Applied Optoelectronics Reports Second Quarter 2023 Results

SUGAR LAND, Texas, Aug. 03, 2023 (GLOBE NEWSWIRE) -- Applied Optoelectronics, Inc. (NASDAQ: AAOI), a leading provider of fiber-optic access network products for the cable broadband, internet datacenter, telecom and fiber-to-the-home (FTTH) markets, today announced financial results for its second quarter 2023 ended June 30, 2023.

“Our second quarter revenue was in-line with our expectations, and we are pleased to report non-GAAP gross margin and non-GAAP EPS above our expectations.” said Dr. Thompson Lin, Applied Optoelectronics Inc. Founder, President and Chief Executive Officer. “Favorable product mix combined with our cost reduction efforts, and the benefit of some of the intentional actions we have taken to improve our cost structure led to a strong improvement in our gross margin, which is a trend we expect will continue. We are thrilled with the increased demand we saw for our 100G and 400G datacenter products. Total revenue for our 400G products doubled sequentially and accounted for 11% of our total datacenter revenue in Q2, and we believe revenue from our 400G products will continue to grow this year based on the anticipated initial deliveries under the recently-announced deal with Microsoft. Lastly, we made progress in strengthening our newly formed broadband access group with the addition of considerable talent to the team, and believe we are well positioned to execute on our new strategy to sell our CATV products directly to MSO customers.”

Second Quarter 2023 Financial Summary

GAAP revenue was $41.6 million, compared $52.3 million in the second quarter of 2022 and $53.0 million in the first quarter of 2023.

GAAP gross margin was 19.0%, compared with 16.5% in the second quarter of 2022 and 17.4% in the first quarter of 2023. Non-GAAP gross margin was 24.8%, compared with 16.7% in the second quarter of 2022 and 23.2% in the first quarter of 2023.

GAAP net loss was $16.9 million, or $0.57 per basic share, compared with net loss of $14.5 million, or $0.52 per basic share in the second quarter of 2022, and a net loss of $16.3 million, or $0.56 per basic share in the first quarter of 2023.

Non-GAAP net loss was $6.1 million, or $0.21 per basic share, compared with non-GAAP net loss of $7.6 million, or $0.28 per basic share in the second quarter of 2022, and a non-GAAP net loss of $7.1million, or $0.25 per basic share in the first quarter of 2023.

A reconciliation between all GAAP and non-GAAP information referenced above is contained in the tables below. Please also refer to “Non-GAAP Financial Measures” below for a description of these non-GAAP financial measures.

Third Quarter 2023 Business Outlook (+)

For the third quarter of 2023, the company currently expects:

Revenue in the range of $60 million to $66 million.

Non-GAAP gross margin in the range of 29.5% to 31%.

Non-GAAP net profit in the range of a loss of $1.9 million to profit of $0.2 million, and non-GAAP earnings per share in the range of a loss of $0.06 to earnings of $0.01 using approximately 33.1 million shares.

(+) Please refer to the note below on forward-looking statements and the risks involved with such statements as well as the note on non-GAAP financial measures.

Conference Call Information

The company will host a conference call and webcast for analysts and investors on August 3, 2023 to discuss its second quarter 2023 results and outlook for its third quarter of 2023 at 4:30 p.m. Eastern time / 3:30 p.m. Central time. Open to the public, investors may access the call by dialing 844-890-1794 (domestic) or 412-717-9586 (international). A live audio webcast of the conference call along with supplemental financial information will also be accessible on the company's website at investors.ao-inc.com. Following the webcast, an archived version will be available on the website for one year. A telephonic replay of the call will be available one hour after the call and will run for five business days and may be accessed by dialing 877-344-7529 (domestic) or 412-317-0088 (international) and entering passcode 1076424.

Forward-Looking Information

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terminology such as "believe," "may," "estimate," "continue," "anticipate," "intend," "should," "could," "would," "target," "seek," "aim," "predicts," "think," "objectives," "optimistic," "new," "goal," "strategy," "potential," "is likely," "will," "expect," "plan" "project," "permit" or by other similar expressions that convey uncertainty of future events or outcomes. These statements include management’s beliefs and expectations related to our outlook for the third quarter of 2023. Such forward-looking statements reflect the views of management at the time such statements are made. 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. These risks and uncertainties include but are not limited to: the impact of the COVID-19 pandemic on our business and financial results; reduction in the size or quantity of customer orders; change in demand for the company's products due to industry conditions; changes in manufacturing operations; volatility in manufacturing costs; delays in shipments of products; disruptions in the supply chain; change in the rate of design wins or the rate of customer acceptance of new products; the company's reliance on a small number of customers for a substantial portion of its revenues; potential pricing pressure; a decline in demand for our customers' products or their rate of deployment of their products; general conditions in the internet datacenter, cable television (CATV) broadband, telecom, or fiber-to-the-home (FTTH) markets; changes in the world economy (particularly in the United States and China); changes in the regulation and taxation of international trade, including the imposition of tariffs; changes in currency exchange rates; the negative effects of seasonality; and other risks and uncertainties described more fully in the company's documents filed with or furnished to the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2022. More information about these and other risks that may impact the company's business are set forth in the "Risk Factors" section of the company's quarterly and annual reports on file with the Securities and Exchange Commission. You should not rely on forward-looking statements as predictions of future events. All forward-looking statements in this press release are based upon information available to us as of the date hereof, and qualified in their entirety by this cautionary statement. Except as required by law, we assume no obligation to update forward-looking statements for any reason after the date of this press release to conform these statements to actual results or to changes in the company's expectations.

Non-GAAP Financial Measures

We provide non-GAAP gross margin, non-GAAP net income (loss), and non-GAAP earnings per share to eliminate the impact of items that we do not consider indicative of our overall operating performance. To arrive at our non-GAAP gross margin, we exclude stock-based compensation expense, expenses associated with discontinued products, and non-recurring (income) expenses, if any, from our GAAP gross margin. To arrive at our non-GAAP net income (loss), we exclude all amortization of intangible assets, stock-based compensation expense, non-recurring expenses, unrealized foreign exchange loss (gain), losses from the disposal of idle assets, if any, non-GAAP tax benefit (expenses), and expenses associated with discontinued products, from our GAAP net income (loss). Included in our non-recurring expenses in Q2 2023 and Q2 2022, and Q1 2023, are certain non-recurring expenses related to extreme weather and pandemic events (if any) and non-recurring tax expenses or benefits (if any), and employee severance expenses (if any). In computing our non-GAAP income tax benefit (expense), we have applied an estimate of our annual effective income tax rate and applied it to our net income before income taxes. Our non-GAAP diluted net loss per share is calculated by dividing our non-GAAP net loss by the fully diluted share count (for periods in which non-GAAP net income is positive) or basic share count (for periods in which our non-GAAP net income is negative). We believe that our non-GAAP measures are useful to investors in evaluating our operating performance for the following reasons:

We believe that elimination of items such as amortization of intangible assets, stock-based compensation expense, non-recurring revenue and expenses, losses from the disposal of idle assets, unrealized foreign exchange gain or loss, and depreciation on certain equipment undergoing reconfiguration is appropriate because treatment of these items may vary for reasons unrelated to our overall operating performance;

We believe that elimination of expenses associated with discontinued products, including depreciation and inventory obsolescence is appropriate because these expenses are not indicative of our ongoing operations;

We believe that estimating non-GAAP income taxes allows comparison with prior periods and provides additional information regarding the generation of potential future deferred tax assets;

We believe that non-GAAP measures provide better comparability with our past financial performance, period-to-period results and with our peer companies, many of which also use similar non-GAAP financial measures; and

We anticipate that investors and securities analysts will utilize non-GAAP measures as a supplement to GAAP measures to evaluate our overall operating performance.

A reconciliation of our GAAP net income (loss) and GAAP earnings (loss) per share for Q2 2023 to our non-GAAP net income (loss) and earnings (loss) per share is provided below, together with corresponding reconciliations for Q2 2022. A reconciliation of our GAAP net income (loss) and GAAP earnings (loss) per share for Q1 2023 to our non-GAAP net income (loss) and earnings (loss) per share was provided in our Q1 2023 earnings release.

Non-GAAP measures should not be considered as an alternative to net income (loss), earnings (loss) per share, or any other measure of financial performance calculated and presented in accordance with GAAP. Our non-GAAP measures may not be comparable to similarly titled measures of other organizations because other organizations may not calculate such other non-GAAP measures in the same manner. We have not reconciled the non-GAAP measures included in our guidance to the appropriate GAAP financial measures because the GAAP measures are not readily determinable on a forward-looking basis. GAAP measures that impact our non-GAAP financial measures may include stock-based compensation expense, non-recurring expenses, amortization of intangible assets, unrealized exchange loss (gain), asset impairment charges, and loss (gain) from disposal of idle assets. These GAAP measures cannot be reasonably predicted and may directly impact our non-GAAP gross margin, our non-GAAP net income and our non-GAAP fully-diluted earnings per share, although changes with respect to certain of these measures may offset other changes. In addition, certain of these measures are out of our control. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measures is not available without unreasonable effort.

About Applied Optoelectronics

Applied Optoelectronics Inc. (AOI) is a leading developer and manufacturer of advanced optical products, including components, modules and equipment. AOI's products are the building blocks for broadband fiber access networks around the world, where they are used in the CATV broadband, internet datacenter, telecom and FTTH markets. AOI supplies optical networking lasers, components and equipment to tier-1 customers in all four of these markets. In addition to its corporate headquarters, wafer fab and advanced engineering and production facilities in Sugar Land, TX, AOI has engineering and manufacturing facilities in Taipei, Taiwan and Ningbo, China. For additional information, visit www.ao-inc.com.

Investor Relations Contacts:

The Blueshirt Group, Investor RelationsLindsay [email protected]

Cassidy Fuller+1-415-217-4968 [email protected]

Applied Optoelectronics, Inc.

Preliminary Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

June 30, 2023

December 31, 2022

ASSETS

CURRENT ASSETS

Cash, Cash Equivalents and Restricted Cash

$

28,612

$

35,587

Accounts Receivable, Net

42,598

61,175

Notes receivable

782

339

Inventories

66,321

79,679

Prepaid Income Tax

2

-

Prepaid Expenses and Other Current Assets

6,231

6,384

Total Current Assets

144,546

183,164

Property, Plant And Equipment, Net

197,879

210,184

Land Use Rights, Net

4,990

5,238

Operating Right of Use Asset

5,296

5,566

Financing Right of Use Asset

10

26

Intangible Assets, Net

3,625

3,699

Other Assets

531

386

TOTAL ASSETS

$

356,877

$

408,263

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts Payable

$

35,111

$

47,845

Bank Acceptance Payable

8,637

12,337

Accrued Expenses

14,702

17,222

Deferred Revenue

10,720

3,000

Current Lease Liability-Operating

1,055

1,041

Current Lease Liability-Financing

53

63

Current Portion of Notes Payable and Long Term Debt

37,276

57,074

Current Portion of Convertible Debt

79,916

-

Total Current Liabilities

187,470

138,582

Deferred Revenue, net of current portion

1,000

-

Convertible Senior Notes

-

79,506

Other Long-Term Liabilities

5,148

5,505

TOTAL LIABILITIES

193,618

223,593

STOCKHOLDERS' EQUITY

Total Preferred Stock

Common Stock

32

29

Additional Paid-in Capital

407,003

391,526

Cumulative Translation Adjustment

(1,470

)

2,183

Retained Earnings

(242,306

)

(209,068

)

TOTAL STOCKHOLDERS' EQUITY

163,259

184,670

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

356,877

$

408,263

Applied Optoelectronics, Inc.

Preliminary Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

Q2 2023

Three Months EndedJune 30,

Six Months EndedJune 30,

Revenue

2023

2022

2023

2022

CATV

9,343

23,713

$

37,123

$

48,694

Datacenter

27,571

21,497

47,924

42,911

Telecom

4,231

6,276

7,938

11,541

FTTH

55

27

57

124

Other

415

786

1,603

1,270

Total Revenue

41,615

52,299

94,645

104,540

Total Cost of Goods Sold

33,717

43,671

77,503

86,888

Total Gross Profit

7,898

8,628

17,142

17,652

Operating Expenses:

Research and Development

8,640

8,328

17,176

17,814

Sales and Marketing

2,269

2,164

4,596

4,722

General and Administrative

12,954

11,035

25,502

22,254

Total Operating Expenses

23,863

21,527

47,274

44,790

Operating Loss

(15,965

)

(12,899

)

(30,132

)

(27,138

)

Other Income (Expense):

Interest Income

37

31

70

59

Interest Expense

(2,175

)

(1,408

)

(4,312

)

(2,810

)

Other Income (Expense), net

1,167

(180

)

1,145

(629

)

Total Other Income (Expense):

(971

)

(1,557

)

(3,097

)

(3,380

)

Net loss before Income Taxes

(16,936

)

(14,456

)

(33,229

)

(30,518

)

Income Tax Expense

(8

)

-

(8

)

-

Net loss

$

(16,944

)

$

(14,456

)

$

(33,237

)

$

(30,518

)

Net loss per share attributable to common stockholders

basic

$

(0.57

)

$

(0.52

)

$

(1.14

)

$

(1.11

)

diluted

$

(0.57

)

$

(0.52

)

$

(1.14

)

$

(1.11

)

Weighted-average shares used to computenet loss per share attributable tocommon stockholders

basic

29,489

27,612

29,182

27,537

diluted

29,489

27,612

29,182

27,537

Applied Optoelectronics, Inc.

Reconciliation of Statements of Operations under GAAP and Non-GAAP

(In thousands, except per share data)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

GAAP revenue

$

41,615

$

52,299

$

94,645

$

104,540

Non-recurring customer credit

-

-

-

-

Non-GAAP revenue

$

41,615

$

52,299

$

94,645

$

104,540

GAAP total gross profit (a)

$

7,898

$

8,628

$

17,142

$

17,652

Share-based compensation expense

156

114

270

250

Non-recurring expense

-

-

-

1

Expenses associated with discontinued products

2,254

-

5,216

-

Non-GAAP total gross profit (a)

$

10,308

$

8,742

$

22,628

$

17,903

GAAP net loss

$

(16,944

)

$

(14,456

)

$

(33,237

)

$

(30,518

)

Share-based compensation expense

3,062

2,144

5,352

4,616

Expenses associated with discontinued products

2,254

-

5,216

-

Non-cash expenses associated with discontinued products

1,148

1,103

2,311

2,269

Amortization of intangible assets

162

153

321

304

Non-recurring (income) expense

602

9

960

34

Unrealized exchange loss (gain)

(66

)

298

(1,175

)

1,279

Non-GAAP tax benefit

3,710

3,151

7,037

6,545

Non-GAAP net loss

$

(6,072

)

$

(7,598

)

$

(13,216

)

$

(15,470

)

GAAP diluted net loss per share

$

(0.57

)

$

(0.52

)

$

(1.14

)

$

(1.11

)

Share-based compensation expense

0.10

0.08

0.19

0.17

Expenses associated with discontinued products

0.08

-

0.18

-

Non-cash expenses associated with discontinued products

0.04

0.03

0.08

0.08

Amortization of intangible assets

0.01

0.01

0.01

0.01

Non-recurring (income) expense

0.02

0.00

0.03

0.00

Unrealized exchange loss (gain)

(0.01

)

0.01

(0.04

)

0.05

Non-GAAP tax benefit

0.12

0.11

0.24

0.24

Non-GAAP diluted net loss per share

$

(0.21

)

$

(0.28

)

$

(0.45

)

$

(0.56

)

Shares used to compute diluted loss per share

29,489

27,612

29,182

27,537

Shares used to compute diluted earnings per share

29,489

27,612

29,182

27,537

(a) Provided for the purpose of calculating gross profit as a percentage of revenue (gross margin).

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