Hello. I'm Maria Riley of Applied Optoelectronics Investor Relations. And I'm pleased to welcome you to AOI's conference call to discuss its third quarter 2013 earnings results. After the market closed today, AOI issued a press release announcing its Q3 2013 financial results. The release is also available on the company's website at ao-inc.com. This call is being recorded and webcast live, with a presentation that may be found on the Investor Relations page of the AOI website, and can be accessed for 90 days. Joining us on today's call is Dr. Thompson Lin, AOI's President, Founder and CEO; James Dunn, AOI's Chief Financial Officer; and Stefan Murry, AOI's Chief Strategy Officer and Senior Vice President of Marketing and Sales. We will begin the call with Thompson and Stefan providing a brief comment on AOI's strategy and market, then James will provide details on AOI's third quarter financial results and future expectations. 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. You can identify forward-looking statements by terminology such as may, expect, plan, or believe, and by similar expressions. 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 confirm these statements to actual results or to change the company's expectations. More information about other risks that might impact the company's business are set forth in the Risk Factors section of the company's quarterly report on Form 10-Q expected to be filed on November 14, 2013 with the SEC. Also, with the exception of revenue, all financial numbers 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 our 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. Now I would like to turn the call over to Dr. Thompson Lin, Applied Optoelectronics' President, Founder and CEO. Thompson?

Thank you, Maria. Thank you for joining us today for our first earnings conference call as a public company. I'm delighted to be here today as we share with you our third quarter 2013 achievements. We are very [indiscernible] financial good [ph] job this quarter. In Q3, we achieved record revenue of $20.8 million. This represents 26% year-over-year growth and 6% growth sequentially. We delivered year-over-year growth across all our target markets. Notably, data center revenue grew by $2.2 million from Q3 2012, bringing our data center revenue for the first 3 quarters of 2013 to $13.5 million or 25% of revenue from $2.3 million in the prior-year period. We increased our gross margin to 30.5%, up 255 basis points sequentially, primarily due to the product mix in the quarter. As James will discuss in detail, we are on track with the key metrics with online [indiscernible], that includes driving growth while controlling operating expense and sustained profitability. In Q3, we earned $607,000 in non-GAAP profit. With this being our first earnings call and we may have new listeners on call, Stefan and I will take a few minutes to discuss our markets, key advantage and synergies, then James will review our financial results in more details. Increasing consumer demand for streaming video, social media, mobility and cloud services are driving the need for higher bandwidth. This is forcing service providers and their vendor operators to upgrade their network and service. We focus on 3 high-growth particle access markets; cable-TV broadband, data center and fiber-to-the-home, we are very well positioned in this market, given our cable-TV market leadership, particle expertise and in-house laser capabilities, leveraging our laser and [ph] margins to deliver at developer industries, leading products, we have delivered 36% compound annual growth rate over the past 3 years. Our main mission at AOI is to enable the gigabit age in these 3 high-growth particle access markets. We are very proud of our past accomplishments and very excited by our future opportunities. We view our IPO as a beginning of another exciting journey and we are honored to have you join us. With that overview, I'd like to turn the call over to Stefan, for a brief review of our markets and strategies.

Thank you, Thompson. As Thompson explained, there is tremendous pressure on providers to upgrade access networks and expand data center capabilities to deliver the bandwidth that is increasingly in demand by consumers. Whether it is traditional cable-TV broadband networks or newer fiber-to-the-home initiative, this dynamic is providing new opportunities for fiber-optic technology. Over 52% of Americans that have broadband service at home get this service from a cable provider. Building upon our market-leading position in cable-TV broadband, we see several key market drivers. First, equipment manufacturers are increasingly outsourcing their system design and manufacturing. We expect recent design wins for cable-TV products to contribute to revenue in the fourth quarter and beyond. Second, we see increasing demand for more advanced cable-TV networks in international markets, particularly in China. The recent lifting of government restrictions in combination with funding from the central government is driving this growth. Lastly, in North America, we see macro growth drivers including a potential new upgrade cycle. Historically, cable-TV networks enter an upgrade cycle every 5 to 7 years and it's been about 6 years since the prior cycle began. We believe the implementation of the new DOCSIS 3.1 standard will be a catalyst for a new upgrade cycle. We are starting to see some recovery in the cable-TV market after the disruptions earlier in the year due to industry consolidation. In Q3, our cable-TV broadband revenue grew 8% year-over-year and 38% sequentially. Additionally, we have started to deliver on design wins for our head-end and node products shipping into the Southeast and South Asia markets. Turning now to our Internet data center market. Increasing bandwidth demands within the data center to support cloud computing services and escalating customer access is fueling a fundamental upgrade in the data center. Traditional 1 gigabit per second copper interconnections…

Thank you, Stefan. As Thompson mentioned, this is our first conference call as a public company. We priced our initial public offering on September 25, raising $33.5 million in net proceeds after underwriting discounts and commissions. We've already begun putting this capital to work by reducing debt and increasing manufacturing capacity. However, while we priced our IPO within the quarter, it did not close until October 1. Therefore, our Q3 balance sheet does not reflect receipt of our IPO cash proceeds or the issuance of IPO shares in our total common share count. Turning to our results in Q3, we delivered record revenue of $20.8 million. This represents 26% year-over-year growth and 6% quarter-over-quarter growth. Although we saw improvement across the board -- excuse me. Overall, we saw improvement across the board, including at the revenue, gross margin, operating income and net income lines. So let's take a closer look at our revenue by customer, geography and market. We continue to deliver -- diversify our revenue within our top 10 customers, as well as among our overall customer base. Historically, 78% of total revenue was from our top 10 customers, with the majority of the revenue among CATV customers. So far in 2013, our top 10 customer base has shifted and we now have 2 data center customers within our top 5. As further example, year-to-date revenue from our #1 CATV customer declined to 22% of total revenue versus 33% of total revenue last year. With the continued increase in data center revenue, we expect this trend to continue, providing further mitigation of historical customer concentration. Looking at revenue by shipping geography. In Q3, and year-to-date, we've sold 60% of our products in the North American market, 26% into the Asian market and the balance among Europe and the rest…

[Operator Instructions] And our first question comes from the line of Simon Leopold from Raymond James.

A couple of things. First, let's go with housekeeping side of this. On this forecast, we're looking at -- I guess, revenue is a little bit higher than we were expecting for December. But not necessarily seeing that showing up strongly in the bottom line. And so, I guess, I'm trying to get a better sense of what the other moving parts are in the December quarter, in terms of either operating expense or gross margin. If you could talk to that point. And then I've got a follow-up on a longer-term trending question.

Simon, this is James. So we see a couple of things contributing to that. The first would be, we do have a product mix that varies by market and varies quarter-to-quarter. So we gave a range to remind folks that within a particular quarter, we can see margin movement, although we're making good progress to advancing margin over term, over the time, in the near term, specifically Q4, we could see some margin changes within the product mix. Of course, we don't know where that will be yet. But could see some margin changes. The other is we have advanced forward spending on R&D for the data center products. So as you know, we've sent a press release out recently about our 40G -- new 40G short reach transceivers for the data center -- and so we've moved forward efforts to accelerate those products, and so that is going to change our expenditure in terms of R&D expense a little bit in Q4. So those 2 contribute to a slight difference in net income expectations and at this revenue level, you can imagine that net income is sensitive to any change.

And in the release, you did talk about some incremental capital investments for the fourth quarter. Are those the investments that, during your deal roadshow, you talked about some capital spending expected in the first half of '14, essentially that's occurring sooner, it's not incremental?

Those are a part of it. We expressed a CapEx spend on the roadshow that went from the roadshow through the middle of '14. And so we are on pace with our capital deployment that we described and so that spending in Q4 just identifies the Q4 spending that we anticipate for data center and fiber-to-the-home. So we're on track for the CapEx spend that we anticipated.

Great. And then from a longer-term trend perspective, I wanted to see if we could hear a little bit more about what's going on in the data center. In particular, I'd like to understand a little bit of the dynamic of where the industry is, the classic "what inning are we in" kind of question, which I tend to hate, but I'm really trying to characterize, trying to understand how long this product cycle trend has. And also, your competitive position, how do you compete in this data center market with larger players?

Thanks, Simon, this is Stefan. So the first question had to do with sort of where are we with respect to the data center. And I'm going to answer that question in 2 ways. First of all, I'm going to talk about where is AOI? How are we executing on our plans in the data center? And I'm pleased to report that we did add a couple of new data center customers in this quarter. They are not necessarily ones that are of the scale of the other customers that we had. They're both in Asia. But they're sizable operators. And I think that the fact that we continue to see customer additions in the data center segment speaks well to our ability to execute and to continue to compete effectively in the data centers. The wider question that you asked was more with respect to the industry as a whole. And kind of where are we with respect to optics in the data center in terms of what inning are we in as you said. And I think -- as we've described before in our prospectus and during the roadshow, there was a fundamental shift in the technology in the data center that started occurring depending on who's data center you're looking at and where, which exact data center you're looking at. It started to occur 18 months to as we speak, in that they were replacing copper connections with fiber optic connections and continue to do so. What we're seeing is that more and more data center operators are making that switch from copper to fiber. And at the same time, we're seeing successive generations of fiber optic technology being deployed among those customers who already have deployed fiber. And that's where this 40-gigabit per second product announcement and some of the activity that we have going on in there is important to us. So the answer to your question is, I mean, I think there's still quite a lot of growth, both in terms of new customers coming in and replacing their copper with fiber, and in terms of new, higher speed fiber optic interconnections being deployed.

AOI advantage.

And -- thanks, Thompson. So your other question had to do with AOI's advantage and how do we compete in the marketplace. Here again, I think our vertical integration strategy plays very well, the fact that we continue to work very closely with our customers to optimize designs and tweak designs for their needs and we just continue to make new inroads with new customers and we see continued strong interest in our, for example, in our 40-gigabit per second product line from our existing customer base, as well as new customers. And so we feel we can complete very effectively, both with the current 10-gig solutions and in the future with the 40-gig solutions as well.

And our next question comes from the line of Troy Jensen from Piper Jaffray.

A quick question for Thompson. Can you talk about just the IPO as a branding event? What this has meant to the company, kind of conversations with customers and just open the door for a potential to land new customers also.

I feel that the IPO gave us 2 advantages. One, for sure, is major customer, really one very strong supplier. So as a public company, really gives us confidence and trust [indiscernible] help us a lot in the business. Second, as you can see, right now, we have very strong demands, especially in data centers from 10G now moved to 40G, including fiber-to-the-home, especially in the WDM-PON. So that's why we, right now we have the capital to expand, to meet what customer want and that's why we are speeding up the investment to increase our metrics [ph] or capacity to mean more customers in the near term.

And how about a follow-up here for Stefan. For the 40-gigabit products, you said it's going to be recognizing revenue in the fourth quarter. And I'm just asking, because some of the other component suppliers seem to take longer to get parts kind of certified before they run through the income statement here.

Yes. We'll be recognizing some revenue in Q4. Now it's not -- there's not going to be a lot of revenue, it will be initial shipments to a couple of customers, but we have orders on the books now. And we expect to ship some of that to generate some revenue in Q4.

All right. And then just the last one for James. What percent of sales are VMI? And just curious if there's any concerns that more customers are going to adopt that model with you.

We'll take that in reverse order. So we have no indication that any other customer is moving to VMI from any of the other customers. In terms of percent, we gave the overall percent of the revenue that CATV was of our total revenue and also gave the kind of the expectation of $2 million in the quarter. Keep in mind a couple of things. First, remember that because of the terms of our agreement that, that VMI inventory has to come in no more than 90 days after it's placed. So it's really a timing difference for us. Number two, this is the first quarter, it really just began. So we're initially into, in the near term, trying to figure out how much will actually get pulled within the quarter. So that's about as much as we can tell you. It's estimated to be $2 million of inventory for the quarter and then we'll continue to see that rollover. But no indications that any other customer has desires in that direction.

And our next question comes from the line of Paul Silverstein from Cowen.

A couple of questions, if I may. First off, the 40G commentary, do you think that's incremental revenue? Or does that just displace 10G? How do we do that going forward?

It's a mixture of both. We do see from the same customers that are deploying or we expect to deploy the 40-gig, will continue to deploy 10-gig in certain areas. But we also see, in new data centers or new deployments that are coming out, that it's probably going to be predominately 40-gig among those customers that are making the transition from 10 to 40.

Just in given what I assume was a higher price points of 40G, all other things being equal, shouldn't that result in incremental revenue? I mean, if I just assumed a 1-for-1 replacement, won't that translate to more revenue?

Yes, it's -- in our estimates, the revenue of the future, we've tried to anticipate those shipments, as well as the 10G products. So it's in our anticipated forward-looking revenue and then into the guidance we've given for Q4. We only give that -- that only -- only that quarter. So...

Jim, I'm not asking you a guidance question. No sense. I'm not asking you about the fourth quarter guidance. I'm saying as a general proposition, as the market transitions from 10-gig to 40-gig and 40-gig shipments increase, both natively and in displacement 10-gig, shouldn't that trend result, without commenting on how that absolutely impacts the numbers, shouldn't that result in greater revenue going forward?

Paul, this is Stefan. I understand what you're asking now. Sorry I didn't quite get that point earlier. So on a per port basis, certainly, the revenue from 40-gig would be higher than the revenue from 10-gig. So yes. From that standpoint, you're right. And I guess the statement that James was trying to make is, we don't give guidance further out. I mean, we've been aware that this transition was going to happen. We've been talking to our customers. We've got qualifications going on. So we've built this thinking into our future plans. And so, yes, it will on a per port basis, increase revenue. But I caution how you model that.

All right. And Stefan, I assume that since data was applied to [ph] these new customer wins that you and James referenced in the data center with a couple of customers you referenced, that, that's factored in as well?

Yes.

I'm sorry?

Yes, yes. That's correct.

All right. Guys, any change in pricing environment?

No, nothing significant at this point. I mean, we always have price fluctuations from time to time. But there's nothing that's significantly impacting our performance in the quarter.

And going back to 40-gig, as the market transitions, I assume -- is there any impact on gross margin?

We are providing margin for individual products. But as a proposition, we do discuss kind of the overall margin among our markets, and our data center products tend to provide margin lift to our overall corporate margin.

All right. And James, going back to Simon's question, it sounds like you identified 2 reasons in terms of the translation from revenue to EPS, one of which was gross margin. So you're telling us we should expect product mix or anything that we should expect some gross margin [ph] product mix oriented, then we should expect some gross margin backslide this quarter, just related to product mix, not having anything to do with pricing or other factors? Is that accurate?

Yes, that's -- we could see product margin variance that could impact margin within Q4. That's correct.

And can you give us any sense for what we're talking about? Are we talking about greater than 100 basis points, do you have that type of visibility?

Yes. Paul, we're really not providing that granularity of guidance. It's going to be within the range of what we normally expect over the term. We continue to do things that improve margin, scale will improve, margin of course. And the product mix really varies. What comes out of VMI is going to impact it. There are just lots of variables. So we really can't give you any more guidance than the range we've given.

Got you. And one last question, my apologies, but maybe I missed it. Can you just give the dollar numbers again on CATV, data center, fiber-to-the-home, telco and other, third quarter? And top 10, I apologize.

Yes. So the CATV revenue was $13.5 million. You're talking about just Q3 now, right? I'm sorry, I looked at another sheet. $14.6 million for Q3; $14.6 million for Q3, CATV; $3.2 million for data center; $0.98 million for fiber-to-the-home; and the balance of approximately $2 million in telecom and other, for Q3.

Got you. And for the top 10 customers?

Yes, the top 10 accounted for, in the quarter, $42.8 million or 78%. I'm sorry, that's year-to-date. 15 -- sorry about that. $16 million within the quarter, 76%.

And you only have one 10% customer, that was 22% if I heard correctly?

Within the quarter, we had one 10% customer that was historically the case, and then we had several that were close. On a year-to-date basis, we would've had a new top 10 customer -- new top 10, 10% customer in the period for year-to-date.

All right. And the one 10%, was that 22%? Did I hear that correctly, James?

Yes.

And our next question comes from the line of Krishna Shankar from Roth Capital.

And I had a couple of questions. You talked about strength in the cable infrastructure upgrade cycle, and can you just give a little more details on that in terms of the breadth of the upgrade cycle you're seeing, both in the U.S. and internationally? And how long you expect that to continue?

Sure. So with respect to cable TV, I think the statement that we're making is that we saw recovery from the first half to the second half, which is mostly a recovery to more normalized conditions. We're not trying to say that we see an upgrade occurring right now on a broad-based basis. But we do see continued growth in our international markets as we've consistently said, particularly in China and some parts of South and Southeast Asia. Turning to the question of an upgrade cycle in North America. That's really more of a 2014 and beyond phenomenon. But we do see indication that it is going to be coming in that time frame. As far as how long that's going to last, I mean, it's a little bit hard to say. They typically last 2 or 3 years though. But that's historical. I'm not, I don't have any reason to believe that will be different this time. But I don't have any strong indication of exactly how long it's going to last this time.

Okay, and my second question is on the WDM-PON deployment. Do you expect that to pick up significantly in Q4? And what's the outlook for that deployment through 2014?

Yes. We can't talk about specific customer deployments or anything like that. What I can say is that we continue to spend, to ramp up our production capacity, as we've discussed. WDM-PON is a big part of our CapEx deployment. And that, obviously, we're doing that for a reason. And that's about as far as I can go in terms of detail.

[Operator Instructions] And our next question is a follow-up from Simon Leopold from Raymond James.

I wanted to see if you could provide a little bit of an update of how your views on each of the verticals may have evolved since your roadshow, which was more than 1 month ago now. My perception is you sound more upbeat on the data center trend, cable sounds like it's improved, but somewhat as expected, and the fiber-to-the-home is more of a long-term trend. You highlighted sort of an inflection point I think in 3Q '14. So what I'd like to hear from you is how your prospectives have evolved over the period since you spoke to investors last.

Sure, Simon. That's a great question, thanks. I think, actually, you hit the answer pretty well on the head. I mean, that is pretty much what we think. Our -- the data center revenue, I mean, we're very pleased about the way that things are moving with respect to data center for us. The 40-gig, as I mentioned, is moving very well, and we're actually accelerating the speed at which we moved to address that market. So that's good for us. Cable TV is pretty much in line with our thinking. Nothing much has changed with respect to our thinking about cable TV in the last 1.5 months or so. And with respect to fiber-to-the-home, again, we are executing the plan that we had. And no major changes to our thinking there either.

And we are completely out of time. I would like to turn it back to Dr. Lin for any closing remarks.

Okay. Thank you all for joining us on our first earnings call as a public company. From the foundation of success that Q3 provided, we are on track with our key growth initiatives, and we look forward to sharing our future success with you. We would like to take the opportunity to thank all of our customers, partners, employees and shareholders for their dedication. Thank you.

And ladies and gentlemen, this concludes the Applied Optoelectronics Q3 earnings conference call. This conference will be available for replay after 3:30 Pacific Standard Time today, through November 14 at midnight. You may access the replay system at any time by dialing 1 (800) 406-7325, and entering the access code of 4645351. We'd like to thank you for your participation, and you may now disconnect.