Q4 2021 Applied Optoelectronics Inc Earnings Call
Good afternoon, I will be your conference operator, and at this time I would like to welcome everyone to be applied Optoelectronics fourth quarter and full year 2021 earnings conference call all.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to enter the queue. You May Press Star then one should you require assistance. Please press star zero to reach the operator.
Please note that the call is being recorded I would now like to turn the country, everybody Kathy fully investor relations for <unk>.
Hi, Julie you may begin.
Thank you caspase Taylor Investor Relations for applied.
I'm pleased to welcome you to Aoi's fourth quarter and full year 2021 financial results.
After the market closed today.
<unk> issued a press release announcing its fourth quarter and full year 2021 financial results and provided its outlook for the first quarter of 2022.
The release is also available on the company's website.
Dash, Inc.
This call is being recorded and webcast live.
A link to the recording can be found on the Investor Relations section of the ally website and will be archived for one year.
Joining us on today's call are Dr. Thompson, Lin Aoi's, founder, Chairman and CEO and Dr. Stefan Murry, Aoi's, Chief Financial Officer, and Chief Strategy Officer.
And we will give an overview of Aoi's Q4 results and Stefan will provide financial details and the outlook for the first quarter of 2022.
A question and answer session will follow our prepared remarks.
Before we begin I'd like to remind you to review Aoi's Safe Harbor statement.
On today's call management will make forward looking statements.
Forward looking statements involve risks and.
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 expects plans may should could would will or thinks.
And by other similar expressions may convey uncertainty.
Sure events or outcomes.
Forward looking statements also include statements regarding managements beliefs and expectations related to the expansion of the reach of our products into new markets and customer responses to our innovation.
As well as statements regarding the company's outlook for the first quarter of 2022.
Expect 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 conform these 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 factors section of the company's reports on file with the SEC, including the company's annual report on Form 10-K for the year ended December 31 2020.
Also 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 that.
A reconciliation between our GAAP 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.
I'd like to note the date of our first quarter 2022 right. It's.
It's currently scheduled for May 2022.
Now I'd like to turn the call over to Dr. Thompson Lin applied Optoelectronics, founder Chairman and CEO .
Thompson.
Thank you Cathy and thank you for joining our call today.
Turning to the fourth quarter.
Doug the EPS.
We saw expectations gross margin expectations.
Expectations.
Also due to unfavorable product mix increased kohls it.
At this pace.
If I can.
But I'll just tick.
Yes.
During the quarter, we continue to see strong demand in the CATV market improving conditions.
Yeah.
We achieved total living for fourth quarter of $34 $4 million.
Which increased four 1% compared to the fourth quarter of 2020.
And increased people and 1% sequentially.
Hello there.
<unk> of $24 $9 million was up 50 basis points and 4% year over year below seven 9% sequentially.
The overall GDP.
Thanks Joel.
We couldnt dose.
Please.
Older logs extending into Q4.
<unk>.
We believe.
The conditions in our CATV market, all likelihood has been highly favorable into 2023.
He called off road are currently being used.
Upgrade project.
The three largest CATV and that's O U S alone with all of those smaller operators.
Total roaming for all data in the fourth out of $25 2 million.
Louise Chen.
<unk>, 341% year over year.
The increase by 3% sequentially.
The sequential growth encourage.
Inventory level was our largest data center customer.
Appear to have returned to normal levels and delivery.
This new demand from this customer.
We do it.
In addition to our largest customer.
We saw a significant order inquiries from several of our new data center customers.
Some of it increases.
Well offset.
Anticipated decline 40, just lately.
Kevin.
Mix continued to shift to one other.
In addition, I'm very pleased to report that.
During the quarter, we receive all volume orders for <unk> for adults from two different data center customers.
With reject the accumulation.
Marty.
Qualification effort with these customers.
And we believe this initial order.
For those significant orders in the future as 400 gig gradually take this one.
<unk> is a dominant deliberate within large data centers.
During the fourth quarter with Q4 design wins.
Full cost of this.
Hello. This is that we will receive a set of customers.
<unk> telecom customers.
One of the best into wins.
Was it was an existing guests and our customers for off one of your products.
This customer is currently quite tricky one energy product.
Roy.
Split and initial volume older Boys.
400 <unk> deployments.
I will turn the call over to Steffen.
The details of our Q4 performance and outlook for Q1 stood at.
Thank you Thompson.
As Thompson mentioned, we delivered revenue and non-GAAP EPS in line with our expectations and gross margin below our expectations, mostly due to unfavorable product mix.
The anticipated supply chain and logistics costs.
During the quarter, we continued to see strong demand in the CATV market and improving conditions in the data center market.
As we anticipated our results were adversely impacted by approximately $3 million due.
Due to the well known component shortages and supply chain disruptions.
Currently we believe that supply constraints are easing and do not anticipate revenue shortfall in the first quarter due to an inability to source necessary raw materials.
We do believe however, the pricing and shipping costs on many of these components will remain elevated for some time and this will negatively impact margins in the quarter.
Turning to our quarterly performance, we secured four new design wins among for customers.
Of the four design wins, two or with data center customers and two with telecom customers.
One of the data center design wins with our first for 400 G products and was with an existing data center customer.
This customer is currently purchasing 100 G products from NOI and it's placed an initial volume order for its earliest 400 G deployments.
We are pleased to report that this customer has chosen <unk> as the primary supplier for its 400 <unk> datacenter transceiver needs.
Total fourth quarter revenue of $54 $4 million increased three 1% compared to the fourth quarter of 2020 and increased two 1% sequentially.
Our Q4 revenue was at the upper end of our guidance range of $51 million to $55 million.
In the fourth quarter, 46% of our revenue was from our data center products, 46% from CATV products with the remaining 8% from the X Eth telecom and other.
And our CATV product segment, the overall demand environment remains exceptionally strong as msos, particularly in North America.
To upgrade their networks.
We generated revenue of $24 $9 million up 56, 4% year over year and up seven 9% sequentially.
Looking ahead.
We continue to have good visibility with CATV orders as we currently have an unprecedented order backlog extending into Q4 of this year.
We believe that conditions in our CATV market are likely to remain highly favorable into 2023, because our products are currently being used in network upgrade projects by the three largest CATV msos in the U S along with other smaller operators.
In General these network upgrades are still in their early phases and all of the projects are currently expected to continue well into 2023 or beyond.
Our Q4 data center revenue came in at $25 2 million.
Down 23, 1% year over year and up five 3% sequentially.
In the fourth quarter, 14% of our datacenter revenue was from our 40 G. Transceiver products, 79% was from our 100 gig products and <unk>, 4% was from our 204 hundred gig transceiver products.
We're very pleased to have begun volume shipments of our 400 G portfolio as these products have been under qualification by 11 different customers in the first design wins and associated volume orders give us increased confidence in our traction within the 400 G datacenter market.
While we began shipments of 400 <unk>. We are also preparing our first 800 G samples, which we expect to deliver for the first of our interested customers by the end of next month.
And we have begun concept discussions with several customers on ideas beyond 800 G include.
Including one six terabits per second.
So we can see a clear progression of increasing data rate products being developed by alloy and customer interest in these future product activities remains high.
Now turning to our telecom segment.
Revenue from our telecom products of $3 3 million was down five 8% year over year and declined 36, 1% sequentially.
In line with our expectations, we saw continued volatility and market conditions in the China telecom market with respect to <unk> rollout.
Looking ahead, we continue to expect quarter to quarter variability until the pace of <unk> Rollouts in China becomes more predictable.
For the fourth quarter.
Our top 10 customers represented 88, 4% of revenue.
Up from 85, 1% in Q4 of the prior year.
We had 310% or greater customers in the fourth quarter, one in the CATV market and two in the data center market.
These customers contributed 36, 1%.
15% and 12, 4% of total revenue respectively.
For the full year, we had 310% or greater customers too in the CATV market and one in the datacenter market.
These customers contributed 25, 6%.
14, 1%.
And 11, 9% of revenue respectively.
In Q4, we generated non-GAAP gross margin of 17, 6%.
Which was below our guidance range of 18, 5% to 20%.
And was down from 19, 9% in Q3 of 2021 and 27, 5% in Q4 of 2020.
The decline in our gross margin was mostly due to unfavorable product mix and increased costs from component shortages.
As we discussed last quarter, we have experienced price pressure on certain of our 100 G data center products. As these product lines have reached full maturity and 400 G additions have begun.
In addition, our CATV segment, we have seen an inventory correction of some of our higher margin products by one of our customers that are significantly reduced orders for these higher margin products.
These product mix issues overlap with well known supply chain challenges and increases in shipping costs that also provide a margin headwind.
Finally, we reduced production of lasers in our fab in Q4 due to slower demand from the China <unk> market as well as managing inventory ahead of the lunar new year.
This reduction in fab output resulted in under absorption of the fixed cost of running the fab and further pressured our margins.
We believe most of these impacts are transitory.
While 100 G margins are likely to continue to remain pressured we expect these products to represent a smaller contribution to data center revenue is 400 G begins its ramp and we begin to see cost reduction associated with the transition to volume production.
On the CTV front, we have a number of cost reduction efforts that have been implemented to reduce raw material and production costs for our highest volume products.
In addition, we expect the unfavorable mix shift due to the inventory correction mentioned above to ease by mid year.
While we expect margins in Q1 to continue to be pressured by many of the factors Ive already discussed and additionally by the effects of lunar new year on our Asian operations Q2, and beyond currently look significantly more favorable in terms of gross margin as these headwinds moderate or eliminated altogether.
Total non-GAAP operating expenses in the fourth quarter were $16 9 million or 31% of revenue.
With $26 million or <unk>, 39% of revenue in Q4 of the prior year.
The reduction in operating expenses is due to a decrease in R&D spend as some of the costs associated with our 400 G development have begun to subside.
Along with benefits from certain cost reduction efforts, we made during the quarter.
Operating expenses were further improved by careful cost control along with a significant reversal of previously accrued bonuses, especially two executives which occurred in Q4.
We anticipate continued disciplined cost control until a return to consistent profitability has been demonstrated.
While we intend to carefully control operating expenses, we continue to invest in new product development.
In addition to the 800 <unk> at 1.6 Terabyte transceiver work I discussed earlier for our datacenter customers.
We also have been actively developing high power lasers intended for use in lidar and other sensing applications.
These lidar lasers have applications in automotive driver assistant systems.
Security monitoring.
<unk> reality and other three D sensing systems.
These products have been under development for several years now and within the last few months, we have begun shipping qualification samples to eight different customers.
Most of which are in the automotive space.
Initial feedback from these customers has been very positive further reinforcing our conviction that <unk> laser related R&D remains at the forefront of new technology, both in our data center market and in new markets like automotive.
While meaningful revenue for these light our lasers is likely a year or two away. The addition of these products continues the trend of greater diversity within our customer base.
As many of you know increasing revenue diversity has been a key element of our risk reduction strategy for more than three years.
non-GAAP operating loss in the fourth quarter was $7 3 million.
Compared to an operating loss of $6 1 million in Q4 of the prior year.
GAAP net loss for Q4 was $14 5 million or.
Core loss of 54 per basic share compared with a GAAP net loss of $13 4 million.
Or loss of <unk> 57 per basic share in Q4 of 2020.
On a non-GAAP basis net loss for Q4 was $5 5 million or.
Or loss of <unk> 20 per basic share.
Which was in line with our guidance range of a loss of $5 5 million.
To $6 6 million or a loss per share in the range of 20.
To <unk> 24 per basic share and compares to a net loss of $4 8 million or a loss of <unk> 20 per basic share in Q4 of the prior year.
The basic shares outstanding used for computing the net loss in Q4 were $27 1 million.
Turning now to the balance sheet, we ended the fourth quarter with $41 $1 million in total cash cash equivalents short term investments and restricted cash. This compares with $48 9 million at the end of the third quarter.
Notably, we reduced total debt compared with Q3 by $5 8 million are utilizing less of our revolving line of credit at year end.
As of December 31.
We had $92 $5 million in inventory compared to $94 5 million at the end of Q3 inventory.
Decreased primarily due to utilization of inventory for customer orders.
We made a total of $2 $3 million in capital investments in the quarter, including $2 1 million in production equipment, and machinery and <unk> $1 million in construction and building improvements.
We are still in the process of evaluating our Capex plans for 2022, and we will share our expectations as soon as we complete our analysis.
Moving now to our Q1 outlook.
We expect Q1 revenue to be between $51 million and $54 million and non-GAAP gross margin to be in the range of 15, 5% to 17, 5%.
non-GAAP net loss is expected to be in the range of $8 3 million to $9 5 million and non-GAAP loss per basic share between 30 and 35 using.
Using a weighted average basic share count of approximately 27 5 million shares.
With that I'll turn it back over to the operator for the Q&A session operator.
Thank you and we will now begin the question and answer session.
If you would like to ask a question you May Press Star then one on your telephone keypad.
We may need to pick up your handset before pressing the keys.
And if you would like to withdraw your question you May Press Star then two.
Once again that is star then one to ask a question and we will pause momentarily to assemble the roster.
Sure.
And our first question today will come from Sam Peter made with Craig <unk>.
<unk> Capital Group. Please go ahead.
Hi, guys. Thanks for taking my question.
Want to ask on gross margins, obviously with it seems like some of the mix issues and table resolving.
By the middle of the year that the margin outlook for the back half will be better.
Do you guys think you can get into kind of a mid twenties there.
Or what kind of is as you know the cable issue resolved in data center.
You start to ramp 100 gig is mid Twenty's kind of.
Reasonable for where you guys think you can go or how do you think about margins in the second half.
Yes, I think mid Twenty's is an achievable number for us.
It's difficult to put a precise timeline on that I mean, there's a lot of moving parts as we mentioned some of the component shortages and other things that have been affecting us.
A little bit difficult to provide an exact timeframe for that but it's certainly a number that we think is achievable.
Okay.
Fair enough.
On data center.
It sounds like with these two customers.
And 400 gig ramping in the second half that will.
Ill provide an uplift tomorrow.
Tomorrow or today.
How should we think about this on our revenues in the first half and then.
Should we think about what 400 gig can add is that.
And the low millions or even potentially more than that in the second half.
Well I think.
Data center revenues, probably will we will.
B B.
Reasonably consistent.
Throughout the first half of the year with where they were in the last quarter and then as you mentioned, we'll start to see a ramp now some of that there will be a little bit of a shift there as we mentioned in our prepared remarks from sort of a 100 G to starting to see a little bit more of an increase in the 400 G revenue.
It's probably not going to be hugely meaningful certainly in the first half until we start to see a ramp.
Later on in the year hopefully.
But.
But within that within that.
That mix is shifting we don't think the overall number is going to change that much in the first quarter or two of the year.
Okay.
Okay.
And then on the <unk>.
400 gig customers you've kind of described one of them is there any way you could characterize.
The other one.
<unk>.
Is there any way are you on the second part of your customer.
Are you also the primary lead supplier, there and how would you size that one where that opportunity relative to that.
First 400 gig one.
I would say that the the size of both the customers is probably.
I mean, roughly similar I don't have the.
The.
The total purchasing trend for each of them I don't have a number.
On the customer that we didn't talk about as much I don't have information from them about whether we're the primary or secondary source on that.
Some customers will tell you that information directly others will not.
So from that perspective, I can't give you that information, but certainly we believe that that all of the customers will have multiple sources.
Sure.
The top one or two are you probably going to get a pretty reasonable market share and thats, what we would expect that both of these customers.
Okay Fair enough that's it for me thanks, guys.
Okay.
And once again, if you would like to ask a question. Please press Star then one.
And our next question will come from Robert <unk> with Cowen. Please go ahead.
Hi, This is Bob mangrove for Paul Silverstein, Hi, guys. At one time, you were thinking that 400 G could be 10% of revenue. This year is that still.
And the work still what you would see.
I wouldn't say.
I don't think not.
We haven't changed our outlook much on the 400 G. I think it's really positive that we're starting to see.
Fuel orders a volume order slowing from a couple of customers now we still have a number of qualification efforts that are underway.
But we're optimistic we'll culminate here in the next few months.
And all of those opportunities together should drive revenue whether that will be 10%.
By the end of the year or not.
Difficult to say, but I think it is possible.
Okay.
And in the past I guess last quarter in one of your principal customers for 400 G was seeing their own supply chain constraints, which is limiting their ability to place orders did I hear correctly that that's been resolved.
That was more related to just the overall.
Inventory situation as you recall, if you go back a few quarters we had.
That particular customer had been.
Hit with.
Supply chain issues that affected their overall deployment of not only 400 G. But also 100 G technology at the time so it wasn't the statements specifically on <unk>. It was just the overall.
Okay demand coming back.
Okay.
Is that still an issue with them or has that been addressed.
I think it's largely been addressed at this point okay.
And at the moment.
Your data center and CCTV is.
Pretty evenly split and it sounds like you're pretty optimistic about going forward. The CATV do you still see an even split or youre going to expect to see CATV, a larger greater percentage than the data center going forward for the year.
I think there'll be fairly comparable for the year.
As you recall.
Past experience, our first quarter in cable TV can be a little bit challenging for us just because we have the lunar new year shutdown, which affected most of our cable TV products are made in Asia. So by virtue of the fact that Theres just less time in Q1 due to the lunar new year.
Oftentimes puts a damper on our ability to expand cable television. So we may see.
Cable TV.
Grow as much early in the year as it will in the back half of the year.
And so from quarter to quarter, you might see some variability, but if you look at the year as a whole I think the two are probably be fairly comparable.
Alright, well, thank you for taking my questions.
My pleasure.
And once again, if you would like to ask a question. Please press Star then one.
Okay.
And this will conclude the question and answer session I would like to turn the conference back over to Thompson Lin for any closing remarks.
Okay, and thank you for joining our call today.
We wanted to turn this thing to you to our investors customers and employees.
For your continued support we look forward to.
To update you on our next earning call.
And the conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
Okay.
[music].
Okay.
Thanks.
Yes.
Yes.
Please go ahead.
Okay.
Okay.
Okay.
Thank you.
Okay.
Okay.
Yes.
Okay.
Thank you.
Got it.
Thanks, Matt.
No.
Yes.
Yes.
Yes.
Yes.
Thanks.
Okay.
[music].
[music].
[music].
Good afternoon, I will be your conference operator, and at this time I would like to welcome everyone to be applied Optoelectronics fourth quarter and full year 2021 earnings conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
If you would like to enter the queue. You May Press Star then one should you require assistance. Please press Star then zero to reach the operator.
The difficult is being recorded I would now like to turn the country, everybody Kathy Chipotle Investor Relations for <unk>.
You may begin.
Thank you caspase Taylor Investor Relations for applied Optoelectronics.
Please fill up and use a O i's fourth quarter and full year 2021 financial results.
After the market closed today.
<unk> issued a press release announcing its fourth quarter and full year 2021 financial results and provided its outlook for the first quarter of 2022.
The release is also available on the company's website.
Dash, Inc.
This call is being recorded and webcast live.
A link to the recording it can be found.
Mr Relations section of the AOI website and will be archived for one year.
Joining us on today's call are Dr. Thompson, Lin Aoi's, founder, Chairman and CEO and Dr. Stefan Murry, Aoi's, Chief Financial Officer, and Chief Strategy Officer.
We will give an overview of Aoi's Q4 results and Stefan will provide financial details and the outlook for the first quarter of 2022.
A question and answer session will follow our prepared remarks.
Before we begin I'd like to remind you to review Aoi's Safe Harbor statement.
On today's call management will make forward looking statements.
Forward looking statements involve risks and.
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 expects plans may should could would will or thinks.
And by other similar expressions that convey.
Future events or outcomes.
Forward looking statements also include statements regarding managements beliefs and expectations related to the expansion of the reach of our products into new markets and customer responses to our innovation.
As well as statements regarding the company's outlook for the first quarter of 2022.
I expect us 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 conform these statements to actual results or to changes in the company expectation.
More information about other risks that may impact the company's business are set forth in the risk factors section of the company's reports on file with the SEC, including the company's annual report on Form 10-K for the year ended December 31 2020.
Also 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 GAAP.
A reconciliation between our GAAP and non-GAAP measures as well as a discussion of why we put that non-GAAP financial measures are included in our earnings press release that is available on our website.
I'd like to note the date of our first quarter 2022 earnings call is currently scheduled for late 2022.
Now I'd like to turn the call over to Dr. Thompson Lin applied Optoelectronics, founder Chairman and CEO .
Thompson.
Thank you Cathy and thank.
Thank you for doing all coal today.
Turning to the fourth quarter with Liberty dunk that EPS.
We saw expectations gross margins below our expectations.
The tissues.
Due to unfavorable product mix increased kohl's.
At this pace.
Supply chain.
I'll just keep expenses.
During the quarter, we continue to see strong demand in the <unk>.
<unk> TV market.
Peruvian conditions.
Yeah.
We achieved total revenue for fourth quarter of $34 $4 million.
<unk> increased <unk>, 1% compared to the fourth quarter of 2020.
And increased <unk>, 1% sequentially.
But will there be CATV, a symptom of $24 $9 million was up 50 basis points, 0.4% year over year loss seven 9% sequentially.
The overall demand environment. Thanks Joel.
Currently.
David Please.
Older logs extending into Q4.
Yes.
We believe.
The conditions in our CATV market are likely to remain highly favorable into 2023.
He calls uproar about are currently being used.
Upgrade project.
The three largest COPD and S O U S alone with all of those smaller operators.
Total revenue for all data after the product of $25 2 million decrease.
23, 1% year over year.
An increase by 3% sequentially.
The sequential growth encouraged.
Inventory level with our largest data center customer.
Appear to have returned to normal levels and delivery.
As new demand for this.
Customer.
In addition to our largest customer.
We saw a significant order inquiries from several of our newer data center customers.
Some of it increases.
We'll offset was that.
<unk> declined 40 globally.
The mix continued to shift to one other.
In addition, I'm very pleased to report that during the quarter. We do see is all volume orders before energy per dose.
Two different data center customers.
Basically reject the accumulation.
Marty.
Qualification effort with these customers.
And we believe this initial order will lead to further significant older.
In the future is for energy gradually surpasses one J D.
Dominate the elaborate within large data centers.
During the fourth quarter with Q4 design wins.
The full cost of this.
Hello, This is that working with us and our customers.
<unk> telecom customers.
One of the best into wins.
Wasn't with existing guests and our customers for awful energy per dose.
This customer is currently projected one energy product.
That has spread and initial volume orders.
Voice.
100, <unk> deployments with that I will turn the call over to Stefan to review the details of our Q4 performance and outlook for Q1.
Thank you Thompson.
As Thompson mentioned, we delivered revenue and non-GAAP EPS in line with our expectations and gross margin below our expectations, mostly due to unfavorable product mix and unanticipated supply chain and logistics costs.
During the quarter, we continued to see strong demand in the CATV market and improving conditions in the data center market.
As we anticipated our results were adversely impacted by approximately $3 million.
Due to the well known component shortages and supply chain disruptions.
Currently we believe that supply constraints are easing and do not anticipate revenue shortfall in the first quarter due to an inability to source necessary raw materials.
We do believe however that pricing and shipping costs on many of these components will remain elevated for some time and this will negatively impact margins in the quarter.
Turning to our quarterly performance, we secured four new design wins among for customers of.
Of the four design wins, two or with data center customers and two with telecom customers.
One of the data center design wins with our first for 400 G products and was with an existing data center customer.
This customer is currently purchasing 100 G products from Hawaii and has placed an initial volume order for its earliest 400 G deployments we.
We are pleased to report that this customer has chosen <unk> as the primary supplier for its 400 G datacenter transceiver needs.
Total fourth quarter revenue of $54 $4 million increased three 1% compared to the fourth quarter of 2020 and increased two 1% sequentially.
Our Q4 revenue was at the upper end of our guidance range of $51 million to $55 million.
In the fourth quarter, 46% of our revenue was from our datacenter products, 46% from CATV products with the remaining 8% from <unk> telecom and other.
And our CATV product segment. The overall demand environment remains exceptionally strong as msos, particularly in North America continued to upgrade their networks.
We generated revenue of $24 9 million up 56, 4% year over year and up seven 9% sequentially.
Looking ahead.
We continue to have good visibility with CATV orders as we currently have an unprecedented order backlog extending into Q4 of this year.
We believe that conditions in our CATV market are likely to remain highly favorable into 2023, because our products are currently being used in network upgrade projects by the three largest CATV msos in the U S along with other smaller operators.
In General these network upgrades are still in their early phases and all of the projects are currently expected to continue well into 2023 or beyond.
Our Q4 data center revenue came in at $25 2 million.
Down 23, 1% year over year and up five 3% sequentially.
In the fourth quarter, 14% of our datacenter revenue was from our 40 G transceiver products.
79% was from our 100 G products at <unk>, 4% was from our 204 hundred gig transceiver products.
We are very pleased to have begun volume shipments of our 400 G portfolio.
These products have been under qualification by 11 different customers in the first design wins and associated volume orders give us increased confidence in our traction within the 400 G datacenter market.
While we began shipments of 400 <unk>. We are also preparing our first 800, <unk> samples, which we expect to deliver to the first of our interested customers by the end of next month.
And we have begun concept discussions with several customers on ideas beyond 800 G.
Including one six terabits per second.
So we can see a clear progression of increasing data rate products being developed by OE and customer interest in these future product activities remains high.
Now turning to our telecom segment revenue from our telecom products of $3 3 million was down five 8% year over year and declined 36, 1% sequentially.
In line with our expectations, we saw continued volatility and market conditions in the China telecom market with respect to <unk> rollout.
Looking ahead, we continue to expect quarter to quarter variability until the pace of <unk> Rollouts in China becomes more predictable.
For the fourth quarter.
Our top 10 customers represented 88, 4% of revenue.
Up from 85, 1% in Q4 of the prior year.
We had 310% or greater customers in the fourth quarter, one in the CATV market and two in the data center market.
Of these customers contributed 36, 1%.
15% and 12, 4% of total revenue respectively.
For the full year, we had 310% or greater customers too in the CATV market and one in the data center market.
These customers contributed 25, 6%.
14, 1%.
And 11, 9% of revenue respectively.
In Q4, we generated non-GAAP gross margin of 17, 6%.
Which was below our guidance range of 18, 5% to 20%.
And was down from 19, 9% in Q3 of 2021 and 27, 5% in Q4 of 2020.
The decline in our gross margin was mostly due to unfavorable product mix and increased costs from component shortages.
As we discussed last quarter, we've experienced price pressure on certain of our 100 G data center products. As these product lines have reached full maturity and 400 G additions have begun.
In addition in our CATV segment, we have seen an inventory correction of some of our higher margin products by one of our customers that are significantly reduced orders for these higher margin products.
These product mix issues overlap with well known supply chain challenges and increases in shipping costs. It also provide a margin headwind.
Finally, we reduced production of lasers in our fab in Q4 due to slower demand from the China market as well as managing inventory ahead of the lunar new year.
Reduction in fab output resulted in under absorption of the fixed cost of running the fab and further pressured our margins.
We believe most of these impacts are transitory.
While one energy margins are likely to continue to remain pressured we expect these products to represent a smaller contribution to data center revenue as 400 G begins its ramp and we begin to see cost reduction associated with the transition to volume production.
On the CATV front, we have a number of cost reduction efforts that have been implemented to reduce raw material and production costs for our highest volume products.
In addition, we expect the unfavorable mix shift due to the inventory correction mentioned above to ease by mid year.
While we.
Margins in Q1 to continue to be pressured by many of the factors Ive already discussed and additionally by the effects of lunar new year on our Asian operations Q2, and beyond currently look significantly more favorable in terms of gross margin as these headwinds moderate or eliminated altogether.
Total non-GAAP operating expenses in the fourth quarter were $16 9 million or 31% of revenue.
Paired with $20 6 million or 39% of revenue in Q4 of the prior year.
The reduction in operating expenses is due to a decrease in R&D spend as some of the costs associated with our 400 G development have begun to subside.
Along with benefits from certain cost reduction efforts, we made during the quarter.
Operating expenses were further improved by careful cost control along with a significant reversal of previously accrued bonuses, especially two executives which occurred in Q4.
We anticipate continued disciplined cost control until a return to consistent profitability has been demonstrated.
While we intend to carefully control operating expenses, we continue to invest in new product development.
In addition to the 800 <unk> at one six Terabits transceiver work I discussed earlier for our datacenter customers.
We also have been actively developing high power lasers intended for use in lidar and other sensing applications.
These lidar lasers have applications in automotive driver assistance systems.
Security monitoring.
<unk> reality and other three D sensing systems.
These products have been under development for several years now and within the last few months, we have begun shipping qualification samples to eight different customers.
Most of which are in the automotive space.
Initial feedback from these customers has been very positive further reinforcing our conviction that <unk> laser related R&D remains at the forefront of new technology, both in our data center market and in new markets like automotive.
While meaningful revenue for these lidar lasers is likely a year or two away. The addition of these products continues the trend of greater diversity within our customer base as.
As many of you know increasing revenue diversity has been a key element of our risk reduction strategy for more than three years.
non-GAAP operating loss in the fourth quarter was $7 3 million.
Compared to an operating loss of $6 1 million in Q4 of the prior year.
GAAP net loss for Q4 was $14 5 million or.
Or loss of <unk> 54 per basic share compared with a GAAP net loss of $13 4 million.
Or loss of <unk> 57 per basic share in Q4 of 2020.
On a non-GAAP basis net loss for Q4 was $5 5 million.
Or loss of <unk> 20 per basic share.
Which was in line with our guidance range of a loss of $5 5 million to $6 6 million or a loss per share in the range of 20.
To <unk> 24 per basic share and compares to a net loss of $4 8 million or a loss of <unk> 20 per basic share in Q4 of the prior year.
The basic shares outstanding used for computing the net loss in Q4 were $27 1 million.
Turning now to the balance sheet, we ended the fourth quarter with $41 $1 million in total cash cash equivalents short term investments and restricted cash. This compares with $48 9 million at the end of the third quarter.
Notably, we reduced total debt compared with Q3 by $5 8 million are utilizing less of our revolving line of credit at year end.
As of December 31.
We had $92 $5 million in inventory compared to $94 5 million at the end of Q3 <unk>.
Inventory decreased primarily due to utilization of inventory for customer orders.
We made a total of $2 3 million in capital investments in the quarter, including $2 1 million in production equipment, and machinery and <unk> $1 million in construction and building improvements.
We are still in the process of evaluating our Capex plans for 2022, and we will share our expectations as soon as we complete our analysis.
Moving now to our Q1 outlook.
We expect Q1 revenue to be between $51 million and $54 million and non-GAAP gross margin to be in the range of 15, 5% to 17, 5%.
non-GAAP net loss is expected to be in the range of $8 3 million to $9 5 million and non-GAAP loss per basic share between 30 and 35.
Using a weighted average basic share count of approximately 27 5 million shares.
With that I'll turn it back over to the operator for the Q&A session operator.
Thank you and we will now begin the question and answer session if.
If you would like to ask a question you May Press Star then one on your telephone keypad.
We may need to pick up your handset before pressing the keys.
And if you would like to withdraw your question you May Press Star then two.
Once again that is star then one to ask a question and we will pause momentarily to assemble the roster.
And our first question today will come from Sam Peter Amendment.
Craig Hallum Capital Group. Please go ahead.
Hi, guys. Thanks for taking my question I wanted to ask on gross margin.
Obviously with it seems like some of the mix issues and table resolving.
By the middle of the year that the margin outlook for the back half would be better.
Do you guys think you can get into kind of a mid twenties there.
Or what kind of is as you know the cable issue resolved in data center.
Can you start to ramp 100 gig is mid Twenty's kind of.
Reasonable for where you guys think you can go or how do you think about margins in the second half.
Yes, I think mid Twenty's is an achievable number for us.
It's difficult to put a precise timeline on that I mean, there's a lot of moving parts as we mentioned some of the component shortages and other things that have been affecting us.
A little bit difficult to provide an exact timeframe for that but it is certainly a number that we think is achievable.
Okay.
Fair enough.
On data center.
It sounds like with these two customers.
400 gig ramping in the second half that will.
Provide an uplift tomorrow.
And where you are today.
How should we think about this on our revenues in the first half and then how should we think about what 400 gig can add is that.
And the low millions or even potentially more than that in the second half.
Well I think.
Data center revenues, probably will we will.
B B.
Reasonably consistent.
Throughout the first half of the year with where they were in the last quarter and then as you mentioned, we'll start to see a ramp some of that there will be a little bit of a shift there as we mentioned in our prepared remarks from sort of a 100 G to starting to see a little bit more of an increase in the 400 G revenue.
It's probably not going to be hugely meaningful certainly in the first half until we start to see a ramp.
Later on in the year hopefully.
But.
But within that within that.
That mix is shifting we don't think the overall number is going to change that much in the first quarter or two a year.
Okay.
Okay.
And then on the 400 gig customers you've kind of described one of them is there any way you could characterize.
The other one.
Is there any way are you on the second part of your customer.
Are you also the primary lead supplier there and how would you size that one sort of that opportunity relative to.
The first 400 gig one.
I would say that the the size of both the customers is probably.
I mean, roughly similar I don't have the.
The.
The total purchasing trend for each of them I don't have a number.
On the on the customer that we didn't talk about as much I don't have information from them about whether we're the primary or secondary source on that.
Some customers will tell you that information directly to others will not.
So from that perspective, I can't give you that information, but certainly we believe that that all of the customers will have multiple sources and.
Sure.
In the top one or two are you probably going to get a pretty reasonable market share and thats, what we would expect that both of these customers.
Okay Fair enough that's it for me thanks, guys.
Okay.
And once again, if you would like to ask a question. Please press Star then one.
And our next question will come from Robert <unk> with Cowen. Please go ahead.
Hi, This is Bob Sandra for Paul Silverstein, Hi, guys. At one time, you were thinking that 400 G could be 10% of revenue. This year is that still.
And the work still what you would see.
I wouldn't say.
I don't think not.
We.
Haven't changed our outlook much on the 400 <unk> I think it's really positive that we're starting to see.
Actual orders or volume orders flowing from a couple of customers now we still have a number of qualification efforts that are underway.
But we're optimistic we'll culminate here in the next few months.
And that all of those opportunities together should drive revenue whether that will be 10%.
By the end of the year or not.
Difficult to say, but I think it is possible.
Okay.
And in the past I guess last quarter, one of your principal customers for 400 G. We're seeing their own supply chain constraints, which is limiting their ability to place orders did I hear correctly that that's been resolved.
That was more related to just the overall.
Inventory situation as you recall, if you go back a few quarters we had.
That particular customer had been.
Hit with.
Supply chain issues that affected their overall deployment of not only 400 G. But also 100 G technology at that time. So it wasn't a statement specifically on <unk>. It was just the overall.
Okay demand coming back.
Okay.
Is that still an issue with them or has that been addressed.
I think it's largely been addressed at this point, okay, Okay and at the moment.
Your data center, and CCTV is pretty evenly split and it sounds like you're pretty optimistic about going.
Going forward. The CATV do you still see an even split or youre going to expect to see CATV are larger.
Greater percentage than the data center going forward for the year.
I think there'll be fairly comparable for the year.
As you recall.
From past experience.
First quarter in cable TV can be a little bit challenging for us just because we have the lunar new year shutdown, which affected most of our cable TV products are made in Asia. So by by virtue of the fact that Theres just less time in Q1 due to the lunar new year.
That oftentimes puts a damper on our ability to expand cable television. So we may see.
Cable TV.
Macro as much early in the year as it will in the back half of the year.
And so from quarter to quarter, you might see some variability, but if you look at the year as a whole I think the two will probably be fairly comparable.
Okay, Alright, well, thank you for taking my questions.
My pleasure.
And once again, if you would like to ask a question. Please press Star then one.
Okay.
Yes.
And this will conclude the question and answer session I would like to turn the conference back over to Thompson Lin for any closing remarks.
Okay, and thank you for joining our call today.
We wanted to turn this thing to you to our investors customers and employees.
For your continued support we look forward to.
To update you on our next earning call.
And the conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.