Applied Optoelectronics, Inc.

Good afternoon. My name is Chris and I will be your conference operator. At this time, I would like to welcome everyone to Applied Optoelectronics Second Quarter 2021 Earnings Conference Call. Today, all participants 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 during the Q&A session, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then two. Please note that this call is being recorded. I would now like to turn the call over to Lindsay Savarese, Investor Relations for AOI. Ms. Savarese, you may begin.

Thank you. I'm Lindsay Savarese, Investor Relations for Applied Optoelectronics. And I'm pleased to welcome you to AOI's second quarter 2021 financial results conference call. After the market closed today, AOI issued a press release announcing its second quarter 2021 financial results and provided its outlook for the third quarter of 2021. 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 and will be archived for one year. Joining us on today's call is Dr. Thompson Lin, AOI's founder, chairman, and CEO, and Dr. Stephan Murray, AOI's chief financial officer and chief strategy officer. Thompson will give an overview of AOI's Q2 results, and Stephan will provide financial details and the outlook for the third quarter of 2021. 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 innovation, as well as statements regarding the company's outlook for the third quarter of 2021. 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 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, 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 participate in one-on-one meetings at the Jeffrey Semiconductor IT Hardware and Communications Infrastructure Summit on August 31st. 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 2021 earnings call is currently scheduled for November 4th, 2021. Now I'd like to turn the call over to Dr. Thompson Lin, Applied Optoelectronics founder, chairman, and CEO. Thompson?

Thank you, Lindsay. Thank you for joining us today. We deliver revenue and get EPS. in line with our expectations. However, our gross margin came in slightly below our expectations, mostly due to unfavorable product mix in our CATB segment and increased costs from the component shortage we experienced in the quarter. Total revenue for the second quarter of $54.2 million decreased 16.9% compared to a strong second quarter in the prior years, but was up 9% sequentially. The strong sequential growth was led by our CATV segment, which this quarter eclipsed our data center business, accounting for 51% of total revenue. The overall CATV demand environment remains strong as MSO particulars in North America continue to upgrade their network. Total revenue for our CATV products increased more than four-fourths year-over-year in Q2 and increased 48.1% sequentially of a strong fourth quarter to a record $27.6 million. As we expected, we experienced generally soft Q2 conditions in the data center segment. As a result, total revenue for all data center products of $22.4 million decreased 57.4% year-over-year and 13.7% sequentially. We are pleased to report that we secured two new design wins with two customers for our 400GE products during Q2. In addition to the design wins, we had five technical qualifications of our 400GE products, which Stephen will discuss in more detail. We are encouraged by the traction we are seeing with our 400G products as our customers start to degrade. We expect that order will continue as our customers start to realize the benefit of the performance of our 400G solution. Based on this, we continue to expect our data center business to begin to increase in the second half of the year as our customers begin 400G upgrades and inventory issues around 100G normalized. Turning to our telecom segment, while we did see early signs of recovery in Q1, we saw mixed conditions in Q2, with some customers pressing new orders while others continued to use existing inventory. Overall, we see market conditions in the China telecom market as continuing to be patchy as the timing and cadence of the 5G rollout, they remain somewhat opaque. As a result, revenue from our telecom product of $3.3 million was down 46% year-over-year and 25.6% sequentially. Looking ahead, we believe China will continue to make investments in both their 5G and 5G home infrastructure, and we expect high revenue in the segment in the second half of this year compared to the first half. With that, I will turn the call over to Stephan to review the details of our Q2 performance and our role for Q3, Stephan.