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Applied Optoelectronics Reports Third Quarter 2019 Results

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SUGAR LAND, Texas, Nov. 06, 2019 (GLOBE NEWSWIRE) -- Applied Optoelectronics, Inc. (AAOI), a leading provider of fiber-optic access network products for the internet datacenter, cable broadband, telecom and fiber-to-the-home (FTTH) markets, today announced financial results for its third quarter ended September 30, 2019.

“We are pleased to report a quarter-to-quarter improvement in both revenue and bottom line results,” said Dr. Thompson Lin, Applied Optoelectronics Inc. Founder, President and Chief Executive Officer. “We secured seven new datacenter design wins this quarter and we believe that the datacenter market continues to show early signs of a recovery. We also made good progress on further diversifying our customer base and reducing our revenue concentration with a total of eleven design wins in the quarter, including four from new customers.”

Third Quarter 2019 Financial Summary

  • Total revenue was $46.1 million, compared with $56.4 million in the third quarter of 2018 and $43.4 million in the second quarter of 2019.

  • GAAP gross margin was 26.0%, compared with 31.1% in the third quarter of 2018 and 24.3% in the second quarter of 2019. Non-GAAP gross margin was 28.8%, compared with 34.0% in the third quarter of 2018 and 27.2% in the second quarter of 2019.

  • GAAP net loss was $8.8 million, or $0.44 per basic share, compared with net loss of $3.7 million, or $0.19 per basic share in the third quarter of 2018, and a net loss of $11.4 million, or $0.57 per basic share in the second quarter of 2019.

  • Non-GAAP net loss was $2.9 million, or $0.15 per basic share, compared with non-GAAP net income of $2.7 million, or $0.14 per diluted share in the third quarter of 2018, and a non-GAAP net loss of $5.2 million, or $0.26 per basic share in the second quarter of 2019.

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.

Fourth Quarter 2019 Business Outlook (+)

For the fourth quarter of 2019, the company currently expects:

  • Revenue in the range of $46 million to $49 million.

  • Non-GAAP gross margin in the range of 26.5% to 29.0%.

  • Non-GAAP net loss in the range of $4.3 million to $5.9 million, and non-GAAP loss per share in the range of $0.21 to $0.30 using approximately 20.1 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 November 6, 2019 to discuss its third quarter 2019 results and outlook for its fourth quarter 2019 at 4:30 p.m. Eastern time / 3:30 p.m. Central time. Open to the public, investors may access the call by dialing (412) 717-9586. 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 (412) 317-0088 and entering passcode 10135362.

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 fourth quarter of 2019. 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: 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, 2018. 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 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 gain (loss), losses from the disposal of idle assets, if any, non-recurring tax expenses (benefits), and expenses associated with discontinued products, if any, from our GAAP net income (loss). Included in our non-recurring expenses in Q3 2019 and Q3 2018 are certain one-time legal (if any) and consulting fees (if any) and employee severance expenses (if any). Also included in our non-recurring expenses in the nine months ended September 30, 2019, but not included in our results in Q3 2019 or in the corresponding periods during the prior year, was the unamortized debt issuance costs associated with the extinguishment of certain debt. Non-cash expenses associated with discontinued products in Q3 2019 and Q3 2018 include depreciation on certain equipment undergoing reconfiguration. Other expenses associated with discontinued products in Q3 2019 and Q3 2018 include inventory obsolescence charges associated with materials used in the manufacture of these discontinued products.

Our non-GAAP earnings per share is calculated by dividing our non-GAAP net income 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, unamortized debt issuance costs associated with the extinguishment of debt, 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 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 Q3 2019 to our non-GAAP net income (loss) and earnings (loss) per share is provided below, together with corresponding reconciliations for the nine month period ended September 30, 2019.

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 internet datacenter, CATV broadband, 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 Relations
Monica Gould
+1-212-871-3927
ir@ao-inc.com

Lindsay Savarese
+1-212-331-8417
ir@ao-inc.com


Applied Optoelectronics, Inc.

Preliminary Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

September 30, 2019

December 31, 2018

ASSETS

CURRENT ASSETS

Cash, Cash Equivalents and Restricted Cash

$

72,376

$

58,004

Accounts Receivable, Net

29,709

30,534

Inventories

82,118

93,256

Prepaid Income Tax

759

1,188

Prepaid Expenses and Other Current Assets

5,685

11,293

Total Current Assets

190,647

194,275

Property, Plant And Equipment, Net

245,535

234,211

Land Use Rights, Net

5,551

5,814

Right of Use Asset

7,738

-

Intangible Assets, Net

4,072

3,977

Deferred Income Tax Assets

29,362

21,714

Other Assets

973

6,849

TOTAL ASSETS

$

483,878

$

466,840

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts Payable

$

28,074

$

29,910

Accrued Expenses

15,542

19,291

Current Lease Liability

924

-

Bank Acceptance Payable

4,080

4,628

Current Portion of Notes Payable and Long Term Debt

15,803

23,589

Total Current Liabilities

64,423

77,418

Notes Payable and Long Term Debt

32,373

60,328

Convertible Senior Notes

76,835

-

Other Long-Term Liabilities

7,962

-

TOTAL LIABILITIES

181,593

137,746

STOCKHOLDERS' EQUITY

TOTAL STOCKHOLDERS' EQUITY

302,285

329,094

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

483,878

$

466,840


Applied Optoelectronics, Inc.

Preliminary Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

Revenue

2019

2018

2019

2018

Datacenter

$

34,006

$

38,954

$

104,311

$

158,577

CATV

8,797

14,295

30,577

39,047

Telecom

2,868

2,656

6,236

10,399

FTTH

39

221

149

498

Other

374

260

941

926

Total Revenue

46,084

56,386

142,214

209,447

Total Cost of Goods Sold

34,108

38,849

107,349

132,211

Total Gross Profit

11,976

17,537

34,865

77,236

Operating Expenses:

Research and Development

10,466

14,180

32,802

38,561

Sales and Marketing

2,518

2,370

7,444

7,221

General and Administrative

9,988

10,591

31,312

29,945

Total Operating Expenses

22,972

27,141

71,558

75,727

Operating Income (Loss)

(10,996

)

(9,604

)

(36,693

)

1,509

Other Income (Expense):

Interest Income

347

86

729

223

Interest Expense

(1,517

)

(274

)

(4,003

)

(624

)

Other Income

1,124

217

1,437

522

Foreign Exchange Gain (Loss)

322

549

305

798

Total Other Income (Expense):

276

578

(1,532

)

919

Net Income (loss) before Income Taxes

(10,720

)

(9,026

)

(38,225

)

2,428

Income Tax Benefit (Expense)

1,940

5,294

7,605

3,994

Net Income (loss)

(8,780

)

(3,732

)

(30,620

)

6,422

Net income (loss) per share attributable to common stockholders

basic

$

(0.44

)

$

(0.19

)

$

(1.54

)

$

0.33

diluted

$

(0.44

)

$

(0.19

)

$

(1.54

)

$

0.32

Weighted-average shares used to compute
net income (loss) per share attributable to
common stockholders

basic

20,023

19,707

19,940

19,597

diluted

20,023

19,707

19,940

20,039


Applied Optoelectronics, Inc.

Reconciliation of Statements of Operations under GAAP and Non-GAAP

(In thousands, except per share data)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

GAAP total gross profit (a)

$

11,976

$

17,537

$

34,865

$

77,236

Share-based compensation expense

197

205

585

593

Non-recurring expense

-

-

-

7

Expenses associated with discontinued products

1,117

1,412

3,109

2,915

Non-GAAP total gross profit (a)

13,290

19,154

38,559

80,751

GAAP net income (loss)

(8,780

)

(3,732

)

(30,620

)

6,422

Amortization of intangible assets

137

125

400

378

Share-based compensation expense

2,978

2,894

8,941

8,363

Non-recurring charges

568

685

1,622

1,305

Expenses associated with discontinued products

1,117

1,412

3,109

2,915

Non-cash expenses associated with discontinued products

1,114

859

3,247

2,614

Unrealized exchange loss (gain)

(65

)

506

(236

)

(608

)

Non-recurring tax benefit

-

0

-

(162

)

Non-GAAP net income (loss)

(2,931

)

2,749

(13,537

)

21,227

GAAP diluted net income (loss) per share

$

(0.44

)

$

(0.19

)

$

(1.54

)

$

0.32

Amortization of intangible assets

0.01

0.01

0.02

0.02

Share-based compensation expense

0.15

0.14

0.45

0.42

Non-recurring charges

0.03

0.03

0.08

0.07

Expenses associated with discontinued products

0.06

0.07

0.16

0.15

Non-cash expenses associated with discontinued products

0.05

0.04

0.16

0.13

Loss from disposal of idle assets

-

-

-

-

Unrealized exchange loss (gain)

(0.01

)

0.04

(0.01

)

(0.04

)

Non-recurring tax benefit

-

-

-

(0.01

)

Non-GAAP diluted net income (loss) per share

$

(0.15

)

$

0.14

$

(0.68

)

$

1.06

Shares used to compute diluted loss per share

20,023

19,707

19,940

19,597

Shares used to compute diluted earnings per share

20,023

20,185

19,940

20,039

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