Q3 2020 Applied Optoelectronics Inc Earnings Call
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Stefan Marie.
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Johnson will give an overview of aways Q3 results and Stefan will provide financial details and the outlook for the fourth quarter of 2020.
Question and answer session will follow our prepared remarks.
Before we begin I would like to remind you to review a wise safe Harbor statement on today's column management will make forward looking statements. These forward looking statements involve risks and uncertainties as well as assumptions and current expectations, which could cause the company's actual results to differ materially from those anticipated in such forward like me stay.
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In some cases, you can identify forward looking statements by terminology such as believes anticipates estimates and turns predict expects plans may should could would will or things and buy other similar expressions that convey uncertainty of future events or outcomes.
Forward looking statements also include statements regarding management's beliefs and expectations.
Related to the expansion of the reach of our products into new markets and customer responses to our innovations as well as statements regarding the company's outlook for the fourth quarter of 2020.
Except as required by law, we assume no obligation to update forward looking statements for any reason after the date of this earnings call to confirm those statements to actual results or to changes in the company's expectations.
More information about other risks that may impact the company's business are set forth in the risk factor section of the company's reports on file with the S. E C, including the company's annual report on form 10-K for the year ended December 31, 2019, and the company's quarterly report on form 10-Q for the period ended.
June 30th 2020.
Also with the exception of revenue all financials discussed today are on a non-GAAP basis, unless specifically noted otherwise non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with gas.
A reconciliation between our gap and non-GAAP measures as well as a discussion of why we present non-GAAP financial measures are included in our earnings press release that is available on our website.
Before moving to the financial results I'd like to announce at a O L management will virtually present at the need them security networking and Communications conference on November 17th at Raymond James Technology Conference on December 8th the Cowan networking and cyber Security conference on December 15th and the M K and partners cause.
France on December 16th.
The presentations at these conferences will be webcast live and links to the webcast will be available on Investor Relations section of the a O Y web site.
We hope to have the opportunity to interact with many of you virtually.
Additionally, I'd like to note that the date of our Fourthquarter 2020 earnings call is currently scheduled for February 25th 2021.
Now I would like to turn the call over to Doctor Thompson Lynn applied Optoelectronics, founder Chairman and C E O Thompson.
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Thank you Thompson.
Assumption mentioned are cute three results were broadly in line with our expectations and reflect continued progress on a revenue and customer diversification efforts and improvement in our gross margin.
We saw good growth across each of our three major business segments.
$5.3 million and accounted for 72% of our total revenue.
In the third quarter, 28% of our datacenter revenue was from our Fortyg transceiver products and 68% was from our one hundredg products.
We are pleased with our progress on our customer diversification efforts.
Overall for the quarter, our top 10 customers represented 84.9% of revenue, which compares to 88.3% in Q3 of last year.
We had 210% or greater customers in the quarter, both of which were in the data Center segment.
These customers contributed 40% and 10% of total revenue respectively.
During the third quarter. In addition to the 10% or greater customers. We had three other customers who each contributed between 5% and 10% of total revenue.
Two of these customers were in our data Center segment.
And one in CTV.
This compared to 210% or greater customers and one customer between 5% and 10% in Q3 of last year.
Our top five customers represented 75% of our revenue compared to 82% in Q3 of last year.
Turning to our CA TV product segment.
We generated revenue of $11.6 million up 90% sequentially and up 32% from $8.8 million in Q3 of last year.
As expected.
We began shipping newly designed line extends our amplifier products in the quarter and plan to ship initial quantities of system amplifier products in Q4.
Okay, alongside Nokia and three Asia Pacific service providers.
We are pleased to be working on this MSA, which positions us well in the next generation pond ecosystem and we believe this could be a long term growth driver for our fiber to the home segment.
And Q3, we generated non-GAAP gross margin of 27, 4% compared to 28, 8% in Q3 of the prior year.
Gross margin was above our guidance range of 25% to 26, 5% due to a favorable product mix, coupled with benefits from our cost reduction actions.
We expect these benefits and our product mix to further improve our gross margin in queue for which we anticipate could approach 29%.
Total non-GAAP operating expenses and the third quarter were $22.3 million or 29, 1% of revenue.
Paired with $18 $4 million or 39.9% of revenue in Q3 of last year.
Operating expenses as a percent of overall revenue decreased from last year and reflect our efficient expense management.
Non-GAAP operating loss in the third quarter was $1.3 million compared to an operating loss of $5.1 million in Q3 last year.
GAAP net loss for Q3 was nine $6 million or loss of 42 per basic share compared with the gap net loss of eight $8 million or 44 per basic share in Q3 of last year.
On a non-GAAP basis net loss for Q3 was $1.4 million or loss of six cents per basic share, which was at the high end of our guidance range of a loss of zero point $6 million to four $6 million or loss of three to 20 per basic share and compares to a net loss of 2.9 million.
Or loss of 15 per basic share in Q3 of last year.
The basic shares outstanding used for computing, the net loss in Q3, where 22 $7 million.
Turning now to the balance sheet.
We ended the third quarter with $58 $1 million in total cash cash equivalents short term investments and restricted cash.
This compares with $58 $9 million at the end of the second quarter and reflects $6.1 million in cash used for operations.
As of September 30, we had $111 $4 million in inventory compared to $97.3 million in queue too.
The increase was driven mainly by the buildup of raw material and semi finished goods inventory, which we are preparing prior to year and and in anticipation of the lunar new year holiday.
We made a total of three $5 million in capital investments in the quarter, including $1.2 million in production equipment and machinery.
And $2.2 million on construction and building improvements.
This was below our expectations as we continue to tightly managed capex.
However, as we discussed on the queue to call we did resume spending on our new China facility and Q3.
We now expect total 2020 capital expenditures to be below our prior expectations as we continue to tightly manage our capex plans.
Currently we expect 2020 capex to be approximately $22 million down from our previous estimate of $42 million.
The reduction is mostly due to a reduction in equipment purchases and building improvements as we work with our customers to anticipate the timing of the 400 G ramp next year.
We will continue to reevaluate our spending needs as our plans evolve.
Before we turn to our outlook I would like to provide a quick update on the at the market offering we announced in February.
The date, we have raised $23 $2 million in gross proceeds under this program.
Including eight $9 million raised in Q3.
As we have stated previously we intend to use these proceeds to continue to make investments in the business, including new equipment and machinery for production.
And research and development use.
Moving now to our queue for outlook.
We expect Q for revenue to be between $50 million and $55 million.
And non-GAAP gross margin to be in the range of 28, 5% to 29.5%.
Net loss is expected to be in the range of four $5 million to five $8 million and non-GAAP loss per basic share between 19 and.
In 25.
Using a weighted average basic share count of approximately 23 5 million shares.
With that I will turn it back over to the operator for the Q&A session operator.
We will now begin the question and answer session to ask a question are the one on your touch alcohol.
If you're using a speaker phone please pick up your handset before pressing the key.
If any time your question has been address we would like to withdraw your question. Please.
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At this time, we will pause momentarily to assemble or after.
Our first question comes from Dave King with me Riley.
Hi, Thanks for taking my question I just have a quick one on the 400 G. N 100 and products I was wondering if you guys could give a little color around the pricing environment do you guys see any weakness in pricing. There also how's the demand looking uhm can you guys give any colorado.
That like what are where our customers.
Demands looking like going forward and how how do you guys you strengthen that.
Product.
Sure. So regarding your first question on the pricing environment.
It's been pretty stable I mean within our within our expectations no nobody change in that regarding your question on demand.
As we talked about and are prepared remarks, I think there's some near term headwinds in from some of the Hyperscale customers. We've seen basically I think what's going on here is that several of them.
Kind of anticipated more supply chain disruption during Covid, then actually occurred so they you know they prepared extra inventory and anticipation that there would be some some problems are those problems maybe didn't materialize as as much as they thought they might and so you know they're gonna adjust their inventories back to more normal levels now that's that's what's.
Going on that that'll take the next couple of quarters to to normalize itself.
Okay, great. Thanks, and on the 204 hundred gig products, how does the progress looking hour qualifications coming along and how does the the demand and pricing environment muck for that going forward.
Sure. So I mean 200 gig products are.
That's all I have for now thank you.
Okay very good thank you.
Our next question comes from Paul Silverstein with Cowen.
The question Oh stuff. It's also how does demand for Fiveg, you look outside of China.
[noise] right now I mean, the demand that we're seeing is primarily in China <unk>, there, there's probably demand or you know outside of that but it's not something that we have much exposure to at this point.
So it's more it's definitely but I hear you correctly you just don't have much exposure I was on its own and that's that's why you. Your revenues all the levers of fog in China, not too much or very little to fiveg outside of China.
Yeah, but my suspicion is that there's not I mean, there's obviously fiveg activity going on in China, but I want to be really clear that when we talk about fiveg. What we're really talking about is ultra wideband fiveg, there's clearly fiveg deployments going on in areas outside of China, but but for the most part D. The front haul and mid Hall lean.
Links in those applications are similar to Fourg. So there is not.
You know, there's not a need for the kind of high bandwidth optics that were supplying those optics are needed in the ultra wideband Fiveg, which right now is primarily being deployed in China. So it's not that we necessarily don't have.
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