Exclusive Interview with Acacia Communications' (ACIA) CEO Raj Shanmugaraj; In Early Stages of Multi-Year Deployment, Not Looking to Sell

November 11, 2016 1:49 PM EST
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StreetInsider.com conducted an exclusive interview with Acacia Communications (NASDAQ: ACIA) CEO, Raj Shanmugaraj. Acacia Communications is seeking the “siliconization of optical interconnect" in metro and inter-data center networks across the world. The stock has been one of the hottest stocks this year, up 200% from its May IPO price of $23. At one point this year, shares were up to $128.73, or nearly double the current level of $67.83.

In the latest quarter, the company reported EPS of $1.01, $0.20 better than the analyst estimate of $0.81. Revenue for the quarter was up 107% to $135.3 million versus the consensus estimate of $130.85 million. Acacia sees Q4 2016 EPS of $0.85-$0.92, versus the consensus of $0.78, and revenue of $136-141 million, versus the consensus of $137.2 million.

1. What is working with customers right now:

Raj explains that data center interconnect is in high demand and they are seeing good deployment. Although most of their revenues come through network equipment vendors ADVA and ZTE, they also sell direct, highlighted by a recent deal with Facebook (NASDAQ: FB). Facebook is using its components in its latest Open Packet DWDM platform, Voyager. Raj would not comment on if margins are better in a direct deal, but revenue from the deal won't start until 2017. Raj confirmed they are talking with other companies like Google (NASDAQ: GOOGL), Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), AT&T (NYSE: T) and Verizon (NYSE: VZ), but could not elaborate if these were direct deals or through the re-sellers. Some, he said, are looking at white-box solutions similar to Facebook others their own custom solutions. Based on good business practices with re-sellers the company is not involved in outbound marketing. Nonetheless, Raj said "we talk to all of them."

2. Guidance was a disappoint to some. Is this conservative?

"100% year-over-year growth is not a disappointment... not a disappointment at all," Raj said. He explains that there is some seasonality to the business as some customers don't want to upgrade during the holiday season. But he said they "do not see a slowdown" and are in the early stages of a multi-year deployment. Raj notes the growth rate will eventually come down based on the law of large numbers.

3. On why the company is giving only one quarter of guidance?

"At some point this may change... we've only been a pubic company for six months," Raj said.

4. There has been talk that a larger player like Cisco (NASDAQ: CSCO), Broadcom (NASDAQ: AVGO) could target the company. Has anyone approached the company and are you open to selling?

"That information is confidential. We are building the company for the long-term, but will do what is in the best interest of our shareholders," he said. "We are not looking to sell."

5. What do you say about concerns about valuation?

"The market determines the valuation," Raj said. "We are profitable and growing margins and look pretty good (valuation wise) compared to our peer group." He added, "we will leave price ranges to the analysts as we focus on executing."

6. What would you tell investors about the IPO lock-up of 6.6 million shares on 11/9 and another on 01/05 of 24.6 million?

Raj explained the company recently completed a follow-on offering of 4.5 million shares at $100 per share and the recent lock-up was from an employee pool. On the upcoming larger lock-up, he said management/VC "believe in the long-term." "Just because something because eligible, doesn't mean it gets sold," he said. "People are believers in the long-term."

7. Do you see any impact from the Presidential election?

Raj said he expects a rotational growth agenda to prevail and does not anticipate trade issues to impact the company either on the supply side or the sales side.

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