is, around you the on the new think I quantify the kind 'XX guess cautious would your new one the the spending Company then still revenue question planned and regard given year Did quarter, say, against all in XXXX, want guess? cautious can to

John Gavin

This is John.

metric get of question part the me Let your way.

four were all some past terms reported in the been XX% of in new entrant had of So would in a in the so QX, that there. new not top period, be four those in customers the XX% customers

Tim Savageaux

of on question, is. Tim, part the was latter exactly cautious optimism the So, what the it

these customer even best think including products and are DCO-CFPX selling into customers end new it. we X than characterize that hands, there healthy Tier headwind quarter more the are way that includes that are ramping in opportunities have to the once the XXX. the though that now as market. definitely is And I the are our has accounts well which also Opportunities some engagements, market in availability hyper-scale the as are

that's that's low it being we So in though headwinds with one the is right improvements, some here China that really the of customers is I point should to. improve. now, of and opportunities can't think and with it, are it which what this even comment We do at telling the visibility see we're

We are this waiting to flow Year. New with at in see better our not removing We of caution terms sure Chinese after point some visibility order that. are

John Gavin

that to going contain of we by silicon of we've were spending able we've they in going the be efforts grew being we've the prepared internally. described XXXX, able the mind taken that said In that of some in in had some though some measures a even to on discussed milestones we And on call, lot I of projects to that to base terms over OpEx 'XX, overlap to said be future Tim developed just range keep that more as the and of expensive able part the of it's in XX and to think we XX%. of 'XX some going we'll XX% some remarks as to and the in that the R&D as your taken we question. measures work will process before in on, year said, think XX notes, we we've in be the in and

the to us long-term manage be that in OpEx. help the to So, will able

Murugesan Shanmugaraj

comes XX X And who revenue compared traditional in are it DCI few other thing serving are don’t telecom, that a market. XX% one we group telecom new though allowed grew even we the also weakness XX customer, customers the switch service XX.X% customer, And our have the customers XX. have far the to on and from new router from XX China as we to customer to that's Tier excludes as a newer the have board NEM

and a XXXX. number is well would are number we that So go I as for us that in think positive

Operator

question. Our your proceed next question Instructions] comes Bhagavath from of [Operator Deutsche with Bank. of Please line the Vijay

Brian Yun

think later is issue XXXX? sort opportunity cloud of you Hi, this into Brian terabit heading to for XXX and about we the Vijay. should How hyper-scale with Yun gig

John Gavin

have. so opportunities Brain again, a that of it's that Yes, is -- continuum we

that's the ramping five before product said of as well past, handling CFP, in we And DCO-CFP that and in, path we DCO we As in selling ACXXXX the as to the into markets. the year. the number including first the CFPX-ACO, the were have this hyper-scale ACXXX increased

said and XXX the coherent you than ZR are the ACXXXX. of And and so, time. of provides continuation into ACO us It the XXX going as is educations it the continuum will to year expanding extend going kilometers see into a before, I for the less our And DCO reach targeting I think gets the us TAM. is it that client this product

ACXXXX growth, think ready to So year their actually first between of the this adoption ZR, positions growing in to and rapid us. data rapid is and it faster better that's -- than products that I going the we have that benefits continuing half us because assemble we segment. like XXX traffic, growth current they They be they of the into like traffic suppliers And well. technology that and than cycles like of are to

Operator

of next the Daniel line Merrill America of of question comes Lynch. Our Bartus Bank from

Daniel Bartus

question taking for Thanks here. behalf on of Todd

at that’s down revenue looking So to next year-over-year just wrong, chugging me Verizon a out hyper-scale ZTE, metro's alone. and customer ex Coriant. ADVA we wanted you XX% if XX%, I'm seeing if you to said ask and now, good that but correct have

drop how explain I a you big And do in, wondering, sneak for another you then if if such we see could in hyper-scale just year-over-year? customer if zero So XX% potential that in on XXXX?

John Gavin

is this John. Daniel, Yes,

said in Raj of rate China take you the of if I because folks the new conditions XX%. X.X%. some in new So customer grew was prepared the and it as think, customer market the of out, And growth almost China our view set some his remarks, and

of develop So on of customers. the hyper-scale. years of we’re focused group, to that group at as In our switch focus the of that accounts for set customers, looking router that's our, been last customers some that couple and of

good grow accounts into some to their takes decision upgrade for a our technology that seeing a progress we’re come those but to of to those volume just while while to to it take some there So does move platforms. level volumes

Murugesan Shanmugaraj

-- think I is coming the into for have don't the NEMs, and I direct near what the future. And out years, that’s your can progress to to expect say, in grow which selling of hyper-scale customer to because we go through us that we second selling as another think to of continue through segment hyper-scale, stay. and so XX% segment is the continue part their and want customer in in XX% question that but predominantly matters we we have make DCI terms don’t what we say

Operator

line Our next the from Please Genovese question of of Michael MKM question. Partners. proceed comes your with

Michael Genovese

guidance does we between Or visibility in get look house versus western my the Is XX a those if for the question components customers? percentage your visibility then the million at of fairly is. Can revenue we keeping question and equal sequentially. And was business So is, my real first hyper-scale OEMs and down between vary modules? segments? OEMs quarter three Chinese

John Gavin

I John. is take part this margin. Michael, will first the your of question on

see modules the historical move recovery, level component. in So between split were QX more did the is, part factor able recovery the up we from and to that we of QX, a

to of So of that side historically did that it's ready we more -- the mix. us there that It your normalizing kind so benefit the and where last module did up bigger give just of the historical been see percentage move rates and XX-XX normal QX toward some year range. in QX XX-XX,

the part So, was your question? what second of

Murugesan Shanmugaraj

track I first at a can take this.

seeing again China visibility the we're would primary -- them. from growth but the So the in they which from that we comes the orders what talk through see when terms where educate about of visibility we come visibility, to be, us not

traditional mean remarks, it’s variability there issue. seasonality But of we issue, quarter-to-quarter and is prepared less in the there and we more of visibility some had the a a what by the some in outcome that's whether a issue, visibility. intervention as so traditions seasonality it’s variability And and outcome,

Operator

comes question of of line the Please your question. next from with Tejas UBS. Venkatesh proceed Our

Tejas Venkatesh

sequentially? that your your your a optimism? guidance? both your We you How in-sourcing that And customer meaningfully of China up cautious DCI before. does on How main inventory it's sync little alluded you in much know and Raj, secondly, hear with I year-over-year comment is modules. is XQ could factor balance, a that to bit

Murugesan Shanmugaraj

can the piece. inventory part the I first of can so take Yes, it and take John

QX to we QX the with we a what chat for or versus in product erosion slowdowns of that a do QX, share engaged So, due to our relationship we about multiple them. and modules know but buy, and so said sell are them see. whether design they've there's believe generations was make of have in no the our so a Tejas, or course I chips we said the really a sell been we factor not there's with is before, again don't loss. And so in is we done it weakness customers, change the it, seeing as QX so we're always that well, we as know before, you

John Gavin

I'll of question. Tejas, the inventory that part take

had of next into it moved be items last last it's leveling to in industry We up to long expect the So that on commitments over long year. been quarters. components the the that do in when committed some and couple coming our shipment lot and are allocations. the lead ago over commitments of couple a moving by impacted inventory some lead advance were those while off us timing that is committed of shipments had of the some a of were so we those now with some really of quarters but are, of and has we that capacity to make to are that to of of lower of it term constraints make components was long to some the We

Operator

James Our Capital. Please proceed Kissener of from Luke next the comes question of your question. with line

James Kissener

don't number parse dead QX, a know You've in to sort beaten is another want mentioned it's you going million QX decline I if down horse been of but this said understand maybe way. I guess several like way. We've of decline factors, different China within asked $XX to this it's I want it? So something ways, is this I

you these asked thoughts but would be, that? commented in know it’s of is inventory probably equal I got QX, as on there internal everyone's China develop, are in And DCI shouldn’t finally on guess confident in look on you you're efforts know I QX. kind Here in given magnitude you've we especially component got develop China these been clarify kind XXXX the about any pricing of no these all just that think plans of we I depressed the demand seasonality optical build. levels supply, you this want December into there to to

John Gavin

take question. Hi, James, this of the is John. first I'll that part

being of but in So $XX typical of is terms in really traditional where equal weakness it's in up. by guide what from midpoint last QX typically, then in last piece, seasonality that's about the roughly the there telecom some million set. for X seeing of about is it's our that and NEM the that we our pretty we're variability, parts that of million us roughly roughly terms segment group at X couple and providers we directly the just see breakdown a of quarters a -- X down in has there QX had market fairly quarter-to-quarter is And believe strong million customer in about lot customer DCI in million general, that driven another in guide of segment China been

variability And so, quarter-to-quarter seeing some we're there.

So elements. those it's really spread three across

Murugesan Shanmugaraj

or in-sourcing about. two going DCI, back in QX that or parts. want is QX anything that QX we talk of What see on that's that not people break going to just to into And any I because or

some expect we And are John currently, competition, side side. talking -- on that the products. is position in they're that and products their so see the do truly their However, is have with roadmap competitive late compelling with we is seeing there, and -- again with customer are working position through happy about that they the job weakness but a cycle some our their or life to our roadmap execute leading to we weakness at other inventory

Operator

line of question. Our next Please comes of Company. question the with Bolton your proceed Quinn from Needham &

Quinn Bolton

ZRs then you that tender do and sort to should expect how the Just is follow-up and market? you the finalized DCI the ZR, the have working soon said any And of question to is that cannibalization do standard. that a wanted expect segment? the in to on a on expect ask that after be market, ACXXXX standard ZR, question of the X a to When you XXX in finalized XXX we product OIF

Murugesan Shanmugaraj

think at hyper-scale products, there's if anticipate look again so next to our so the the and standardization questions XXX that, ZR. we driving these two completed, efforts year be the guys couple you I of are different Yes, in Quinn, are very

be handle they XXX it's and going gig a using a it, think higher available a I can capacity than and so lot times going capacities, of And the as lot others the product, three will be XXX ZR. of predominantly to sooner well, the sooner, it's the it's ACXXXX into

So the of standardizations will so I don't interoperability be and ZR, and now there'll so year, of one the between you cannibalization -- into puts half is XXX this availability have of over have well at to being really will years. I XXXX, go as some so we -- next think sometime is alone time should so if board-mountable, the the -- couple correction don't XXXX but in could QAM next second these -- ACXXX and go should by enough do pluggable, they one know the the ACXXXX anticipate -- beyond as testing hyper-scale on and run be it the be way XXXX, there be product then,

Operator

to Gavin, further I Officer turn remarks. of for would conference. to over closing now over no Mr. back portion are the the like John conference Chief Financial the There questions

John Gavin

Thanks, Tim, Francisco the on we our conference XXth. XXth, of event and forward look in at to Morgan many March in Stanley Thanks February on everyone. San OFC San at Diego you seeing

Operator

participation. conference. for your This today's Thank concludes you

day. disconnect of your may wonderful rest this lines a You your at time. Have

Lindsay Savarese	IR
Murugesan Shanmugaraj	President, CEO & Director
John Gavin	CFO
Doug Clark	Goldman Sachs
Alex Henderson	Needham and Company
Paul Silverstein	Cowen & Co
Meta Marshall	Morgan Stanley
Tim Savageaux	Northland Capital Market
Brian Yun	Deutsche Bank
Daniel Bartus	Bank of America Merrill Lynch
Michael Genovese	MKM Partners
James Kissener	Luke Capital
Quinn Bolton	Needham & Company

Acacia Communications (ACIA) 24 Feb 182017 Q4 Earnings call transcript