Applied Optoelectronics, Inc.

Good afternoon. I will be your conference operator. At this time, I would like to welcome everyone to Applied Optoelectronics' second 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 any 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 two. Please note this event is being recorded. I will now turn the call over to Lindsay Severese. Investor Relations for AOI. Ms. Savarese, you may begin.

Thank you. I'm Lindsay Savarese, Investor Relations for Applied Optoelectronics. I am pleased to welcome you to AOI's second quarter 2023 financial results conference call. After the market closed today, AOI issued a press release announcing its second quarter 2023 financial results and provided its outlook for the third 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 Q2 results, and Stephan will provide financial details and the outlook for the third 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, forecast, 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 third 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 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, 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. Before moving to the financial results, I'd like to announce that AOI Management will be attending the HC Wainwright Global Investment Conference on September 11th and the Northland Institutional Investment Conference on September 19th. I'd like to note the date of our third quarter earnings call is currently scheduled for November 9th, 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 second quarter revenue was in line with our expectations, while our long-term cost margin and long-term loss per share were better than our expectations. We are pleased by the continued progress we have made on improving our cost margin and are encouraged by the increased demand we saw for our 100G and 400G products in our data center business during Q2. Number three, revenue for our 100G product increased 30% sequentially, while revenue for our 400G product doubled sequentially and counted for 11% of our total data center revenue in Q2. During the second quarter, we delivered revenue of $41.6 million. In line with our guidance range of $40.5 million to $47.5 million, we delivered non-GAAP gross margin of 24.8% above our guidance range of 20.5% to 23.5%, mainly driven by our favorable product mix and our targeted cost reductions. Our non-GAAP loss per share was $0.21, above our guidance range of a loss of $0.23 to $0.31. Total revenue in our CATP segment was $9.3 million, down 61% year-over-year and down 66% sequentially. As a reminder, our Q2 results were negative, impacted, by some inventory built up with certain CATB customers, which led to softer than expected CATB revenue in Q2. We do believe that this inventory digestion in transitory and based on what we are seeing today, we expect our CATB revenue to increase slightly sequentially. Also, it will be down year over year strong Q3 of last year. Total revenue for our data center product of $27.6 million increased 28% year-over-year and increased 35% sequentially, largely due to increased demand for our 100G and 400G products, as we continue to see the run-up of our 400G products. On our last two calls, we discussed an agreement we have signed with Microsoft, who has been a long-term key customer of ours for a development program to make length-generation lasers for its data center, both for energy and beyond. During the second quarter, we signed an additional agreement with Microsoft to provide design and assembly services for active optical cables. We view this country awards as validation of the strength and quality of our cold laser fabrication ability. In total, we believe that this award AOI of over $300 million over seven years. With that, I will turn the call over to Stephan to review the details of our Q2 performance and our work for Q3, Stephan.