Q2 2024 Applied Optoelectronics Inc Earnings Call
Good afternoon.
Operator: I will be your conference operator.
We will be your conference operator.
Operator: At this time, I would like to welcome everyone to apply Optoelectronics' second quarter of 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.
Speaker Change: At this time I would like to welcome everyone to Ford Auto Electronics second quarter 2024 earnings Conference call.
Speaker Change: All lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question in the intercession. To ask a question, please press star, then one on your telephone keypad. To draw your question, please press star, then two. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Please also note today's call is being recorded.
Speaker Change: After the Speakers' remarks, there will be a question and answer session.
Speaker Change: You ask a question. Please press Star then one on your telephone keypad.
Speaker Change: Your question. Please press Star then two.
Speaker Change: Should you need assistance please signal.
Speaker Change: Conference specialist by pressing the star key followed by zero.
Speaker Change: Please also note today's call is being recorded.
Lindsay Savarese: I would now like to turn the call over to Lindsay Savarese, and that's a relationship for AOI. Mrs. Savarese, you may begin.
salaries: I would now like to turn the call over someone's he salaries investor relations for NOI. This is salaries you may begin.
Lindsay Savarese: Thank you. I'm Lindsay Savarese, and that's a relation for Applied Optoelectronics. I am pleased to welcome you to AOI's second quarter 2024 financial results conference call. After the market closed today, AOI issued a press release announcing its second quarter 2024 financial results and provided its outlook for the third quarter of 2024. The release is also available on the company's website at a.o-inc.com. This call is being recorded in webcast live. A link to the recording can be found on the Investor Relations section of the AOI website and will be archived for one year.
salaries: I'm Lindsay Savarese Investor relations for applied Optoelectronics.
Operator: After the speaker's remarks, there will be a question and answer session.
Speaker Change: I'm pleased to welcome you to Aoi's second quarter 2024 financial results Conference call.
Speaker Change: After the market closed today <unk> issued a press release.
Speaker Change: Second quarter, 'twenty 'twenty, four financial results and provide an outlook for the third quarter of 'twenty 'twenty four.
Speaker Change: The release is also available on the company's website at Ao, Inc. Com.
Speaker Change: This call is being recorded and webcast live.
Speaker Change: Morning can be found on the Investor Relations section that'd be a web site and will be archived for one year.
Lindsay Savarese: Joining us on today's call is Dr. Thompson Loon, AOI's founder, chairman and CEO, and Dr. Seth and Murray, AOI's chief financial officer and chief strategy officer. Thompson will give an overview of AOI's Q2 results and staff, and will provide financial details and the outlook for the third quarter of 2024. A question and answer session will follow our prepared remarks.
Speaker Change: Joining us on today's call Dr. Thompson Lin.
Speaker Change: Tom Barrack, Chairman and CEO and Dr. Stefan Murry, Aoi's, Chief Financial Officer, and Chief Strategy Officer.
Speaker Change: Thompson will give an overview of Aoi's Q2 results and Stefan will provide financial details and the outlook for the third quarter of 2024.
Speaker Change: A question and answer session will follow our prepared remarks.
Lindsay Savarese: Before we begin, I would like to remind you to review AOI's safe harbor statement. On today's call, management will make four lifting statements. These four lifting 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 four looking statements. In some cases, you can identify four looking statements by terminology such as belief, forecast, anticipate, estimate, adjust, intent, predict, expect, plan, name, should, could, would, will, potential, or think, or by the negative of those terms or other similar expressions that convey uncertainty of future events or outcomes.
Operator: I am pleased to welcome you to AOI's second quarter 2024 Financial Results Conference call. 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 State Plan.
Speaker Change: Before we begin I would like to remind you to review <unk> Safe Harbor statement.
Speaker Change: On today's call management will make forward looking statements. These forward looking statements involve risks and uncertainties.
Speaker Change: As far as assumptions and current expectations, which could cause the company's actual results.
Speaker Change: With 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.
Speaker Change: Terminology, such as believes forecasts anticipate.
Speaker Change: Estimate.
Speaker Change: Hey, Chad intends predicts expects.
Speaker Change: Yeah.
Speaker Change: Sure it could what well potential or things or buy the negative churn or other similar expressions that convey uncertainty of future events or outcomes.
Lindsay Savarese: The company has faced these four lifting statements on its current expectations, assumptions, estimates, and projections. While the company believes these expectations, assumptions, estimates and projections are reasonable, such four looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond the company's control. For looking statements, also includes statements regarding management, release, and expectation related to the expansion of the reach of our products into new markets and customer responses to our innovations, as well as statements regarding the company's outlook for the third quarter of 2024. Except as required by law, we assume no obligations to update for 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.
Speaker Change: The company update these forward looking statements on its current expectations assumptions estimates and projections.
Speaker Change: While the company believes these expectations assumptions estimates and.
Speaker Change: In protection are reasonable.
Speaker Change: Such forward looking statements are only predictions.
Speaker Change: Involve known and unknown risks and uncertainties.
Speaker Change: Many of which are beyond the company's control.
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.
Speaker Change: And customer responses to our innovation as.
Speaker Change: All statements regarding the company's outlook for the third quarter of 2024.
Speaker Change: Except as required by law, we assume no obligation.
Speaker Change: Forward looking statements for any reason after the date of this earnings call to conform these statements to actual results.
Speaker Change: The changes in the company's expectations.
Lindsay Savarese: More information about other risks that may impact the company's business are set forth in the risk factor section of the company's reports on file with the SEC, including the company's annual report on Form 10-K and the company's quarterly reports on Form 10-K. 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, whereas the substitute for results prepared in accordance with GAAP. A reconciliation between our GAAPs 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: 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 SEC.
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.
Speaker Change: Typically noticed otherwise non.
Speaker Change: 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: A reconciliation between our GAAP non-GAAP measures.
Speaker Change: As well as a discussion of why we present non-GAAP financial measures.
Speaker Change: Included in our earnings press release that is available on the website.
Lindsay Savarese: Before moving to the financial results, I'd like to announce that AOI management will virtually participate at the Rosenblatt 4th Annual Technology Summit, the Age of AI on August 20th, and is attending the Jeffrey's SME's ITE Hardware and Communications Technology Summit on August 28th. I'd also like to note that the date of our 3rd quarter 2024 earnings call is currently scheduled for November 7th, 2024.
Speaker Change: Before moving to the financial results I'd like to know a lot of management.
Speaker Change: Virtually participate at the Rosenblatt fourth annual technology summit.
Speaker Change: Maybe just a eye on August 20th Anna.
Speaker Change: Attending the Jefferies semi hardware and communications technology Summit on August 20.
Speaker Change: I'd also like to note that the date of our third quarter 'twenty 'twenty four earnings call is currently scheduled for November seven 2024.
Lindsay Savarese: Now, I would like to turn the call over to Dr. Thompson-Lynn, Applied After Electronic founder, chairman, and CEO.
Speaker Change: Now I would like to turn the call over to Doctor Thompson Lin applied Optoelectronics, founder Chairman and CEO Thompson.
Dr. Thompson Loon: Thompson? Thank you, Lindsey. And thank you for joining our call today. to $46.5 million. We deliver non-GAAPs margin of 22.5%, which was below our current range of 25.5% to 27.5%. All non-GAP lows per share was 28 cents, which were favorable compared to our current range of lows of 29 cents to 35 cents per share. Our labeling for all data-centered products of $34.4 million was out 25% e-over-ears and 19% squishy. Rebuilding for all non-GAPS products increased 21% e-over-ears, and labeling for all 400 products more than double in the same period. We are pleased to report that we have become to receive initial order for 400 products from our larger large hyperscale customer.
Thompson Lin: Thank you Lindsay and thank you for joining our call today, although revenue for the second quarter.
Speaker Change: Our expectations were.
Speaker Change: Good goes to margin.
Speaker Change: It was a vacation.
Speaker Change: Laurie do to put on my own okay laws push you.
Speaker Change: Well, it's favorable compared to expectations during the second quarter would deliver a liberty or 40 people a few million.
Speaker Change: Oh, God, there's wage or 41 5 million.
Speaker Change: 240, just pull the $5 million.
Speaker Change: <unk> non-GAAP gross margin of 22, 5%.
Speaker Change: Of course, it was below our guided range of 25, 5% to 27, 5%.
Speaker Change: No I'm good goals for Schuh was 28 cities.
Speaker Change: Of course, you want favorable compute talk by this wage all the roles of 20 United to 275%.
Speaker Change: Oh, the labeling vaulted us into a full dose of $34 million was up 25% year over year and 19% squishy.
Speaker Change: Globally for all what are the products increased 21% year over year and globally for all fall under the products more than doubled.
Speaker Change: We are pleased to be pulled yet.
Speaker Change: Have you gone to received an initial order for 400 close outs.
Speaker Change: Large hyperscale customer.
Dr. Thompson Loon: And we are very excited about this new customer in direction. With this new customer, we now are shipping 400 products to three out of the five largest hyperscale data center customers in the US.
Speaker Change: We are very excited about this new cosmo into Ritchie.
Speaker Change: This new customer we know she beautiful and you've put out to the street, although defy logic I was scared you after the call.
Speaker Change: In the U S.
Dr. Thompson Loon: Total revenue in our CATV segment was $5.00 million, which was down 38% year over years and 33% sequentially, large driven by continued generally slow sales of those 3.1 equipment. As the industry prepares to transition to those 4.0, we believe that this transition is underway and expect our CATV 6 to begin to ramp in Qtrees.
Speaker Change: Total revenue.
Speaker Change: It can be a sigma was $5 million of course, it was down 38% year over year.
Speaker Change: Sydney Street Squishy largest breather.
Speaker Change: Joey you don't see all of those people and what they do.
Speaker Change: Indoors prepares to transition to talk to both of you.
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Speaker Change: This transition is underway.
Speaker Change: Oh C. A T V six to gain momentum in.
Speaker Change: In Q3 was that Oh, it's a no code almost as David to review the details of our Q2 performance and.
Stefan Murry: With that, I will turn the call over to Stephen to review the details of our Q2 performance in our Qtrees 7. Thank you, Thompson. As Thompson mentioned, our revenue for the second quarter was in line with our expectations. While our non-GAAP close margin came in below our expectations, largely due to product mix, our non-GAAP loss per share was favorable compared to our expectations.
Speaker Change: Although she stood at.
Thompson Lin: Thank you Thompson.
Thompson Lin: As Thompson mentioned, our revenue for the second quarter was in line with our expectations while.
Speaker Change: While our non-GAAP gross margin came in below our expectations largely due to product mix.
Speaker Change: Our non-GAAP loss per share was favorable compared to our expectations.
Stefan Murry: As a reminder, on our Q1 call, we discussed a number of key reasons why we felt optimistic about the second half of the year despite a slow start to 2024. Today, we are pleased to report that we have executed on many of these initiatives that we believe will position the company for long-term success and continue to give us optimism for the second half of the year and beyond. As Thompson mentioned earlier, we've begun to receive orders for 400G products from another large hyperscale customer, and we expect to ship these initial orders in Qtrees. While the initial orders are relatively small, we are very excited about this new customer interaction.
Speaker Change: As a reminder, on our Q1 call. We discussed a number of key reasons why we felt optimistic about the second half of the year. Despite a slow start to 2024.
Speaker: Today we are pleased to report that we have executed on many of these initiatives that we believe will position the company for long term success and continue to give us optimism for the second half of the year and beyond. While the initial ramp has been slower than originally anticipated, recent forecasts indicate a substantial improvement in revenue in late Q3 and into Q4 and beyond, with the remaining 8% from FTTH, Telecom and others, as we have discussed on several prior earnings.
Thompson Lin: Today, we're pleased to report that we have executed on many of these initiatives that we believe will position the company for long term success and continue to give us optimism for the second half of the year and beyond.
Thompson Lin: As Thompson mentioned earlier with.
Thompson Lin: We've begun to receive orders for 400 G products from another large hyperscale customer and.
Thompson Lin: And we expect to ship these initial orders in Q3.
Thompson Lin: While the initial orders are relatively small we are very excited about this new customer interaction.
Stefan Murry: With this new customer, we are now shipping 400G products to three out of the five largest hyperscale data center customers in the US. We previously discussed on our Q1 call how we had begun to receive forecasted orders for the VIXLE-based 400G active optical cables for which Microsoft provided development funding last year. As demonstrated by our Q2 data center results, we have started to see business improvement and expect to see continued improvement throughout the year. While the initial ramp has been slower than originally anticipated, recent forecasts indicate the substantial improvement in revenue in late Q3 and into Q4 and beyond.
Speaker Change: With this new customer we are now shipping 400 G products to three out of the five largest hyperscale datacenter customers in the U S.
Thompson Lin: We previously discussed on our Q1 call.
Speaker Change: We have begun to receive forecasted orders for the pixel based 400 G active optical cables for which Microsoft provided development funding last year.
Thompson Lin: As demonstrated by our Q2 data center results, we have started to see business improvement and expect to see continued improvement throughout the year.
Thompson Lin: While the initial ramp has been slower than originally anticipated recent forecasts indicate a substantial improvement in revenue in late Q3 and into Q4 and beyond.
Stefan Murry: We anticipate that this will represent a longer term sustainable increase in business and are excited for this product to finally transition to wider usage within our customer's data centers. Lastly, in our CATV business, we have finalized the qualification testing with three out of the four individual 1.8 gigahertz amplifier models with one of our major MSO customers. The testing has gone well and we have begun to negotiate our first orders for these new amplifiers and expect our CATV results to improve markedly in Q3 as a result.
Thompson Lin: We anticipate that this will represent a longer term sustainable increase in business and are excited for this product finally transition to wider usage within our customers data centers.
Thompson Lin: Lastly, in our CATV business, we have finalized the qualification testing with three out of the four individual one eight gigahertz amplifier models with one of our major msos customers. The testing has gone well and we have begun to negotiate our first orders for these new amplifiers and expect our CATV results to improve markedly in Q3 as a result.
Stefan Murry: Turning to the quarter, our total revenue for the second quarter was $43.3 million, which was up 4% every year and 6% sequentially, and which was in line with our guidance range of $41.5 million to $46.5 million. Turning to the second quarter, 79% of our revenue was from our data center products. 13% was from our CATB products, with the remaining 8% from FTTH, telecom, and other. In our data center business, our Q2 data center revenue came in at $34.4 million, which increased 25% year-over-year and 19% sequentially. In the second quarter, 73% of our data center revenue was from our 100G products.
Thompson Lin: Turning to the quarter.
Thompson Lin: Our total revenue for the second quarter was $43 $3 million, which was up 4% year over year and 6% sequentially.
Thompson Lin: Which was in line with our guidance range of $41 $5 million to $46 $5 million.
Thompson Lin: During the second quarter, 79% of our revenue was from our data center products, 13% was from our CATV products with the remaining 8% from F T Th telecom and other.
Thompson Lin: And our data center business, our Q2 data center revenue came in at $34.4 million, which increased 25% year over year and 19% sequentially.
Thompson Lin: In the second quarter, 73% of our datacenter revenue was from our 100 G products.
Stefan Murry: 18% was from our 200G and 400G transceiver products, and 7% was from our 40G transceiver products. As we have discussed on several prior earnings calls, we signed two agreements with Microsoft in 2023 for the development of 400G products and beyond. This included a development program to make next-generation lasers for its data centers, and for the development of its 400G and next-generation act of optical cables. While not guaranteed, we continue to believe that the revenue opportunity for our 400G and 800G products could be greater and a longer duration than the revenue contribution we saw from this customer during the peak of the 40G products cycle, which suggests that revenue from these products may exceed $300 million over the several years of these build-ups.
Thompson Lin: 18% was from our 200 G and 400 G transceiver products and.
Thompson Lin: And 7% was from our 40 G transceiver products.
Thompson Lin: As we have discussed on several prior earnings calls we signed two agreements with Microsoft in 2023 for the development of 400 G products and beyond.
Thompson Lin: This included a development program to make next generation lasers for its data centers.
Thompson Lin: And for the development of its 400 G and next generation active optical cables.
Thompson Lin: While not guaranteed we continue to believe that the revenue opportunity for our 400 G and 800 G products could be greater and a longer duration than the revenue contribution we saw from this customer during the peak of the 40 G product cycle.
Thompson Lin: Suggest that revenue from these products may exceed $300 million over the several years of these buildups.
Stefan Murry: In Q2, we began to see some business improvement, and we believe that this business will continue to ramp in Q3 and Q4. As our data center customers work on building out their next-generation AI-focused data center architectures, we have been very active in our 800G qualification efforts with several hyperscale customers. We believe that orders for 800G products will begin for us in Q4 of this year, with a ramp from that point. Turning to our CATV business, CATV revenue in the second quarter was $5.8 million, which was down 38% year-over-year and down 33% sequentially, largely driven by generally slow sales of DOCSIS 3.1 equipment as the industry transitions to DOCSIS 4.0.
Thompson Lin: In Q2, we began to see some business improvement and we believe that this business will continue to ramp in Q3 and Q4.
Thompson Lin: As our datacenter customers work on building out their next generation AI focused data center architectures, we have been very active in our 800 gig qualification efforts with several hyperscale customers.
Thompson Lin: We believe that orders for 800 G products will begin for us in Q4 of this year with the ramp from that point.
Speaker Change: Turning to our CATV business.
Speaker Change: A television revenue in the second quarter was $5 $8 million, which was down 38% year over year and down 33% sequentially largely driven by generally slow sales of DOCSIS three one equipment as the industry transitions to DOCSIS four pointed out.
Stefan Murry: With the encouraging results from our customer qualification and our new 1.8 gigahertz amplifier products, we expect significant improvement in our CATV business starting in Q3, with an additional ramp in Q4 and into 2025, as we believe customer upgrades to their networks will begin in earnest. Turning to our telecom segment, revenue from our telecom products of $2.4 million was down 44% year-over-year and up 5% sequentially, largely driven by ongoing softness in 5G demand, particularly in China.
Speaker Change: But the encouraging results from our customer qualification and our new one eight gigahertz amplifier products, we expect significant improvement in our CATV business starting in Q3 with an additional ramp in Q4 and into 2025 as we believe customer upgrades to their networks will begin in earnest.
Speaker Change: Now turning to our telecom segments.
Speaker Change: Revenue from our telecom products of $2 $4 million was down 44% year over year and up 5% sequentially largely driven by ongoing softness in five G demand, particularly in China.
Stefan Murry: Looking ahead, we continue to expect telecom sales to fluctuate from quarter to quarter. For the second quarter, our top 10 customers represented 94% of revenue, up from 88% in Q2 of last year. We had three greater than 10% customers, two in the data center market which contributed 60% and 16% of our total revenue, respectively, and one in the CATB market which contributed 12% of our total revenue. In Q2, we generated non-GAAP gross margin of 22.5%, which was below our guidance range of 25.5% to 27.5% and was up from 18.9% in Q1 of 2024 and down from 24.8% in Q2 of 2023.
Speaker Change: Looking ahead, we continue to expect telecom sales to fluctuate from quarter to quarter.
Speaker Change: For the second quarter, our top 10 customers represented 94% of revenue up from 88% in Q2 of last year.
Speaker Change: We had three greater than 10% customers two in the data center market, which contributed 60% and 16% of our total revenue respectively and one in the CATV market, which contributed 12% of our total revenue.
Speaker: In Q2, we generated a non-GAAP gross margin of 22.5%, which was below our guidance range of 25.5% to 27.5%, or a loss per share in the range of $0.29 to $0.34 per basic share, and non-GAAP loss per share between $0.14 per basic share and $0.20 per basic share using a weighted average basic share count of approximately 43.2 million shares. We believe the gross margin will expand for these products in Q4 as we gain efficiency and economies of scale in our manufacturing process for these new products. We believe that this growth rate will accelerate from Q3 to Q4. We believe we are uniquely positioned to help our customers meet these significant demands.
Speaker Change: In Q2.
Speaker Change: We generated non-GAAP gross margin of 22, 5%, which was below our guidance range of 25, 5% to 27, 5% and was up from 18, 9% in Q1 of 'twenty 'twenty four and down from 24, 8% in Q2 of 2023.
Stefan Murry: The decrease in gross margin was driven mainly by product mix. Looking ahead, we expect continued improvement in gross margins throughout the year as product mix improves in our data center business and as our CATB business begins to ramp.
Speaker Change: The decrease in gross margin was driven mainly by product mix.
Speaker Change: Looking ahead, we expect continued improvement in gross margins throughout the year as product mix improves in our data center business.
Speaker Change: And as our CATV business begins to ramp.
Stefan Murry: We remain committed to our long-term goal of returning our non-GAAP gross margin to around 40%, and believe that this goal is achievable. Total non-GAAP operating expenses in the second quarter were $26 million or 60% of revenue, which compared to $19 million or 46% of revenue in Q2 of the prior year due to higher R&D spend to improve time-to-market for our 800G and 1.6-carivate data center products. Looking ahead, we continue to expect non-GAAP operating expenses to range from $24 million to $26 million per quarter to account for the acceleration of R&D expenses. Non-GAAP operating loss in the second quarter was $16.2 million compared to an operating loss of $8.7 million in Q2 in the prior year.
Speaker Change: We remain committed to our long term goal of returning our non-GAAP gross margin to around 40% and believes that this goal is achievable.
Speaker Change: Total non-GAAP operating expenses in the second quarter were $26 million or 60% of revenue, which compared to $19 million or 46% of revenue in Q2 of the prior year due to higher R&D spend to improve time to market for our 800 G. At one six Terabits data center products.
Speaker Change: Looking ahead, we continue.
Speaker Change: To expect non-GAAP operating expenses to range from $24 million to $26 million per quarter to account for the acceleration of R&D expenses.
Speaker Change: non-GAAP operating loss in the second quarter was $16 2 million.
Speaker Change: Compared to an operating loss of $8 $7 million in Q2 in the prior year.
Stefan Murry: Gap net loss for Q2 was $26.1 million, or loss of 66 cents per basic share, compared with the Gap net loss of $16.9 million, or loss of 57 cents per basic share in Q2 of 2023. On a non-gap basis, net loss for Q2 was $10.9 million or 28 cents per share, which was favorable to our guidance range of a loss of $11.6 million to $13.5 million or a loss per share in the range of $29 cents to $34 per basic share. This compares to a non-GAAP net loss of $6.1 million or a loss of $21 per basic share in Q2 of the prior year.
Speaker Change: GAAP net loss for Q2 was $26 1 million or loss of 66 cents per basic share compared with a GAAP net loss of $16 $9 million or a loss of 57 cents per basic share in Q2 of 2023.
Speaker Change: On a non-GAAP basis net loss for Q2 was $10 $9 million or 28 cents per share.
Speaker Change: <unk> was favorable to our guidance range of a loss of $11 $6 million to $13 $5 million or a loss per share in the range of 29 to 34 cents per basic share.
Speaker Change: This compares to a non-GAAP net loss of $6 $1 million or a loss of 21 cents per basic share in Q2 of the prior year.
Stefan Murry: The fully diluted shares outstanding used for computing the earnings per share in Q2 were 39.4 million.
Speaker Change: The fully diluted shares outstanding used for computing the earnings per share in Q2 were $39 4 million.
Stefan Murry: Turning now to the ballot sheet, we ended the second quarter with $16.1 million in total cash, cash equivalents, short-term investments, and restricted cash. This compares with $17.4 million at the end of the first quarter. As was the case last quarter, we had significant cash collections that came in shortly after the end of the quarter, including roughly $15 million in collections within the two-week period following the end of the quarter. During the quarter, we also used some cash to pay down debt in order to control our interest expense. We ended the quarter with total debt, excluding convertible debt, of $27.5 million compared to $34.8 million at the end of last quarter.
Speaker Change: Turning now to the balance sheet, we ended the second quarter with $16 $1 million in total cash cash equivalents short term investments and restricted cash.
Stefan Murry: As of June 30, we had $54.3 million in inventory, which was flat compared to $54.3 million at the end of Q1.
Stefan Murry: We made a total of $4 million in capital investments in the second quarter, which was mainly used for production and R&D equipment.
Stefan Murry: Moving now to our Q3 outlook, we expect Q3 revenue to be between $60 million and $66 million, and non-GAAP gross margin to be in the range of 24% to 26%. Non-GAAP net loss is expected to be in the range of $5.9 million to $8.6 million and non-GAAP loss per share between 14 cents per basic share and 20 cents per basic share using a weighted average basic share count of approximately 43.2 million shares. The gross margin in Q3 is somewhat lower than what we had earlier anticipated, mainly due to additional costs that we expect to incur due to the rapid ramp of our 1.8 gigahertz CATV products in the quarter.
Speaker Change: <unk> dollars to $8 6 million and non-GAAP loss per share between <unk> 14 per basic share and <unk> 20 per basic share using a weighted average basic share count of approximately $43 2 million shares.
Speaker Change: The gross margin in Q3 is somewhat lower than what we had earlier anticipated mainly due to additional costs that we expect to incur due to the rapid ramp of our one eight gigahertz the CATV products in the quarter we.
Stefan Murry: We believe the gross margin will expand for these products in Q4 as we gain efficiency and economies of scale in our manufacturing process for these new products. Looking ahead, we continue to be optimistic about the long-term demand drivers for both our data center and CATV businesses and that we are well positioned to benefit from these growing trends. At the midpoint of our third quarter guidance range, we are projecting in excess of 45% revenue growth sequentially. While we are not yet in a position to provide guidance for Q4, we believe that this growth rate will accelerate from Q3 to Q4, benefiting from the tailwinds driven by the adoption of generative AI, which we continue to believe will require our data center customers to deploy more infrastructure, including more optical interconnects.
Speaker Change: We believe the gross margin will expand for these products in Q4, as we gain efficiency and economies of scale in our manufacturing process for these new products.
Speaker Change: Looking ahead, we continue to be optimistic about the long term demand drivers for both our datacenter and CATV businesses.
Speaker Change: And that we are well positioned to benefit from these growing trends.
Speaker Change: At the midpoint of our third quarter guidance range, we are projecting in excess of 45% revenue growth sequentially.
Speaker Change: While we are not yet in a position to provide guidance for Q4, we.
Speaker Change: We believe that this growth rate will accelerate from Q3 to Q4.
Speaker Change: Benefiting from the tailwind driven by the adoption of generative AI, which we continue to believe will require our datacenter customers to deploy more infrastructure, including more optical interconnects.
Stefan Murry: Due to our US-based production ability and our automated manufacturing capabilities and experience, we believe we are uniquely positioned to help our customers meet these significant demands. Also, we believe that we are very well positioned with the right team, product portfolio, and strategy in place as our CATV customers transition to next-generation architecture and implement new technologies like boxes 4.0.
Speaker Change: Due to our U S based production ability and our automated manufacturing capabilities and experience. We believe we are uniquely positioned to help our customers meet the significant demands.
Operator: With that, I return it back over to the operator for the Q&A session. Operator? Thank you.
Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad. If you are using the speaker phone, we ask you to please pick your hands up before pressing the keys. To enjoy your question, please press star, then two. Please hold on with full question.
Simon Leopold: And for this first question comes from Simon Lea, bold with Raymond James. Please go ahead. Great. Thank you for taking the questions. I've got a handful. Let me start out with on this the new hyperscale win, which sounds nice, and I guess something you guys have been shooting for for a bit. Can you give us a little bit more color on the nature of this award? Is this another AOC type of device, or any kind of color you can give us on the contents of what you're selling to this in this new project? Then I've got to follow up on the PHB thing.
Dr. Thompson Loon: Yeah, I mean, for confidentiality reasons, I really can't disclose too much about it, but it's a product that's more in line with our standard data center type transit products, and it is a 400 gig product, and there's a single mold.
Speaker: Yeah, I mean, for confidentiality reasons, I really can't disclose too much about it, but it's a product that's more in line with our standard data center-type transceiver products.
Simon Leopold: Great, and then on the CATV side, I kind of thought we were bottoming at last quarter, so a little bit surprised, but everything suggests that the ramp of Drs 4 is still coming, maybe just slower than we want to expect it. So I'm wondering if you could level set us in terms of how you expect that product segment to develop, and maybe this is a little bit of an artificial metric, but I'm just trying to figure out where do we kind of get back to maybe a 25 million quarterly run rate. Is that a second half 25 event, or can that happen earlier than that?
Speaker Change: Alright, great. Thank you.
Questioner: On the CATV side, I kind of thought we were bottoming last quarter, so I was a little bit surprised, but everything suggests that the ramp of DOCSIS 4 is still coming, maybe just slower than we once expected. So I'm wondering if you could give us some guidance in terms of how you expect that product segment to develop. And maybe this is a little bit of an artificial metric, but I'm just trying to figure out where we kind of get back to maybe a 25 million quarterly run rate. Is that...
Speaker Change: And then on the C. A T V side.
Speaker Change: I kind of thought we were bottoming there last quarter, so a little bit surprised but everything suggests that the ramp of DOCSIS four is still coming maybe just slower than we once expected. So I'm wondering if you could level set us in terms of how you expect that bet.
Speaker Change: Product segment to develop and maybe this is a little bit of a an artificial metric, but I'm just trying to figure out where do we kind of get back to maybe a 25 million quarterly run rate is that a second half 'twenty five event or can that happen earlier than that any any kind of guidance you could give us.
Stefan Murry: Any kind of guidance you could give us around the timing of the CATV would help. Well, as we said on our prepared remarks, I expect a substantial improvement in CFP revenue in Q3, so I expect we'll be back at a 25 million dollar number before the end of the year. The challenge that we have right now, as we noted in the CATV section, is really on the gross margin in Q3. Based on the guide, what we expected was CATV gross margin to come in significantly higher than our data center business. And in Q3, we had some cost overruns and things as we start to ramp this product, so we're expecting that gross margin and not be where we wanted to ultimately settle off.
Speaker Change: The timing of the T V would help.
Speaker Change: As we said in our prepared remarks I expect.
Speaker: a substantial improvement in CAPD revenue in Q3. So I expect we'll be back at the $25 million number before the end of the year, per quarter, in that range.
Speaker Change: A substantial improvement in CATV revenue in Q3.
Speaker Change:
Speaker Change: So I expect him to be back into $25 million number before the end of the year.
Speaker Change: And that ramp rate.
Speaker Change: The challenge that we have right now as we noted in the cable TV section is really on the gross margin in Q3.
Speaker Change: Based on the guide.
Speaker Change: What we expected was.
Speaker Change: Cable TV gross margin to come in.
Stefan Murry: So for us, the excitement in Q3 around the revenue ramp in CATV is real.
Stefan Murry: It's a little bit muted because of the additional expenses that we're incurring, but those are temporary.
Stefan Murry: And just the last one, hopefully easy. The share count is jumping in the guidance for the third quarter. Could you just help explain that? Thank you. Yeah, I mean, it's a combination of stock grants that have already been made and some provision for additional issuance of shares.
Operator: Thank you. And, as a reminder, if you'd like to ask a question, please press star, then one on your telephone keypad.
Timothy Savageaux: Our next question comes from Tim Savagot with Northland Capital Markets. Please go ahead. Hey, good afternoon and congrats on the outlook in particular and the new ones. Just to go back on, well, kind of the guidance, I guess it sounds like based on your answer in the last question that maybe, as we look into this solid increase for the expected accelerate. It seems like maybe it's 50-50, data centering cable, but any more color for this $20 million to quench one increase you're looking for is that about right and thinking about where it's coming from and then I will follow up.
Speaker Change: Cable.
Speaker Change: But any more color on you know for this $20 million sequential increase youre looking for.
Speaker Change: Is that about right and thinking about where it's coming from and then <unk>.
Speaker Change: All of them.
Speaker Change: Yes.
Stefan Murry: In Q3, more of the additional revenue is coming from cables and data center, and in Q4, the opposite we think will be true. That is, data center will outgrow cable TV and a dollar based in Q4 sequentially.
Speaker Change: In Q3.
Speaker Change: More of the additional revenue is coming from cable and datacenter and in Q4, the opposite we think will be true.
Speaker Change: And as data center will outgrow cable TV in a dollar basis in Q4 sequentially.
Speaker Change: Sorry mute button there.
Timothy Savageaux: Sorry, it sure didn't, and that's super helpful. And then just on the quarter, you had a new 10% customer pop up in data center. Oh, I assume not a new customer. And it looks like Microsoft is pretty flat from an absolute dollar standpoint, but you did see an increase in 100 gigs. So could we assume that's one of the maybe not hyper scale but big kind of internal, I guess, associated with the business. I can think of a few names that might fit that bill and doing a lot of AI investing and maybe pulling along 100 gigs or any more color on that new customer joining the list there.
Speaker Change: Sure.
Speaker Change: It sure did.
Speaker Change: And that's super helpful.
Speaker Change: <unk>.
Speaker Change: And then just on the quarter.
Speaker Change: You had a new 10% customer pop up in data center.
Speaker Change: I assume that a new customer.
Speaker: And it looks like Microsoft is pretty flat from an absolute dollar standpoint, but you did see an increase of 100 gigabytes.
Speaker Change: And it looks like you know Microsoft was pretty flat from an absolute dollar standpoint, but you did see an increase in 100 gig so should.
Speaker Change: Should we assume that's one of the maybe not hyper scale, but.
Speaker Change: Big.
Speaker Change: Kind of.
Speaker Change: Internal I guess running data centers for internal capabilities, you've had a few of those guys are not necessarily a turtle, but associated with the business.
Stefan Murry: No, the customer that popped up about 10% it has been a customer of our short while, so that's not the new customer that we were referring to. However, it is another hyperscale customer and they're predominantly buying 400 gig, not 100 gig, and they're doing that because they're aggressively building out their AI infrastructure as well. Okay, and well, not to be done here, but this is not. That customer's up on a revenue basis; they've grown almost 4x since Q1 in terms of their purchasing. Great, awesome color, but that's not the new hyperscale that you're referencing. What is it?
Speaker: and they're doing that because they are aggressively building out their AI infrastructure.
Stefan Murry: Right, it's not. It's not. Okay, and I guess last question started parsed them antics so much here, but you mentioned the newer 400 gig customer. And he Thompson referred to that as a new customer, but is it better referred to as a historical customer that's come back or this is a net new customer for applied up to. So, you know, we would classify a customer that hasn't stayed on business with us in a while, two years or something, as a new customer because it really is a new interaction for us. Okay, great. Oh, sorry. How am I still there?
Stefan Murry: I think. I guess a lot of some was on. I hear you on the gross margins with the ramp in Q3 and the pressure coming out of cable. And you know, you've given not guidance, but at least some directional idea on Q4. For revenue, you know, do you think, and then maybe you said this, you think you'll be able to resolve some of those gross margin issues in cable in Q4 to drive gross margin.
Speaker Change: Solve some of those gross margin issues in cable in Q4 to drive gross margins higher sorry, that's it for me.
Stefan Murry: Sorry, that's it from. Yeah, I think a lot of the extra costs that we're incurring in the production are really Q3. I think by Q4 will have most of that recovered. It may take us another quarter to get entirely back to where we expected to settle out longer term, which would be, you know, circa 40% maybe a little bit higher. So I think the bulk of the the bulk of the extra expense of the resolved by Q4. That's right, and gross margin. Thanks very much.
Speaker Change: Yes, I think I think a lot of the.
Speaker Change: Extra cost that we're incurring in the production are really Q3 I think by Q4, we'll have most of that recovered it may take us another quarter to get entirely back to where we expect it to settle out longer term.
Speaker Change: Which would be <unk>.
Speaker Change: A 40%, maybe a little bit higher.
Speaker Change: So I think the bulk of the bulk of the extra extensively resolved by Q4.
Speaker Change: Australia gross margin.
Speaker Change: Thanks very much.
Operator: Thank you. And once again, if you'd like to ask a question, please press star, then one on your telephone keypad.
Speaker Change: Thank you and once again, if you'd like to ask a question. Please press Star then one on your telephone keypad.
Dave Cheng: Our next question comes from Dave, Kang. Would be Riley FDR. Please go ahead. Yes, thank you. First question is just a follow-up on him's question about third quarter, as well as a fourth quarter for that matter. You expect a data comp to drive strong growth, especially in fourth quarter. Just can provide a little bit more color, more flavor, you know, whether it's 100 gig, 400 gig, 800 gig, you know, any additional color would be appreciated. Sure, it's expected to be mostly 400 gig and some contribution from 800 gig. 100 got it. Got it. And then just Microsoft AOC program sounds like starting to rap, and you still sticking with 300 million dollars just wondering if you, you know, think maybe by, you know, exiting at what level to, you know, give us some comfort.
Operator: Our next question comes from Dave Kang with B. Reilly FBR. Please go ahead.
Speaker Change: Next question comes from Dave Kang with B Riley FBR. Please go ahead.
Dave Kang: Hi, yes. Thank you. Our first question is just a follow up on Tim's question about third quarter as well as our fourth quarter for that matter.
Speaker Change: You expect datacom to drive.
Dave Kang: Strong growth, especially in fourth quarter, just can you provide a little bit more color more flavor.
Speaker Change: <unk> later.
Speaker Change: It's 100 gig 400 gig 800 gig.
Speaker Change: Any additional color would be appreciated.
Speaker: Got it. And then just the Microsoft AOC program sounds like it's starting to ramp.
Questioner: And you're still sticking with $300 million. Just wondering if you think maybe by exiting at what level to, you know, give us some comfort, maybe you can do $100 million next year. I mean, you think you can do $20 million, $25 million in exiting this year? Or what, you know, I guess what, what are they forecasting? I mean, I think, you know,
Dave Cheng: Maybe you can do 100 million next year. I mean, you think you can do 2025 million exiting this year or what, you know? I guess what, what are they forecasting? I mean, I think it, it remains to be seen. I think it'll, it would be tough to get all the way up to 25 million, let's say in Q4. You know, things that we noted in our prepared remarks earlier. Things in that project have gotten off to a slower start than what we expected. They are starting to ramp, however. So, you know, we're still sticking with that 300 million dollar aggregate number.
Dave Cheng: It's just a little bit later to get started than you expected. Got it.
Dave Cheng: And then I'm 800 gig. You know, in our previous meeting, you talked about two hyperscalers ramping in 30 quarter now. I think you said and put her in Mars. Now it's pushed to the fourth quarter. Did I hear that correctly? And are we talking about same tooth hyperscalers or different customers? Yeah, I remember correctly, the commentary I was that, you know, we would expect 800 gig sales for one or two hyperscale customers in late Q3 or early Q4. And that's pretty consistent with what we're saying now. There are scenarios where we could still, we could still literally get some orders in Q3, but I think it'd be small enough that I'm more comfortable putting it as a Q4 thing. But it's not a dramatic change from what.
Dave Cheng: And my last question is on course margin. I think you said the long-term target is 40%. Are we talking maybe a second half next year, and if so, what kind of volume would you require for you to hit your target? It's not as much about volume as it is about product mix. Dave, that's what we were talking about earlier. I mean, you know, the products that we have in our portfolio will have in our portfolio, you know, within the next year or so, have course margins that range from, you know, in excess of 40% to, you know, somewhere in the low 20s.
Questioner: And my last question is on gross margin. I think you said the long-term target is 40%. Are we talking, you know, like maybe the second half next year? And if so, what kind of volume would you require for you to hit your target?
Speaker: You know, the products that we have in our portfolio or will have in our portfolio, you know, within the next year or so have
Stefan Murry: Actually, there's probably a few products that are even below that, but in terms of the major products, so it's the mix between those products. And in particular, the cable PV products generally come in, especially the Doxas 4.0 products, are going to come in at a higher gross margin towards that upper end of the range that I mentioned a minute ago. And some of the 800 gig products will come in at pretty high gross margins as well. And the third factor that's going to drive the gross margins up is the shift in 400 gig from predominantly multi-mode optics to single-mode optics.
Speaker Change: <unk> products will come in at pretty high gross margins as well.
Speaker Change: The third factor that's going to drive the gross margins up is the shift in 400 gig from predominantly multimode optics to single mode optics. So we've seen.
Stefan Murry: So we've seen some customer interest in particular, some of the new customer interactions that we talked about earlier. Those have been for single-mode for 400 gig optics, which are significantly more expensive than have better gross margin than the multi-mode optics. So all three of those things are what will, you know, combine to drive gross margins forward. Got it.
Speaker Change: Some customer interest in particular.
Speaker Change: Some of the new customer interactions that we talked about earlier those have been for single mode for 400 gig optics, which are significantly more expensive and have better gross margin than the multimode optics. So.
Speaker Change: All three of those things are what we will.
Speaker Change: Combined to drive gross margins.
Speaker Change: Got it thank you.
Speaker Change: Thank you ladies and gentlemen, this concludes our question and answer session.
Operator: And ladies and gentlemen, this includes our question-and-answer session.
Dr. Thompson Loon: I would like to turn the call back over to Dr. Ponson when we're closing remarks. Okay. Thank you for joining us today. As always, we want to extend a thank you to all investors, customers, and employees for your continuous support. As we discussed today, we believe the long-term demand drivers remain strong for both our data center and CATB business. And we believe we are aware of the issue to capitalize on these opportunities.
Speaker Change: I'll turn the call back over to Dr. Thompson for closing remarks.
Dr. Thompson: Okay. Thank you for joining us today as always we want to extend a thank you to our investors customers and employees for your continuous support.
Dr. Thompson Loon: Thank you.
Operator: Thank you, Dr. Lin. This includes today's conference hall.
Operator: We thank you all for attending today's presentation.
Operator: You may now disconnect your lines and have a wonderful evening.
Operator: You may now disconnect your lines and have a wonderful evening.