Applied Optoelectronics, Inc.

Good afternoon. I will be your conference operator. At this time, I would like to welcome everyone to Applied Opto-Electronics' first quarter 2023 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. All participants, again, have been placed on mute to prevent any background noise. Should you need assistance, please signal a comfort specialist by pressing star then zero on your telephone keypad. 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 2. Please note this event is being recorded. I will now turn the conference over to Lindsey Savarese, Investor Relations for AOI. Ms. Savarese, you may begin.

Thank you. I'm Lindsey Savarese, Investor Relations for Applied Optoelectronics, and I'm pleased to welcome you to AOI's first quarter 2023 financial results conference call. After the market closed today, AOI issued a press release announcing its first quarter 2023 financial results and provided its outlook for the second quarter of 2023. 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 Q1 results, and Stephan will provide financial details and the outlook for the second quarter of 2023. 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 term 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 second quarter of 2023. 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 31st, 2022. 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 that the date of our second quarter earnings call is currently scheduled for August 3rd, 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. Our first quarter revenue and non-tech cost margin were in line with our expectations. While our non-GAAP loss per share can be below expectations due mainly to unspecified foreign exchange losses due to faster-than-expected appreciation of the Chinese RMB currency relative to US dollars. We are pleased by the progress we have made on improving our gross margin and are encouraged by the improving demand we saw for our water energy products in our data center business during Q1. We generated another quarter of good CATV results. However, recently, we are notified of some inventory build-up with certain CATV customers, which we expect will negatively impact our Q2 revenue. During the first quarter, we delivered a revenue of $53 million, enough with our guidance range of $52 million. to $55 million. We deliver non-GAAP cost margin of 23.2%, in line with our guidance range of 23% to 24%. Driven by our target cost reduction and favorable product mix, our non-GAAP loss per share was $0.25. With our guidance range of a loss of $0.15 to $0.19, due to the value exchange impact I just mentioned. Total revenue in our CATV segment was $27.8 million, up 11% year-over-year and down 27% sequentially of the record Q4, largely due to the negative impact by the loss of production days that occurred during the New Year holidays in China. Total revenue for our data center products of $20.4 million, decreased 5% year-over-year, and increased 23% sequentially, largely due to the increased demand for our 100G products. On our last call, we discussed an agreement we had signed with a major hyperscale data center operator for a development program to make next-generation lasers for its data center. both for full energy and beyond. Our recent 8K filing gives additional details on this agreement with Microsoft, who has been a long-term key customer of ours. Further development of this new product will take several quarters to be complete. We view this contract award as validation of the strength and the quality of our core laser fabrication ability. With that, I will turn the call over to Stephen to review the details of our Q1 performance and our Q2 statement.