Q4 2023 Applied Optoelectronics Inc Earnings Call

Operator: Good afternoon. I will be your conference operator. At this time, I would like to welcome everyone to Applied Optoelectronics' fourth quarter and full year 2023 earnings conference call. All lines have been placed on mute to prevent any background noise.

Good afternoon, I will be your conference operator.

Speaker Change: At this time I would like to welcome everyone to applied Optoelectronics fourth quarter and full year 'twenty twenty-three 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 to ask a question you May press star.

Operator: After the speaker's remarks, there will be a question and answer session. To ask a question, you may press star, then one on a touchtone phone. To withdraw your question, please press star, then two. Please note this call is being recorded. I would now like to turn the call over to Lindsay Savari, Investor Relations for AOI. Ms. Savari, please. You may begin.

Speaker Change: And then one on a touchtone phone to withdraw your question. Please press Star then two please note this call is being recorded.

Speaker Change: I'd now like to turn the call over to Lindsay.

Lindsay: Safari invest.

Investor Relations for a O Y Mr. Bari. Please you may begin.

Lindsay Savarese: Thank you. I'm Lindsay Savarese, Investor Relations for Applied Optoelectronics. I'm pleased to welcome you to AOI's fourth quarter and full year 2023 Financial Results Conference Call. After the market closed today, AOI issued a press release announcing its fourth quarter and full year 2023 financial results and provided its outlook for the first quarter of 2024. The release is also available on the company's website at ao-inc.com. This call is being recorded and webcast live.

Lindsay: Thank you Lindsay Savarese Investor Relations for applied Optoelectronics I'm pleased to welcome you to Aoi's fourth quarter and full year 2023 financial results conference call.

Lindsay: After the market closed today <unk> issued a press release announcing its fourth quarter and full year 2023 financial results and provided its outlook for the first quarter of 'twenty 'twenty four.

Lindsay: The release is also available on the company's website at Ao, Inc. Com.

Lindsay: This call is being recorded and webcast lives a link to the recording can be found on the Investor Relations section of our website and will be archived for one year.

Lindsay Savarese: A link to the recording can be found in the Investor Relations section of the AOI 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 Murray, AOI's Chief Financial Officer and Chief Strategy Officer. Thompson will give an overview of AOI's Q4 results, and Stefan will provide financial details and the outlook for the first quarter of 2024. A question and answer session will follow our prepared remarks. Before we begin, I would like to remind you to review AOI's Safe Harbor Statement.

Speaker Change: 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.

Thompson Lin: Thompson will give an overview of Aoi's Q4 results.

Stefan J. Murry: Stefan will provide financial details and the outlook for the first quarter 2024.

Stefan J. Murry: A question and answer session will follow our prepared remarks.

Speaker Change: Before we begin I would like to remind you to review Aoi's Safe Harbor statement.

Lindsay Savarese: On today's call, management will make four 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, levels of activity, performance, or achievements of the company or its industry to differ materially from those expressed or implied in such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as believe, forecast, anticipate, estimate, suggest, intend, predict, expects, plans, may, should, could, would, will, potential, or think, or by the negative of those terms, or other similar expressions that convey uncertainty or future events or outcomes.

Speaker Change: On today's call management will make forward looking statements.

Speaker Change: These forward looking statements involve risks and uncertainties as well as assumptions and current expectations.

Speaker Change: Which could cause the company's actual results levels of activity performance or achievements of the company or industry to differ materially from those expressed or implied in such forward looking statements.

Speaker Change: In some cases, you can identify forward looking statements by terminology such as believes forecasts anticipate.

Speaker Change: Estimates suggest intent.

Speaker Change: Yeah.

Speaker Change: Expects plans may should could would will potential or things or buy the negative that's terms or other similar expressions that convey uncertainty or future events or outcomes.

Lindsay Savarese: The company has based these forward-looking statements on its current expectations, assumptions, estimates, and projections. The company believes these expectations, assumptions, estimates, and projections are reasonable. However, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond the company's control.

Speaker Change: The company has based these forward looking statements on its current expectations assumptions estimates and projections.

Speaker Change: The company believes these expectations assumptions estimates and projections are reasonable.

Speaker Change: Such forward looking statements are only predictions and involve known and unknown risks and uncertainties.

Any of which are beyond the company's control.

Lindsay Savarese: 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 innovation, as well as statements regarding the company's outlook for the first quarter of 2024. 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 forward changes in the company's expectations. More information about other risks that may impact the company's business is 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 and the company's quarterly reports on Form 10-Q. Also, all financial results and other financial measures 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.

Speaker Change: 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.

Speaker Change: All statements regarding the company's outlook for the first quarter of 2024.

Speaker Change: 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.

Speaker Change: Florida changes and the company's expectation more information about other risks that may impact the company's business.

Speaker Change: Set forth in the risk factors.

Speaker Change: Section of the company's reports on file with the FTC.

Speaker Change: Including the company's annual report on Form 10-K, and the company's quarterly report on Form 10-Q.

Speaker Change: Also all financial results and other financial measures discussed today are on a non-GAAP basis, unless specifically noted otherwise.

Speaker Change: non-GAAP financial measures.

Speaker Change: Not intended to be considered in isolation or as a substitute for results prepared in accordance took out.

Lindsay Savarese: 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 2024 earnings call is currently scheduled for May 9th, 2024. Now, I would like to turn the call over to Dr. Thompson Lin, Applied Optoelectronics Founder, Chairman, and CEO. Dr. Lin?

Speaker Change: 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.

Speaker Change: I'd like to note the date of our first quarter 'twenty 'twenty four earnings call is currently scheduled for May nine 2024.

Speaker Change: Now I would like to turn the call over to Dr. Thompson Lin.

Thompson Lin: Optoelectronics founder Chairman and CEO Thompson.

Thompson Lin: Thank you, Lindsay, and thank you for joining our call today. While our fourth quarter revenue came in below our expectations, our cost margin outperformed our projections, bidding to noncash EPS at a high end of our expectations. We are pleased with the continued progress we have made in improving our course modules, which combined with our expense making, allowed us to generate a small amount of gas main income in the fourth quarter for the first time in many years. Further, we generated positive adjusted EBITDA of $4.8 million in Q4. During the fourth quarter, we delivered revenue of $60.5 million, which was below our guidance range of $63 to $67 million, primarily due to somewhat lower than expected data center revenue. As we began to see some softness in demand late in the quarter, we delivered a long-term cost margin of 36.4 percent, which is the highest quarterly cost margin that we have generated in the last five years and is above our guidance range of 34.5% to 36%. Many, driven by an improved product mix and some contributions from non-recurring engineering projects, we generated a small, non-canonical gain of 4 cents per share, which was the high end of our guidance range of loss of 2 cents to earnings of 4 cents.

Thompson Lin: Thank you Lindsay and thank you for joining our call today.

Thompson Lin: Fourth quarter Liberty, you came in below our expectations or cause module all pool well production.

Thompson Lin: non-GAAP EPS in a high end of August vacations, we are pleased by the continued progress we have made.

Thompson Lin: Moving on our gross margin.

Thompson Lin: Combined with our expense management.

All of us to jewelry, a small non-GAAP net income.

Thompson Lin: Last quarter.

For the first time in many years.

Thompson Lin: Further we generated positive adjusted EBITDA.

For $8 million in Q2.

Thompson Lin: During the fourth quarter with the rebuild of.

Thompson Lin: Two people and $5 million.

Rich: Oh, Hi, this is rich.

Rich: Q3 to $67 million.

Rich: Similarly due to somewhat.

Rich: Lower than expected.

Rich: With me.

Rich: As we begin to see some softening in the middle late in the quarter.

Rich: The EBIT margin.

Rich: <unk>, Oh, sorry, six pulling 4%, which is a five quarter equals <unk> <unk>.

Rich: We have generated by us.

Paul: So Paul.

Rich: Hi, this is rich <unk>.

Rich: 45% to 36%.

Rich: Many driven.

Rich: Driven by improved product mix and some contribution.

Rich: Engineering projects.

Rich: Generally it's low non-GAAP net income.

Rich: Oh for thin tissue.

Which was at the high end.

Olive Garden's ranch loss Hussein.

Rich: Boston.

Thompson Lin: Total revenue for our data center product was $44.5 million, more than double year-over-year, but was down 9% gradually. Revenue for our 100G products more than doubled year over year, and revenue for our 400G products increased more than eight times in the same period. Following you in our CATV segment, $12.6 million, which was down 67% year-over-year and up 22% sequentially, largely driven by generally slow sales of DOCSIS 3.1 equipment, as the industry prepares for the transition to DOCSIS 4.0. With that, I will turn the call over to Stefan to review the details of our Q4 performance and Lauru's Q1. Stefan

Rich: Hello, gloomy vaulted us into the product or 44 $5 million more than doubled year over ear.

Rich: So 9% sequentially.

Rich: Good for one or does it hurt us more than doubled year over year and good news for all 400 G per dose inquiries more than at times in the same period.

Rich: Hello, Lumi be announced via T V's stick them in.

Rich: Was $26 million.

Rich: What's your style, 67% year over year and up.

Rich: 22% sequentially.

Rich: Luxury G them by January <unk>.

Sales of DOCSIS 3.1, Queen.

Rich: As the industry prepares.

Rich: That's an issue to dose these bolt on deals.

Speaker Change: With that I would.

Nicole: Nicole over to Stephane.

Stephane: We view the details of our Q4 pro forma unloading.

Stefan J. Murry: Thank you, Tom. As Thompson mentioned, while our fourth-quarter revenue came in below our expectations, our gross margin outperformed our projections, leading to a non-gap EPS at the high end of our expectations. We're pleased by the continued progress we have made on improving our gross margin, which combined with our expense management allowed us to generate a small non-GAAP net income in the fourth quarter for the first time in many years. Furthermore, we generated positive adjusted EBITDA of $4.8 million in Q4.

Stephane: One seven.

Stephane: Thank you Thompson.

Stephane: As Thompson mentioned, while our fourth quarter revenue came in below our expectations.

Stephane: Our gross margin outperformed our projections, leading to a non-GAAP EPS at the high end of our expectations.

Stephane: We're pleased by the continued progress we have made on improving our gross margin.

Stephane: Which combined with our expense management allowed us to generate a small non-GAAP net income in the fourth quarter for the first time in many years.

Stephane: Further we generated positive adjusted EBITDA of $4 $8 million in Q4.

Stefan J. Murry: While we do see some softness in Q1 due to the combined effects of the Lunar New Year holiday in our Asian factories, along with some price reductions which are scheduled to take effect, we expect a strong recovery in Q2 and are currently anticipating a markedly improved second half of 2024. Despite the softness we are seeing in Q1, we have been experiencing significant traction with several new data center customers recently for both 400G and 800G products, and we expect one or more of these customers to begin to contribute meaningfully to revenue starting in Q2, which gives us a basis for the optimistic outlook despite the slow start to the year. While not likely to contribute meaningfully to revenue in 2024, we also are very optimistic about our 1.6 terabit products as we move into 2025. With the improvement we expect in the second half, we currently expect our first full year of non-gap profitability since 2018. Turning to the quarter, our total revenue for the fourth quarter decreased by 2% year-over-year to $60.5 million, which was below our guidance range of $63 million to $67 million.

Stephane: Well, we do see some softness in Q1 due to the combined effects of the lunar new year holiday in our Asian factories, along with some price reductions, which are scheduled to take effect. We expect a strong recovery in Q2 and are currently anticipating a markedly improved second half of 'twenty 'twenty four.

Stephane: Despite the softness we are seeing in Q1, we have been experiencing significant traction with several new datacenter customers recently for both 400 G and 800 gig products and we expect one or more of these customers to begin to contribute meaningfully to revenue starting in Q2, which gives us a basis for the optimistic outlook. Despite the slow start to the year.

Stephane: Well not likely to contribute meaningfully to revenue in 2024. We also are very optimistic about our 1.6 terabyte products as we move into 2025.

Stephane: With the improvement we expect in the second half. We currently expect our first full year non-GAAP profitability since 2018.

Stephane: Turning to the quarter, our total revenue for the fourth quarter decreased by 2% year over year to $65 million, which was below our guidance range of $63 million to $67 million.

Stefan J. Murry: As Thompson mentioned, this was largely due to somewhat lower-than-expected data center revenue as we began to see some softness in demand late in the quarter, which we attribute to timing of orders. During the fourth quarter, 74% of our revenue was from our data center product. 21% was from our CATV product, with the remaining 5% from FTTH, Telecom, and others, in line with our expectations. CATV revenue in the fourth quarter was $12.6 million, which was down 67% year-over-year and up 22% sequentially.

Stephane: As Thompson mentioned this was largely due to somewhat lower than expected data center revenue as we began to see some softness in demand late in the quarter, which we attribute to timing of orders.

Stephane: During the fourth quarter, 74% of our revenue was from our data center products, 21% was from our CATV products with the remaining 5% from F T Th telecom and other.

Stephane: In line with our expectations CATV revenue in the fourth quarter was $12 $6 million, which was down 67% year over year and up 22% sequentially.

Stefan J. Murry: We are encouraged by the sequential growth that we saw in our CATV business in Q4. Looking forward, we continue to expect that our near-term CATB business will be down compared to the historic highs we saw in 2021 and 2022, as the MSOs transition to next-generation architecture. We anticipate this transition will begin to take place sometime in mid-2024 and are optimistic about the second half of the year. We shipped initial test samples of our 1.8 gigahertz amplifier products to two major MSOs in Q4.

Stephane: We are encouraged by the sequential growth that we saw in our CATV business in Q4.

Stephane: Looking forward, we continue to expect that our near term CATV business will be down compared to the historic highs. We saw in 2021 and 2022 as the Msos transition to next generation architecture.

Stephane: We anticipate this transition will begin to take place sometime in mid 2024 and are optimistic about the second half of the year.

Stephane: We shipped initial test samples of our 1.8 gigahertz amplifier products to two major msos in Q4.

Stefan J. Murry: While these are early samples, the feedback we have received on their performance and pricing is extremely encouraging. We currently anticipate shipping final qualification units of various amplifier products between April and June this year, and we expect revenue to begin shortly after the sample qualification is complete. As we stated last quarter, we continue to carefully monitor MSO plans to upgrade to DOCSIS 4.0 networks, and we continue to believe AOI is a leader in technologies that will enable doctors. Further, we are confident that our products are aptly designed for the deployment of amplifiers and other network elements required for DOCSIS-IV.

Stephane: While these are early samples the feedback we received on their performance and pricing is extremely encouraging.

Stephane: We currently anticipate shipping final qualification units of various amplifier products between April and June this year and expect revenue to begin shortly after the sample qualification is complete.

Stephane: As we stated last quarter, we continued to carefully monitor MSL plans to upgrade to DOCSIS 4.0 networks and we continue to believe a why is a leader in technologies that will enable DOCSIS four point out.

Stephane: Further we are confident that our products are actually designed for the deployment of amplifiers and other network elements required for DOCSIS four <unk>.

Stefan J. Murry: Turning to our data center. Our Q4 data center revenue came in at $44.5 million, which more than doubled year over year and was down 9% sequentially, as noted above. In the fourth quarter, 56% of our data center revenue was from our 100G product, 36% was from our 200G and 400G, and 4% was from our 40G transceiver. As we had anticipated, revenue for our 100G products decreased 31% sequentially.

Stephane: Turning to our data center business.

Stephane: Our Q4 data center revenue came in at $44 $5 million, which more than doubled year over year and was down 9% sequentially as noted above.

Stephane: In the fourth quarter was 56% of our datacenter revenue was from our 100 G products.

Stephane: 36% was from our 204 hundred G products.

Stephane: 4% was from our 40 G transceiver products.

As we had anticipated revenue for our one energy products decreased 31% sequentially.

Stefan J. Murry: Revenue for our 200G and 400G products increased 79%, which we believe is largely driven by AI demand for compute. As a reminder, as we have discussed in our prior few learnings, we signed two agreements with Microsoft in 2023, including a development program to make next-generation lasers for its data center, both for 400G and VR, and for the development of its 400G and next generation active optical cable. While not guaranteed, we continue to believe that the revenue opportunity for our 400G and 800G products could be greater and for a longer duration than the revenue contribution we saw from this customer during the peak of the 40G product cycle, which suggests that revenue from these products may exceed $300 million over the several years of these build-outs.

Stephane: Revenue for our 204 hundred G products increased 79% sequentially, which we believe is largely driven by a high demand for compute infrastructure.

Stephane: As a reminder, as we have discussed on our prior few earnings calls we signed two agreements with Microsoft in 2023, including a development program to make next generation lasers for its data center for 400, G and beyond and.

Stephane: For the development of its 400 G and next generation active optical cables.

Stephane: While not guaranteed we continue to believe that the revenue opportunity for our 400 G. At 800 G products could be greater and a longer duration than the revenue contribution we saw from this customer during the peaks of the 40 G product cycle.

Stephane: Which suggests that revenue from these products may exceed $300 million over the several years of these build outs.

Stefan J. Murry: During Q3, and as we had discussed on our prior earnings call, we received requests from Microsoft to expedite our production ramp for these products, which I'm pleased to report we were able to accommodate. We began shipments during December and expect to continue to ship in Q1, although at a slower rate than we earlier expected as the data centers work to install the optics we shipped in Q4. We expect demand to resume later in the quarter with additional capacity coming online then for Q2 and beyond. Another item to note.

Stephane: During Q3 and as we had discussed on our prior earnings call. We received request from Microsoft to expedite our production ramp for these products, which I'm pleased to report we were able to accommodate we.

Stephane: We began shipments during December and expect to continue to ship in Q1, although at a slower rate than we earlier earlier expected as the data centers work to install the optics, we shipped in Q4.

Stephane: We expect demand to resume later in the quarter with additional capacity coming online than for Q2 and beyond.

Speaker Change: Another item to note.

Stefan J. Murry: We believe that the value proposition that we offer to Microsoft is just as strong with other data center operators, and we are working with several of them to evaluate our technology and qualify our product. This includes our 800G; we shipped samples to three different data center customers in 2023 and have received initial positive feedback on our 800G product. We expect shipments of 800G to begin in Q3 this year. Now turning to our telecoms. Revenue from our telecom products of $2.8 million was down 56% year-over-year and down 8% sequentially, largely driven by ongoing softness and 5G demand, particularly in China.

Speaker Change: We believe that the value proposition that we offered a Microsoft is just as strong with other data center operators and we are working with several of them to evaluate our technology and qualify our products. This includes our 800 G products, we shipped samples to three different datacenter customers in 2023 and have received initial positive feedback on our 800 gig products.

Speaker Change: We expect shipments of 800 G to begin in Q3 this year.

Speaker Change: Now turning to our telecom segment revenue.

Speaker Change: Revenue from our telecom products of $2 $8 million was down 56% year over year and down 8% sequentially largely driven by ongoing softness in five G demand, particularly in China.

Stefan J. Murry: Looking ahead, we expect telecom sales to fluctuate around current levels. For the fourth quarter, our top 10 customers represented 95% of revenue, up from 90% in Q4 of last year. We had two greater than 10% customers, one in the data center market and one in the CATV market, which contributed 51% and 28% of our total revenue, respectively. In Q4, we generated an on-gap gross margin of 36.4%, which was above our guidance range of 34.5% to 36% and was up from 32.5% in Q3 of 2023 and up from 21.4% in Q4 of 2022. The increase in gross margin was driven mainly by our favorable product mix shift, our transition to a direct sales model in our CATV business, and the impact of non-recurring engineering sales during the quarter.

Speaker Change: Looking ahead, we expect telecom sales to fluctuate around current levels.

Speaker Change: For the fourth quarter, our top 10 customers represented 95% of revenue up from 90% in Q4 of last year.

Speaker Change: We had two greater than 10% customers one in the data center market and one in the CATV market.

Speaker Change: Which contributed 51% and 28% of our total revenue respectively.

Speaker Change: In Q4, we generated non-GAAP gross margin of 36, 4%, which was above our guidance range of 34, 5% to 36% and was up from 32, 5% in Q3 of 2023.

Speaker Change: And up from 21, 4% in Q4 of 2022.

Speaker Change: The increase in gross margin was driven mainly by a favorable product mix shift our transition to a direct sales model in our CATV business and the impact of nonrecurring engineering sales during the quarter.

Stefan J. Murry: We remain committed to the long-term goal of returning gross margin to around 40 percent and believe that this goal is achievable. As a reminder, with the direct-to-MSO sales model we implemented late last year, we expect margins in our CATV business to be meaningfully higher than our historical average. Total non-GAAP operating expenses in the fourth quarter were $21.6 million, or 35.7% of revenue, which was in line with our expectations and compared to $21 million, or 34.2% of revenue, in Q4 of the prior year. Looking ahead, we expect non-GAAP operating expenses to range from $22.5 to $24 million per quarter, reflecting some acceleration of R&D expenses to improve time-to-market for our 800G and 1.6 ter Non-GAAP operating income in the fourth quarter was $0.4 million, compared to an operating loss of $7.9 million in Q4 of the prior year.

Speaker Change: We remain committed to the long term goal of returning gross margin to around 40% and believes that this goal is achievable.

Speaker Change: As a reminder, with the direct to MSR sales model, we implemented late last year, we expect margins in our CATV business to be meaningfully higher than our historical average.

Speaker Change: Total non-GAAP operating expenses in the fourth quarter were $21 6 million or 35, 7% of revenue, which were in line with our expectations.

Speaker Change: And compared to $21 million or 34, 2% of revenue in Q4 of the prior year.

Looking ahead, we expect non-GAAP operating expenses to range from $22.5 million to $24 million per quarter, reflecting some acceleration of R&D expenses to improve time to market for our 800 G and one six Terabits data center products.

Speaker Change: non-GAAP operating income in the fourth quarter. It was zero point $4 million compared to an operating loss of $7 $9 million in Q4 in the prior year.

Stefan J. Murry: Gap net loss for Q4 was $13.9 million, or a loss of $0.38 per basic share, compared with a gap net loss of $20.3 million, or a loss of $0.71 per basic share, in Q4 of 2022. On a non-gap basis, net income for Q4 was $1.6 million, or $0.04 per share, which was above our guidance range of a loss of $0.9 million to a profit of $1.2 million and at the high end of our guidance range of a loss per share in the range of two cents to earnings of four cents per basic share. This compares to a net loss of $5.4 million, or a loss of 19 cents per basic share, in Q4 of the prior year. The fully diluted shares outstanding used for computing earnings per share in Q4 were 44.8%.

Speaker Change: GAAP net loss for Q4 was $13 9 million or a loss of 38 cents per basic share compared with a GAAP net loss of $23 million or a loss of <unk> 71 per basic share in Q4 of 2022.

Speaker Change: On a non-GAAP basis that is become for Q4 was $1 $6 million or <unk> <unk> per share, which was above our guidance range of a loss of <unk> $9 million in profit of $1 $2 million and at the high end of our guidance range of a loss per share in the range of two cents to earnings of four cents per basic share.

Speaker Change: This compares to a net loss of $5 4 million or a loss of <unk> 19 per basic share in Q4 of the prior year.

Speaker Change: The fully diluted shares outstanding used for computing the earnings per share in Q4 were $44 8 million.

Stefan J. Murry: Turning now to the ballot sheet, we ended the fourth quarter with $55.1 million in total cash, cash equivalents, short-term investments, and restricted. This compares with $31.2 million at the end of the third quarter of this year. We ended the quarter with total debt, excluding convertible debt, of $38.7 million, compared to $46.6 million at the end of last quarter. Notably, during the fourth quarter, we successfully issued $80.2 million of convertible senior notes due 2026. The notes will bear an interest rate of 5.25% per year.

Speaker Change: Turning now to the balance sheet.

Speaker Change: We ended the fourth quarter with $55 $1 million in total cash cash equivalents short term investments and restricted cash.

Speaker Change: This compares with $31 $2 million at the end of the third quarter of this year.

Speaker Change: We ended the quarter with total debt, excluding convertible debt of $38 $7 million.

Speaker Change: Third to $46 $6 million at the end of last quarter.

Speaker Change: Notably during the fourth quarter, we successfully issued $82 million of convertible senior notes due 2026.

Speaker Change: The notes will bear an interest rate of 525% per year.

Stefan J. Murry: Concurrently with the offering, we exchanged or repurchased approximately all of our 2024 notes. As of December 31, we had $63.9 million in inventory compared to $67.5 million at the end of Q3. We made a total of $8.7 million in capital investments in the fourth quarter, which was mainly used for production and R&D equipment.

Speaker Change: Concurrently with the offering we exchanged or repurchased approximately all of our 2024 notes.

Speaker Change: As of December 31, we had $63 $9 million in inventory compared to $67 $5 million at the end of Q3.

Speaker Change: We made a total of $8 $7 million in capital investments in the fourth quarter, which was mainly used for production and R&D equipment.

Stefan J. Murry: Moving now to our Q1 outlook. We expect Q1 revenue to be between $41 million and $46 million, and Non-GAAP Gross Margin to be in the range of 21% to 23%. Non-GAAP net loss is expected to be in the range of $10.9 million to $12.6 million, and non-GAAP loss per share between $0.28 per basic share and $0.33 per basic share, using a weighted average basic share count of approximately 38

Speaker Change: Moving now to our Q1 outlook.

Speaker Change: We expect Q1 revenue to be between $41 million and $46 million and non-GAAP gross margin to be in the range of 21% to 23%.

Speaker Change: non-GAAP net loss is expected to be in the range of $10 9 million to $12 6 million and non-GAAP loss per share between <unk> 28 per basic share and 33 cents per basic share using a weighted average basic share count of approximately $38 4 million shares.

Operator: With that, I will turn it back over to the operator for the Q&A session. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone.

Speaker Change: With that I will turn it back over to the operator for the Q&A session operator.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw your question. Please press star.

Simon Leopold: If you're using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. Our first question comes from Simon Leopold with Raymond James. Please go ahead. Great. Thank you for taking the time to answer the question. A couple things I wanted to unpack, one of which is you've given us, I think, some insight as to the total value of the opportunity from Microsoft and how it is spread over years. Is there some sort of element you could offer to help folks understand or level set as to how that may ramp through 2024, how to size the expected contribution from the Microsoft Project this calendar year?

Speaker Change: And then too.

Speaker Change: Our first question comes from Simon Leopold with Raymond James. Please go ahead.

Simon Leopold: Great. Thank you for taking the question a couple of things I wanted to unpack.

Simon Leopold: One of which is you've given us I think some insight as to the total value.

Simon Leopold: The opportunity for Microsoft and understand its spread over years.

Speaker Change: There is some sort of.

Simon Leopold: Element you could offer to help folks understand or level set at <unk>.

Simon Leopold: How that may ramp through 2024, how to size the expected contribution from the Microsoft project This calendar year.

Simon Leopold: Yeah, I mean, we haven't really given out the details on that project because obviously, a lot of it is, you know, customer sensitive. But at this point, I mean, it started to ramp up. As I noted in our prepared remarks, we shipped product in December, which was ahead of schedule. The data center, the individual data centers where those are getting installed are taking a little bit longer than expected to actually deploy those transceivers in the data center.

Speaker Change: Yeah I mean.

Speaker Change: They haven't really given out the details on that project, obviously a lot of it is.

Speaker Change: Yeah.

Speaker Change: Customer sensitive.

Speaker Change: But at this point I mean, it started to ramp as I noted in our prepared remarks, I mean, we shipped product in December which was ahead of schedule.

Speaker Change: The data center.

Speaker Change: The individual datacenters, where those are getting installed or taking a little bit longer than expected to actually deploy those transceivers in the data center. So there's a bit of a lull right now while that goes on and then do you expect the ramp to resume later in this quarter and ramp throughout the year, we'll probably have more to say in terms of longer term.

Stefan J. Murry: So there's a bit of a lull right now while that goes on, and then we expect the ramp to resume later in this quarter and accelerate throughout the year. We'll probably have more to say in terms of longer-term forecasts after we start to see the results of this first tranche being adopted in the data center. Yeah, I guess what I'm trying to get at is that there are some folks that have envisioned this as sort of a hundred million this year, a hundred million next year, and a hundred million the year after that. And I think what you're describing is something that gradually ramps up to that kind of run rate, but we're not getting to a hundred million in 2024. I want to verify that my understanding is reasonable.

Speaker Change: Forecast after we start to see.

Speaker Change: The results of this first tranche being adopted in the data centers.

Speaker Change: Yeah, I guess, what I'm trying to get at is if I have the impression that there's some folks that have envision this as sort of a 100 million. This year 100 million next year and $100 million a year after that and I think what youre, describing is something that gradually ramps to that kind of run rate, but we're not getting to one.

Speaker Change: <unk> million in 2024, I want to verify that my understanding is reasonable.

Stefan J. Murry: What I have said, yeah, no, that's accurate. What I have said is that it will be, you know, I think we said this on the last earnings call, but it is the same thought process now, that we think it'll be ramping to exit the year on a run rate that would support that $100 million per year, but it's clearly not starting off the year. So, you know, it will not integrate out in your four quarters of the year to be $100 million. That's helpful. That's exactly what I was looking for.

Speaker Change: What I have got it no.

Speaker Change: That's accurate what I have said is that it would be I think we said this on the last earnings call.

Speaker Change: Is this the same same thought process now that we think it'll be ramping to exit the year on a run rate that would support that $100 million per year, but it's clearly not starting off the year. So.

You will not integrate out over four quarters of the year to be $100 million.

Speaker Change: That's helpful. That's exactly with what you would imply that you're a little more.

Stefan J. Murry: Yeah, it would imply, of course, that in a few years, it'll be more than 100 million per year in those other, Yeah. No, that's what I was trying to pull out there. And then in terms of what's going on in the overall industry and applications, it seems as if a lot of the AI-related use cases are calling for 800-gig connections. And so I'm wondering, are you seeing your 400-gig products being used in back-end AI use cases, or are there other applications? And if so, what are they?

Speaker Change: Yes, which would imply a course that in the out years, it'll be more than $100 million.

Speaker Change: Per year and this goes out of yours.

Speaker Change: No. That's what I was trying to trying to call out there and then in terms of.

Speaker Change: What's going on in the overall industry and application it seems as if a lot of the AI related use cases are calling for 800 gig connections and so I'm wondering are you seeing your 400 gig products being used in.

Speaker Change: Back in AI use cases or are there other applications and if so what are they.

Speaker Change: Yeah, it's supporting AI.

Stefan J. Murry: Yeah, it's supporting AI. And I'm not quite sure what you mean by back-end use cases, but it's supporting AI in the connections between the GPU cluster and the switch primarily. Now, I mean, I think it's also likely to be used in other non-AI applications as well. I mean, there are other non-AI compute applications out there. It's not clear to me precisely the extent to which it's being used in AI versus non-AI applications, so that isn't really information that we're privy to. But certainly, AI is what you know. Microsoft and others, other large data center operators, are primarily building the infrastructure around AI right now. So I would, you know, I think it would be reasonable to expect that the vast majority of it is being deployed in AI.

Speaker Change: And I'm not quite sure what you mean by back end use cases, but it's supporting AI and the connections between the the GPU cluster and in the AR and the switch primarily.

Speaker Change: No I mean, I think it's also likely being used in other non AI applications as well I mean, there are other.

Speaker Change: Donnie I compute applications out there, it's not clear to me precisely the extent to which it's being used in AI versus non AI applications that isn't really information that we're privy to but certainly AI is what.

Speaker Change: Yeah.

Speaker Change: Microsoft and others. Other large data center operators are primarily building the infrastructure around AI right now so I would think it would be reasonable to expect that the vast majority of it is being deployed in infrastructure.

Great: Great and then just a flat maybe a little bit more color on how you see the cadence of your your cable TV business in that this quarter was actually a bit better a bit stronger than what we expected, but it seems as if you're suggesting or my interpretation of your suggestion is sort of a step function.

Stefan J. Murry: Great And then just to splash maybe a little bit more color on how you see the cadence of your cable TV business, in that this quarter was actually a bit better, a bit stronger than we expected. But it seems as if you're suggesting, or my interpretation of your suggestion, is sort of a step function in the second half of the year. Anything you could do to give us some sort of boundaries on what that implies? Yeah, I mean, I think you're more or less correct in what you're saying in terms of the step function in the middle of the year. What's going on right now is that we're continuing to sell DOCSIS 3.1 products, which are on their way out. They're not obsolete yet,

Great: In the second half of the year anything you could do to give us some sort of bounds on what that implies.

Speaker Change: Yeah, I mean, I think you're you're more or less correct and what you're seeing in terms of a step function in the middle of the year, what's going on right now is that we're continuing to sell.

Speaker Change: DOCSIS three one products, which are.

Speaker Change: On their way out theyre not obsolete yet its whats currently deployed in the networks, but those products that are being shipped now are being used in.

Stefan J. Murry: It's what's currently deployed in the networks, but those products that are being shipped now are being used in new builds, not upgrades, but just new areas that need to be built out or repaired, things like that. It's kind of a steady state, business. What we expect to happen in the middle part of the year is that we'll layer on the new 1.8 gigahertz products, which are going to be used in new network upgrades, which is really where the excitement is, frankly, and that's why we tried to call out some specific dates in our prepared remarks earlier, that we expect to have those amplifiers in for qualification between April and June. There are several different models there, so they'll ship at various times within that timeframe.

Speaker Change: New new new builds.

Speaker Change: Not upgrades, but just new areas that need to be built out of repairs things like that it's kind of a steady state.

Speaker Change: Business what.

Speaker Change: What we expect to happen in the middle part of the year is that will layer on.

Speaker Change: The new one eight gigahertz products, which are going to be used in new network upgrades.

Speaker Change: Which is really where the excitement is frankly and that's why we tried to call out. Some specific dates are in our prepared remarks earlier that we expect to have those amplifiers in for qualification between April and June there are several different models. There so they'll ship it various times within that timeframe.

Speaker Change: And then we do expect.

Stefan J. Murry: And then we do expect, you know, revenue to begin pretty quickly thereafter because I think there are, you know, several MSOs that are really, you know, appear to be very interested in starting those upgrades quickly as soon as the products become available. Great. Thank you for taking my question. The next question comes from Michael Genevieve with Rosenblatt Securities. Please go ahead. Thanks a lot.

Speaker Change: Revenue to begin pretty quickly thereafter, because I think the.

There are several msos that are really.

Speaker Change: Appear to be very interested in starting those upgrades quickly as soon as the products become available.

Speaker Change: Great. Thank you for taking my questions.

Michael: The next question comes from Michael Hi.

Michael Hi: Genevieve with Rosenblatt Securities. Please go ahead.

Oh, great. Thanks, a lot.

Michael Genevieve: So, you know, the narrative over the last quarter or so has been that your big customer here asked you to hurry up and expedite the development of the product, and it seems like you executed extremely well on that. And then, so it's sort of like a hurry up and now wait situation. Could you provide... I mean, is that kind of... Yeah.

Michael Hi: So.

Genevieve: It sounds like I mean, the narrative.

Over the last quarter, so it's been that but yeah.

Genevieve: They've got your big customers are asking you to hurry up and expedite the development of the product that it seems like you executed extremely well to do that and then sort of like a hurry up and now wait situation. So could you provide that.

Speaker Change: Fortunately I think thats probably right.

Stefan J. Murry: Yeah. Sorry, I didn't mean to interrupt there. I thought that was the end of the question. Go ahead, Steve.

Speaker Change: Yeah, I'm, sorry to interrupt that that was at the end of the question go ahead too.

Stefan J. Murry: Oh, no, no. I mean, yeah. Well, I guess I was just going to, you know, ask for more color on that. But also, like, you know, if that is in fact the case, I mean, I hear you reiterating the $300 million number. That hasn't changed.

Speaker Change: Yeah, So I mean, well I guess I was just gonna also.

Speaker Change: More color on that but also like.

Speaker Change: It's all about isn't that the case.

Speaker Change: M y.

Speaker Change: You reiterated the $300 million number that hasn't changed but what what else can you give us confidence that this is just a timing delay and not not really have a kind of a fundamental change there.

Stefan J. Murry: But what else can give us confidence that, you know, this is just a tiny delay and not any other kind of fundamental change here? So, first of all, I guess, you know, some commentary on the slower start to the year that we're seeing, specifically with the data center deployment that I mentioned earlier. So, you know, these things are difficult to predict. What happens is that the product is, you know, qualified and put into use. Data centers order an initial quantity of it to begin putting it in there, and then they start to deploy it. And, you know, I'm sure you can probably understand, just based on prudence, that they don't always deploy new technology as fast as they will once it's at scale, right? They want to take it slow and make sure there are no issues.

Speaker Change: Sure so.

Speaker Change: First of all I guess, some commentary on the slower start to the year that we're seeing.

Speaker Change: Typically with the data center deployment that I mentioned earlier so.

Speaker Change: These things are difficult to predict what happens is that the.

Speaker Change: The product is qualified and put into use.

Speaker Change: Data centers order, an initial quantity of it to begin putting product in there and then they start to deploy and you know I.

Speaker Change: I'm sure.

Speaker Change: You can probably understand just based on prudent debt.

Speaker Change: They don't always deploy the new technology as fast as they will win since it at scale right. They want to take it slow and make sure there's no issues.

Stefan J. Murry: And I believe that's probably the most likely explanation for what's going on. And then, you know, once that initial phase of deployment proves that it's going well, then they'll order, you know, larger quantities to continue.

Speaker Change: And I believe that's probably the most likely explanation for whats going on and then once that once that initial.

Speaker Change: It'll phase of deployments proofs that it's going well then they'll order larger quantity to continue the deployment.

Stefan J. Murry: As far as, you know, what we expect to see throughout the rest of the year, I mean, at the same time, by the way, we're still continuing to build manufacturing capability and capacity for the ramp that we will see through the rest of the year. So, you know, as far as what can give you confidence there, I think probably the only thing that I could really point to is the fact that we continue to invest pretty heavily in CapEx. If you look at our CapEx in the fourth quarter, it's ramped significantly from what it was earlier in the year. Clearly, not all of that investment, you know, came online and produced products in Q1. And so I think, you know, that, along with our commentary about, you know, a markedly improved Q2, would hopefully give you guys some level of confidence, but this is temporary. And don't forget, you know, squeeze.

Speaker Change: As far as what we expect to see throughout the rest of the year I mean at the same time by the way, we're still continuing to build.

Speaker Change: Manufacturing capability and capacity for for the ramp that we see through the rest of the year. So.

Speaker Change: As far as what can give you the confidence there I think probably the.

Speaker Change: The only thing that I could really point to is the fact that we continue to invest pretty heavily in capex. If you look at our Capex in the fourth quarter, it's ramped significantly from what it was earlier in the year.

Speaker Change: Clearly not all of that investment came online and produce products in Q1, and so I think you know that.

Speaker Change: That along with our commentary about a markedly improved Q2 would hopefully give you guys some level of confidence that the.

Speaker Change: But this is a temporary condition.

Speaker Change: And don't forget squeeze.

Speaker Change: We have said we are deeper.

Stefan J. Murry: We have said we have delivered 100 G-samples to three new high-risk areas across the U.S. And we believe we, the body, will start to burn out by, I would say, the end of Q2 or early Q3. Same thing, I think, with the 400p. Yeah, I'd like to follow up on that point because, you know, we hear you saying delivery of the sample, but then also expectation of revenue in, you know, 2Q accelerating to Q3. So kind of the missing step between those two is qualification and customer win, but given your confidence in 2.2.3, it sounds like you must already be past that; you must have already passed that milestone. Is that a correct understanding? Well, certainly for the opportunity that we were talking about earlier that we've been referring to on, you know, most of the questions, that is, you know, past the qualification standpoint, you know, the qualification point at this juncture. Other opportunities, I mean, we have various opportunities that are either past qualification or in qualifications we expect to finish up in time to be able to look for revenue in the future. Great.

G simple we knew I was scared of cosmic <unk>.

Speaker Change: We believe lead the body, who started with now.

Speaker Change: I always say end of Q2 early Q3 <unk>.

Speaker Change: <unk> not seen though would be but Q2 deployment of <unk> based Joel.

Speaker Change: Yes, but I'd love to follow up on that point, because I mean, yeah. We hear you fine delivering sample, but then also expectation of revenue in Q2 accelerating in Q3, so how does the missing step between those two was.

Speaker Change: So call it qualification customer win but given your confidence in Q.

Speaker Change: Q3, it sounds like you're already authority be past that as that you have must have already passed that milestone is that a correct understanding.

Speaker Change: Well certainly for the the opportunity that you were talking about earlier that we've been referring to.

Speaker Change: Most of the questions.

Speaker Change: That is passed qualification standpoint qualification point at this juncture.

Speaker Change:

Speaker Change: Other opportunities I mean, we have various opportunities that are either past falsification. We're in qualification we expect to finish up.

Speaker Change: In time to be able to grow revenue in Q2.

Speaker Change: Okay, Great and then just finally for me just sort of help understand the business mix a little bit better.

Stefan J. Murry: And then just finally, for me, just to sort of help understand that business mix a little bit better. Could you give us a sense of the data center right now, the revenue mix roughly between, you know, transceivers and lasers? And then if we look ahead to, say, the fourth quarter of this year and the first quarter of next year, is that going to remain constant? Or will we see some kind of change in that mix?

Speaker Change: Could you give a sense of data center right now.

Speaker Change: The revenue mix roughly between <unk>.

Speaker Change: Transceivers and lasers and then if we look ahead to say the fourth quarter of this year first quarter of next year is that convert remained constant or will we see.

Speaker Change: Some kind of change in that mix.

Stefan J. Murry: So right now, the revenue mix in the data centers is almost entirely transceivers or active optical cables; probably 95% of it is transceivers and optical cables. I don't expect that to change too much. In fact, it'll probably get closer to 100% because the new opportunities that we're talking about are all for, you know, either transceivers or active optical cables. So I think the thing that might be giving you a little bit of a headache. You know, that might be behind that question, if I can kind of read into it, is this question of, well, we had two different projects with Microsoft, one for lasers and one for active optical cables, right? And that is true, but what I think you may not completely understand is that most of the lasers, in fact, right now, all of the lasers are used in our own active optical cable.

Speaker Change: So right now the revenue mix in the data centers almost entirely transceivers are active optical cables, probably 95% of it is transceivers and optical cables.

Speaker Change: Don't expect that to change too much in fact, it will probably get closer to 100% because the new opportunities that we're talking about are all four.

Speaker Change: Either transceivers are active optical cable so I think the thing that might be giving you a little bit of.

Speaker Change: It might be behind that question, if I can kind of read into it is this question of what we had two different projects with Microsoft one for lasers and one for active optical cables right.

Speaker Change: And that is true, but I think he may be not completely understanding is that most of the lasers. In fact right now all of the lasers are used in our own active optical cable so the revenue while we are.

Stefan J. Murry: So the revenue, while we are making lasers and working on making lasers, the revenue will be for the active optical cables that we ultimately use. That actually was my understanding, but I do get a lot of questions on that, and I wanted to make sure that I understood it correctly. So thanks so much for the answers.

Speaker Change: Making lasers working on making lasers.

Speaker Change: The revenue will be for the active optical cables that ultimately utilize those lasers.

Speaker Change: That was actually it was my understanding, but I, but I do get a lot of questions on that and I wanted to make sure that I have that.

Speaker Change: Understood. It correctly. So thanks, so much for the answers I'm glad to be on the conference calls now and done so.

Stefan J. Murry: I'm glad to be on the conference calls now and to be getting in here on a good time. Thank you. We're excited to have you.

Speaker Change: Getting in here at a good time thank you.

Speaker Change: We're excited to have you. Thanks.

Stefan J. Murry: Thanks... The next question comes from Tim Savageaux with Northland Capital Markets. Please go ahead. Hey, good afternoon.

Timothy Paul Savageaux: A couple of questions. First, on some elements of guidance that you provided for the year. So I think you were talking about or expecting to be profitable on a non-gap basis. I don't know if that's net income or operating profit or both, but I just want to confirm that for the year. That would be net income, you know, non-gap net income profitable for the year.

Stefan J. Murry: Okay, well, and I guess you've given us a range for OPEX, so I know you're starting the year pretty low from a gross margin perspective, but. You know, saying, if you're able to get that, say, up to 30% for the year, which may or may not be reasonable, I mean, you can take a revenue range out of that that's, you know, solidly over $300 million. I mean, obviously weighted toward the back half of the year, but am I doing that math right?

Speaker Change: It may not be reasonable.

Speaker Change: Yeah.

Speaker Change: You can take a revenue range out of that it's.

Speaker Change: That's you know solidly over $300 million I mean.

Speaker Change: V asleep weighted towards the back half of the year, but am I doing that math right.

Stefan J. Murry: Yeah. Excellent. Okay. And then I'm going to follow up on some details on the 400-gig category, and you saw that increase of about $10 million in the quarter, with, you know, pretty healthy declines on the 100 gig side. I assume that's where the weakness is from a demand standpoint, but, I mean, is it fair to attribute most or all of that increase to the Active Optical Table shipment?

Speaker Change: Yes, yes.

Speaker Change: Excellent.

Speaker Change:

Speaker Change: And then I'm gonna follow up on some details on the 400 gig category and you saw that increase about $10 million in the quarter.

Speaker Change: With you know pretty healthy declines on 100 gig side I assume that's where the weaknesses from in demand standpoint, but.

Speaker Change: I mean is it fair to a tribute most or all of that increase Judy.

Speaker Change: To the active optical cable shipments and to the extent you expect it to turn back on let's say and Q2.

Stefan J. Murry: And, you know, to the extent you expect it to turn back on, let's say, in Q2. Is that the type of order of magnitude we should be expecting as you move your way toward exiting the year, say, at a 25 million a quarter run rate? So, uh, let's see a couple questions embedded in there.

Speaker Change: Is that the type of orders of magnitude, we should be expecting as you move your way toward exiting a year say it a 25 million a quarter run right.

Speaker Change: So, let's see a couple of questions embedded in there. The first one was you know is is was the active optical cables responsible for.

Stefan J. Murry: The first one was, you know, is, were the active optical cables responsible for most of the increase in 400 G revenue? The answer to that is yes. The second part of that question was, I wasn't quite clear exactly how you were asking that.

Speaker Change: Most of the increase in 400 G revenue the answer to that is yes.

Speaker Change: The second part of that question was.

Speaker Change: Quite clear exactly how you were asking that is.

Speaker Change: You know, we I said earlier that we would expect that to be you know kind of on a run rate of $100 million a year 25 million a quarter by the end of the year.

Stefan J. Murry: I said earlier that we would expect it to be on a run rate of $100 million a year or $25 million a quarter by the end of the year. Are you just trying to confirm that, or was there another question that I kind of... No, there was another little question there, and that is, to the extent you're expecting a bounce back or an improved Q2, which you referenced in the release... Should we say, think that, you know, most or all of that improvement is returning to that Q4 level or above from an AOSC perspective? I'd have, you know, I'd probably have to get close to it.

Speaker Change:

Speaker Change: Are you just trying to complain that or was there. Another question that I kind of know another little questionnaire and that is.

Speaker Change: You're expecting a bounceback or improved queue to which you referenced in the release.

Speaker Change: Should we say think that <unk>.

Speaker Change: Most or all of that improvement is returning to that Q4 level or above from an Aoc perspective.

Speaker Change:

Speaker Change: I'd have to you know I'd have to probably close to it I'd have to kind of do the math.

Stefan J. Murry: I'd have to kind of do the math to answer that question precisely. But we do expect, you know, some other new 400 gigabit business to start ramping up in Q2 as well. So I'm a little, I'm a little hesitant to say if that's absolutely the dominant factor, but most likely, it would be close to that. Okay, great, and then last one for me, I think at least. And you went through this before, but I want to make sure I understand.

Speaker Change: To answer that question precisely we we do expect you know some other new 400 gig business to start ramping in Q2 as well so I'm I'm a little.

Speaker Change: I'm, a little hesitant to say, it's that's absolutely the dominant factor, but most likely would be close to that yeah.

Speaker Change: Okay, Great and then last one for me I think at least.

Speaker Change: Mm mm.

Speaker Change: And you step through this before but I want to make sure I understand last quarter, you talked about sampling 800 gig products to for customers, including three Hyperscalers I think I got that right.

Stefan J. Murry: Last quarter, you talked about sampling 800 gigabyte products to four customers, including three hyperscalers. I think I got that right. Um, is that what you're saying when you expect 800 gigabytes to be able to start contributing mid-year? end of Q2 into Q3 is that one of those that you have sampled has turned into, you know, a production customer. And is there any update to the kind of customer engagement metrics, sampling and whatnot on either 400 or 800 G in Q4 or, Q4 and year-to-date 24. Sure.

Speaker Change:

Speaker Change: Is is what you're saying when you expect it 800 gig to be able to to start to contribute mid year.

Speaker Change: And a few too into Q3 is that one of those that you have sampled has turned into.

Speaker Change: You know a production customer and is there any updates to the.

Speaker Change: Kind of customer engagement metrics sampling whatnot on either 400 or 800 G in queue for or.

Speaker Change: Q for and year to date 24.

Stefan J. Murry: So, I mean, to be clear, we have not, you know, completed final qualification on any of those 800G products at this time. But we did have three customers that we sampled last year at the end of the year. And in addition to that, you know, just within the last, I don't know, a month or so, we've had some significant new interest from other new customers, besides the three that we shipped to last year. So, you know, without.

Speaker Change: Sure So I mean.

Speaker Change: We have not completed final qualification on any of those 800 G products at this point.

Speaker Change: So we did have three customers that we sampled last year at the end of the year.

Speaker Change: And in addition to that you know just within the last.

Speaker Change: I don't know a month or so we've had some significant new interest from other new customers.

Speaker Change: Besides the three that we shipped to last year.

Speaker Change: So you know.

Speaker Change: Without.

Stefan J. Murry: Transcription by https://otter.ai, As far as..., you know, the kind of demand. I guess you could say, you know, the kind of feeling that we have around demand. I would say that, you know, the need for 800 gigabytes right now seems to be particularly acute. I think there's a lot of demand for that, and that typically means that qualification and revenue generation can go rather quickly. It's when, you know, it's when demand may be somewhat low that you start to see the qualification cycle stretch out and things like that.

Speaker Change: Trying to tip, our hat too much here I think it's likely that one or more of either the customers. We shipped the last year or one of these newer customers will be will be a customer generating revenue for us and the Q3 timeframe for 800 G.

Speaker Change: As far as.

Speaker Change:

Speaker Change: You know the kind of the demand.

Speaker Change: I guess you could say.

Speaker Change: You know the kind of feeling that we have around demand I would I would say that you know that the need for 800 gig right now.

Speaker Change: You know it seems to be particularly acute.

Speaker Change: I think there's a lot of demand for that and that typically means that qualification and revenue generation can can go rather quickly.

Nguyen: It's Nguyen.

Nguyen: You know, it's when demand maybe some low that you start to see the qualifications cycle stretch out and things like that and we're definitely not in that situation.

Stefan J. Murry: And we're definitely not in that situation, in my estimation for 800G. Okay, got it. Let me sneak one more in here.

Nguyen: In my estimation free energy at this point.

Speaker Change: Well got it let me sneak one more in here sorry about that but.

Stefan J. Murry: Sorry about that. But, you know, along those lines, I guess we spent a fair bit of time over the last couple of three quarters sizing the active optical cable opportunity at Microsoft. But as you look at your 800-gig pipeline and some of the customer engagements you have, I guess, how would you size that opportunity relative to what we've been talking about with Microsoft at 400 gigabytes? I mean, the opportunity there is several times larger, you know, many times larger.

Speaker Change: Along those lines I guess, some spent a fair amount of time over the last couple of quarters.

Speaker Change: By using the active optic cable optical cable opportunity at Microsoft, but as you look at your 800 gig pipeline and some of the customer engagements you have I guess.

Speaker Change: How would you size that opportunity relative to to what we've been talking about with.

Speaker Change: Microsoft at 400 gig.

Speaker Change: I mean, the opportunity there is is several times larger.

Speaker Change: Many times larger.

Stefan J. Murry: You know, it remains to be seen how much of that market we can get. I don't want to, you know, create too much irrational exuberance at this point. But the market size, the market opportunity there, is huge, and it's being driven by AI.

Speaker Change: It remains to be seen how much of that market, we can get I don't want to.

Speaker Change: Create too much.

Speaker Change:

Speaker Change: Irrational exuberance at this point, but the market size the market opportunity there is huge and it's being driven by a I mean, there's nothing.

Stefan J. Murry: I mean, there's nothing that, you know, should be mysterious about the demand profile, right? I mean, we heard NVIDIA talking today, you know, on their, or yesterday on their earnings call about, you know, the amount of compute infrastructure that's being built, all of that needs to be interconnected. And a lot of it is being interconnected at 800G, and frankly, we'll probably be moving to 1.6 terabits in some applications early next year. So the opportunity is huge. You know, I think we're well positioned for that.

Speaker Change: You know it should be mysterious about the demand profile right I mean, we heard in video talking today.

Speaker Change: Yesterday on their earnings call about.

Speaker Change: The amount of <unk>.

Speaker Change: Computing infrastructure, that's being billed all of that needs to be interconnected and a lot of it is being interconnected at 800 G and frankly will be probably moving to 1.6 terabytes for some applications early next year.

Speaker Change: So the opportunity is huge.

Speaker Change: You know I think we're well positioned for that.

Stefan J. Murry: Like I mentioned earlier, we've seen a lot of new customer inbound interest just recently. And, you know, there's a lot of work to be done. And I'm not predicting we're going to get, you know, what percentage of that market we'll ultimately be able to get, it's a little early to say, but the market opportunity there is huge. Okay, thanks very much. Again, if you have a question, please press star and then 1. Our next question comes from Dave Kang with B Riley Securities. Please go ahead. Thank you. Good afternoon.

Speaker Change: Like I mentioned earlier, we've seen a lot of new customer inbound interest just recently.

Speaker Change: And you know there's a lot of work to be done and I am not predicting we're going to get what what percentage of that market will ultimately be able to get it's a little early to say, but the market opportunity there is huge.

Speaker Change: Okay. Thanks very much.

Speaker Change: Welcome.

Speaker Change: Again, if you have a question. Please press star and then one our next question comes from Dave King with be Riley Securities. Please go ahead.

Dave King: Good afternoon. My first question is regarding your first quarter out can you just provide more color in terms of H a product segments. How you know taken declined sequentially.

Dave Kang: My first question is regarding your first quarter outlook. Can you just provide more color in terms of each product segment and how they're going to decline sequentially? Well, we don't really give guidance by product segment, but, you know, clearly, the cable TV business, no matter what kind of what happens there, it's not big enough. It's not going to collapse to zero.

Dave King: Well, we don't really give guidance byproducts segment, but clearly the the cable T V business no matter, what kind of what happens there it's not big enough. It's not it's not gonna collapsed zero. So whatever happens there is not likely to account for.

Stefan J. Murry: So whatever happens there is not likely to account for the, you know, the majority of the decline. So that's going to come primarily from the data center business. We noted in our prepared remarks earlier that, you know, it's a combination of factors there that the Lunar New Year, a lot of these products are made in our China facility. And so the mix of those products shifted a little bit unexpectedly on us towards the end of last year, which resulted in, you know, having to make new products, essentially, that we hadn't necessarily planned for in advance, and that's why the In addition to that, we did have some pricing reductions, and, you know, again, most of that you can assume is on the data center side that kicked in towards the end of last year. And both of those two factors account for the bulk of the...

Dave King: The majority of the decline so that's going to come primarily from the data center business.

Dave King: We noted in our prepared remarks earlier that it's a combination of factors there that the the lunar new year a lot of these products are made in our China facility.

Dave King: And so the mix of those products shifted a little bit unexpectedly on us towards the end of last year, which resulted in.

Dave King: Having to make new products essentially that we hadn't necessarily planned for in advance and that's why the lunar new year caught us a little bit unprepared. This year. In addition to that we did have some pricing reductions and most of that you can assume as in the data center side kicked in towards the end of last year and both of those two factors account for the bulk of the.

Dave King: Nine.

Dave King: [laughter] the.

Stefan J. Murry: So, on that second part about pricing reductions, was it mainly 100 gigabytes or involved 400 gigabytes as well? No, it was mainly 100 gigabytes. I don't believe we had any price reductions on 400 gigabytes.

Dave King: Second part of our pricing redemption wasn't mainly 100 gig also are involved 400 gig as well.

Speaker Change: No. It was mainly 100 gig and I don't believe we had any price reductions on 400 gig.

Speaker Change: Got it and then when you talk about when you talk about a second quarter snapped back are you <unk>.

Stefan J. Murry: Got it. And then, when you talk about second quarter snapback, are you just talking about 400 gigabytes, or will 100 gigabytes recover as well? We expect it will be mostly 400 gigabytes, you know; there may be some recovery in 100 gigabytes, it's a little bit unclear, but that technology is clearly, you know, in the waning phase of its life cycle. 400G is clearly going to be picking up more in the near future. And, you know, again, as we talked about earlier, later in the year, 800G is expected to contribute. And then on Microsoft, do you have any kind of a, you know, like a backlog to speak of that gives us confidence that, you know, you'll, that they'll ramp throughout this year, or is it still based on their forecast? I mean, we have a small backlog, like we always do, but it's consistent with what we've seen over the years. It's nothing, you know; it's nothing that would guarantee a ramp throughout the year.

Speaker Change: Talked about 400 gang or well why don't you get recover as well.

Speaker Change: We expect it'll be mostly 400 gig.

Speaker Change: There may be some recovery and hunter gig is a little bit unclear, but that technology is clearly you know in the waning phase of its of its lifecycle for.

Speaker Change: 400 gig is clearly going to be picking up more in the near future and again as we talked about earlier or later in the year 800 gigs with respect to contribute as well.

Speaker Change: Right and then Microsoft do you have any kind of you know like a backlog to speak of that gives us confidence that you'll <unk> rap throughout the share or is it still date based on the stair forecast.

Microsoft: I mean, we have small backlog, what they always do but it's consistent with what we've seen over the years is nothing there's nothing that would guarantee you ran throughout the year.

Stefan J. Murry: Got it. And my last question is, you talked about Microsoft wanting to, you know, add another supplier. You know, what's the latest on that? I'm sorry; I didn't quite understand the question. You said Microsoft was adding another supplier for the phone? Yeah, did you say, yes, that AOC, yeah, AOC, you know, possibly adding another supplier in addition to you. Any latest update on that?

Speaker Change: Got it and my last question is you talked about you know Microsoft to add another supplier.

Speaker Change: You know, what's the latest on that.

Speaker Change: I'm, sorry, I didn't quite understand your question you said, Microsoft adding another supplier for the <unk>, Yeah, I hate to say it weekly or yes that a as he yeah. He was he you know, possibly adding another supplier. In addition to you any update on that.

Stefan J. Murry: Right. I mean, Yeah, I understand your question now. So I'm not aware that there's any other supplier that's shipping at this point. But I really, you know, wouldn't really be able to share that information, even if I were.

Speaker Change: Alright.

Speaker Change: Yeah, I I get your question. So I mean I'm not aware that there is any other supplier. That's the shipping at this point, but I really wouldn't really be able to share that information, even if I were but as a matter of fact at this point I'm not aware of it so.

Thompson Lin: But as a matter of fact, at this point, I'm not aware of it. Got it. All right. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Thompson Lin for any closing remarks. Again, thank you for joining our call today. As always, we want to extend a thank you to our investors, customers, and employees. For your continued support, we look forward to seeing many of you at Overseas and to updating you on our next Learning Code. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: Got it alright, thank you.

Speaker Change: You're welcome.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to you Thompson Lynn for any closing remarks.

Thompson Lin: Okay. Thank you for doing a call today as always we wanted to extend a thank you to all investors customers and employees.

Thompson Lin: Well you can do you know what the poll, we do full to see many of U N O Z and to updating you all all next blending coal.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.