Good afternoon. I will be your conference operator. At this time, I would like to welcome everyone to the Applied Optoelectronics Fourth Quarter and Full Year 2021 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. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Cassidy Fuller, Investor Relations for AOI. Ms. Fuller, you may begin.

Thank you. I'm Cathy Fuller, Investor Relations for Applied Optoelectronics. I'm pleased to welcome you to AOI's first quarter 2022 financial results conference call. After the market closed today, AOI issued a press release announcing its first quarter 2022 financial results and provided its outlook for the second 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 are Dr. Thompson Lin, AOI's Founder, Chairman and CEO; and Dr. Stefan Murry, AOI's Chief Financial Officer and Chief Strategy Officer. Thompson will give an overview of AOI's Q1 results, and Stefan will provide financial details and the outlook for the second quarter of 2022. A question-and-answer session will follow our prepared remarks. Before we begin, I'd 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 can 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. In some cases, you can identify forward-looking statements by terminology such as believes, anticipates, estimates, intend, predict, expect, plan, may, should, could, would, will or things and by other similar expressions that convey uncertainty of future events or outcomes. 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 innovation as well as statements regarding the company's outlook for the second quarter of 2022. Except as required by law, we assume no obligation to update forward-looking statements for any reason after 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 and filed with the SEC, including the company's annual report on Form 10-K for the year ended December 31, 2021. Also, all financials 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 you to know that date of our second quarter 2022 earnings call is currently scheduled for August 4, 2022. Now, I'd like to turn the call over to Dr. Thompson Lin, Applied Optoelectronics' Founder, Chairman and CEO. Thompson?

Thank you, Cassidy, and thank you for joining our call today. Turning to the fourth quarter, we delivered revenue and gross margin in line with our expectations and non-GAAP EPS above our expectations. During the quarter, we continued to see strong demand in the CATV market and improving conditions in the telecom market. Total revenue for the fourth quarter increased 5.1% year-over-year to $52.2 million. Total revenue in our CATV segment of $25 million was up 34% year-over-year and was slightly higher compared to Q4. The overall CATV demand environment remains strong as we see increased activity and orders throughout the year and into early 2023. We are working to add additional capacity to middle elevated demand. Total revenue for our data center products of $21.4 million decreased 17.4% year-over-year and 15% sequentially as several of our customers continue to reduce their 400G and 100G purchase, while our run of next-generation 400G is still in the early stage. We can notice these strong customer balance sheet on 400G, and I'm very pleased to report that during the quarter, AOI sorted by a major hyperscale data center customers as a vendor for several of our 400G products. We have a long relationship with this customer and have historically been a significant supplier of their early 4G and 100G transceiver needs. Pending the completion of finer interoperability testing with the company's other prospective vendors, we expect orders to begin in Q3 with deliveries led in Q3 or in early Q4. During the fourth quarter, we secured one new design win, which was a 400G transceiver product for hyperscale gas center operators. With that, I will turn the call over to Stefan to review the details of our Q1 performance and outlook for Q2. Stefan?

Thank you, Thomson. As Thompson mentioned, we delivered non-GAAP EPS above our expectations and revenue and gross margin in line with our expectations. During the quarter, we saw continued growth in the CATV market and improving conditions in the telecom market. During the quarter, we secured one new design win, a 400G transceiver product for a hyperscale data center operator. As Thompson mentioned, we are pleased to report that AOI was selected by another major hyperscale data center customer as a vendor for several of our 400G products. We have a long relationship with this customer and have historically been a significant supplier of their earlier 40G and 100G transceiver needs. Pending the completion of finer interoperability testing with the company's other prospective vendors, we expect orders to begin in Q3 with deliveries late in Q3 or early in Q4. Total first quarter revenue of $52.2 million increased 5.1% compared to the first quarter of 2021 and decreased 4% sequentially. Our Q1 revenue was in line with our guidance range of $51 million to $54 million. In the first quarter, 48% of our revenue was from our CATV products, 41% was from our data center products, with the remaining 11% from FTTH, telecom and other. In our CATV products segment, the overall demand environment continues to grow as MSOs, particularly in North America, continue purchasing additional capacity to upgrade their networks. We generated CATV revenue of $25 million, up 34% year-over-year and up 0.2% sequentially. As a reminder, our CATV results are typically negatively impacted in Q1 by the loss of production days that occurs during the Lunar New Year holiday in China, where most of our CATV products are produced. The slight sequential growth reflects the increased capacity that we have added, which more than compensated for the loss…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Richard Shannon with Craig-Hallum. Please go ahead.

Great. Thank you. And Thomson and Stefan, thanks for getting me on the queue here. Let's see, a couple of questions. Maybe starting with the sales guidance for the second quarter. Stephanie, you just mentioned some supply chain of about a $3 million impact, and it sounds like -- at least, I would guess it's mostly from cable TV. Can you verify that that's where you're seeing most of the impact? And then, just maybe talk generally speaking about the relative growth of each of your primary segments of sales for the quarter.

Sure. Yes. So the supply chain issues that we called out that we expect to result in about $3 million revenue hit compared to what we would otherwise have due to that supply chain constraint. That was in China, and it was related to our Cable TV product, as you mentioned. As you -- your second question had to do with the relative...

Growth within the major segments, cable TV, data center, et cetera, that leads to your...

Yes. I mean, I'm not sure what exactly the question is. But clearly, cable TV is growing relatively robustly. Data center has been in a bit of a decline, as we mentioned in our prepared remarks, because many of our customers are reducing their, spend on 40-gig and 100-gig. And the 400-gig for us has just started to ramp. We noted in our prepared remarks, that we have a new hyperscale customer that just notified us that we're going to be one of their selected vendors, for 400-gig. So that's good news, but the revenue for that won't start until later in Q3 or early Q4, as we noted. So in the meantime, we're seeing a little bit of decline in the data center business. On the telecom business, we did note that the telecom business grew substantially, sequentially. However, most of that growth is coming in China. So I want to be really cautious about trying to project that forward. We've said for the last few quarters that we expect the telecom business in China, especially to be kind of lumpy up and down. And that's what we've seen. And that's basically what I would continue to expect. The situation in China with COVID definitely exacerbated the expectation that there's not going to be sustained growth until after they can at least get past that period.

Okay. That is helpful. Following up on one of your comments on 400-gig, you said -- I think you're not using the word design win, but we notified you expect it to be a supplier with a major hyperscale or maybe just a few details on this. Is this the U.S. or international hyperscaler. Can you describe which versions of 400-gig there? And then what do you see as kind of the -- any way you characterize dollar opportunity over a period of time from the win?

Sure. So it's a U.S. customer. It's historically been one of, and in some cases, our largest data center customer. We haven't disclosed what exactly types of 400-gig products out there for competitive reasons. And as far as the dollar opportunity goes, I mean, it should be a pretty sizable opportunity. We can't put an exact figure on it yet because we don't know -- as I mentioned in my prepared remarks, we're still finalizing the interoperability testing. And so until that's done and we know kind of who the other players are and what our relative positioning is, it's difficult to project the potential dollar figure for AOI. But I would note, I mean, again, this is a customer that we were historically been their largest supplier for certain of their applications, including at 100-gig, and this is their next-generation product. So it's a sizable opportunity for us.

Okay. I appreciate that perspective. Just one last kind of big picture question for you, Stefan, obviously, I think the big question for a lot of investors is thinking about your path to breakeven, obviously, if you going to require some sales scale, some growth here from these levels. And then, presumably with that, we should see some gross margins improve here. Maybe you can talk a little bit about how you kind of see your breakeven model now? What's the kind of the possibility of seeing that happen maybe next year or something like that? Just kind of give us a sense of how you see that happening?

Well, as we said in our prepared remarks, I mean, I expect the operating expenses to be kind of stabilized at about $20 million a quarter, where they have been historically for a while. So doing the math, obviously, getting to breakeven then will require growth in sales, as you mentioned, in some growth in gross margin. We discussed last time on the call that we think we can get back to the mid-20% gross margin range. It's difficult to project when given all the supply issues that we've had and lingering COVID concerns and all that, it's hard to put an exact time frame on that, but we certainly need to be back in the mid-20% range in terms of margin. And then revenue, you can figure out from there, but it certainly needs to be $70 million or higher under any reasonable circumstance for gross margin. So that's kind of the puts and takes on it.

Okay. That's great for me. I'll jump out of line and give the queue away. Thank you.

Okay. Thank you.

Thank you. [Operator Instructions] The next question comes from Richard Shannon with Craig. Please go ahead.

Thanks. Stefan, maybe I'll throw in one more question here within your data center segments. I think you're calling out some weakness here in 40-gig, not sure if this is kind of a kind of flat to declining business over time here, probably most people would expect that to a degree. But maybe you can talk about your 100-gig business here. You kind of -- if you look over the last number of quarters, it looks kind of flattish. Some market participants see this as a modestly growing market. I want to get your sense of what you're seeing for that revenue stream.

Yes. I mean, it's been relatively flat. I mean, we're not expecting large drops. However, as I noted, one of our customers, very large customer is in the process of playing their transition from 100-gig to 400-gig. And we've been selected, as I mentioned in our prepared remarks, as a 400-gig supplier. So in the meantime, we expect their 100-gig business will decline somewhat in anticipation of that 400-gig and that's pretty much what we expect to see.

Okay. Perfect. That's all from me again. Thank you.

Okay. Very good.

Thank you. At this time, we have no further questions. And I will turn the call over to Dr. Thompson Lin for closing remarks.

Again, thank you for joining us today. As always, we want to extend to thank to you, to our investors, customers and employees for your continued support, and we will look forward to seeing many of you virtually at our upcoming Investor Conference.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.