Applied Optoelectronics, Inc.

Good afternoon. I will be your conference operator. At this time, I would like to welcome everyone to applied Optoelectronics third 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, press star then one on your touchtone phone. To withdraw your questions, please press star then two. Should you need any assistance, please turn to a conference specialist by pressing the Start key followed by 0. Please note that this call is being recorded. I would now like to turn the call over to Monica Gould, Investor Relations of 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 third quarter 2020 financial results conference call. Thank you for joining us today. 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 Q3 results, and Stefan will provide financial details and the outlook for the fourth 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 Think, 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 fourth 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 those 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 and the company's quarterly report on Form 10-Q for the period ended June 30, 2020. 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 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 Needham Security Networking and Communications Conference on November 17th, the Raymond James Technology Conference on December 8th, The Cowen Networking and Cybersecurity Conference on December 15th and the MKM Partners Conference on December 16th. The presentations at these conferences will be webcast live and links 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 fourth quarter 2020 earnings call is currently scheduled for February 25th, 2021. 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, Ava, for joining us today. Our supported results were driven by good growth in each of our three major business segments. We achieved Q3 revenue of $76.6 million, which was within our guidance of $76 to $83 million. Q3 revenue grew 66% compared to the third quarter last year and 70% sequentially but was at the low end of our guidance range. As we began to see some slowing in orders from certain of our data center customers in the later part of the third quarter, we believe that this slowdown in orders is related to inventory normalization following the surge in demand that was driven are the shift to working from home area in the years. Nantian gross margin of 27.4% was above our guidance range of 25 to 26.5% due to favorable product mix coupled with benefit from our cost reduction action. Nantian rate loss of 6 cents per share was in line with our expectations of a loss of 20 cents to a loss of 3 cents. Similar to Q2, we saw good demand in the data center market during most of the third quarter. Toward the end of Q3, we started to see some softness from certain data center customers due to what we believe was dilation of previous orders. And based on what we see today, we expect headwinds in Q4 as our hyperscale customers adjust their inventory levels. In response to supply chain disruption that currently appears to be less severe than fear earlier in the year. Our customer relationship and market share position remain strong and we believe the continued need of higher bandwidth within the data center will drive long-term growth. Additionally, we expect continued favorable product mix and our cost reduction efforts to further We are pleased to report that we recently secured our second technical qualification on a full-energy product with a sizeable tier-2 diacetic operator with an existing customer, and we are encouraged by the customer interest we are seeing from this product. This qualification will be recorded as a design win once we receive an order. from NIST Cosmos for the 400G product. Which we expect will happen in this quarter? During the quarter, we had seven design wins with six customers. Two of the design wins were in our CATB segment, three in the data center segment, and one in our telecom segment. Similar to Q2, we continue to see broad-based demand for our 100G products. Total revenue for 100 products increased almost 350% from Q3 of last year and 13% sequentially. In our CATV segment, the over-demand environment continues to be strong. Total revenue for our CATV products increased 32% year-over-year and 90% sequentially. As we anticipated, rolling from our telecom products nearly triple year-over-year in Q3 to a record approximately $9 million and lost 44% sequentially, driven by increased 5G demand in China. However, recently, we have been informed by several of China's telecom customers that 5G deployment there has been paused by several large network operators, while they plan their supply chain Thank you for watching. that our technology leadership is advanced optics give us a strong competitive position to address our customer needs as demand improves. We continue to manage the things efficiently to drive long-term growth and shareholder value. Before I turn the call over to Stefan, I want to emphasize that we continue to prioritize the health, safety, and well-being of our employees as well as that of our customers and suppliers. I'm proud of the hard work that AOR team continue to deliver. Thank you for your exceptional teamwork during this challenging period. With that, I will turn the call over to Stefan to review the details of our Q3 performance and our Q4. Stefan.