ACIA - Earnings call transcript Q1 2018 | Acacia Communications, Inc.

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Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Acacia Communications First Quarter 2018 Financial Results Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Monica Gould, Investor Relations for Acacia Communications. Thank you.

begin. may You

Monica Gould

and for David, this everyone. Communications Acacia after Thank first good quarter results the close. XXXX ended released market you, afternoon, March afternoon XX,

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

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

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

Murugesan Shanmugaraj

new of report to in module quarter, our ramp customers, of more afternoon, the following today. Good XX some that for then I'll XXXX, provide and of X detailed are continued hyper-scale represented diluted call financial industry's us the will $X.XX EPS and the a product the customers, from guidance group a $XX income with that everyone, CFPX-DCO Non-GAAP the of to prior revenue thanks Thank to we in high direct of Also, more first review total first greater and from customer approximately or XX% joining newer sales net end of X Tier performance John outlook. customer XX% revenue. Gavin, our update you, who quarters. customer our million, our pleased turn provide will total to quarter due revenue, of existing begin and were highlights, In our Monica. a which of top been million, our over range. I'll first than financial $X business approximately the including in of and and Non-GAAP contributors than all had

on fully announcement a and we transactions with would that's ZTE on ZTE control Commerce's are Since topic everyone's US mind, the by ZTE to general to recent ban the update, of affected like believe ban. all of Commerce, Before, we suspended complying the have the Department a requirements I I with the the turn order. market discuss Department export of of

have we the of ban. guidance effective quarter out of ZTE second this the following taken revenue Given our development, date

earnings the As we ban, were throughout quarter call, we and quarter related uncertainty in in a the the have and Prior year of markets. now stated first conditions issues all the anticipated introduced on China the of first the year. metro improving and our of China. XXXX the of although second the remainder market key see to the starting or second our to conditions with improving the we quarter ZTE last slower in DCI, quarter three year, ZTE greater Namely, ban for

business ZTE, provide a that, without to mitigate compared the would starting our XXXX I prioritizing like general our With half the our opportunities in of as of year see and initiatives even of other half we of the are grow to to the to to ZTE market strategic some ban business. first update. the second However, impact

to opportunity believe the market DCI interconnects. represents continue the growth We coherent largest that for

and in Although quarter-over-quarter CapEx it to subject shifting priorities. is deployment spend variability

modules also we diversify opportunity further in market. customer our this us believe and CFPX-ACO, In our with and in Our see we continuing are providing help customer to opportunities prioritize such, XXXX position will our this products ACXXX our including market. strengthen product CFPX-DCO, revenue to As development the and our Pico-based these portfolio, activities ACXXXX

contribution Our providers. designed beyond. these other increasing from who hyper-scale begin X driving ACXXXX by and provide and strong family. hyper-scale product meaningful at a revenue in interest Tier customers half product customers NEMs of the content expressed are in XXXX we the that XXXX of to and engagement being family to top engagements in have engagements believe cloud and ACXXXX our will X revenue during is ramping second ACXXXX anticipate X multiple a We

this metro market. key growth market XXXX initiative. annual in of of prioritization annual and metro more the well the as XXX,XXX for grow. XXXG projections analyst in that and be North revenue show targeted these the also equivalents Analyst compound XXXG DCI of XXXX. XXXZR XXXZR We XXXX XXXX. rate We metro to to Asia a support Europe, NEM from this and China, of XXXG buildouts. is early market positioned port diversify units modules a beyond edge phase of Industry from our high outside our network The than We base still that are believe growth which customers XX% demand in opportunities [indiscernible] strategic forecasts further to is we by will for for hear believe our markets continuing with module at DCI segment our America

countries investing network long-haul are buildouts. in metro like As an network operators example, and in India,

NEM We at our on high are on based metro win power helping projects our low compact, focusing new coherent carriers interconnects. customers traditional and performance telecom

the prior market, of conditions ZTE seeing both ban we China improving the were ZTE and at signs NEMs. to Moving China at to other

expansion go XXXX the activities these will are ZTE grow our our However, that are XXXX internal other of impacts first I'd business these or so, half of of into newer our customer will no planning discussed in to no adverse of would addressable we in of ban regulatory XXXX. these Namely, additional not compared products. second Also, and there now there and silicon market have assume NEMs Even assuming China with not year. seeing half in business effect, the the that NEMs group router the NEMs. as the a year to the Tier like our we to ZTE explicitly. with relaxation that also opportunities are by to time be X insights be vendors. to provide traditional previously this switch opportunities PIC These market assuming this any the driven we ban with the at

market, with their of coherent the this over our the We group. Historically, power optical provide wins Tier with CFPX-DCO year. some starting of half ACXXXX level a of technology. of meet rely or participation we a coherent second to to are modules technology these enables be XXXX strategy, the for there diversification customer and in router modules. our had to contribution and customers customer needs low given believe has growth As a in on optical vendors growth will switch and in coherent half first module positioned better ACO which XXXX part This X class this is providing a the like opportunities These that vendors ramp cases, Acacia often using further in for were distances, capture did of share coherent this vendors market and merchant the opportunities limited shorter with group larger high group coherent our believe adoption modules significant the beyond. ongoing of to Acacia they revenue Acacia design group of for not XXXZR

In existing efforts. prospective like would where and and our our update we ACXXXX in I March OFC participated DSB an and development to conference the demonstrated positive received provide we product feedback from Pico on module customers. Next

our demonstrated One and of X traditional our Tier NEMs several they as told from strong received well ACXXXX carriers interest hyper-scale us at telecom also customers. as OFC

the represented of our of As CFPX-DCO quarter sales more of XX% revenue total earlier, than first stated our during XXXX.

early metro to and is network the ramp continues stages complete revenue as of we CFPX-DCO contribution deployments. the increase CFPX-DCO qualifications Because in will field buildout, XXXX. that Our market believe begin the throughout operators system their

Tier wins the telecom to from form design continue have in interest including customers see NEMs. factor X several traditional CFPX-DCO and We strong carriers several at

in emerging well as also such applications India. are as potential deep metro We CFPX-DCO XG as such in as opportunities for fiber buildouts emerging markets seeing and

help are market our NEMs throughout believe adverse addressable XXXX. regulatory PIC to that continue there no or and qualification are of assuming progress market expand on to expect sales revenue China We PIC. customer other impacts will size to the We increase stand-alone our in making XXXX, and of testing

to over key to Before John, the a would few points. turning I like call highlight

extraordinary still become surrounding believe we that Chinese redeploying but deployment. believe growth and they uncertainty opportunity priorities carriers ban, will diversified the this new are more with These headwinds pivoting present just deal are how opportunities. which have through stronger Not by worked again. these before that the with First, we also company through and is a a our the to very with we ZTE with will and times. to I work us resources new, do

this negatively our year, of of are our Second, of help impact earlier, activities the while XXXX ban loss XXXX impacted by us relaxation prioritizing is will the for no ban be we and second believe that of revenue. being several assume discussed the mitigate will we ZTE as there ZTE outlook internal the planning the initiatives quarter

growth of year, market markets, assuming or opportunities of increase in there the regulatory over the are revenue some and half we the the first XXXX. XXXX initiatives in in there these impacts are of adverse China NEMs we With to no second half believe to anticipated that are our key other

engaged were customer we even before diversification effect, in the ban Third, ZTE went into efforts.

a made lot efforts, X with have We of products. purchasing the these customers including Tier number NEMs increasing of progress our

to the Also, Although our ZTE, continue with not plan of loss contribution the growth anticipate are penetration these programs. the in stages expand investing of newer from time. group product over our at revenue early the customer currently land strategy our R&D and further compensate revenue for and appropriate customers we sufficient and to in is we level

also will reduction with As long-term confident However, and the more ban. technology of us our reduction, year-over-year our that rate growth growth to value. this revenue remain reality caused portfolio our we are to our product will improve taking steps reduce OpEx Even John stockholder help in in leadership rate reflect discuss OpEx the the by detail, ZTE we

and announced delivering we confidence yesterday, repurchase This close of commitment in repurchase a program Board enable repurchase million Directors end Acacia stock of us of to market to our and XXXX. to after will our our stock demonstrates stockholders. the $XX through program up approved that our that of management's board's to Finally, future the our value common our

dedication their for turn for while Our our to and to support that, success. stockholders internal confidence opportunities our their work my would continuing customers, would are want stock world we enables and the With Acacia. the like that us value which and thanks stakeholders. thank creating especially believe the fund for our call both is strong around key in initiate John to to to and like essential to partners over hard external I now employees continued I program balance repurchase future sheet our extend to I to Gavin. to

John Gavin

for performance I good quarter operating I the and half before for and everyone. Raj, will outlook then provide additional of Thanks, XXXX up by opening questions. our of quarter will first and financial the the XXXX, on perspectives call start reviewing our second for the second afternoon,

the decrease from high in quarter Non-GAAP million and quarter per a the XXXX net $XX.X year-over-year a were million, share income was XXXX. As quarter our of of revenue Raj XXXX range. first end mentioned, of XX.X% basis revenue, the in our Total diluted Non-GAAP of first on first at earnings $XXX.X guidance

from customers, we flat was revenue first at basis, XXXX, our represented on the than quarter, first customers of year-over-year customers was our In outside percent the of had more newer of while that contributed on XX% total revenue During of revenue. revenue. XX% a new three quarter each XX% customers, original a our basis year-over-year eight by the down these

Turning to gross compared was quarter margin margin, of first GAAP to XX% quarter the XXXX. first XXXX the XX.X% gross our in in of

now intended ZTE either future margin for to inventory gross million suspension of $X.X current GAAP been for to our was primarily and ZTE excess ZTE's our inventory specifically and ZTE attributable by consumption is related that in designated for Our to write-offs demand been reserves or had the impacted or sales inventory ZTE by products. had due ban to

Our the charges. current period also GAAP production warranty level increase compared the associated the impacted cost first of activities in to margin XXXX semi-fixed was to XXXX gross lower in an by and our operations quarter with related revenue

was Non-GAAP stock-based quarter of of impact million XXXX. reserves, compared $X.X the the Our compensation and first XX.X% XX.X% of excludes the inventory to write-offs ZTE quarter expense which in first gross related XXXX in of the margin, and

$XX.X also Our or $XX.X in activities XXXX. or first in million expenses, operating million our Non-GAAP and $XX.X XXXX quarter XXXX XX.X% was which gross $X.X the expenses compared of by costs and excludes of that XX% of gross in operating XXXX. same of compensation to margin of first XX.X% GAAP semi-fixed margin. quarter the of revenue revenue cost to $X expense Non-GAAP of of million quarter compared in $XX.X first million litigation revenue GAAP first totaled the or impacted impacted XX.X% or certain reserves, of stock-based quarter the related of million were settlement the revenue, million

which In addition, strategic organization along prior the quarter totaled support and the that and expenses XXXX the R&D to quarter XX.X% expenses operating of scale. the million R&D and compensation $XX.X Non-GAAP exclude XX.X% or increase or foundry XXXX. the million compared first of million came operational by of revenue in driven stock-based to XX.X% R&D XX.X% quarter $XX.X in in in $X.X totaled during in our quarter in first expense, of million payments of in was $XX.X first Non-GAAP development milestone GAAP of of compared in GAAP $XX.X or or million due the of XXXX. expenses, of XXXX revenue revenue with first investment revenue quarter

XXXX. million from positive first of with X.X% costs related efforts to or million of quarter of GAAP was increase million of down income during primarily million development revenue Non-GAAP GAAP the expenses or XX.X% XXXX, The related payments related the was XXXX negative of of scale and quarter GAAP the first or to $X.X the revenue primarily past XX.X% and expenses of million was quarter expenses Non-GAAP quarter to operations. quarter. expenses, XX.X% quarter operating was X.X% million $XX.X our of to the XXXX. to addition, due and revenue XX.X% reserves of compared an XX.X% with quarter or litigation Non-GAAP The settlement year-over-year in million of million to the of GAAP R&D past $XX.X milestone revenue efforts of compensation income $XX.X revenue In SG&A were revenue operating $X.X and XXXX. associated stock-based expenses SG&A first costs foundry $XX.X in Non-GAAP first in and SG&A $X.X increase quarter GAAP related in XXXX year-over-year of the of to settlement revenue SG&A scale to the or X% $X.X XXXX quarter costs primarily XXXX. that came of $X.X of loss operations. of revenue SG&A first first the excludes were first first costs operating in in compared which certain increase or in of related the in in associated or reserves, and $X.X million of compared increase was increased our in expense in million litigation or SG&A in

first related Our $XX.X reserves. first excludes million $X.X Non-GAAP income XXXX was sales quarter EBITDA the reserves. million to ZTE inventory first quarter compared quarter the EBITDA compensation XXXX. and driven quarter the in lower positive the primarily of $X.X related million to in related negative EBITDA in in $X.X costs XXXX The operating impact $XX.X settlement profit million million reserves, was of $XX.X Adjusted and of the million quarter XXXX. litigation $X.X of in the stock-based in in of certain from the and million first inventory first XXXX was in and first of volume of write-offs decrease and the by expense, gross quarter compared lower the ZTE write-offs

addition, increases operating related expenses new adversely in settlement reserves, of our was product our In and operations. litigation EBIDTA associated scaling past and of certain with costs development, impacted to by year-over-year incremental support costs

negative by an the expense the rate negative tax by first of in a represented effective XXXX. tax quarter positive tax A tax an of effective a XXXX of rate X.X% compared to first negative of represented XX.X% represented rate quarter tax tax to Non-GAAP of quarter XX.X% compared first effective in benefit an in first XX.X% GAAP of tax quarter by benefit Our XXXX, of benefit, the in rate effective the of XXXX.

per on count based on or quarter a of XXXX based in the Our $X.XX of count $X.X XX.X weighted basic average diluted a average million, net first in of was loss XXXX or GAAP income weighted of of quarter first a million share to compared shares $XX.X share share basic GAAP fully million share of per diluted $X.XX shares. net the XX.X loss million

net of based income XXXX the first compared based of weighted on was share in weighted diluted share XX.X on shares $X.X count diluted quarter average million to Non-GAAP first in of million average Our or million per income a XX.X of quarter million fully $X.XX or count diluted share Non-GAAP $XX $X.XX fully share the per diluted net shares. of the XXXX

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

to and quarter second in based for next earnings Non-GAAP Turning today's to million anticipated $X.XX outstanding. net $X.XX shares be press be X.X our X.X revenue quarter XX.X the outlook of on release, between in expect the to basic basic in loss XX million XXXX, of per total XXXX, XX million loss and of range noted to averages to we Non-GAAP million share as of the with weighted million second

no his the of ZTE relaxation provide noted quarter this As second ZTE contribution XXXX will would perspective the the Raj in our some balance effective ban. there balance ban from from to the of our like of we In which date the on ZTE ban, ZTE of planning no year. preliminary the for remarks, outlook after light revenue assume be of assumes internal activities

and to loss XX.X% a For quarter margin, they we result product ZTE reference, respect a in ZTE With as mix our of of as revenue. represented anticipating volume revenue. In total lower of Non-GAAP gross the sales in represented customer. shift XXXX, XXXX, are the of our of a XX.X% total first

to XX% XX% XX% be revenue the the and XXXX year. in Non-GAAP of such, As XX% to to range gross in margin the anticipate for of currently quarter in our of full of range second the we

costs associated in our new quarterly overhead changes, can our introduction ramp of pricing on products, manufacturing a excess gross and of scale reminder, obsolete variances, impact the associated based relative as fluctuate production product As our with new levels. warranty the product and operations and well and charges, of to expenses, inventory as up revenue margin costs mix, yields

total for will hiring expenses growth In range we of reduction light and Many funded, our Non-GAAP ensure priorities, our last accomplished to for to of the ZTE be we expense project the year-over-year meet of making For growth measures call XX% estimated these total in We in expenses, new XX%. spending range programs to in to in actions project through year-over-year XX%. the operating be total operating internal of lower Non-GAAP already year-over-year in to of Non-GAAP to are to our XX% spending discretionary total Non-GAAP ban, on this expenses our remain anticipate revising our that operating rate reprioritizing core the operating rate earnings the now growth strategic that taking be estimate the are timing for adjustments XXXX. progress. rate so in of

given ban, XXXX. long are including However, half a seeing anticipate goals. of rate benefit of timing The reduction do OpEx the ZTE the growth business assess and continuing to second this our our to we is full term not recent until of financial event the the the impact to we ZTE ban

However, we on rate these strategic projects track help spending actions will year-over-year while stay the levels. of reducing our initial feel

XXXX on balance currently Non-GAAP by the In addition, a the back With of to for we we for impact GAAP tax call David range XX% assessing will effective estimate I the an XX%. are negative ban ZTE the rate now of in represented effective tax benefit turn questions. rates our still XXXX, that, Non-GAAP the and although of tax to

Operator

Doug Najam me, question Sachs. Cowen & from Goldman is Fahad [Operator with the with Clark first is Instructions] first from -- Our question Fahad it's sorry, Pardon Company. from

Fahad Najam

to up over maintain you revenue that that or of think customers Chinese prospectively potentially the Why some be talking to Is Huawei. currently end the of the lost way the that couple would any lost I to like Chinese And for you and in suppliers to sell parts inventory end to offset think your China on A customers? an of to you to the move business for like you a business, of comment other make shift there are suggests half? general, your to would end with can revenue assume the grow will your a the Maybe those this One, lot benefit components. that you so of still second of ZTE ZTE? continue suppliers customers actually questions. to Chinese likely related ZTE to supplier none also do

Murugesan Shanmugaraj

So Fahad, let of take at me a crack some those.

So the main is again caveat new. said, as this I is, very

We somewhat really information information what don't well. that resolved. the you knows think some see going coming delaying have of hearing limited, conflicting public carriers in, this be that is I issue is how anybody we China But as waiting the are to appear China from until play gets to out. this or

this reallocating they at So not point time. players the share to in are other

obviously as not taken rings not, date -- revenue in simple see, take and from ZTE are allocated Huawei have the can or Huawei to specific Because is our equipment. and also all of in in we the to effective there you quickly it's fast So for out ZTE what through the It backbone ZTE share. the FiberHome either yearend. know, is the to some they it from we've as step to rings to or FiberHome

additional It's will of they very to to do. managing different network networks, a is management longer. put their are qualification the a lot going or that because equipment networks, and qualifications Huawei it hard somebody to there's Management different very like take equipment be very for design. have in So a FiberHome software, provisioning network

I give equipment very we So what to resolution. -- it have even if how themselves is and in and is help they equipment. to of having without the until straightforward the of discussions what And not carriers And technology, whatever do deployment it of point use Because at with their are just carriers. not are also, is it this ZTE belongs part others step ZTE. we the delayed was complicated for the carriers further is also seeing ZTE, China of our some equipment will any the think not it clear

It don't our are I do especially and the and out Commerce networks we of to new, appropriate. listening take plays are the how before, of we experts it's where it how and said and it's fast I is just we see straightforward be in terms or to evaluating monitoring as there. But with somebody very we out. in predominantly comply so situation believe what is going for And order share, do to this ZTE Department will is, equipment

Fahad Najam

Raj, your I total you percentage that more question, in X suppliers remind you is in terms ask total total additional of may NEMs, one revenue? CFPX-DCO of cited XX% if a other of terms as I of was what Can us Tier percentage revenue total know of revenue. the of

Murugesan Shanmugaraj

We haven't a down, that they I broken Fahad. small. basically group, are It's think as

in they and they script, are customers I said starting As qualify my their to today because ramp. with smaller are

yet. talked not in the So some category about, top them, names of we as those some of are the XX% in XX NEMs Tier X but

we I half vendors. looking from for as in said some growth of the before, is, are that these So second

Operator

is from next from Clark Doug Our question Sachs. Goldman

Doug Clark

but is side. My first ZTE, the also on actually question other from

year non-ZTE have several revenues, those been we if on at So quarters. for look the year past declining

on So of contrast new second half kind outside products. help going business and optimism of for what's can the that just if you wondering kind some that with that expecting contextualize with of the of I'm the you're

Murugesan Shanmugaraj

aspect the is PIC. it [Indiscernible] with are we before, China. Yes, last I as as last seeing they earnings were in think including with of growth there's we But of different Prior Part it the that it Doug. NEMs. as other qualifying, other along ZTE the was we event, couple [Indiscernible] a the said, that both from we as said our in well to our of call China factors, our ZTE said year, newer products

because especially slowdown we as throughout quarter. growth And are the is product is demand can China demand there the half their the China And as of well improving, but they that's are course, it like that we with of partially saying part year for we ramping second the so products NEMs, well. is saw also, non-ZTE And we in first newer in that PIC. ACXXXX CFPX-DCO there see even the as where the that these also anticipated

John Gavin

Doug, this John as is well.

remember, group they of there. some so in outside NEMs some you of new the XXXX build includes quickly that on customer also ZTE, out ramping were the which China If of

Specifically in the CFP products.

So that they were also part new group. of customer

Doug Clark

specifically, I into standpoint? proactively of be that Acacia seen, or to approval kind you just an can relief two-part seeking waiting follow-up do is Or Also lifted? to the try are are thinking Or in ZTE, kind of out question. a revenue Then regulatory to any happens you of you up curious guys And part right able cash sell exposure portion on export from have the kind more I've now, and to guys the that or or period see that overall air. balance are a or of the what guess there how type ZTE? on about something is your of especially you M&A get where large second time a and approval in I'm to ban buyback, is,

Murugesan Shanmugaraj

Yeah, would the ensure you experts order. Doug, working to with and as expect, our external with internal are compliance we

we have steps prepared the taken transactions. the all to As suspend our per remarks, impacted

of through Commerce to situation the with engaged sources to continue Department comply multiple point. order staying to the at this closely are We monitor evaluate and

to it very watching would experts' waiting are be closely still our haven't the As We're on before, and new we is on we said steps what activity. started any but opinion. based it we see next

John Gavin

thought very the company attractive your question shares. repurchase buyback. Yeah, market and on place is for was Doug, the time, a particular John. this At to to this it I'll take go we the

recover the in, the at our look on priority business build situation into growth you top If and to is model. that to we're

is onto and on on. recovering So our refocus to, his as remarks, point to from to really said that's really focused pivot we're what and out this other from in customers growth prepared on here Raj

Operator

you. Thank

Bolton Our Needham from Quinn from next question comes Company. &

Quinn Bolton

clarify able effectively two when is were to million Or wanted that Just $XX to of that weeks the ZTE. first the immaterial? million April $XX you to ship Is meaningful contribution to guide? a to

John Gavin

Quinn, hey John. Yeah, is this

exactly only typically just In slower was a terms much. We the comment are you couple and on it quarter. of, in as those stated, won't points how weeks of

say, effective, very and it's ban the the typically those more suffice early Some did two are month ship manage quarter quarters to in oriented. but third to and the in prior second weeks first it to being

Operator

you. Thank

UBS. question Venkatesh next Thejeswi comes Our from from

Thejeswi Venkatesh

you. Thank sell the into DCO know directly I indirectly and you market.

revenue I from there, in And wins loss factoring revenue, market? if you was and recent you that into about of indirect? focus market, much you your talk estimate wondering how of this had the direct ZTE could and an derive Given both

Murugesan Shanmugaraj

couple Yeah, ACXXXX. who are win said direct I the that a market. wins. had that the are into ACO forward, we have directly. we selling and think ACXXX other and the customers that about increasing also share tiers one X of hyper-scale we DCI we NEM for our we in getting like claim past win who customers multiple have in customers But is There Tier move was Thejeswi, are the as One the waiting several they talked,

in ZR to something guys else is bypass as our position our this that the as it want to pluggables, only supporting ACXXX to buying our one try that's course, think XX you this we will ACXXX into now as in other I XX so And fully get the start but market customers think do of do contract the as would move of anything than terms NEMs the directly But quarters if before, the work in as there we are hyper-scale. into with selling get the I And And into hyper-scales some sometimes change they who lumpiness top see other time and we said NEMs is we've are forward, And going the don't. we and XX%, And this well. they hyper-scale to NEM also the to else top sometimes us, right there us the we customer might we for in do customers. of want product. possible. have much get are to certain as rather is range NEM the

Operator

Thank you.

from Our with Meta next question Marshall Stanley. Morgan is

Meta Marshall

some kind see XXXZR update ACO is I didn't on Thanks. just but of second still uptake any if half estimate of XXXX product, of timing? kind second, -- CFPX-ACO. of of wanted the And you a important, and to of milestones you give refer could then being just the or mentioned kind to you for progress lot the if kind the

Murugesan Shanmugaraj

XX%. longer-term X is direct them steady while have. I much, think what to moving we of at be going is customers. The see one is we take is the year. is we do what said We the ACO of it. from from before, to to run and before, continuing me rate, we do these run ACO And Tier DCO see rate a And all DCO be some I we hyper-scale. rate this the as the going this is still ACO what being had of run run we grown for customers and see Let so than be pretty it we the crack to said rate the a state has five [indiscernible] solution see But XX% business customers, DCO at had greater

I that the On looking in the a in the same X-nanometer we working we statements, and go half ramping is half. ZR, are first needs of at into of to John we year our are said and products revenue coming next products we there with continue spoke these on the work and before, second prepared to, the as developing thing lot

Operator

next with Kisner James Capital from Loop is Our Markets. question

James Kisner

are there? give First, just don't of I Can kind a comment. doing? just think you directionally and you guidance, it, but I I guide us think don't the OpEx to you heard gross margin going texture know what be any on to

John Gavin

quick it. count weighted for we XX.X on Yeah, should be XX.X correction basic guide The that while mentioned just our of a make million. James, to share there I QX diluted want correction had I the speak was million.

talked of in XX% said Non-GAAP previous said was on a that to increase down year-over-year the we my I we what of between I range Today remarks, expense XX%. total that and somewhere had OpEx, year-over-year calls of revised XX% XX%. on call terms operating James, In a about to

for XX% in QX what expectation full the full our with range had would to And said in terms look year year to XX% at for if was XX% I So range. year-over-year that growth margin, you be gross rate. somewhere XX% the of is coming in

standalone beginning color second year. second got rate the be bit of we'll ramp as overall have a in and of kind the its CFPX perspective, up our little also positive said, on a ramp today. coming do have, PIC higher the the half, a margin sales ACXXXX in from effect sit from We've second the we those on from of and margin half got Specifically, Raj all more there, ramping where we've half a we

Operator

Blair. from with William question Dmitry next Our is Netis

Dmitry Netis

right then So and right in the they I or way couple me you the and unfortunate see China questions let A just started front ask sanctions did affect if of to questions here. after here. ironically, of rebound these clarifications to But may. couple a

XXX half on guidance far as in at second we're first the half, as your goes, first First, the half. million looking

Is the like? the quantify you I think us will that first there half if look heard to believe over Single second would plenty double I that we us approximately something of Can what be might product up potentially half there give what there. seeing ramp and to ramps half? see digits? in of kind is second first sad, from tell you case can Can digits, you half, the correctly, numbers? you the growth is XX% Second what half that you're be given reasons that out

Murugesan Shanmugaraj

back. step me let Dmitry, Yes,

discussed, know. think going qualitative in give I'll for just itself, DCI, our you NEMs. and we initiatives we quarter of first ZTE all, the due I ban only and give you are terms some focus of view some on the China as increasing are guidance the non-ZTE we to metro as to some a guidance this opportunities But and of and very well reprioritizing

such which ramping then new product addition and our PIC So that's also as to one in and the the have category sampling we ACXXXX are CFPX-DCO.

market grow. two have believe anticipated key So to those we with we segments, in these opportunities initiatives and the

So do But clarify of subject adverse there is is is there. impact grow. think together see to assumes wanted it I the some without level is caveat. also, with We that's this not some quarter-over-quarter also to opportunities there have we And variabilities do to this risk to China. other no so I that DCI, risk,

seen, what So is in believe forget, or may would number caveats the we Also, not ZTE million. there to QX grow. have about had of there of we couple $XX that you may don't

up well other So these top as to on we make need from that hurdle of customers.

overall, it to higher, XX% so So I should set to XX% and some higher. risk don't half expectation going but has or got be second it's want the be

some risks. also I we think have we have opportunities, but

Dmitry Netis

in which translate may, I What were John The disclosed. of clarification that quarter? imagine, revenue second top customers if the would, that second XX.X% other two question million or housekeeping kind to XX represented I the XX you mentioned of

John Gavin

that be folks area had in they So Coriant. and would ADVA we've that before,

Operator

Thank you.

question Bank. Deutsche next Our is from with Bhagavath Vijay

Unidentified Analyst

for Vijay. This on in is Brian

a Just the you as R&D guide. ZTE Could between you follow-up OpEx break the guys impact and out SG&A on revenues? sunset

John Gavin

again? question the repeat you Could

Unidentified Analyst

R&D On the think the could you but… out break between in as you the away? ZTE OpEx and guide, I goes if revs it impact SG&A gave guide,

John Gavin

there have is the we're to terms our prepared we we're at looking priority also hire of What in and discretionary programs. high back doing remarks, strategic new hiring all as said core staffing, is level our ramps, rates I going in at in look what of that like and from my of doing the So things spending.

costs. have a we So related making where well. have fair personnel those of as be we'd from also places But in amount is do discretionary our adjustments a spending, we spending do

So it be side, breaks end going more towards it. But to roughly of SG&A between and more probably guide we're out that specific in breakouts the giving of not SG&A. R&D

Operator

from Our Northland Capital Tim next question Markets. Savageaux comes with

Tim Savageaux

a assume, of I business, revenue don't want ex-ZTE rest know, world. sequentially. that It or the expect like, try half up second and you're stub, in million we an the kind X% you ZTE on of looks two I of to and don't I QX X% a to as get at guiding about depending what again might the in know,

ex-ZTE. kind of those lines Something along

products rate, number reasonable? high of it the Given described, how think accelerate, would perhaps that's the digits. I that into to kind progress ramps a of you your that to new the year fair throughout across into think product think the growth second business should sequential activity a that about half, way single Is that be might

Murugesan Shanmugaraj

of terms percentage number are in we to a going not think provide growth. I Tim, Yeah,

try We move growth as obviously on are to going we all be these, to are, we and on these. opportunities will we the some working of to pivot faster

it DCO is go complicated has is still ramp GA, there in of the always But through to a is product, that those terms ACXXXX, per the cycles, cycles concerns that's well. ACXXXX some as level -- However, so qualification of CPFX demand. NPI the so can and and on

So I put to a number. want don't

should all think to but can us not we how I we've help that say I'm much. got by opportunities is say succeed, going

Tim Savageaux

staying with there? on some QX follow-up and to my Okay, of assumption to comments fairly at be level back it expect profitability solid by breakeven in and maybe Any QX. unendorsed, least to looks that, you that like or remains

John Gavin

the Yeah, of to this we've our spending. got we is QX John. some effect at the Certainly, given to midpoint the at guide timing there, the time, already of Tim, obviously ban really challenges were QX in QX, try especially in

would opportunities as We timeframes that course get us for Raj said, for back to there with will level have of up be has go in those QX that throughout more the us opportunities that's to manage some option certainly then to and and QX where certainly growth, an combined a

Operator

Cowen question Our Company. is with Paul & Silverstein from next

Paul Silverstein

customer coming the three for still from want opportunity question and to could just your is breakdown, or optical it I beyond ZTE not you're come that had you right transport half and break look the asking Huawei out hyper-scale fully quarter. into by and happened but guys ask Nokia balance from the to what you X/X traditional meaningfully there's those you've and over by opportunities any way that and the which got And insight? there I years, is your Is give switch breaking over When Can appreciate the the second the growth growth pretty Raj, routing layer all folks, when penetrated and the and and is it? if ADVA that and second give at your in it's a foot you've system I bucket to by in out know specific had you of suppliers, and look the But Coriant, the base within and hyper-scale, sensitivity to two in disclosure, door ZTE. you've appreciate customer the to of Nokia. I'm more terms customer you and then that going time, the we some would three, longer-term information. you come a granular of a has challenge? obvious Huawei layer where in think but

Murugesan Shanmugaraj

Paul, think that exactly is I Yeah, right.

when I router look they think and the cycles, if our the directly switch some hyper-scale guys, you development guys, our start directly at so products or and either there of buying these through will in group, by there. most combined a be as And and be the switch router customer will the far the segment DCI a from. where of group, come growth big driver will

I level metro should well will switch course, CFPX from XXXZR, it of think well. Of of adding be into of, the once get I from assumptions part be the are territory going your guys. think higher some we that and require that and and would metro the is DCI as the right, as as be area another But router to

Paul Silverstein

case? was historically generation. And that so about calls you tonight, I customer Is me the I'm others I between wrong, the an I've answered you've you've meaningful, and apologize think John, to timeframe Guys, seeing wins I'm apologize. revenue it cited XX perhaps meaningful, already it But among going to the wins, design XX-month if to and do was if still first the this. call rather been toggling the on Googles X.X I'm you're trying more design get in Facebooks see selling into of into than of and there you seeing the terms wins insight revenue? into more NEMs would timeframe design any But those when meaningful is translate if world. folks, an various wins with well, Web question to to there's indirect as I and is, appreciate that important look element at we the the your correct question,

John Gavin

John. this is Paul, Yeah,

correct. It but a a I generally on think in you're can that versus board-mounted module, ramp. little earlier bit pluggable sometimes be XX-month that's XX a accurate to

in in the But specific having, in Raj where then various as opportunities referring coming we've now seeing newer look ramp that you into its continues where If points was to. ramp cycle, out are, the that some Raj we're ACXXXX we more product it's half. second for we're CFPX think that that the was I got these with just we're I its customers referring to. customers say would is that at of some terms And exposure of on the more

So begin those start cycles working expect volume we'll ramps through those the half. time. are, increasing especially second by in we And those to product, over

Operator

Thejeswi Venkatesh is question UBS. next with from Our

Thejeswi Venkatesh

the mostly time? part revenue margin the ZTE CFPX-DCO XXXX? will between was which of XQ? module How and your modules is how second mix of impact ban is, the over think the business did And in customer, half in how affecting affect the then I CFP-DCO Given almost a was ramp gross gross margin chips that your

Murugesan Shanmugaraj

Let part the that, and second. me Thejeswi, John first will the take of take

you line see there for So it's to you said if you're that been a cards for and continue as few slots years expansion the still them see before, have I think look to old. I that think CFP. buildouts, we CFPX, are to at CFPX, going have the CFP installed But using the that wherever is going

line few years few So different same putting areas. it maybe in from years more of so the are some be The the next it's it cards, CFP have two products. lifespan. over using of different growth, One not a are to it's deployed of but to going kind the CFPX, in they us, of is newer going customers for is coming

earlier, new bid well. then of are talked And CFP. win use an if that have CFPX CFPX agreed where still do to all they have did will Again, want already designed carriers Tier CFP there exposure. fee, installed yes, going vendors CFPX in they comes a is course CFP line with if up, are is and about X as we be seeing because it there to when any it. not cards, And will we But so cards would that the over router continue see we you a switch other to

on a are they are newer could the opportunities and at the in in for go lot you the level little see CFPX a Greenfield of CFPX I So looking we going the of parallel you're think with applications, some to but see overlap while.

CFP course, continue taper and Of CFPX down grow year-over-year. will will to

John Gavin

anticipated in margins modules. Thejeswi, this mix the had on is two there between of much your on we right and John. QX, specifically mix I'd say the terms it pretty chips and as was questions to

think fixed is our of to terms margin. that's a where on absorption versus our think cost I revenue more relative level margin gross that in of effect the has in weighting I our QX,

a question big In seeing customer, buy talked the they buys a and that the terms we're ZTE your large about also what of a plan impact ZTE, as combination from before, still customer, today assessing chips both about on we've throughout the year margin, is for we're us. of modules but as

impact. impact really That's just to higher costs the business bigger the some the extent change and of that So at some absorb chip impact to is than margin it the gross onto some quarterly the a volume of more will that and in But in of us itself. there. terms the real will a ability we're us have overall costs margin, for levels there revenue mix our semi-fixed the fixed give losing

Operator

William Our Netis Blair. next Dmitry with is question from

Dmitry Netis

and revenue I Thank you. percentage of jump ask in cut I give ADVAs they the the and quarter? so wanted ask to can got the question back a wanted customers, represented on you I us Coriants, the to off, the John, properly. XX%

John Gavin

XX.X% In XX.X%. and QX, Dmitry,

Dmitry Netis

from Okay, is QX, right? both? and that that was up For

John Gavin

so up those be a for of XX% XX.X%, and would percent. both That XXXX, be as would QX

Dmitry Netis

those activities fair well, in And is a as demands? I maybe have discussed Very of Indian good. presume you it's assumption? some that's Europe driving these that

John Gavin

as a quarter or India, would definitely, definitely say in to last as say I his I in the increase of we're especially in there we're remarks, seeing lot alluded Raj so. activity on

opportunities. some They of sure has think progressing been activity those for I there. level newer still are are but the increasing

Dmitry Netis

wouldn't to you write-down, are know the are a took presume some into understand, why you of parts, that a just come module, us Or question I exactly it come these consideration. elsewhere? out coherent million if gross P&L, at standard parts that give X.X couldn't redeployed? be one excess redeployed? I if the it's don't but X.X I right, but that why could it's parts inventory inventory be understand, selling, let's color. if ever what board-mounted, it's And on you and into couldn't they pluggable Then last assume these can't can these it's If wouldn't I in or why margin? back XXX% be tell trying I'm you then heard If to DSP, us If may if if potentially redeployed that say

John Gavin

in on inventory, So $X.X have a the drivers, a a went And Acacia been are that may in that components that inventory. was couple of is, Dmitry. of uniquely was into a And it ZTE couple factors. bond product. it million, One these specified

of module But differences. like Some up. the up if of Things a that do ZTE of circuit the at CM. way of second some have is the that the Then specific built the we and because be component small about similar levels it inventory that set way where types similar is of set almost of the drive card, and have that can up number, we our which are in then ban that or components but there for with that would majority exposure we the we fiber bond, is have the put fully may that comes of category, half the PCBA, in inventory do up that's modules category. and/or customers inventory with components, out buildout differently chassis into the built of because is the

as cover would obligation that as a well. reserve So that

they unique really and/or module. a legacy where that for their level buyer, and/or those were the were from that from it's ZTE was items configuration specifically So a

Operator

the you. call back Thank for to of question remarks. have Shanmugaraj to gentlemen, and Raj session. we and would Ladies I answer like the end turn the reached closing

Murugesan Shanmugaraj

hope Thank you updating all forward many see look our conferences attending. be upcoming Thank next joining progress our to some of you investment of our to will quarter today. you you, David. on We call and at we for

Operator

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

lines your time. at You may disconnect this

Acacia Communications (ACIA) 4 May 182018 Q1 Earnings call transcript