Market Overview

Applied Optoelectronics Reports Second Quarter 2018 Results

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SUGAR LAND, Texas, Aug. 07, 2018 (GLOBE NEWSWIRE) -- Applied Optoelectronics, Inc. (NASDAQ: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 second quarter ended June 30, 2018.

"We are pleased with our second quarter results, which were driven by increased demand for our market-leading datacenter products. We continue to focus on diversifying our customer base and in the quarter secured seven design wins, including one 100G win with a large datacenter operator in China," said Dr. Thompson Lin, Applied Optoelectronics Inc. founder and CEO. "We remain confident in our competitive position. We believe our platform, proprietary manufacturing processes and vertical integration are keys to our success in the market, and remain focused on building on this strong foundation to position AOI for further success."

Second Quarter 2018 Financial Summary

  • Total revenue was $87.8 million, compared with $117.4 million in the second quarter 2017 and $65.2 million in the first quarter of 2018.
     
  • GAAP gross margin was 38.6%, compared with 45.4% in the second quarter 2017 and 39.6% in the first quarter of 2018. Non-GAAP gross margin was 40.4%, compared with 45.5% in the second quarter 2017 and 40.0% in the first quarter of 2018.
     
  • GAAP net income was $8.0 million, or $0.40 per diluted share, compared with net income of $29.1 million, or $1.43 per diluted share in the second quarter 2017, and net income of $2.1 million, or $0.11 per diluted share in the first quarter of 2018.
     
  • Non-GAAP net income was $12.9 million, or $0.64 per diluted share, compared with non-GAAP net income of $31.3 million, or $1.54 per diluted share in the second quarter 2017, and non-GAAP net income of $5.6 million, or $0.28 per diluted share in the first quarter of 2018.

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 2018 Business Outlook (+)

For the third quarter of 2018, the company currently expects:

  • Revenue in the range of $82 million to $92 million.
  • Non-GAAP gross margin in the range of 40.0% to 41.5%.
  • Non-GAAP net income in the range of $11.1 million to $15.2 million, and non-GAAP fully diluted earnings per share in the range of $0.54 to $0.75 using approximately 20.4 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 Aug. 7, 2018 to discuss its second quarter 2018 results and outlook for its third quarter 2018 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 10122233.

Forward-Looking Information

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 company's reliance on a small number of customers for a substantial portion of its revenues; reduction in the size or quantity of customer orders; change in demand for the company's products or their rate of deployment of their products; 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; potential pricing pressure; 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. 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. 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," "believe," "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. 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

In addition to GAAP reporting, 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, non-recurring expenses and expenses associated with discontinued products, 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 Q2 2018 are certain consulting fees, and employee severance expenses.  Non-cash expenses associated with discontinued products in Q2 2018 include depreciation on certain equipment undergoing reconfiguration.  Other expenses associated with discontinued products in Q2 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. 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 stock-based compensation expense, unrealized foreign exchange gain (loss) and non-recurring expenses 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 to evaluate our overall operating performance.

A reconciliation of our GAAP net income (loss) and GAAP earnings per share for the three and six months ended June 30, 2018 to our non-GAAP net income (loss) and earnings per share is provided below. Also provided below for the three and six months ended June 30, 2018 is a reconciliation of our GAAP total gross profit to our non-GAAP total gross profit, for purposes of calculating our non-GAAP gross margin.

Non-GAAP measures should not be considered as an alternative to net income (loss), earnings 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 accessible 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
Maria Riley & Chelsea Lish
+1-415-217-7722                   
ir@ao-inc.com

 
 
Applied Optoelectronics, Inc.
Preliminary Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
  June 30, 2018 December 31, 2017
     
ASSETS    
CURRENT ASSETS    
Cash, Cash Equivalents and Short term investments $ 77,943 $ 83,984
Accounts Receivable, Net   48,668   59,850
Inventories   93,269   75,768
Prepaid Income Tax   638   1,394
Prepaid Expenses and Other Current Assets   10,070   8,701
Total Current Assets     230,588     229,697
     
Property, Plant And Equipment, Net   212,105   197,943
Land Use Rights, Net   6,096   804
Intangible Assets, Net   3,978   4,007
Deferred Income Tax Assets   13,151   12,801
Other Assets   6,286   7,732
TOTAL ASSETS $   472,204 $   452,984
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
     
CURRENT LIABILITIES    
Accounts Payable $ 51,429 $ 43,624
Accrued Expenses   16,651   19,103
Accrued Income Tax   464   7,422
Current Portion of Long Term Debt   3,161   559
Total Current Liabilities     71,705     70,708
     
Notes Payable and Long Term Debt   57,868   49,000
TOTAL LIABILITIES     129,573     119,708
     
STOCKHOLDERS' EQUITY    
Total Preferred Stock   -   -
Common Stock   20   19
Additional Paid-in Capital   288,686   285,376
Cumulative Translation Adjustment   5,633   9,743
Retained Earnings   48,292   38,138
TOTAL STOCKHOLDERS' EQUITY     342,631     333,276
     
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $   472,204 $   452,984
     
     


Applied Optoelectronics, Inc.
Preliminary Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
  Three Months Ended
June 30,
  Six Months Ended
June 30,
Revenue   2018     2017       2018     2017  
Datacenter $   69,040   $   99,298     $   119,623   $   178,892  
CATV   14,184     14,404       24,752     27,498  
Telecom   4,157     3,077       7,743     6,248  
FTTH   166     125       277     223  
Other   275     467       666     734  
Total Revenue   87,822     117,371       153,061     213,595  
           
Total Cost of Goods Sold   53,959     64,089       93,362     118,841  
           
Total Gross Profit   33,863     53,282       59,699     94,754  
           
Operating Expenses:          
Research and Development   12,645     8,073       24,381     15,505  
Sales and Marketing   2,377     2,158       4,851     4,061  
General and Administrative   9,898     8,786       19,354     16,608  
Total Operating Expenses   24,920     19,017       48,586     36,174  
           
Operating Income   8,943     34,265       11,113     58,580  
           
Other Income (Expense):          
Interest Income   85     70       137     105  
Interest Expense   (279 )   (245 )     (350 )   (544 )
Other Income   292     192       305     156  
Foreign Exchange Gain (Loss)   1,289     (128 )     249     (700 )
Total Other Income (Expense):   1,387     (111 )     341     (983 )
           
Net Income before Income Taxes   10,330     34,154       11,454     57,597  
           
Income Tax Expense   (2,296 )   (5,083 )     (1,300 )   (8,737 )
           
Net Income   8,034     29,071       10,154     48,860  
 
 Net income per share attributable to common stockholders
 
 basic $ 0.41   $ 1.52     $ 0.52   $ 2.59  
 diluted $ 0.40   $ 1.43     $ 0.51   $ 2.45  
           
 Weighted-average shares used to compute
  net income per share attributable to
  common stockholders
     
       
 basic   19,590     19,081       19,541     18,841  
 diluted   20,080     20,367       20,012     19,956  
           
           


 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,
    2018     2017       2018     2017  
GAAP total gross profit (a) $ 33,863   $ 53,282     $ 59,699   $ 94,754  
Share-based compensation expense   211     134       388     212  
Non-recurring expense   0     0       7     0  
Expenses associated with discontinued products   1,432     0       1,503     0  
Non-GAAP total gross profit (a)   35,506     53,416       61,597     94,966  
           
GAAP net income   8,034     29,071       10,154     48,860  
Amortization of intangible assets   127     120       253     238  
Share-based compensation expense   2,900     2,260       5,469     3,767  
Non-recurring charges   330     290       620     390  
Expenses associated with discontinued products   1,432     -       1,503     -  
Non-cash expenses associated with discontinued products   1,004     -       1,755     -  
Loss from disposal of idle assets   -     2       -     2  
Unrealized exchange loss (gain)   (911 )   (101 )     (1,114 )   147  
Non recurring tax benefit   (48 )   (320 )     (162 )   (320 )
Non-GAAP net income   12,868     31,322       18,478     53,084  
           
GAAP diluted net income per share $ 0.40   $ 1.43     $ 0.51   $ 2.45  
Amortization of intangible assets   0.01     0.01       0.01     0.01  
Share-based compensation expense   0.14     0.11       0.27     0.19  
Non-recurring charges   0.02     0.01       0.03     0.02  
Expenses associated with discontinued products   0.07     -       0.08     -  
Non-cash expenses associated with discontinued products   0.05     -       0.09     -  
Loss from disposal of idle assets   -     -       -     -  
Unrealized exchange loss (gain)   (0.05 )   (0.00 )     (0.06 )   0.01  
Non recurring tax benefit   (0.00 )   (0.02 )     (0.01 )   (0.02 )
Non-GAAP diluted net income per share $ 0.64   $ 1.54     $ 0.92   $ 2.66  
           
Shares used to compute diluted earnings per share   20,080     20,367       20,012     19,956  
           
(a) Provided for the purpose of calculating gross profit as a percentage of revenue (gross margin).    

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