Applied Optoelectronics, Inc.

Good afternoon, and welcome to the Applied Optoelectronics Second Quarter 2022 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note that this event is being recorded today. I would now like to turn the conference over to Lindsay Savarese. Please go ahead.

Thank you. I'm Lindsay Savarese, Investor Relations for Applied Optoelectronics, and I'm pleased to welcome you to AOI's second quarter 2022 financial results conference call. After the market closed today, AOI issued a press release announcing its second quarter 2022 financial results and provided its outlook for the third quarter of 2022. 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. Stephen 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 2022. 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 2022. 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, 2021. Also, 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. I'd like to note the date of our third quarter 2022 earnings call is currently scheduled for November 3rd, 2022. Now I'd like to turn the call over to Dr. Thompson Lin, Applied Optoelectronics founder, chairman, and CEO. Thompson?

Thank you, Lizzie, and thank you for joining our call today. I will begin with some highlights from the call before. I turn the call over to Stephen Murray who will discuss a more detailed review of our second quarter financial result and outlook for the third quarter. Our second quarter governing was adversely affected by a delay in the completion of several orders from a large CATB customer that we expect to ship in Q2. During the quarter, the customer requested certain change to several orders But due to the well-known supply chain issues, we were unable to adjust production and procure raw material to address these changes prior to quarter end and the revenue therefore slipped into Q3. We have since shifted substantially all of this order and also delayed. We have localized the resulting revenue These shipping delays negatively impact our Q2 revenue by approximately $6.7 million. As a result, our total revenue for the second quarter decreased 3.5% year-over-year to $52.3 million, which was below our expectations. According to the rate of our result, our gross margin was in line with our expectations. and non-GAAP EPS was above our expectations. Total revenue in our CATP segment of $23.7 million was down 14.1% year over year and was down 5.1% sequentially due to the region I mentioned above related to the delayed shipping. The overall demand environment remained robust as MSO, particularly in North America, continued purchasing additional network products in order to upgrade their network. Total revenue for our data center product of $21.5 million decreased 4% year-over-year and was essentially flat sequentially. As we have discussed previously, the slight year-over-year decline in data center revenue is due to a decline in 40G, which is nearly the end of its lifecycle. This decline was partially offset by an increase in 100G. As 400G continues to ramp later this year, we expect year-over-year growth for our total data center revenue to resume. We continue to see good customer traction on 400G. Today, we have received nearly $5 million in orders for our 400G products, most of which we expected to be shipped in Q3 and Q4 of this year. During the second quarter, we secured eight design wins. Of these design wins, two were for our 400G products, both with existing hyperscale DSN operator customers. We also had two design wins for our 1RG products with hyperscale customers. We had two 1RG wins with network equipment manufacturers supplying the data center industry. The remaining two design wins were in our fiber-to-home, telecom, and other categories. With that, I will turn the call over to Stephen to review the details of our Q2 performance.