Applied Optoelectronics, Inc.

Good day and welcome to the Applied Optoelectronics Second Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Monica Gould, Investor Relations for Applied Optoelectronics. Please go ahead, ma'am.

Thank you. I'm Monica Gould, Investor Relations for Applied Optoelectronics, and I'm pleased to welcome you to AOI's second quarter 2020 financial results conference call. After the market closed today, AOI issued a press release announcing its second quarter 2020 financial results and provided its outlook for the third quarter of 2020. The release is also available on the company's website at ao-inc.com. This call is being recorded and webcast live. A link to the recording can be found on the investor relations section of the AOI website. It will be archived for one year. 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 Q2 results, and Stefan will provide financial details and the outlook for the third 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 Statement. 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 thinks, 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 third quarter of 2020. Acceptance 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 factor 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, and the company's quarterly report on Form 10-Q for the period ended March 31, 2020. Also, with the exception of revenue, all financials discussed today are at 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 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 participate at the Jefferies 2020 Semiconductor IT Hardware and Communications Infrastructure Summit on September 2nd and at the H.C. Wainwright 22nd Annual Global Investment Conference on September 15th. These discussions will be webcast live, and a link to the webcast 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 third quarter 2020 earnings call is currently scheduled for November 5, 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 once again send our entire AY team that has continued to support one another and our customers during the COVID-19 pandemic. Our condolences go out to all those around the world who have been impacted by the virus and we send our thanks to the first responders and essential workers who continue to protect and support our communities. Turning to the quarter, ALI delivered Q2 revenue of $65.2 million, which was above our guidance of $55 to $60 million. Q2 revenue grew 50% compared to the second quarter last year and 61% sequentially, marking the fourth quarter of year-over-year growth that ALI has recorded. Since the third quarter of 2017, our performance was driven by improved demand from our data center customers, increased customer diversification, and record revenue in our telecom segment led by 5G deployments in China. Non-GAAP gross margin of 23.1% was on the lower end of our expected guidance range due to product mix as well as some COVID-19 related expenses that continue into the quarter while non-GAAP net loss of $0.24 per share was in line with our expectations. We expect that continued improvement through our cost reduction efforts and more favorable product mix will lead to improving gross margin over the next several quarters and we anticipate revenue to be up more than 20% sequentially at the midpoint of our guidance range. We are encouraged by the increased data center demand from our diverse set of customers and improving 5G-related activity that began earlier this year and will continue into Q3. During the quarter, we have eight design wins, including four with Telecom customers, which are related to 5G network deployments, mainly in China. The other four design wins were all existing customers in our data center segment. Additionally, we are pleased to report that we saw increased demand for our 100G products. In Q2, total revenue for 100G products increased almost 350% from the same period last year, marking the second quarter in a low of year-over-year growth in 100G sales. During the second quarter, we saw significant improvement in our telecom and cable sectors. Revenue in our telecom segment more than doubled sequentially and outpaced our CATV business. Driven by increased 5G activity, our cable segment improved sequentially as we began to see increased order flow for products related to CATV upgrades in North America. We are pleased to report that we received our fourth significant order for CATV products related to MSO upgrades in Q2, which will begin to ship in Q3. As we stated in our previous earning calls, we have taken various actions to ensure the safety and well-being of our employees who are continuing to support our customers' needs and the needs of the communities in which we operate. Our offices and factories around the world are back to normal operation due to our strict adherence to health and safety recommendations. Looking ahead, we will continue to digitally enforce these health precautions to protect the welfare of our employees and our communities. With that, I will turn the call over to Stefan to review the details about Q2 performance and outlook for Q3. Stefan. Thank you, Thompson.