Oplink Communications Inc. F3Q10 (Qtr End 03/31/2010) Earnings Call Transcript

Oplink Communications Inc. F3Q10 (Qtr End 03/31/2010) Earnings Call Transcript
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Oplink Communications Inc. (OPLK)

F3Q10 (Qtr End 03/31/2010) Earnings Call

April 22, 2010 5:00 PM ET

Executives

Matthew Hunt – Investor Relations

Joe Liu – President and CEO

Shirley Yin – Chief Financial Officer

Analysts

Paul Bonenfant – Morgan Keegan

Vahid Khorsand – BWS Financial

Sven Eenmaa – Thomas Weisel Partners

Dave Kang – B. Riley & Company

Presentation

Operator

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Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Oplink Communications Q3 Fiscal Year 2010 Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions)

This conference is being recorded today, Thursday, April 22, 2010. I would now like to turn the conference over to Mr. Matthew Hunt. Please go ahead, sir.

Matthew Hunt

Thank you, and good afternoon ladies and gentlemen. Thank you for joining us on today’s conference call to discuss Oplink’s third quarter fiscal 2010 financial results. This call is being simultaneously webcast on the Investor Relations section of the company’s website at www.oplink.com. Joining me on the call today are Joe Liu, President and CEO of Oplink; and Shirley Yin, CFO of Oplink.

Before we get started, I would like to remind you that the following discussion contains forward-looking statements that involve risks and uncertainties and that Oplink’s actual results may vary materially from those discussed here. Information concerning factors that could cause actual results to differ from forward-looking statements can be found in Oplink’s periodic filings with the SEC.

Forward-looking statements made on this conference call are based on current expectations. And Oplink assumes no responsibility to and does not intend to update or revise them whether as a result of new developments or otherwise.

Now, I’d like to turn the call over to Joe Liu, President and CEO of Oplink. Please go ahead, Joe.

Joe Liu

Thank you, Matt. Hello and thank you for all joining us today as we report our results for the third quarter of fiscal year 2010. We are pleased to report revenue of $33.6 million, which was at the high-end of the outlook we provided last quarter and non-GAAP EPS of $0.22, which is also at the high-end of our outlook.

In general, the demand environment for the optical components and OMS is improving. As we discussed with you last quarter, in connection with this trend we are working to increase manufacturing headcount while continuing to maintain our high quality standards.

We’re also experiencing challenges in sourcing some materials, particularly semiconductor ICs. With some of our more recent effort underway we expect to start to see the benefits of increased capacity in the next few quarters. 10% customers in the quarter were Tellabs, Huawei and Alcatel-Lucent. We also had strong contribution from Cisco and Nortel.

During the third quarter we closed the acquisition of AMIT Technology, Taiwan. This company’s primary business is connectivity solution, optical connectors, jumper cables, [CASIT], et cetera, for integrators, manufacturers and carriers. The company sells to the enterprise and access market primarily.

We think this is an important addition to Oplink’s product portfolio and to nicely extend our passive market opportunity and geographic exposure. Overtime we intend to transfer volume manufacturing from Taipei, Taiwan to our Zhuhai, China facility which is expected to further improve our overall margin.

In summary with the improved environment in telecomm spending we’re working to ramp our production capabilities to capture market opportunities. However, it will take some time to get our newly hired work force to be productive and we are therefore expecting revenue in the fourth quarter to be in the range of $35 to $38 million.

Now, I will turn the call to Shirley for a detailed financial review. Shirley, please go ahead.

Shirley Yin

Thanks, Joe, and thanks to all of you for joining us today. Revenue for the third quarter was $33.6 million, which compares to $32.7 million reported in the prior quarter. GAAP net income was $2.6 million or $0.12 per diluted share, which included $1.3 million in stock-based compensation and $958,000 in amortization of intangibles. The revenue contribution related to AMIT in the third quarter was approximately $500,000.

On a non-GAAP basis net income was $4.8 million or $0.22 per diluted share, compared to $5.7 million or $0.26 per diluted share reported in the prior quarter. From here on I will be discussing results on a non-GAAP basis. Please see our earnings release for reconciliation of non-GAAP measures to their GAAP counterparts.

Gross margins for the third quarter was 34.5%, which was slightly better than expected as the result of preferred customer and product mix and higher utilization of fully reserved inventory. For the fourth quarter we continue to increase manufacturing headcount and expect productivity lag of several months to negatively impact margins. We also expect a less favorable product and customer mix including lower margin products from AMIT. As a result, gross margins will be lower than the third quarter.

Turning to our operating performance, total operating expenses were $6.5 million, up from the prior quarter as we increased R&D headcount to drive new product initiatives. We have served about $130,000 in operating expenses related to AMIT. For the fourth quarter we will increase operating expenses by about $1 million. We will continue to increase our investment in R&D related to new product development and we’ll absorb a full quarter of expenses related to AMIT. Additionally we expect increased legal fees related to ongoing litigation in the fourth quarter.

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