Q1 2021 Applied Optoelectronics Inc Earnings Call
Hello, and welcome to the applied Optoelectronics Q1, 2021 earnings call.
All participants will be on listen only mode should you need assistance. Please signal a conference specialist by pressing the star followed by zero.
After todays presentation, there will be an opportunity to ask questions.
Question You May Press Star then one on your touch on phone.
I'm sorry. Your question. Please press Star then two please note today's event is being recorded I'd now like to turn the conference over to your house today on the salaries or salaries. Please go ahead.
Yeah.
Thank you I'm Lindsay Savarese Investor Relations for applied Optoelectronics and I'm pleased to welcome you to Allied's first quarter 2021 financial results Conference call.
After the market closed today ally issued a press release announcing its first quarter 2020, one financial results and provided its outlook for the second quarter of 2021.
The release is also available on the company's website at Ao, Inc. Com.
This call is being recorded and webcast live.
The recording can be found on the Investor Relations section of <unk> website and will be archived for one year.
Joining us on today's call is Dr. Thompson, Lin Aoi's, founder Chairman and CEO and Dr. Stefan Murry, Aoi's, Chief Financial Officer, and Chief Strategy Officer, Tom.
Thompson will give an overview of allies Q1 results and Stefan will provide financial details and the outlook for the second quarter in 2020 one.
A question and answer session will follow our prepared remarks.
Before we begin I would like to remind you to review <unk> Safe Harbor statement.
On today's call 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 looking statements.
In some cases, you can identify forward looking statements by terminology such as.
Believes anticipates estimates intends predicts.
That plan may should could would will or thinks and by other similar expressions that convey uncertainty of future events for outcomes.
Forward looking statements also include statements regarding managements beliefs and expectations related to the expansion on the reach of our products into new markets and customer responses to our innovations as false statements regarding the company's outlook for the second quarter of 2021.
Except as required by law, we assume no obligation to update forward looking statements for any reason after the date on this earnings call to conform these statements to actual results for any changes in the company's expectation for.
For information about other rule that may impact the cash.
Okay.
For a risk factor section of the company's reports on file with SEC.
Including the company's annual report on form 10-K for the year ended December 31st Tony Tony.
Also with the exception of revenue all financials discussed today on that.
Non-GAAP basis, unless specifically noted on a y.
Non-GAAP financial measures are not intended to be considered in isolation or as a substitute for adult compared in accordance with GAAP.
A reconciliation between our GAAP and non-GAAP measures as well for 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 that management will virtually participate at the Needham technology and media conference on May 20th and the Cowen Annual Technology Media and Telecom conference on June 2nd.
The presentations at these conferences will be webcast live and thanks for the webcast will be available on the Investor Relations section, Okay why website we.
We hope to have the opportunity to interact with many of you virtually at.
Additionally, I'd like to note the date of our second quarter 2020. One earnings call is currently scheduled for August 2021.
Now I would like to turn the call over to Dr. Thompson Lin applied Optoelectronics, founder Chairman and CEO Thompson.
Thank you Lindsay and thank you for joining our call today with EBIT labeling and gross margin expectations.
Expectations.
And the NATO non cat losses per share than we anticipated.
Total aluminium for a fourth quarter for $47 million or.
Tony two important episode.
Third to the fourth quarter in the price.
And what's the bipolar episode sequentially.
As we expected with beauty jewelry salt Q1 conditions in the data Center segment.
We spent the last ended up business to increase in the second half of the years as our customers speaking for upgrades and emitter easy right.
One of the G normalize.
Non-GAAP gross margin of $24, 6%, what's in the guidance range of 21, 5% to 25 per cent and.
Good day knows what's narrow than all previous providers.
I mean it.
When he was then for sure.
No C O T vs that could be the overall demand environment for stone is M. S O for the cure in North America, continuing to upgrade their networks total value, we'll always see a TV per dose increased more than for pumps.
It's probably a year later on.
It was increased 17% sequentially.
Oh for strong fourth quarter to $18 $6 million disease.
This is the highest quarterly liberty for Lisa Goodman in almost for us.
Boy the polls in spite E deployments from cereals are shown on telecom customers.
We anticipated we started to see a nice recovery in the fourth quarter.
<unk> going to be on for all hit us on per dose on a full blown $5 million was up 75 per cent and year over year.
On the episodes sequentially.
Looking ahead, we believe China will continue to make your business in both the <unk> and fiber to home infrastructure and we believe we are well positioned to stay on laser in both of these markets. We look for to media again in person Culberson was dead on.
Ill turn the call over to Stephen to review the details of all QM performers.
For Q2 seven.
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.
Market dynamics, we anticipated played out as expected on.
We continued to see softness in the data center market. We are pleased with the nice recovery, we saw in the telecom market and continued strength in the CATV market.
In total for the first quarter, we secured for new design wins among for customers. Among these for design wins to where in our datacenter business, including one with a new customer which is a large U S based social media focused data center operator.
One was in our <unk> business and the other design win was in our S. E T H segment.
Total revenue for the first quarter of $49 $7 million grew 22 eight per cent compared to the first quarter in the prior year.
Our Q1 revenue was down five 8% sequentially and was in line with our guidance range of $47 million to $51 million.
We currently believe that the headwinds we are seeing in the data center market related to the inventory normalization. Following the shift to working from home early last year will persist through the first half for the year and then begin improving in the second half and beyond as several of our customers begin to ramp for hundred G. Later in the year and.
Conditions in our 100 G business fully normalized.
On the 400 G front, we have continued to work on qualifications and delivered samples to new customers during the quarter.
We have also received several new inquiries from Hyperscale customers for our 400 G products and we are working to deliver samples to these customers as well.
In the first quarter, 52% of our revenue was from our datacenter products 30.
38% was from our CATV products with the remaining 10% from FC Th Telecom and other.
Our datacenter revenue came in at $25 $9 million compared with $33.3 million in the first quarter of the prior year.
In the first quarter, 25% of our datacenter revenue was from our 40 G transceiver products and 68% was from our 100 G products.
Turning to our CATV products segment.
The overall demand environment remains strong as Msos, particularly in North America continue to upgrade their networks.
We generated revenue of $18 $6 million up 17% sequentially and up 341% from $4 $2 million in Q1 of the prior year.
Our CATV performance represents a record for our first quarter, which is typically seasonally down and was just shy of our highest quarter in the company's history.
And our CATV business, we have seen some component shortages, we are working with our suppliers to improve delivery schedules for these critical components and in some cases, adding additional suppliers.
We do not anticipate that these shortages will hamper our ability to continue to grow revenue.
But we may continue to have longer than usual backlogs for several quarters, while we work to improve supply.
We ended the first quarter with a strong backlog of CATV products, which we expect to continue to drive growth in this segment going forward.
As we anticipated revenue from our telecom products of for $5 million increased 28% sequentially and 75 per cent from $2 $6 million in Q1 of the prior year.
Looking ahead, we believe China will continue to make investments in both their five G and F. T th infrastructure and we believe we are well positioned to sell lasers into both of these markets.
Also notable during the quarter, we received our first five G design win from a customer outside of China.
We were excited to see that the success, we've had with our China based five G customers is beginning to spread to other regions as five G itself begins to ramp in other areas outside of China.
For the first quarter, our top 10 customers represented 95 per cent of revenue compared to 84, 8% in Q1 of the prior year.
This increase in revenue among the top 10 customers is largely related to the strong results in CATV as several customers. In this segment contributed significantly to the increased revenue this quarter.
We had for 10% or greater customers in the first quarter two of which were in the datacenter market and two of which were in our CATV market.
These customers contributed 19%.
16%, 16% and 14% of total revenue respectively.
In Q1, we generated non-GAAP gross margin of 24, 6%, which was in line with our guidance range of $23 five per cent to 25 per cent and compared to 19, 5% in Q1 of the prior year.
Total non-GAAP operating expenses in the first quarter were $20.6 million or <unk> 41 point for percent of revenue compared with $19 $4 million for 48% of revenue in Q1 of the prior year.
As we mentioned on the Q4 call we experienced additional costs during the first quarter due to the historic storm that hit Texas in February, which total zero point $5 million.
Non-GAAP operating loss in the first quarter was $8 $4 million compared to an operating loss of $11.5 million in Q on the prior year.
GAAP net loss for Q1 was $15 6 million or a loss of 59 cents per basic share compared with a GAAP net loss of $16 8 million or a loss of 83 cents per basic share in Q1 of 2020.
On a non-GAAP basis net loss for Q1 was $5 5 million or a loss of 21 cents per basic share, which was narrower than our guidance range of a loss of $5 $9 million to $7 $3 million or loss in the range of 23 to 28 cents per basic share and compares to a net loss of $8 8 million.
Or a loss of 44 cents per basic share in Q1 of the prior year.
The basic shares outstanding used for computing the net loss in Q1 were $26 4 million.
Now turning to the balance sheet.
We ended the first quarter with $49 $3 million in total cash cash equivalents short term investments and restricted cash.
This compares with $50 $1 million at the end of the fourth quarter and reflects $15 $2 million in cash used for operations.
As of March 31, we had $106 $3 million in inventory compared to $110 $4 million at the end of Q4.
Inventory decreased due to utilization of inventory as orders, especially for telecom and CATV products increased.
This inventory reduction is consistent with our long term plan as we focus on rationalizing inventory levels.
We made a total of $2 $7 billion in capital investments in the quarter, including $2 $3 million in production equipment and machinery.
And zero point $3 million on construction and building improvements.
The construction on our new China facility is largely complete with all heavy construction done.
In total we currently expect 2021 capex to be approximately $16 million, although as we have noted in prior years, there can be significant variability and this estimate as the year progresses.
I would also like to provide a quick update on the at the market offering that we announced in February of 2020.
To date, we have completed this program raising the total of $55 million in gross proceeds including $14 $7 million raised in Q1.
As we disclosed in February we have initiated a new at the market offering.
To date, we have raised zero point $6 million under this new program.
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 Q2 outlook.
We expect Q2 revenue to be between $51 million and $56 million and non-GAAP gross margin to be in the range of 25.5 per cent to 27 five per cent.
Non-GAAP net loss is expected to be in the range of $3 $8 million to $5 6 million and non-GAAP loss per basic share between 14th fence and 21 cents using weighted average basic share count of approximately 27.2 million shares.
With that I will turn it back over to the operator for the Q&A session on.
Operator.
Thank you, yes, we will now begin the question and answer session per ask a question you May Press Star then one on your Touchtone phone.
As you know speakerphone, please pick up your handset before pressing the keys to try a question. Please press Star then two.
At this time, we'll pause momentarily to assemble the roster.
And the first question comes with that from David Kang with B Riley.
Hey, guys. Thanks for taking the question. This is Danny on for Dave I was wondering if you guys could talk about the competitive landscape in 400 G that you guys are saying.
Yeah, I mean, it's pretty consistent with what we've said in prior prior calls.
Overall, I don't think Theres any a significant change from the landscape at 100 G. The competitors that we saw there tend to be.
Continuing to be what we expect to be the strongest competitors it for 100 gig as well.
Yeah.
Got it and I guess on the chip shortage situation I was wondering.
Net said that you are expected to negatively impact revenues, but on.
I guess you were wondering how long you are you guys kind of expect that to persist.
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 and you're correct that we arent expecting it to two resulting in reduced revenues, we expect to continue to be able to grow revenue, but we're just sort of a cash.
<unk> in the rate at which we can grow based on component availability. It probably over the next couple of quarters beyond that it becomes really hard to say our suppliers are telling us that there you know.
Adding production capacity and.
Ramping up and if all of those plans come to fruition as.
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 a I guess you could say a good problem to have I mean, the cable TV business is growing.
Very nicely for us so we're seeing good demand picture really through the end of this year and into next year and so it's it's it's harder for for our suppliers to catch up because they're getting hit by a higher than higher demand and we've we've seen certainly in the last several years. So it's a combination of you know.
Sharply increased demand with a somewhat reduced supply due to COVID-19 considerations and the two of those things together are what's causing that shortage.
Got it and you said into next year so.
Does that imply throughout 2022, you will also see this momentum from C. A T D.
Right now, we're pretty much booked up in CATV through the end of the year.
And and there's no indication that.
You know that that's going to slow down next year is obviously, you know being a few quarters out that's still a little bit murky, but I think the msos are really.
You know at the beginning of their upgrade process on some of them have yet to even start the upgrade process in earnest.
So you know I think it's reasonable to expect that that process will take several years to complete.
And so so yeah I I believe.
But we will see pretty strong CATV performance into 2022.
Not just this year.
Great. Thank you for the color.
You're welcome.
Thank you and the next question comes from Tom definitely with D. A Davidson.
Yeah. Good afternoon 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 would be in the second quarter, but just what are the puts and takes on what kind of gives you the confidence level.
Yeah, I mean, I don't think anything is really wholesale changed in our outlook.
I think the inventory the over inventory situation, particularly with one of our large hyperscale customers.
It's just taking a little bit longer to 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 we earlier anticipated and so for the total Q2.
You know revenue generation from at least from that customer you know, it's a little bit less than what we had earlier expected. It's not 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 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 in and approach us.
During the quarter looking for samples looking to begin qualification efforts. The qualification efforts that were already ongoing in 400 gig are continue to go well and in the discussions with the customers continue to.
Indicate to us that are that we can expect.
A successful conclusion from those from those efforts.
And so you know we're excited about 400 gig ramping in the second half of the year.
The inventory situation that we talked about with the.
Again with one of our large customers that should also resolve itself late in the second quarter.
For.
A second half ramp.
And and then as I mentioned cable TV telecom, even fiber to the home in China seem to be.
<unk> very good in the second half as well.
Okay great.
And maybe if you're willing to have more color on the chip shortage.
Yeah are there particular types of chips or how would you characterize where the shortages is most acute cluster them off the shelf whatever details you might be able to provide.
Yeah, it's all it's all off the shelf stuff that where we're seeing shortages on them.
And you know, it's there's no easy way to characterize it I would say in general what we're seeing shortages on or not necessarily.
Brand, new cutting edge chips are 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 that we've seen in the last several years.
And I think it got.
Some of our suppliers.
We're caught maybe a little bit by surprise by.
By that and at the same time, you know fab.
<unk> fab capacity and other things are very very tight.
As we've seen in the automotive industry and across other calls that are 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 for one common trend is that there's just a very very tight fab capacity, so whereas in prior times.
Supplier of one of these components might've been able to drop.
Our wafer production run into a schedule that already you know already existed because there were some some gaps and there are some slack time now that slack is just not existent and so it's taking longer for them too.
Get new wafer starts going in and therefore, no longer to ramp up that production on it than it had been in years past.
Yeah that color was very helpful. I appreciate it and thanks for your time today.
Sure.
Thank you and once again, please press star and then one if you would like to ask a question.
And the next question comes from Sam Peter on with Craig Hallum Capital.
Hi, guys. This is Sam on for Richard I, just want to ask a little bit more on the data center it sounds like your.
Largest personal naphtha, if your largest data center customer.
And in past quarters was the 19%.
Customer this quarter, if that's true.
Fair to think about on them.
That's the case on on a dollar basis.
That's the lowest sales you've had there.
About two years it looks like I'm curious, how you would see that.
Sales to that customer trending.
Over the course of the years data center recovers.
Yeah, so that that customer was not the 19% customer.
And you know as we've talked about.
One of our customers has a has an over inventory situation, we talked about that in the last couple of calls and I reiterated it in our prepared remarks and again on one of the earlier question. So I won't.
Waste everybody's time going over that once again, but but.
But we do anticipate that that'll be resolved here in the second quarter and portend, a second half ramp.
Okay. Thanks for that and then on telecom I'm curious with <unk> starting to roll out more on the second half what kind of upside you think you could see for that business from the second half could you talk about how we expect that to ramp between the second half for 2021 and then in.
In 2022, whether theres some stuff up at some point or if it's kind of a linear.
On ramp from your perspective any color there would be helpful.
Well 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 you know, 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 five G and also as.
As I mentioned in our prepared remarks, the DFT th business in China also seems to be picking up but more exciting perhaps than the NAD within China is is the fact that we have our first design win with a five G 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.
Well, Okay, you guys seem to be doing well in.
In China, but you know what about the rest of the world and I think that that provide 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.
Sure. Thanks for that that's it for me.
My pleasure.
Thank you and the next question comes from <unk> with Northern capital markets.
Hi, good afternoon.
Couple of questions.
As you look at your Q2 guide and you're guiding up kind of mid high single digits sequentially, given the data center commentary it sounds like you expect.
Cable T V 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 yeah, I think that the cable TV again, I think we can we can see some some revenue growth in there.
You know telecom.
Again.
Yeah.
My pleasure.
Thank you and welcome.
A question and answer session I would like to turn the conference back over to Thompson Lin for any closing comments.
Okay, and thank you for joining us today as always zone.