Applied Optoelectronics, Inc.

Good afternoon. I will be your conference operator, and at this time, I would like to welcome everyone to Applied Optoelectronics first quarter 2020 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, you may press star and then one on a touch-tone phone. and to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the call over to Monica Gould, Investor Relations for AOI. Ms. Gould, you may begin.

Thank you. I'm Monica Gould, Investor Relations for Applied Optoelectronics and I'm pleased to welcome you to AOI's first quarter 2020 financial results conference call. A-O-Inc.com Joining us on today's call is Dr. Thompson Lin, AOI's founder, chairman, and CEO, and Dr. Stefan Murry, AOI's chief financial officer and chief strategy officer. Thompson will give an overview of AOI's Q1 results, and Stefan will provide financial details and the outlook for the second quarter of 2020. A question and answer session will follow our prepared remarks. Before we begin, I would like to remind you to review AOI's Safe Harbor Statements. On today's call, management will make forward-looking statements. These forward-looking statements involve risks and uncertainties, as well as assumptions and current expectations, which could cause the company's actual results to differ materially from those anticipated in such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as believes, anticipates, estimates, intends, predicts, expects, plans, May, Should, Could, Would, Will, or Thanks, and by other similar expressions that convey uncertainty of future events or outcomes. Forward-looking statements also include statements regarding management's beliefs and expectations related to the expansion of the reach of our products into new markets and customer responses to our innovations, as well as statements regarding the company's outlook for the second quarter of 2020. Except as required by law, we assume no obligation to update forward-looking statements for any reason after the date of this earnings call to conform these statements to actual results or to changes in the company's expectations. More information about other risks that may impact the company's business are set forth in the Risk Factors section of the company's reports on file with the SEC, including the company's annual report on Form 10-K for the year ended December 31, 2019. Also, with the exception of revenue, all financials discussed today are on a non-GAAP basis, unless specifically noted otherwise. Non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the results prepared in accordance with GAAP. A reconciliation between our GAAP and non-GAAP measures, as well as a discussion of why we present non-GAAP financial measures, are included in our earnings press release that is available on our website. Before moving to the financial results, I'd like to announce that AOI Management will virtually present at the current 48th Annual Technology, Media, and Telecom Conference on May 29 and at the CFO Cross-Sector Insight Conference on June 10. These discussions will be webcast live, and links to the webcasts will be available on the Investor Relations section of the AOI website. We hope to have the opportunity to interact with many of you virtually. Additionally, I'd like to note that the date of our second quarter 2020 earnings call is currently scheduled for August 6, 2020. Now, I would like to turn the call over to Dr. Thompson Lin, Applied Optoelectronics founder, chairman, and CEO. Thompson?

Thank you, Monica, and thank you, everyone, for joining us today. First, I would like to thank the entire AY team who has come together to support each other and our customers through this crisis. Our thoughts go out to all those individuals around the world who are suffering from this virus, and of course responders who are protecting our communities. We thank you. We have taken numerous actions to ensure the safety and well-being of our employees while continuing to support our customers' needs. Our offices around the world are generally back to normal operations. and we have adopted recommendations and safeguards in our factories to maintain optimal working conditions. These measures include virtual testing of employees where available, mandatory use of face masks and other personal protective equipment, increased remote working and limitations on meetings and employee gatherings. On previous reported non-AOI employees have so far tested positive for the virus. However, we will continue to decently enforce these new requirements for the safety of our employees and the larger society of which we are part. Turning to the quarter, AIP received a Q1 revenue of $40.5 million, which was below our expected guidance range, due primarily to shipping delays out of China and Taiwan due to the COVID-19 pandemic. As a result, we have certain shipments from China and Taiwan at approximately $2.3 million in revenue associated with these shipments, which is due to Q2. Our delivery non-gap gross margin of 90.5% and a non-gap net loss of $0.44 a share. which were also below our executive guidance range due to increased spend during the quarter associated with coronavirus. As we discussed on our Q4 learning code, in order to reduce the impact of shutdown in China on our customers, we took measures to increase production at our factories in Taiwan and in the US, which resulted In higher course during Q1 than we are initially expecting. Given the rapidly changing environment during this pandemic, there remain significant uncertainties, but we currently believe that most of the impact to operations from the COVID-19 crisis will be felt during Q1 and O2. And our entire team has worked diligently to go back on track. We expect our Q2 result to improve and ramp up almost 45% sequentially at the midpoint of our guidance range. We are encouraged by the increased data center demand from our diverse set of customers and the improving 5G-related activities challenge that began in the first quarter and is continuing into Q2. During the quarter, We had an all-time record of 12 design wins. This increases the previous record of 11 wins in Q3 of last year, and up from our total of 9 wins in the prior quarter. This design win achievement is all the more notable due to the reckless, eroding conditions during the quarter as the world began to experience the pandemic. Additionally, we are pleased to report that we saw increased demand for our 100G products in Q1, total revenue for 100G products increased 8% from the same period last year, marking the fourth quarter of year-over-year growth in 100G sales since Q4 of 2018. During the fourth quarter, we prioritized sales and Due to the quick loss of customer demand after returning from the shutdown to China, this refused our CATV limit given Machining's low Q1. However, we continue to believe that the CATV segment will improve over the course of the year as we have already seen improving forecasts from some CATV partners. We also finalized a new relationship with ATX Networks during the quarter which she will catalyst for growth in the CATE-6 later in the year. With that, I will turn the call over to Stefan to review the details of our Q1 performance and our O2-7. Thank you, Thompson.