Applied Optoelectronics, Inc.

Good afternoon. I will be your conference operator. At this time, I would like to welcome everyone to the Applied Optoelectronics Third Quarter 2021 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, then, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. Please note, this event is being recorded. I now would 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 third quarter 2021 financial results conference call. After the market closed today, AOI issued a press release announcing its third quarter 2021 financial results. and provided its outlook for the fourth 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 Q3 results, and Stefan will provide financial details and the outlook for the fourth 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 product into new markets and customer responses to our innovation, as well as statements regarding the company's outlook for the fourth 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 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, 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 at the Needham Networking Security and Communications Conference on November 16th, the Raymond James Technology Investors Conference on December 6th through 8th, and the D.A. Davidson Semicaps Laser and Optical Conference on December 15th. We hope to have the opportunity to interact with many of you virtually. Additionally, I'd like to note the date of our fourth quarter and full year 2021 earnings call is currently scheduled for February 3rd, 2022. Now I would like to turn the call over to Dr. Thompson Lin, Applied Optoelectronics founder, chairman, and CEO. Thompson?

Thank you, Lindsay. Thank you for joining our call today. The third quarter played out largely as we expected. We delivered inline revenue and gross margin and a narrow non-game net loss relative to our expectations. During the quarter, we continued to see strong demand in the CATB market and improving conditions in the data center and telecom markets. However, as we anticipated, our revenue in the third quarter was adversely impacted by approximately $3 million as a result of the well-known global component shortage. And our Q3 growth margin came in at the low end of our expectations, mostly due to the unfavorable product mix in our CATB segment and increased costs from component shortage. We achieved total revenue for the third quarter of $53.3 million, which decreased 30.5% compared to the third quarter of 2020 and was down 1.7% sequentially. Total revenue in our CATB segment of $23.1 million was up 98.4% year over year, but was down from the record $27.6 million in the second quarter of 2021. The overall CATV demand environment remains strong, and we continue to see good new customer traction with a number of our products. Total revenue for our data center product of $23.9 million decreased 56.8% year-over-year and increased 6.9% sequentially. During the third quarter, we secured nine design wins among seven customers. One of the design wins in the quarter was a new 400G transceiver design win with an existing customer. That is a network equipment manufacturer supplying enterprise and hyperscale data center customers. In addition, two of the design wins are related to 25G Pong, and now with a large multinational network equipment manufacturer focused on the telecom markets. Now turning to our telecom segment, ready meal came in at $5.1 million, down 42% year-over-year and up 54.5% sequentially. While we are pleased to deliver sequential growth in this segment, during the third quarter, we see continued volatility in the market condition in the China telecom market. As the timing and cadence of the 5G rollout there remains somewhat opaque. Looking ahead, we do expect quarter-to-quarter variability until the pace of 5G rollout in China becomes more predictable. With that, I will turn the call over to Stephen to review the details of our Q3 performance and our route for Q4. Stephen.