Alliance Fiber Optic Products, Inc. (NASDAQ:AFOP) Q4 2012 Earnings Call January 30, 2013 4:30 PM ET
Peter C. Chang – Chairman, President and Chief Executive Officer
David A. Hubbard – Executive Vice President-Sales and Marketing
Good afternoon and welcome to the Alliance Fiber Optic Products, Inc. Fourth Quarter and Fiscal Year 2012 Conference Call. Thank you for joining us on today’s conference call to discuss AFOP’s fourth quarter and fiscal year 2012 financial year result. This call is being webcast by accessing on the investor relations page at afop.com and a replay will be available on AFOP’s website 90 minutes after the live conference call.
Today’s call is being hosted by Peter Chang, President and Chief Executive Officer and David Hubbard, Executive Vice President and Sales and Marketing. Before I turn the call over to Mr. Chang, I’d like to make the following Safe Harbor statement.
During the course of this conference call, Peter and David may discuss expectations and make projections or other forward-looking statements as to the Company’s ability to improve financial results, focus on cost control and operational efficiency, develop products and technologies that customers desire, make prudent R&D investments, and features and benefits of the company's products, market opportunities, and the company's future prospects.
We would like to caution participants that these statements and all other statements made by management on this call that are not historical facts involve a number of risks and uncertainties that could cause actually results to differ materially including, but not limited to, general economic conditions and the trends, the impact of competitive products and pricing, timely design acceptance by our customers, the level of order cancellations, the need for and magnitude of future inventory write-downs or impairment charges, timely introduction of new technologies, ability to develop new products, and to ramp new products into volume production, industry wide shift in supply and demand for optical components and modules, industry over capacity, failure to cost control initiatives, financial stability in foreign markets and other risks detailed in our SEC reports including AFOP's most recent Form 10-Q for the quarter ended September 30, 2012.
These forward-looking statements speak only as of the date hereof. AFOP disclaims any intention or obligation to update or revise any forward-looking statements.
Now I would like to turn the call over to Mr. Chang, President and CEO of AFOP.
Peter C. Chang
Thank you, operator, thank you for joining us today. I am very pleased to report that we continue to execute well in completing 2012 with both positive and year-over-year revenue growth. In addition, we were able to achieve another record for AFOP revenue for the whole of 2012 with growing profit as well.
I want to thank our valued customers and our exceptional team for these achievements in an admittedly difficult economy environment. We grew gross margin for the year to about 34% level with gross margin in the fourth quarter come in at approximately 35%. Operating margin improved for the year to 12.3% as well.
We are – in spite of that we were able to conclude the year with such good results and provide a regular and exclusive dividend for our investors mid November.
We ended the quarter with a strong balance sheet and generated upon special dividend through accumulative cash from operations. All of this improvement and reward reflect the strength of our strategy and our commitment to improving the investor value and opportunities.
Now, let me turn the floor to David, to review the progress we made in each product area in more detail in the quarter. Following that, I will go into more details on the financials and then end with our full year guidance. David, please.
David A. Hubbard
Thank you, Peter. As discussed last call, the fourth quarter is generally – seasonally soft in our market and we plan for that. However, as a result of business developments from previous quarters and fairly strong demands from existing customers, we were able to deliver a more stable sequential result and develop an improved posture heading into 2013. These improvements were driven primarily from the telecom sector with better than expected increase in demands for our products and solutions for metro access and transport applications. Sales for enterprise overall were on similar level to Q3 and sales in Fiber-To-The-Home network were also flat slightly down with the previous quarter. Pricing has remained in stable condition and within targeted expectations.
AFOP connectivity sales overall was down slightly sequentially while passive products saw stable sequential demand in Q4. Connectivity with the enterprise were up slightly while down marginally in Telecom. AFOP passive products are selling well, and it’s rapidly growing metro access, cellular backhaul and last mile segments in telecom.
We’re seeing new requirements for AFOP superior CWM lines into fibers to the antenna and tower applications, emerging as more bandwidth is required to service faster phones and cellular devices running 4G. Our connectivity solutions offer growth opportunities in multiple segments as we have mentioned. We saw strong demand this quarter for data center trunk cables for our key customers upgrade requirement. We believe our broad based offering position us well to take advantage of long-term demand growth and mitigate sector risks generally.
With the continuous investments in developing the innovations required to enable the next generation of optical networking, like 40 gigabit and 100 gigabit switching and NGPON fiber-to-the-home and related access market. We strongly believe there are many opportunities in these next generation platforms for both AFOP connectivity’s and passive optical components.
Well, we are beginning to design and actively to position AFOP with key customers to take advantage of these trends.
We continue to provide AFOP NANOMUX, demux components for 40 gigabit and 100 gigabit Ethernet CFP applications to key account. Our design activity with customers for the next generation of 40 gigabit and 100 gigabit QSFP and CFP transceivers continues to progress as well. We believe there is significant long-term volume opportunity with this platform and with advanced passive optical service centers.
We are also seeing a planned transition to multi-wavelength WDM utilization for next generation PON or NGPON requirements in the future. As carrier spending continues to concentrate around the access and subscriber end of the network, ASOP is well positioned for these spending trends and continues to invest in products required by the next generation access deployments.
In addition, we believe these trends will be followed by core network upgrades or 100 gig to support the increased traffic generated with these subscribers. As mentioned previously along with Telecom Networks, cooperate and government enterprises continue to require improved infrastructures with higher densities of equipment and cable management.
With the economies potential improvements in 2013, these composite trends will offer significant opportunities for AFOP products, as spending is renewed, AFOP will continue to invest and capitalize on these opportunities.
We had a few 10% or close to 10% customers for the quarter, geographically sequential sales were up in Europe and off slightly in the U.S. and Asia. Sales in Europe and the U.S. were up significantly for 2012 as a whole.
To our revenue, through our review of forecast for 2013, most key customers are optimistic about year-on-year growth. Now let me turn the call back to Peter.
Peter C. Chang
Total revenue for Q4 2012, coming at 12.16 million, an increase of 20% compared to the year ago quarter, but 2% lower from the previous quarter.
With new quarterly revenue level, favorable product mix, and improved operational efficiency, gross margin in Q4 2012 remained about 35% and allowed us to achieve a record 10 year gross margin in year 2012, which come at 34.3%. With good gross margin and the well managed operating expense level, we generated operating profit of $1.7 million in Q4, this compares to gross margin and operating profit in Q4 2011 of 51% and $700,000 respectively.
Our net profit in Q4 come in about $5.6 million or $0.54 earnings per share, significantly increases compared with $1.9 million or $0.22 earnings per share in the previous quarter. Most of the profit comes on the deferred tax assets, because of continuous profit in the last few years, we must recognize deferred tax benefit at problem assets, include a net profit for the fourth quarter with a one-time tax benefit of $3.7 million. Excluding this benefit, earnings come in at $0.22 per share.
On an annual basis, our net profit come in at about $9.6 million or $1.10 earnings per share. Again included in net income for the year, was the one time tax benefit of $3.7 million. Excluding these benefits earning come in at $0.68 per share already above on a GAAP basis, this is the 27 consecutive quarter and the seventh year in a row, AFOP has delivered a profitable bottom line.
Additionally, our non-GAAP business our profit in Q4 were about $2.4 million over $0.28 earnings this year compared with a $1.3 million or $0.14 earnings in the previous quarter.
Clearly, EBITDA non-GAAP profit was a record and the total at $8.4 million compared with $6.1 million for 2011. This represent a 38% increases in profit while revenue increased by 11% on a year-over-year basis. As year-end financial performance reflect AFOP’s superior products, technology and operational excellences.
Turning to the balance sheet, even after the distribution of a special and annual dividend of $11 million in last December, our net cash, cash equivalent and the long-term investments ended at $43.5 million.
Days Sales Outstanding was 52 days for Q4, inventories for Q4 were decreased from last quarter to $6.9 million, while inventory turn for Q4 was 4.5. The low inventory level reflects careful year-end control by saving customers with better returns in support of business growth.
Regarding our stock buyback program, during the quarter, we posted a total over 210,000 shares of other common stocks as average cost around $11 per share, which resulted in lower spending shares in the market in the end of year 2012. The outstanding shares in the market was above 8.64 million shares, which will be used for earnings per share in 2013, because of the successful implementation of the both dividends and the buyback programs, we will continue then going forward when we need it to help, delivering improved values to our shareholders.
Now regarding full year guidance, we feel positive about delivering another growth year 2013. Market conditions are favorable, and there will be share positions and the customer engagements indicate sufficient opportunities if we execute through the midyear.
As for revenue in the coming quarter of 2013, including the Chinese New Year Holidays impact, we still expect to increase in the range of 10% on a year-over-year basis. This expedition are based on the assumption of continuous economic recovery, trivial spending at the current levels and the favorable product mixes, stable pricing and the continuation of efficiency improvements in our Asia operations.
And now, I would like to turn the call back to the operator for Q&A session. Operator, please.
(Operator Instructions) All right. And I am not showing any questions at this time. I would like to turn the program back to management for any further remarks. One minute, we just found a question in the queue from Chris Brown. Your question please.
Not really question, more of a comment. I just wanted to say thank you. I have been with your company for several years and a few years ago when you were going through the reverse split, there were lot of doubts from certain shareholders and you’ve done everything that you promised that you would do and you created a lot of value for shareholders, and I just wanted to say thank you. No question today.
Peter C. Chang
Thank you. You are welcome. I guess, most analysts bother (inaudible) in our first quarter results.
Finally, thank you for you attention and I’d like to make a concluding remark. So 2012 developed more slowly than the year ago, and generated many good opportunities with all of our customers as we’re heading into 2013. All these make us optimistic about any rules in the coming here. I will also remind to generate a higher profitability through revenue growth and operating margin improvement, we will continue to see on calls, with our demonstrated operational excellence while it’s operating less being in the technology and the solutions, and will best serve our growing customer base and expand our market share in the long-term.
Thank you for your continued support and interest in our company and we look forward to reporting to you again in April 2013.
Thank you, ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.
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