Applied Optoelectronics(AAOI) - 2024 Q2 - Quarterly Report

Financial Performance - Revenue for Q2 2024 was $43.27 million, a 4.0% increase from$ 41.62 million in Q2 2023[120] - Net loss for Q2 2024 was $26.12 million, or 60.4% of revenue, compared to a net loss of$ 16.94 million, or 40.7% of revenue in Q2 2023[120] - Total revenue for the three months ended June 30, 2024, was $43,270 million, a 4.0% increase from$ 41,615 million in the same period of 2023[124] - Comprehensive loss increased by $4.7 million, or 21.2%, for the three months ended June 30, 2024 compared to the same period in 2023, primarily due to an increase in net loss of$ 9.2 million[144] Profitability and Margins - Gross profit margin decreased to 22.1% in Q2 2024 from 19.0% in Q2 2023, reflecting increased cost of goods sold[120] - Gross margin for the three months ended June 30, 2024, was $9,562 million, representing 22.1% of revenue, compared to 19.0% in the same period of 2023[129] Expenses - Research and development expenses rose to$ 13.08 million, accounting for 30.2% of revenue in Q2 2024, compared to 20.8% in Q2 2023[120] - Total operating expenses increased to $35.81 million, representing 82.8% of revenue in Q2 2024, up from 57.3% in Q2 2023[120] - Sales and marketing expenses increased by$ 3,641 million, or 160.5%, for the three months ended June 30, 2024, compared to the same period in 2023[133] - Research and development expenses increased by $4,438 million, or 51.4%, for the three months ended June 30, 2024, compared to the same period in 2023[132] Customer Base and Revenue Sources - The company anticipates continued revenue generation from its top ten customers, which significantly contribute to overall sales[123] - The top ten customers represented 94% of revenue for the three months ended June 30, 2024, highlighting the need for customer base diversification[127] Manufacturing and Operations - The company operates three manufacturing sites in Sugar Land, Texas, Ningbo, China, and Taipei, Taiwan, with a focus on maintaining domestic production capacity[113][115] - The company has a vertically integrated manufacturing model that enhances product development speed and quality control[113] - The company is involved in an arbitration dispute regarding the termination of a divestiture agreement, which may impact future operations[119] - The company has begun to see increased orders for 400G data center products, expecting demand to rise through the end of 2024[125] - Construction costs for the new factory in Ningbo, China, are estimated at approximately$ 27.5 million, with $27.4 million paid as of June 30, 2024[160] - The company anticipates placing the new factory in service in 2024 after completing the building interior work[160] Cash Flow and Financing - Net cash used in operating activities for the six months ended June 30, 2024 was$ 30.5 million, with a net loss of $49.3 million after excluding non-cash items[154] - For the six months ended June 30, 2024, net cash used in investing activities was$ 12.2 million, mainly for the purchase of additional plant, machinery, and equipment[156] - The company issued $80.2 million of 5.25% convertible senior notes due 2026, generating net proceeds of$ 76.2 million after expenses[153] - Net cash provided by financing activities for the six months ended June 30, 2024 was $3.1 million, primarily due to proceeds from the ATM program[157] - As of June 30, 2024, the company had cash, cash equivalents, and restricted cash totaling$ 16.1 million, a decrease of approximately $39.0 million compared to December 31, 2023[161] - The total loan balance (excluding convertible notes) was$ 22.5 million, with an available borrowing capacity of $29.4 million on existing credit lines as of June 30, 2024[162] - The company raised$ 20.5 million under the authorized ATM Offering, with $4.5 million still available for future liquidity needs[162] Market Conditions and Future Outlook - The company is focused on high-performance segments within the internet data center, CATV, telecom, and FTTH markets, driven by increasing bandwidth demand[112] - The company intends to evaluate future investments for applicability to the tax credit provisions of the CHIPS Act[141] - Future capital requirements will depend on growth rate, R&D spending, and market acceptance of products[161] - The company is exploring additional sources of liquidity, including issuing equity or debt securities and selling assets if needed[162] - The company’s exposure to market risk has not changed materially since December 31, 2023[166] - The effective tax rate for the three months ended June 30, 2024 and 2023 was 0%, differing from the federal statutory rate of 21% due to changes in valuation allowances on deferred tax assets[140] Inflation Impact - The annual inflation rate in the US was 3.4% in 2023, while Taiwan's rate decreased to 2.7%[164] - The company does not believe inflation had a material impact on its business or financial condition during the three months ended June 30, 2024[164]