Applied Optoelectronics, Inc.

Good afternoon. I will be your conference operator. At this time, I would like to welcome everyone to apply optoelectronics third quarter 2022 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, you may press star then one on your telephone keypad. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I will now 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 am pleased to welcome you to AOI's third quarter 2022 financial results conference call. After the market closed today, AOI issued a press release announcing its third quarter 2022 financial results and provided its outlook for the fourth 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 Q3 results, and Stephan will provide financial details and the outlook for the fourth 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, levels of activity, performance or achievements of the company or its industry to differ materially from those expressed or implied in such forward-looking statements. In some cases, you can identify forward-looking statements by terminology, such as believes, forecasts, anticipates, estimates, intends, predicts, expects, plans, May, should, could, would, will, potential, or thinks, or by the negative of those terms or other similar expressions that convey uncertainty of future events or outcomes. The company has based these forward-looking statements on its current expectations, assumptions, estimates, and projections. While the company believes these expectations, assumptions, estimates, and projections are reasonable, Such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond the company's control, including important factors such as risks related to the company's ability to complete the transaction described on this call on the proposed terms and schedule or at all. The risk that certain closing conditions may not be timely satisfied or waived the failure or delay to receive the required regulatory or other government approvals relating to the transaction, and the occurrence of any event, change, or other circumstance that could give rise to the termination of the transaction. 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 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, and quarterly reports on Form 10-Q. Also, all financial results and other financial measures 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 fourth quarter and full year 2022 earnings call is currently scheduled for February 23rd, 2023. Now, I would like to turn the call over to Dr. Thompson Lin, applied optoelectronics founder, chairman, and CEO. Thompson?

Thank you, Lindsay, and thank you for joining our call today. For the third quarter, while revenue came in below our expectations, we deliver cost margin in line and a narrow non-gate loss per share than our expectations. As you may have seen, on September 15th, we announced that we have entered into an agreement with Yuhan Apto Electronic Technology for a sale of our manufacturing facilities located in the People's Republic of China and certain assets related to AY transceiver business, and multiple channel optical sub-assembly products for the Internet Data Center, Telecom, and FTTH markets for a purchase price of $150 million. That's a whole big amount. We continue to anticipate that the transaction will be completed in 2023 and is subject to customary closing conditions and regulatory approvals. Early feedback from our customers has been positive. We believe that our capability in chip fabrication and the continuity of this supply chain is of utmost importance to our data center customers and we believe most of them understand and appreciate the rationale behind the proposed diversity of our transceiver manufacturing operations in the import. We believe this transition will generate significant proceeds, which will enable us to make strategic investments in higher margins and higher growth opportunities. Following the transaction, AOI will have a focused portfolio composed of with manufacturing facility in Taiwan and Sugar Land, Texas. We will also maintain our CATV product portfolio, utilizing our current Taiwan facility for production, as well as our current Limbo facility on a contract basis. Lastly, we believe that the transaction will open up the opportunity for customer expansion with our existing care center laser business. Turning to our third quarter results, we delivered revenue of $56.7 million, slightly below our guidance range of $57 to $60 million. Viewed mainly to affect the general anticipated decline in 40G sales. We delivered an ongoing gross margin of 18% At the high end, our guidance range of 16.5% to 18.5% and a small long-term loss per share of $0.26 relative to our guidance range of a loss of $0.27 to $0.32 due to better than expected operating expenses. For the revenue in our CATB segment, was a company record of $31.3 million, up 35% year-over-year and 32% sequentially, as we continue to see robust demand in the CATV markets. Total revenue for our data center products of $17.7 million decreased 26% year-over-year and 80% sequentially, largely due to a decline in 40G, which is nearing the end of its life cycle, and 100G, which is beginning to slowly decline as customers move to 400G. This was partially offset by an increase in 400G, which more than tripled sequentially from Q2. As anticipated, we believe that this increase in 400G is the beginning of the sustained trend of increasing revenue from this newer product line. With that, I will turn the call over to Stephan to review the details of our Q3 performance and our Q4 statement. Thank you, Thompson.