APPLIED OPTOELECTRONICS, INC. Q1 FY2025 earnings call

Management Statement and Operational Highlights:

• Strong demand in CATV market with highest quarterly CATV revenue in company history.
• Data center business made progress with three new design wins and exceeded hyperscale data center customers' expectations.
• Q1 revenue was $99.9 million, in line with guidance range. Non-GAAP gross margin 30.7%, above guidance. Non-GAAP loss per share $0.02, within guidance.
• Continued progress on data center business, including working with Amazon and new qualification efforts.
• At OFC, unveiled near-term targets for adding production capacity for 800G and higher transceivers in Texas.
• Retrofitting Texas facility and leasing additional building in Taiwan to expand production capacity.

Segment Performance:

• CATV Segment: Q1 revenue was $64.5 million, increased more than 6 times year-over-year and 24% sequentially, contributing 65% of total revenue.
• Data Center Segment: Q1 revenue was $32 million, up 11% year-over-year but down 28% sequentially, contributing 32% of total revenue.
• Telecom Segment: Q1 revenue was $2.9 million, up 29% year-over-year but down 17% sequentially, contributing 3% of total revenue.

Guidance:

• Q2 revenue expected between $100 million and $110 million.
• Non-GAAP gross margin expected in range of 29.5% to 31%.
• Non-GAAP net income expected to be in range of a loss of $4.8 million to a loss of $1.7 million.
• Non-GAAP earnings per share expected between a loss of $0.09 per share and a loss of $0.03 per share.

Risks:

• Uncertainties related to tariffs impacting financials.
• Supply chain and manufacturing operations need to be monitored for tariff impacts.

Question and Answer: Q: Understanding of channel inventory for cable TV products and knowledge of product status A: Have telemetry features and direct reports from MSO and channel partners to know inventory status; intentional inventory build-up due to tariff situation.

Q: 800-gig trajectory and quantification of second half contribution A: Expect capacity of about 100,000 pieces per month by end of year, ramping up in second half.

Q: Retooling to Motorola-style amplifiers in cable TV A: Shifting production to Motorola style, with final field trial qualification imminent, aiming to have inventory of both products stateside by end of June.

Q: CapEx needs and fundraising A: Substantially completed ATM with $98 million net, and aggressive working with customers for potential strategy investment.

Q: 800 gig revenue in Q3 and opportunities with other cloud providers A: Expect material 800 gig revenue in Q3; significant opportunities with other hyperscale customers due to U.S. production advantage and PAA compliance.

Q: Inventory digestion, margin differential, and 800 gig qualification A: Inventory digestion expected to largely resolve in Q2; cable margin higher than data center; more than five but less than ten 800 gig qualifications in progress.

Q: Margin differential between Texas and Taiwan production A: Likely higher margins in Texas due to automation and customer willingness to pay more, with U.S. production expected in Q3.