NeoPhotonics Corporation (NPTN) CEO Tim Jenks on Q2 2021 Results - Earnings Call Transcript

NeoPhotonics Corporation (NPTN) Q2 2021 Earnings Conference Call August 3, 2021 4:30 PM ET

Company Participants

Erica Mannion - Sapphire Investor Relations

Tim Jenks - President and Chief Executive Officer

Beth Eby - Senior Vice President and Chief Financial Officer

Wupen Yuen - Senior Vice President and Chief Product Officer

Conference Call Participants

Paul Silverstein - Cowen & Co

Tim Savageaux - Northland Capital Markets

Fahad Najam - MKM Partners

Alex Henderson - Needham & Company

Michael Genovese - WestPark Capital

Simon Leopold - Raymond James

Operator

Good day, everyone. 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 Investors section. This call is the property of NeoPhotonics and any recording, reproduction or transmission of this call without the expressed written consent of NeoPhotonics is prohibited.

I'll now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.

Erica Mannion

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; Wupen Yuen, Chief Product Officer and General Manager 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. Wupen will provide a summary of products, technology and growth drivers for highest speed product. 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 include discussions of certain non-GAAP financial measures and information; include 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 GAAP to non-GAAP results are provided in the company's press release and related Form 8-K being filed today with the SEC and can be found in the Investor Relations section on NeoPhotonics' website. Material contained in the webcast is the sole priority 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 or 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 3, 2021, and are described at length in our annual and quarterly SEC filings.

Now I will turn the call over to CEO, Tim Jenks.

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% over the same period last year. And were 46% of total revenue. We achieve 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 400ZR coherent links in the fourth quarter; we believe we are at the beginning of a broad market expansion for 400ZR and 400ZR+ based networks and applications. This expansion has started with adoption of coherent interconnects into cloud service provider Metro networks. Rapid adoption of 400ZR and 400ZR+ in cloud Metro applications will be followed by cloud content providers similarly adopting 400ZR and 400ZR+ 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 internet connect. AI enabled applications such as autonomous vehicles and machine learning, will rapidly expand traffic and bandwidth requirements in the edge cloud market. These are huge mega trends 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+ 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 Wupen 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 Chainey brings deep experience in legal and regulatory affairs and has a background in the aerospace and automotive industries. Sheri Savage brings a strong background in finance controls, contract manufacturing and related business models. Miss Savage is serving as a member of our audit committee while Miss Chainey 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 Wupen Yuen, our Chief Product Officer.

Wupen Yuen

Thank you, Tim and good afternoon. We have talked about three key elements of our coherent product suite for the highest speed over distance applications. First of 400ZR pluggable modules; second, our extended reach 400ZR+ modules and third our coherent components including our industry leading ultra-pure light tunable lasers. Our 400ZR pluggable modules, such as our QSFP-DD are for use in data center interconnects applications with reaches of around 100 kilometers. These modules comply with the optical internetworking forums implementation agreements and have been successfully tested at multiple hyperscale data center customers demonstrating interoperability with other leading vendors' 400ZR modules. Our 400ZR QSFP-DD modules utilized our vertically integrated silicon photonics Coherent Optical Sub Assembly or COSA and our low power consumption ultra narrow linewidth nano ITLA tunable laser, and it can be operated over temperatures ranging up to 80 degrees Celsius in extended temperature data center environments that reduce cooling requirements. Our 400ZR modules have completed Telcordia reliability qualification and have passed 2000 hours of High Temperature Operating Life HTOL tests.

Our 400ZR modules are now in General Availability and shipping to customers while continuing our later stage qualification work at hyperscalers. Our extended reach 400ZR+ QSFP-DD pluggable modules serve Metro distances. Our ultra-pure light tunable lasers and high performance coherent components coupled with the latest seven nanometer generation DSPs increase the reach of our QSFP-DD modules far behind distances to Metro reaches, expanding our served market. We successfully demonstrated our 400ZR+ QSFP-DD coherent pluggable modules transmitting 400 gigabits per second over a distance of 800 kilometers in a 75 gigahertz space EDFA amplified DWDM systems enabling a record with total fiber capacity for IP over DWDM in QSFP-DD module.

For even more stringent applications, we now integrate our indium phosphide coherent modulator and receiver with a nano tunable laser into CSP2 DCO modules to match performance of embedded or chassis-based systems operating at 400 gig at a fraction of the size and power consumption. We have demonstrated our multi rate CSP2 DCO coherent pluggable module transmitting at 400 gigabits per second data rate over a distance of 1,500 kilometers in a 75 gigahertz space DWDM channel plan using only standard EDF amplifiers, and without costly Raman amplification. We believe this is the industry's longest demonstrated transmission distance for CP2 DCO module and enables our covering all Metro roads and applications and providing an upgrade path to 400 gigabits per second operation for Metro road and networks with pay as you grow flexibility. Each of these new important new products demonstrates our leadership in high speed over distance performance. Moreover, each of these new products is adding a new growth revenue stream on top of the accelerated growth we are already delivering for our high speed 64 gigabytes, and 96 gigabytes suite of coherent components.

Beyond 2021, we see great potential for these 400ZR+ pluggable modules to include cloud Metro, regional and long haul applications. Lastly, the foundation of all of our coherent products is our coherent components, including our industry leading ultra-pure light tunable lasers for high speed chassis-based systems operating at 400 gig to 800 gig and for our pluggable modules. Showing our continued skill and leadership in components, we recently announced that we have shipped a cumulative total of more than 2 million of our ultra-narrow light tunable lasers since initiating shipments in 2011. With chassis-based ultra high performance systems, our tunable laser receiver and modulator products have broad market acceptance due to their performance, quality, reliability and availability. We continue to serve the highest speeds and are now shipping 96 gigabyte versions for 800 gig systems and are developing 130 gigabyte versions for one terabyte per second and beyond.

In another industry first, we recently demonstrated the required optical performance for 800ZR and 800ZR+ DCI and Metro optical networks, which has made it 800 gigabits per second over a distance of 600 kilometers with only EDSA amplification again, not requiring Raman amplification. This demonstration used our class 70 coherent driver modulator CDN and coherent receiver micro ICR along with our ultra narrow linewidth tunable laser. These components point away to 800 gig pluggable solutions, when paired with next generation five nanometer DSPs. Our portability coherent optics technology are now gaining traction in new market applications, including inter satellite communication links for low Earth orbit, Leo satellites, and for industrial and transportation applications of LIDAR. For coherent LIDAR, we have multiple engagements with our high performance optical solutions in applications including autonomous vehicle navigation.

These include both key components derived from our communications power lines for certain systems, as well as more integrated chip scale LIDAR solutions.

With that, I will turn the call over to our CFO, Beth Eby.

Beth Eby

Thank you, Wupen, and good afternoon. NeoPhotonics continued to execute well through the second order. Increased demand for our high speed products resulted in better than expected revenue and gross margin. As Tim mentioned, revenue was $65 million on strong demand for our lasers and 400 gig and above products. In the quarter, we have three 10% customers. As we said last quarter, we restarted shipments to Huawei in Q1 for a limited set of products. And we expected their quarterly revenue to be in the mid to high single digit millions on a run rate basis. Q2 was somewhat higher at $14 million, given the lack of shipments in previous quarters. We do not expect Huawei to be a 10% customer for the year. Non-GAAP gross margin of 21.7% was above our range as a result of favorable product mix, and the shift of approximately $1.5 million from cost of sales to R&D expense for materials related to the new product introduction. The shift is an accounting timing issue. Product margin of 37.6% was offset by the expected levels of excess capacity charges. We expect these underutilization charges to drop as we ramp volume and complete the consolidation of our indium phosphide production, as we announced last year.

Non-GAAP operating expense for the second quarter was $24.4 million higher than expected due to the cost of sales to R&D shift I previously mentioned. Non-GAAP operating loss for the quarter was $10.3 million due primarily to excess capacity charges. FX loss was $1.1 million or an impact of $0.02 a share. Tax expense allocated to Q2 was $0.2 million lower than last quarter on lower profits in our foreign jurisdictions. This resulted in a non-GAAP net loss of $11.4 million and a loss per share of $0.22 cents. This is $0.03 better than the midpoint of our estimate as a result of the higher revenue. I will close out my discussion of the second quarter income statement with a review of our GAAP results. Second quarter gross margin was 15.2% down from 21.8% in Q1, mostly on a $3.3 million inventory EOL write-down of a product that we were shipping to Huawei. This charge was taken due to uncertainty that we could ensure continued compliance throughout the supply chain for this product.

Operating expense was $26.2 million, up $1.8 million from Q1, mostly on the materials charged to R&D expense. Operating loss for the second quarter was $16.3 million and net loss was $17.4 million, which included the inventory write-down, stock based compensation of $2.3 million and $0.4 million of amortization, accelerated depreciation and other costs.

Turning to the balance sheet; we finished the quarter with $95 million in cash investments and restricted cash, down $16 million from Q1 on new product startup costs, the payment of 2020 variable compensation and the pay down of debt. Net inventory was $44 million, down $2 million on the product EOL. Days of inventory improved to 72 days, even as we continue to buffer critical inventory and support the new product ramps. Looking to Q3, we are seeing the expected increasing demand for our leading 400 gig capable components, particularly our lasers and the increase in demand for our modules. However, we have a new chip shortage due to a supplier timing decommit that has an $8 million adverse impact on revenue in Q3. We have mitigation actions in progress and have widened our range to allow for the possible outcomes, meaning we have confirmed supply and inventory to meet the low end of the range. We have confidence in the actions to reach the midpoint and are working mitigation actions that could allow us to reach the high end of the range. While we have sufficient demand to achieve non-GAAP breakeven in Q3, the supply chain limitations are extending the timing to reach operating profit to Q4.

As a result, the company's expectations for the September 2021 quarter are; revenue in the range of $76 million to $84 million, GAAP gross margin in the range of 24% to 29%; non-GAAP gross margin in the range of 25% to 30%. GAAP diluted earnings per share in the range of $0.20 loss to a $0.10 loss and non-GAAP diluted earnings per share in the range of a $0.10 cent loss to breakeven. These numbers are reflective of approximately 52.5 million basic shares. Looking forward to the rest of the year, we expect to grow revenue at an accelerated rate approaching the levels of one year ago. And consistent with our growth target of 25% to 35%, excluding Huawei. This reflects the continued high demand for 400 gig and above capable products. Over the longer term, market size estimates for 400ZR and 400ZR+ pluggable modules continue to increase. As we gain confidence in the strength and size of our module ramp, we may review our capital structure to ensure that we maintain the flexibility to be able to support customer forecasted ramps.

Last year, we lost significant revenue following tightened BIS restrictions on Huawei. In parallel, we accelerated our pivot to cloud focus customers. As we embarked on this new path, we said the number of 400 gig and above coherent ports being shipped each year is approximately doubling; we would have new 400ZR module products that would ramp in 2021. And we expected to get back to non-GAAP operating profit in Q3. Even with the supply chain issues, we are on track to those goals for the second half. Our 400 gig and above capable revenue grew 100% year-over-year in Q2. And we expect total year-over-year growth to be 100% or higher. We are in later stage qualification with target hyperscale customers for 400ZR. And we expect to achieve non-GAAP operating profit breakeven now in Q4. We are pleased with our company performance over the last year and are excited about our path forward and our additional growth vectors in the hyperscale market. With that, the operator will now open up the line for questions. Melinda?

Question-and-Answer Session

Operator

[Operator Instructions]

We'll take our first caller as Paul Silverstein from Cowen & Co.

PaulSilverstein

Hey, good afternoon, guys. I've got a handful of related questions starting with, I just want to check my math and so we did math right for Q3. Your non Huawei business you're expecting to be up around 40% year-over-year. Is that accurate?

BethEby

Certainly on the math for Q3 sounds a little high.

PaulSilverstein

But you said while Huawei $14 million in Q2 and you're expecting it to be mid to single digits in Q3, right? If I take the $80 million at that point, and I backed out around $5 million to $8 million of revenue, that would suggest about 70 to 72 - Huawei, I'm sorry, go ahead.

BethEby

That's about right. Looking at the numbers for last minute, yes.

PaulSilverstein

That raises the next question, given the risk attending Huawei; can you give us any insight? I know there's some sensitivities here, but can you give us any insight what are you shipping to Huawei for what use cases? And where's the confidence that two or three quarters from now, that revenue is not going to go back to zero?

Tim Jenks

As we said, a year ago, we're not going to rely on or depend on Huawei. And we'll operate the company accordingly. If they're on a very small number of products, and they're not a 10% customer that's the level of risk that we will have but we don't know what the future bears there. So essentially it is several million dollars in a quarter but it's a relatively small percent.

PaulSilverstein

In terms - the components, you're shipping a Huawei, do you have visibility, and is that going into these 5G optical build outs.

Tim Jenks

We don't expect that they are, no.

PaulSilverstein

Alright, my last question. IPG raised some concerns about the China market this morning in general, any insight you can share what you're seeing in China, what expectations are for the backup beyond?

Tim Jenks

In the China market, there have been some reports of additional tenders primarily related to 5G. So it has limited impact on our business. There are also some views that there could be share shifts between the network equipment companies in China, although in our case, we're selling to all of them. And so the specifics of IPG I couldn't comment on but for us, it's a smaller dependence for our overall direction and our overall business.

Operator

Moving on to Tim Savageaux of Northland Capital Markets.

TimSavageaux

Good afternoon. Lot of numbers flying around there. All sounds pretty good. So I think it's good. Anyway, let's start with a comment you made on the call about accelerating rate of growth relative to past years in calendar '22. I think you said then and obviously, we have a challenge here with comparability. When we talk about past years, so are you talking about 400 gig in particular there? Or can you give us some more color on that comment?

Tim Jenks

So there are two things I'd comment on, in our prepared remarks, we said that our growth is heavily dependent on the growth in 400 gig. And we see that the 400 gig and above growth has different pieces, the 400, 600, 800 is driving components for embedded or chassis-based systems, and 400 gig coherent modules going into the data center is, it's really two potential revenue streams from 400 gig and 400 gig ZR+. And so we see these all as potential positive. And in terms of additional revenue streams for our company, we think these are important. And in contrast to the last several years this is a position where we think that we're well positioned, and we have the potential to take a larger share of the business and the value from this. I hope that answers your question.

TimSavageaux

Sorry, I was on mute there, don't cut me off. No, Tim, that does not answer my question. So let's try it across two different axis here. One, I think, is a 25% to 35% x Huawei growth that you reiterated something along those lines, do you expect that to accelerate? Or you talked about 100% growth plus in 400 gig? Either one of those two - can I try and tell you down in terms of acceleration, what you're referring to there?

Tim Jenks

Yes, so year-to-date, our x Huawei growth is about 15%. And based on the questions that the prior analyst asked, if you took those numbers are x Huawei growth for Q1 to Q3 would move into the 25% to 35% range, and we think that would continue through the year. So it is the case that our 400 gig and above revenue in the second quarter was 46% of our total revenue, and it grew 100% over the prior year. So our overall growth rate is not as high, obviously as our 400 gig and above growth rate. But these are the parts of our growth equation that matter. The component growth, the 400ZR module growth, the 400ZR+ module growth, and then the laser growth into other customers' 400ZR modules.

Operator

Moving on, we'll take our next question from Fahad Najam of MKM Partners, LLC.

FahadNajam

Hi. Can you just help us, I know you release this information in 10-Q, but can give us the other 3% customers that you are - 10% customer that you have, what the revenue contribution was?

Tim Jenks

We just described that we have we have three 10% customers as required.

BethEby

Yes, we don't name them in - except in the K when required.

FahadNajam

Okay. Well, what was the two and three? What was their revenue contribution?

BethEby

So we've got in our usual filings, where we will be saying that the top five customers are 77%.

FahadNajam

Okay. All right. If I heard you correctly, did you just say that you had an $8 million of component headwinds in your Q3 guide? So all out being equal at the midpoint your guidance would have been $88 million for Q3 if it wasn't for the component shortages? Did I hear you correctly?

BethEby

Yes, you heard me correctly, if demand is not our problem at the moment.

Operator

Next, we'll hear from Alex Henderson of Needham & Company.

AlexHenderson

Thank you. So I guess the primary question really is the timing of when the 400 gig product start to ramp in the ZR format? Have you actually started any production of it at this point? When do you think you might actually be producing it getting to material production rate of, say 1,000 units a month, which I think is the level you stated in prior periods would be considered production volumes? Is that going to happen in 3Q? Or is that going to happen in 4Q? Any sense of timing? And, similarly, you've talked about qualification, but have you actually got orders for these three new products in hand at this point?

Tim Jenks

Let's see. That was a lot of questions, Alex. Let's see. It is the key question on what is the timing of production volumes, we are producing, and the product is in production, we have announced general availability for 400ZR modules. The current production rates are light relative to our capacity. We think that actual deployment levels could begin in Q4. And what we see right now, as I said in my prepared remarks is we're also designed into several other companies products and so people are, who are using our lasers for their supply chains are ordering lasers for delivery because they expect similarly to be shipping some modules in Q4.

AlexHenderson

So you're not willing to say that you actually have meaningful orders for the 400 gig ZR at this point.

Tim Jenks

I'm willing to say if I do, we don't have large production orders because people aren't deploying yet. Alex, do we lose you? Are you still there?

Operator

We're moving on to Michael Genovese of WestPark Capital.

MichaelGenovese

Great, thanks. Two questions. So number one, can you just talk about what you're seeing in China in terms of 5G Metro long haul demand? Is anything improved in the last quarter? And what do you think about the back half of the year?

Tim Jenks

So for 5G demand our exposure in 5G demand is principally component level. And we're seeing some additional business because of China Telecom tenders. But for 5G, as we sell components into that market, as opposed to higher ASP products, it's fairly modest. So Metro and long haul deployments where we are more heavily represented, those are still a bit muted.

MichaelGenovese

Any, so no - visibility there or updated expectations and when it may get better.

Tim Jenks

Yes, I actually can't answer that, Mike. I don't know. We pay close attention with customers. But it's not as significant to us. And it has been relatively muted. And we can't tell you precisely when that turns around.

MichaelGenovese

Okay, fair enough. Okay, so second question. Just I guess I just want to hear more color on what you're saying about hyperscale 400ZR opportunity. When hyper swing do you expect your meaningful hyper scale deployments or 400ZR and is the gating factor, their qualifications and their timing are the gating factor is supply and just remind us what you said about the timing of that whole projects.

Tim Jenks

So the gating factor is their qualification and their deployment, we have to have both. And as we said, a couple times in the script, we're in the later qualification phases with a couple of different customers. But it isn't over till it's over, right. So we're not going to say that we were putting it in the forecast or anything at particular numbers until each of those wickets are suitably passed, and we do have our expectations on timing, we do have our expectations on our preparedness, because we have put production capacities in place. We have gone to general availability; we've put our supply chain in place. And but we do have to have the final qualifications and production and deployment orders. And you're right in saying that in the script, well, we didn't say that. That's correct.

Operator

Moving on to Simon Leopold with Raymond James.

SimonLeopold

Thanks for taking the question. I wanted to just get a better understanding of the Huawei business in the June quarter specifically, was this something that you had anticipated when you offer the forecast for June? If not, I'm just imagining that Huawei was better, and therefore something else was worse in the June results, so just want to make sure I understand what you were initially assuming and what the Delta was.

BethEby

Simon, I think we said it straight out is we are expecting mid to high single digit millions. And we got 14. Not frankly, a shock, because they were light, or to nonexistent in the prior quarters.

SimonLeopold

So if we took five out of that 14, to make it a nine, you would have been at $60 million, the low end of your guidance. So I guess what I'm really trying to get at was there something that was a little weaker in the quarter, maybe let me just ask it that way.

Tim Jenks

Well, I would answer that by saying when we guided to the second quarter, we saw softness, and that is as it played out.

SimonLeopold

Okay, and I wanted to see if maybe you could unpack the ZR opportunity a little bit and maybe not specific quantification, but I think of you as having two dimensions of sales opportunities from ZR products, one, selling lasers to other module manufacturers, and the other is selling your own ZR modules? How should we think about the general trend for you, as a component supplier versus to other manufacturers, as opposed to selling modules to end users?

Tim Jenks

Well, let's see. I think in the beginning of Wupen's prepared remarks he talked about actually three parts of it, there's ZR modules and there is ZR+ module. So ZR modules for example would be Huawei standard module, ZR plus are for longer reaches cloud Metro and longer reaches and then the third piece would be lasers into other modules. And so the one that turns on the earliest is the lasers, because other people are anticipating supply chain needs. And then how we see ZR and ZR+ turn on, if you will, those depend on customer timing and customer products. So we have qualification work going on for both what we would call our 400 ZR standard products, and as both ZR and ZR+, and I would say that between the two modules and components the opportunity over the next year or so they're probably pretty balanced between those two.

Operator

And next we'll hear from Tim Savageaux of Northland Capital Markets.

TimSavageaux

Well, I was going to surrender, but I am going to try one more time. Another comment I, pardon me.

Tim Jenks

Go ahead, Tim.

TimSavageaux

Thanks. And this is another comment at least I think I remember hearing which is getting business back to previous levels. I think you're talking about before Huawei went away. So are you getting to $100 million plus Q4 here effectively, I think you are.

BethEby

Guiding to somewhere in that range. And we've held our 25% to 35% growth for the year. So we're getting there.

TimSavageaux

Okay, I made it, fantastic, congratulations.

Tim Jenks

In the third quarter of last year, we were $102 million. And we lost about $44 million as a result of that. So essentially, we have a lower breakeven point right now, as Beth talked about, but we're also seeing demand that would allow us to approach those levels. So yes.

TimSavageaux

Got it. Great. And one last one I did by promise in, as you look toward the end of the year, how material a ZR module and I'm talking about just modules now not components? Would you expect that to be guessing that could be - could that be 10% of revenue in Q4, as we exit the year? And just as an aside might that be cloud guys, but also spread across carriers as well? And that's it for me.

Tim Jenks

Yes. In response to the prior questions those revenue streams haven't turned on in a major way at this point in time. And we have seen the deployment schedule shift to the right, as you well know. And the timing for Q4, as time passes, it's possible but that 10% becomes a bigger stretch goal, depending on when people actually start buying and in what quantity. But certainly it's in our capability to produce at that level. We obviously have to have the orders and shipments but it is. It's certainly possible for us.

Operator

There are no further questions at this time. Mr. Jenks, we'll turn the conference back over to you.

Tim Jenks

Alright, thank you to everyone for dialing in. We thank you very much for your interest in NeoPhotonics. We do appreciate the diligent work of our employers, and our suppliers really to drive progress in the current environment. We look forward to updating you in the future and meeting with shareholders again soon. Have a good evening. Thank you.

Operator

And that does conclude today's conference. We do thank you for your participation. You may now disconnect.