Applied Optoelectronics, Inc. (AAOI) on Q1 2021 Results - Earnings Call Transcript
Operator: Hello and welcome to the Applied Optoelectronics Q1 2021 Earnings Call. All participants will be in a listen-only mode. . Please note today's event is being recorded. I'd now like to turn the call over to your host today, Lindsay Savarese. Ms. Savarese, please go ahead. Lindsay Savarese: Thank you. I'm Lindsay Savarese, Investor Relations for Applied Optoelectronics, and I'm pleased to welcome you to AOI's first quarter financial results conference call. After the market closed today, AOI issued a press release announcing its first quarter 2021 financial results and provided its outlook for the second quarter of 2021. Thompson Lin: Thank you, Lindsay. And thank you for joining our call today. We delivered revenue and gross margin in line with our expectation and a narrower non-GAAP loss per share than we anticipated. Total revenue for the fourth quarter of $49.7 million grew 22.8% compared to the fourth quarter in the prior year and was down 5.8% sequentially. As generally soft Q1 conditions in the data center segment. We expect data center business to increase in the second half of the year as our customers begin 400G upgrades and inventory issues around 100G normalize. Non-GAAP gross margin of 24.6% was in with our guidance range of 23.5% to 25%. And non-GAAP net loss was narrower than our previous guidance, come in at $0.21 per share. In our CATV segment, the overall demand environment was strong as MSOs, particularly in North America, continue to upgrade their networks. Total revenue for our CATV products increased to more than four times its prior-year level and was increased 17% sequentially, off a strong fourth quarter, to $18.6 million. This is the highest quarterly revenue for this segment in almost three years. in 5G deployments from several of our China telecom customers. As we anticipated, we started to see a nice recovery in the fourth quarter. As a result, revenue from our telecom products of $4.5 million was up 75% year-over-year and 28% sequentially. Looking ahead, we believe China will continue to make investment in both their 5G and fiber-to-the-home infrastructure. And we believe we are well positioned to sell lasers in both of these markets. We look forward to meeting again in person probably soon. With that, I will turn the call over to Stefan to review the details of our Q1 performance and our outlook for Q2. Stefan? Stefan Murry : Thank you, Thompson. As Thompson mentioned, we delivered revenue and gross margin in line with our expectations and a narrower non-GAAP loss per share than we anticipated. Operator: . And the first question comes from David Kang with B. Riley. Danny Cheng: This is Danny on for Dave. I was wondering if you guys could talk about the competitive landscape in 400H that you guys are seeing. Stefan Murry: It's pretty consistent with what we've said in prior calls. Overall, I don't think there's any significant change from the landscape at 100G. The competitors that we saw there tend to be continuing to be what we expect to be the strongest competitors at 400 gig as well. Danny Cheng: I guess on the chip shortage situation, I was wondering – you guys said that you don't expect it to negatively impact revenues. But I guess we were wondering how long you guys can expect that to persist? Stefan Murry: Well, it's a little hard to say precisely. I think it's fair to say that we expect it to persist at least a couple more quarters. And you're correct that we aren't expecting it to result in reduced revenues. We expect to continue to be able to grow revenue, but we're just sort of capped in the rate at which we can grow based on component availability probably over the next couple quarters. Beyond that, it becomes really hard to say. Our suppliers are telling us that they're adding production capacity and ramping up. And if all those plans come to fruition, as we expect, then I think we're probably looking at maybe two quarters. If it lasts a bit longer than that, it may stretch beyond that. We're also up against – I guess, you could say a good problem to have. The cable TV businesses is growing very nicely for us and we're seeing good demand picture, really through the end of this year and into next year. And so, it's harder for our suppliers to catch up because they're getting hit by higher demand than we've seen certainly in the last several years. So, it's a combination of sharply increased demand with somewhat reduced supply due to COVID considerations, and the two of those things together is what's causing that shortage. Danny Cheng: And you said into next year, so does that imply throughout 2022, you'll also see this momentum from CATV? Stefan Murry: Right now, we're pretty much booked up in CATV through the end of the year. And there's no indication that that's going to slow down next year. Obviously, being a few quarters out, that's still a little bit murky. But I think the MSOs are really at the beginning of their upgrade process, and some of them have yet to even start the upgrade process in earnest. So, I think it's reasonable to expect that that process will take several years to complete. And so, yeah, I believe that we'll see pretty strong CATV performance into 2022. Not just this year. Operator: And the next question comes on Tom Diffely with D.A. Davidson. Thomas Diffely: I wanted to get a little more color on just the data center recovery in the second half. I know a quarter ago, you thought maybe it'd be in the second quarter. But just what are the puts and takes and what kind of gives you the confidence level? Stefan Murry: I don't think anything's really wholesale changed in our outlook. I think the inventory – the over inventory situation, particularly with one of our large hyper scale customers, is just taking a little bit longer to resolve itself than we earlier thought. We expect it to recover at some point in Q2, but it's probably a little later than then we earlier anticipated. And so, for the total Q2 revenue generation from – at least from that customer, it's a little bit less than what we earlier expected. It's not a big change in what we had earlier expected. I think what we talked about on the last call remains true today, which is that the really good growth that we expect to see is going to come from the 400 gig cycle as that starts to take hold with several of our customers. And on that front, as I mentioned in our prepared remarks, we're seeing increased interest. We had several new customers come and approach us during the quarter, looking for samples, looking to begin qualification efforts. The qualification efforts that were already ongoing and 400 gig continue to go well, and the discussions with the customers continue to indicate to us that we can expect a successful conclusion from those efforts. And so, we're excited about 400 gig ramping in the second half of the year. The inventory situation that we talked about, again, with one of our large customers, that should also resolve itself late in the second quarter for a second half ramp. And then, as I mentioned, cable TV, telecom, even fiber-to-the-home in China seem to be looking very good in the second half as well. Thomas Diffely: Maybe if you're willing, a little more color on the chip shortage. Are there particular types of chips or how would you characterize where the shortages is most acute, custom, off the shelf, whatever details you might be able to provide? Stefan Murry: It's all off the shelf stuff that we're seeing shortages on. And there's no easy way to characterize it. I would say, in general, what we're seeing shortages on are not necessarily brand new cutting edge chips. In some cases, it's actually kind of older technology that I think we're just seeing unprecedented – maybe not unprecedented, but certainly higher demand than we've seen in the last several years. And I think it got – some of our suppliers were caught maybe a little bit by surprise by that. And at the same time, fab capacity and other things are very, very tight as we've seen in the automotive industry and across other calls that we've listened in on just this last earnings cycle. And it really kind of runs the gamut across multiple different chipsets and things across the industry. But I think one common trend is that there's just a very, very tight fab capacity. So, whereas in prior times, a supplier of one of these components might have been able to drop a wafer production run into a schedule that already existed because there were some gaps in there or some slack time. Now that slack is just non-existent. And so, it's taking longer for them to get new wafer starts going, and therefore, longer to ramp up that production than it had been in years past. Operator: . And the next question comes from Sam Peterman with Craig-Hallum. Sam Peterman: This is Sam on for Richard. I just want to ask a little bit more on the data center. It sounds like your largest – or I guess, first want to ask if your largest data center customer in past quarters was a 19% customer this quarter, if that's fair to think about. And then, if that's the case, on a dollar basis, that's the lowest sales you've had there in about two years, it looks like. And curious how you would see sales from that customer trending over the course of the year as data center recovers. Stefan Murry: That customer was not the 19% customer. And as we've talked about, one of our customers has an over inventory situation. We've talked about that in the last couple of calls. And I reiterated it in our prepared remarks and, again, on one of the earlier questions, so I won't waste everybody's time going over that once again. But we do anticipate that that will be resolved here in the second quarter and portend the second half ramp. Sam Peterman: On Telecom, I'm curious with 5G starting to roll out more in the second half, what kind of upside you could see for that business in the second half? And could you talk about how we expect that to ramp between the second half of 2021 and then in 2022? Whether there's kind of step up at some point or if it's kind of a linear ramp from your perspective? Any color there would be helpful. Stefan Murry: I think 2021, I think we expect a stronger second half than first half. Certainly, we've already started to see some incremental improvement. But we're not back to the levels where we were, let's say, middle part of last year. And so, I think there's some room to grow there. We're very excited about the progress that we've made in 5G. And also, as I mentioned in our prepared remarks, the FTTH business in China also seems to be picking up. But more exciting, perhaps than that within China is the fact that we have our first design win with a 5G customer outside of China. And I know that's been a question that's come up a lot over the last several quarters on these calls is, well, okay, you guys seem to be doing well in China, but what about the rest of the world? And I think that provides some tangible evidence that we're able to be successful with customers outside of the China market as well. And that's also very exciting. Operator: And the next question comes from Tim Savageaux with Northland Capital Markets. Tim Savageaux: A couple of questions. As you look at your Q2 guide and you're getting up kind of mid to high single-digits sequentially, given the data center commentary, it sounds like you expect cable TV to be the primary driver of that sequential growth, maybe a little telecom as well? Or as you look across your segments, how do you see that progressing? Stefan Murry: I think the cable TV again, I think we can see some revenue growth in there. Telecom, again, it remains to be seen how much that's going to grow in the next quarter, but certainly the trends are good so far. And the data center, it really depends pretty sensitively on how fast – particularly the customer that we've seen this inventory issue with, how fast they can resolve that inventory. We believe it'll be at some point in this quarter. But whether it happens in mid quarter or late in the quarter will kind of set the trajectory in terms of how much revenue we can actually book in this quarter. And so, that's kind of the wild card in the forecasting picture. Tim Savageaux: Just to follow up on design wins. I think you said two data center or one fiber-to-the-home and one 5G, correct me if I'm wrong there. But in the data center, is the customer you called out there, is that a new customer for Applied Opto? Or perhaps a former customer? Stefan Murry: No, it is. It's a brand new customer that we haven't sold to before. It's a California-based, social media focused data center operator. Operator: Thank you. And this concludes our question-and-answer session. I would like to turn the conference back over to Thompson Lin for any closing comments. Thompson Lin : Okay. And thank you for joining us today. As always, thank you for our investors, customers and employees for your continued support. And we look forward to virtually see many of you at our upcoming investment conference. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.AAOI Ratings Summary
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Applied Optoelectronics Shares Jump 12% on Partnership With Microsoft
Shares of Applied Optoelectronics (NASDAQ:AAOI) surged more than 12% pre-market today following the company's announcement of a new agreement with Microsoft (NASDAQ:MSFT). Under the agreement, Applied Optoelectronics will offer specific design and assembly services for goods to Microsoft. The duration of the agreement is set for five years and will renew automatically unless either party terminates it.
The scope of work within the agreement includes provisions that emphasize Applied Optoelectronics' commitment to maintaining a dedicated production line for the goods and offering a three-year warranty for them, as stated by the company.
Applied Optoelectronics Shares Jump 12% on Partnership With Microsoft
Shares of Applied Optoelectronics (NASDAQ:AAOI) surged more than 12% pre-market today following the company's announcement of a new agreement with Microsoft (NASDAQ:MSFT). Under the agreement, Applied Optoelectronics will offer specific design and assembly services for goods to Microsoft. The duration of the agreement is set for five years and will renew automatically unless either party terminates it.
The scope of work within the agreement includes provisions that emphasize Applied Optoelectronics' commitment to maintaining a dedicated production line for the goods and offering a three-year warranty for them, as stated by the company.
