NeoPhotonics Corporation

We stand by. We're about to begin. Good day, everyone, and welcome to the Neophotonics second quarter 2021 conference call. This call is being webcast live on the company's website at www.neophotonics.com on the events page of the investor section. This call is the property of Neophotonics. and any recording, reproduction, or transmission of this call without the express written consent of Neophotonics is prohibited. I will now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us to discuss Neophotonics operating results for the second quarter of 2021 and outlook for the third quarter of 2021. On the call today are Tim Jenks, Chairman and CEO, Wupin Penn, Chief Product Officer, and Beth Eby, Chief Financial Officer. Tim will begin with a review of the company's business in the second quarter and a discussion of relevant market trends. Wupin will provide a summary of products, technologies, and growth drivers for our highest speed products. Beth will then provide financial results for the second quarter and provide the outlook for the third quarter of 2021 before opening the call for questions. The company's press release and management statements during this call will include discussions of certain non-GAAP financial measures and information, including all income statement and balance sheet amounts and percentages other than revenue, unless otherwise noted. These non-GAAP financial measures are not prepared in accordance with GAAP and are not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. These financial measures and a reconciliation of gap to non-gap results are provided in the company's press release and related form 8K being filed today with the SEC and can be found in the investor relations section of the Neophotonics website. Material contained in the webcast is a sole property and copyright of Neophotonics with all rights reserved. Certain statements in this conference call, which are not historical facts, may be considered forward-looking statements that involve risks and uncertainties. and include statements regarding future business results, product and technology development, customer demand, inventory levels, economic and industry projections, and subsequent events. Various factors could cause actual results to differ materially. Some of these factors have been set forth in our press release dated August 3rd, 2021, and are described at length in our annual and quarterly SEC filings. Now, I will turn the call over to CEO, Tim Jenks.

Thank you, Erica, and good afternoon. Neophotonics again delivered strong results in the second quarter with revenue of $65 million. Both revenue and gross margin were in the upper end of our guidance range. Products for 400 gig and above applications grew 100 percent over the same period last year and were 46 percent of total revenue. We achieved these results despite ongoing supply chain challenges as we mentioned last quarter. The strong demand we're seeing for 400 gig and above solutions suggests that growth in 2022 could be higher than in past years. We believe accelerating demand for our 400 gig and above products is still in early innings. As the market continues to move to these higher speeds, we believe we are entering a new era of growth. Our core coherent components for 400 gig and above applications have driven most of our 400 gig and above revenue to date. We expect to see cloud hyperscalers and telecom carriers increase their capex spending and deployment rates for these products and our 400 gig coherent modules. We've been sampling our 400 gig coherent module solutions to cloud and hyperscale data centers. We expect cloud data centers to begin deploying 400 ZR coherent links in the fourth quarter. We believe we are at the beginning of a broad market expansion for 400 ZR and 400 ZR Plus based networks and applications. This expansion has started with adoption of coherent interconnects into cloud service provider metro networks. Rapid adoption of 400 ZR and 400 ZR Plus in cloud metro applications will be followed by cloud content providers similarly adopting 400 ZR and 400 ZR Plus for longer distance interconnects significantly expanding our served market. The cloud and hyperscale interconnect market is expected to soon rival the telecom market in high-speed interconnects. AI-enabled applications such as autonomous vehicles and machine learning will rapidly expand traffic and bandwidth requirements in the edge cloud market. are huge megatrends that we believe will expand ZR applications and deliver accelerated growth with each overlapping cycle for at least several years. Our high-speed component products for 400 gig, 600 gig, and 800 gig are used by virtually all leading network equipment manufacturers in cloud and hyperscale networks. Also, our ultra-narrow line with tunable lasers are the laser of choice for 400 gig and above. such that we are designed into several other customers' 400ZR modules. These products are beginning to ramp now, ahead of module deployments in late 2021 and 2022. Our 400ZR modules are in later qualification phases with leading hyperscalers. Our target customers have wide-ranging volume plans. We believe that our 400ZR and 400ZR Plus modules are industry leading in performance and in maturity, and we expect initial deployments toward the end of 2021. The industry's momentum of innovation and growth continues to move in our direction with ever higher performance requirements. As this occurs, our high-speed and high-performance optical components will increasingly be the differentiator, and we believe that neophotonics can capture a larger share of this value. Before turning the call over to Wu-Pen Yuen, I want to highlight additions to our executive team and board. This past month, we appointed Bradford Wright as Senior Vice President of Global Sales. Brad brings to Neophotonics 25 years of experience in the optical communications and semiconductor industries. Most recently, he was the head of worldwide component sales and applications at Cisco Systems, following its acquisition of Acacia Communications, where Brad was vice president of sales. We have added two new directors to our board. Kimberly Cheney brings deep experience in legal and regulatory affairs and has a background in the aerospace and automotive industries. Sherry Savage brings a strong background in finance controls, contract manufacturing, and related business models. Ms. Savage is serving as a member of our audit committee, while Ms. Cheney is serving as a member of our nominating governance committee. We're delighted to have these high caliber directors on our board. With that, I'll turn the call over to Wu-Pen Yuen, our Chief Product Officer.