O2Micro International Limited

Ladies and gentlemen, good morning and thank you for joining us today to discuss O2's financial results for the second quarter of fiscal year 2021. If you would like a copy of the press release we issued this morning, please call Danny Myberg, 408-987-5920, extension 8888. It is also posted on the O2 website at www.o2micro.com under the heading investors. There will be a replay available through August 14, 2021, 9 a.m. Pacific time or by the O2 Micro website under the heading investors. Following the presentation by management, the conference will be open for questions and answers as time permits. Gentlemen, you may begin.

Thank you. Good morning, everyone, and thank you for joining O2 Micro's Financial Results Conference call for the second quarter of 2021, ending June 30th, 2021. This is Daniel Myberg, Corporate Communications for O2 Micro. I'd like to remind listeners that the discussion for today's Business Outlook contains forward-looking statements. Statements made in this release that are not historical fact are forward-looking statements within the meanings of the federal securities laws. Actual results may differ materially due to numerous risk factors. Such risk factors are enumerated in the company's 20th annual filings, our annual reports, and other documents filed with the SEC from time to time. Listeners are referred to the O2 microearnings press release and the documents filed with the SEC to understand these forward-looking statements and the associated risk factors. These statements made herein are dated information. The company assumes no responsibility to provide updates to this information. With me today are Perry Kuo, CFO and Director, Jim Kine, Head of Marketing and Sales and Director, and Sterling Du, O2's founder, CEO, and Chairman. After the prepared remarks from these gentlemen, the floor will be open for your questions. At this point, I would like to introduce Perry Kuo, CFO of O2 Micro, for a discussion of the financial highlights of the second quarter of fiscal year 2021, ending June 30, 2021. Perry?

Thank you, Dan. We will now review our financial results for Q2 2021. Please note that financial results will be presented on a gap basis unless we designate otherwise. The non-GAAP results exclude stock-based compensation expense, one-time charges, non-recurring gains and losses. Our full GAAP results are available in our press release that was issued earlier today. GAAP revenue in the second quarter of 2021 was $26.2 million. GAAP net income in the second quarter of 2021 was $3.2 million. If we exclude stock-based compensation of $442,000, the non-GAAP net income would be $3.6 million. GAAP net income per fully diluted ADS in the second quarter of 2021 was $0.10. Non-GAAP net income per fully diluted ADS was $0.12. Gross margin was 51.5% in Q2. The gross margin reflects the current revenue level and the product mix. R&D expense was 4.6 million or 17.7% of revenue. This amount is gross stock base compensation expense of 105,000. SG&A expense was 5.1 million or 19.6% of revenue. This amount is gross stock base compensation expense of $337,000. The non-operating income was $133,000. Income tax was $253,000 in the second quarter and is mainly based on the estimated effective tax rate on each taxable location. In Q2 2021, there was no stock repurchase. Q2 2021, revenue by end market breaks down into the following percentages. Industrial was 61 to 63% of revenue. Consumer was 35 to 37% of revenue. Computer was 1 to 3% of revenue. Communications was almost zero. At this moment, I would like to provide some additional information. O2 Micro finished the second quarter with $47.4 million in unrestricted cash and short-term investment. This represents cash and cash equivalents of $1.66 per ADS. In addition, O2 Micro has no debt. Account receivable at the end of Q2 was $16.6 million. Our DSO is 58 days. DSO is less than 60 days mainly from account mix. Inventory was 16 million at the end of the second quarter. This represents 109 days of inventory. And the inventory turnover was 3.3 times in Q2. Net cash generated from operating activities in the second quarter was about 3.6 million. Capital expenditure was about 3.5 million in the second quarter for R&D and IT equipment. Depreciation and amortization was 1 million in Q2. At the end of the second quarter of 2021, O2 Micro had 341 employees. 59% of which are engineers. Based on current market situation and the best updated managerial rolling forecast, the company has the following guidance for Q3 2021. Next revenue are expected to be $26.2 to $27.5 million, or frayed to 5% up from Q2 2021. Product growth margin expected to be in the range of 50% to 52%. R&D expenses excluding stock-based compensation are expected to be in the range of 4.7 million or 5.2 million. SG&A expenses excluding stock-based compensation are expected to be in the range of $5 million to $5.5 million. Stock-based compensation should be in the range of $400,000 to $500,000. Non-operating income is expected to be in the range of $150,000 to $250,000 excluding foreign exchange gain or loss. Income tax expense is expected to be in the range of $200,000 to $300,000. The goal of our management team and the board of directors is to maximize shareholders' value. We have accomplished this by taking the necessary steps, which include managing operating expenses and monetizing assets on the balance sheet. In regards to our share repurchase program, we have been active in the program historically. Since 2002, we have repurchased over 20.3 million ADA shares for $101.3 million. As of the end of Q2, we had $7.6 million remaining in our share buyback authorization. There are still many dynamic factors associated in the business development. We will carefully plan and execute to target revenue growth and maintain growth margin in Q3 2021. Jim and Sterling later will talk more about our focused efforts and investment for revenue growth with major account, product expansion, second-source development, and test facilities for more supply to ensure deliveries. We also monitor the supply chains tightly and have added timely both work-in-process level and inventory to support the dynamic demand from accounts in multiple end markets. Given the uncertain but increasing demand and micro environment, we are continuously investing R&D, patent filing, expanding our supply chains with more complete second sourcing suppliers, testing capabilities of complex product and capacity. And we always watch the expenses carefully and continue to manage costs as needed. although we believe we have a high current cost based on current and anticipated revenue levels. Returns to shareholders are very much on our minds and will continue to be a focus in the future. We will provide updates to the additional measures to enhance shareholder value throughout this year. I would like to thank everyone for participating and turn the call over to Jim Kai to talk more about our business.