Oplink ( OPLK)

F1Q2011 Earnings Call

October 28, 2010 5:00 p.m. ET

Executives

Matt Hunt – IR, The Blueshirt Group

Joe Liu – Chairman, President and CEO

Shirley Yin – EVP and CFO

Analysts

Ajit Pai – Stifel Nicolaus

Vahid Khorsand – BWS Financial

Todd Kaufman – Raymond James

Presentation

Operator

Good day ladies and gentlemen. Thank you for standing by and welcome to the Oplink Communications first-quarter 2011 financial results conference call. [Operator Instructions.] This conference is being recorded today, Thursday, October 28, 2010. I would like to turn the conference over to Matthew Hunt. Please go ahead sir.

Matt Hunt

Thank you, and good afternoon, ladies and gentlemen. Thank you for joining us on today’s conference call to discuss Oplink’s first quarter fiscal year 2011 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, Chairman 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 the 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 would 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 thanks to all of you for joining us today as we report our first quarter of fiscal 2011 results. We're pleased to report a record quarter, with revenue reaching almost $50 million. Revenue increased about 48% year-over-year, and about 28% sequentially. We reported non-GAAP EPS of $0.41 as compared to $0.28 in the prior quarter and $0.21 in the prior year first quarter.

We did not increase [inaudible] headcount during the quarter. Our factory capacity is now at a level that we believe can efficiently handle current demand, and we believe that we have the production flexibility to meet a meaningful increase in demand without any further significant increase in headcount.

We increased our R&D engineering headcount during the quarter by about 30 to help broaden our product offerings, and we have introduced several new devices during the quarter.

Our 10% customers for the quarter we Huawei and Tellabs, and together those two account for approximately 37% of our total revenue. We continue to believe that video streaming and other bandwidth-intensive applications are driving long-term demand for fiber optics across the network, particularly in the access and metro] equipment market overall. FTTx is growing and so are the metro core, metro edge, and Long-Haul markets.

Our outlook for the second quarter is positive, but we are seeing a bit of softness in demand for selected product lines. Production lead times of selected parts and modules have been shortened to our previous normal level of four to six weeks. We remain focused on controlling expenses and meeting normalized demand.

We look forward to reporting to you again next quarter. Now I will turn the call over 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 first quarter was $49.6 million, up 28% from the prior quarter and 48% over the prior year. GAAP net income was $5.6 million, for $0.28 per diluted share, which includes $1.7 million in stock-based compensation and $1 million in amortization of intangibles.

On a non-GAAP basis, net income was $8.3 million, or $0.41 per diluted share, compared to $6 million, or $0.28 per diluted share reported in the prior quarter. Non-GAAP gross margin for the first quarter was 33.9%, up slightly over the 33.5% reported in the prior quarter.

Margins were improved in the quarter as a result of scaling revenue. We also increased labor costs in China. However, our revenue and volume increases were able to offset these increases. We expect margins to be at a similar level next quarter.

Turning to our operating performance, total non-GAAP operating expenses were $7.7 million, up from $7.4 million reported in the fourth quarter as we continue to invest in R&D and new product initiatives. Sales and marketing costs also increased, primarily due to higher commission expense, driven by higher revenue. These increases were partially offset by decreases in G&A expenses. We expect total operating expenses to remain at a similar level in the second quarter.

Interest and other income net was $57,000. Gross interest income for the first quarter was $130,000, largely offset by foreign currency losses. Our provision for income taxes in the quarter was $881,000, primarily due to an increase in taxable income in foreign tax jurisdictions. We expect our provision for income taxes in the current quarter to be at a similar level.

Total headcount at September 30 was 3,855, up from 3,821 in the prior quarter. Our increases were primarily in R&D.

Turning to the balance sheet, we closed the quarter with cash, cash equivalents, and investments of $160 million, down only slightly over the prior quarter. We generated $5.5 million from operations and repurchased 6.5 million of our common stock. Actual shares outstanding at the end of the quarter were approximately 19.4 million.

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