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Acacia (ACIA) Beats on Q4 Earnings; Revenues Increase Y/Y

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Acacia Communications Inc. (ACIA - Free Report) reported fourth-quarter 2016 non-GAAP earnings (including stock-based compensation) of $1.55 per share that comfortably beat the Zacks Consensus Estimate by 81 cents. Excluding stock-based compensation, non-GAAP earnings fell 2.7% from the year-ago quarter to 83 cents.

Following the results, shares of the company nosedived 16.4% in after-hours trading on concerns over customer concentration, China issues and last but not the least, seasonal factors.

However, we note that, the shares of the company have outperformed the Zacks Communication – Components industry over the last one year. While the industry gained 53.1%, the stock appreciated 67.4%.

The outperformance of the stock could be primarily attributed to increasing adoptions of its CFP2-ACO product by cloud and content providers.  

Acacia reported revenues of $142.4 million, up a massive 107.8% year over year and ahead of the Zacks Consensus Estimate of $139 million. The solid growth was driven by increasing demand for the company’s 100G and flex-400G products in the metro, China and data-center interconnect (DCI) market as well as new customer additions.

Acacia continues to penetrate the rapidly growing DCI market, which is anticipated to grow at a CAGR of 32% over 2015-2020, as per data from ACG Research.

Notably, five of the top cloud and content providers continue to make substantial investments in building more data centers, which is driving the demand for Acacia’s 100G and flex 400G products. Moreover, during the fourth-quarter, Acacia won design contracts with its CFP2-ACO product, which is likely to help the company sell more to hyper-scale providers in 2017.

Metro market growth continues to be driven by continuing broadband investment in China (as part of the government’s broadband initiative) and the U.S. carriers, who are now focused on upgrading their metro network. The company expects further growth in China as carriers’ transition from back-bone and provincial back-bone networks to provincial metro and axis networks in 2017.

The continuing investment will drive strong demand for Acacia’s CFP-DCO products and is expected to drive top-line growth. Additionally, the company is expected to benefit from higher demand of its products in the long-haul market.

Moreover, during the fourth quarter, Acacia’s industry first CFP2-DCO module continued to gain traction, which remains a positive in the long run.

Acacia Communications, Inc. Price, Consensus and EPS Surprise

Operating Details

Gross margin (including stock based compensation) was 48.0%, up 200 basis points (bps) on a year-over-year basis.

Operating expense as percentage of revenues decreased 640 bps to 18.9%, primarily due to lower selling, general & administrative (SG&A) expense (down 220 bps) and lower research & development (R&D) expense (down 430 bps)

As a result, operating margin surged 850 bps from the year-ago quarter to 29.0%.

Balance Sheet

As of Dec 31, 2016, cash and cash equivalents were $206.4 million.

Guidance

Acacia expects first-quarter 2017 revenues in a range of $108–$114 million. Non-GAAP earnings are anticipated to be in a range of 63–70 cents for the quarter.

Zacks Rank & Key Picks

Acacia has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same space are Arista Networks, Inc. (ANET - Free Report) , ShoreTel, Inc. and ARRIS International plc (ARRS - Free Report) . While both Arista and ShoreTel sport a Zacks Rank #1 (Strong Buy), ARRIS International carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Notably, the consensus estimate for Arista’s current year has been revised upward to $3.14 from $2.79 over the last seven days.

The consensus estimate for ShoreTel’s current year has narrowed down to a loss of 15 cents from a loss of 16 cents over the last 30 days.

Lastly, the consensus estimate for ARRIS International’s current year has improved to $2.96 from $2.93 over the last 30 days.

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