Applied Optoelectronics(AAOI) - 2025 Q2 - Quarterly Report

Part I. Financial Information Item 1. Condensed Consolidated Financial Statements Unaudited Q2 2025 financial statements show strong revenue growth, improved gross margins, narrowed net loss, and increased liquidity Condensed Consolidated Balance Sheets Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $796,850 | $547,032 | +45.7% | | Cash and cash equivalents | $64,699 | $67,428 | -4.0% | | Accounts receivable, net | $211,452 | $116,801 | +81.0% | | Inventories, net | $138,867 | $88,135 | +57.6% | | Property, plant and equipment, net | $269,386 | $219,235 | +22.9% | | Total Liabilities | $371,869 | $317,920 | +17.0% | | Accounts payable | $132,962 | $104,969 | +26.7% | | Convertible senior notes | $133,936 | $134,497 | -0.4% | | Total Stockholders' Equity | $424,981 | $229,112 | +85.5% | - Total assets increased by 45.7% to $796.9 million, primarily driven by significant growth in accounts receivable and inventories, reflecting increased business activity[10] - Total stockholders' equity grew by 85.5% to $425.0 million, largely due to capital raised from public offerings of common stock during the period[10][17] Condensed Consolidated Statements of Operations Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | YoY Change | Six Months 2025 | Six Months 2024 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $102,952 | $43,270 | +137.9% | $202,811 | $83,943 | +141.6% | | Gross Profit | $31,162 | $9,562 | +225.9% | $61,706 | $17,153 | +259.7% | | Gross Margin | 30.3% | 22.1% | +8.2pp | 30.4% | 20.4% | +10.0pp | | Loss from operations | ($15,976) | ($26,244) | +39.1% | ($24,914) | ($47,889) | +48.0% | | Net Loss | ($9,098) | ($26,115) | +65.2% | ($18,270) | ($49,285) | +62.9% | | Diluted EPS | ($0.16) | ($0.66) | +75.8% | ($0.34) | ($1.27) | +73.2% | - Revenue for Q2 2025 more than doubled year-over-year, driven by strong demand across key product segments[12] - Gross margin significantly improved to 30.3% in Q2 2025 from 22.1% in Q2 2024, reflecting better product mix and cost management[12] - Net loss narrowed substantially to $9.1 million in Q2 2025 from $26.1 million in the prior-year quarter, demonstrating improved operational efficiency and higher sales volume[12] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Category | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($116,389) | ($30,470) | | Net cash used in investing activities | ($75,194) | ($12,156) | | Net cash provided by financing activities | $195,993 | $3,097 | | Net change in cash, cash equivalents and restricted cash | $8,062 | ($38,979) | | Cash, cash equivalents and restricted cash at end of period | $87,195 | $16,118 | - Operating activities used $116.4 million in cash, primarily due to a $94.7 million increase in accounts receivable and a $51.0 million increase in inventories to support revenue growth[20] - Investing activities used $75.2 million, mainly for the purchase of property, plant, and equipment ($53.9 million) and equipment deposits ($21.2 million)[20] - Financing activities provided $196.0 million in cash, predominantly from a $195.8 million net proceed from a common stock offering[20] Notes To Condensed Consolidated Financial Statements Revenue by Product Category (in thousands) | Product Category | Q2 2025 Revenue | Q2 2024 Revenue | YoY Change | | :--- | :--- | :--- | :--- | | CATV | $56,019 | $5,818 | +862.9% | | Data Center | $44,791 | $34,352 | +30.4% | | Telecom | $1,940 | $2,379 | -18.5% | | Other | $202 | $721 | -72.0% | | Total Revenue | $102,952 | $43,270 | +137.9% | - On March 13, 2025, the company issued a warrant to a subsidiary of Amazon.com, Inc. to purchase up to 7,945,399 shares at an exercise price of $23.6956 per share. An initial 1,324,233 shares vested upon issuance, with the remainder vesting based on up to $4 billion in product purchases over 10 years[36] - The company's top ten customers accounted for 98% of revenue in Q2 2025, up from 94% in Q2 2024, indicating significant customer concentration[56] - As of June 30, 2025, the company had $133.9 million in convertible senior notes outstanding, consisting of $3.5 million of 2026 Notes and $130.4 million of 2030 Notes (net carrying amount)[72] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes revenue growth to strong CATV and data center demand, enhanced liquidity via ATM offerings, and monitors geopolitical risks Results of Operations - CATV revenue surged by 862.9% in Q2 2025 compared to Q2 2024, driven by the recovery in market demand and the start of a major network upgrade by a key North American MSO customer[122][125] - Data Center revenue grew 30.4% in Q2 2025 year-over-year, supported by increased orders for 100G and 400G products and new business related to generative AI applications[122][123][124] - Gross margin improved to 30.3% in Q2 2025 from 22.1% in Q2 2024, attributed to higher sales of high-margin products and ongoing efforts to reduce production costs[128][130] - Operating expenses increased by 31.6% in Q2 2025, primarily due to a 57.6% rise in R&D expenses to support customer demand for new products and accelerate project timelines[131][132] Liquidity and Capital Resources - As of June 30, 2025, the company had $87.2 million in cash, cash equivalents, and restricted cash, along with $31.2 million of unused borrowing capacity[145] At-the-Market (ATM) Offerings in 2025 (in thousands, except share data) | Offering | Completion Date | Shares Sold | Gross Proceeds | Net Proceeds | | :--- | :--- | :--- | :--- | :--- | | First ATM Offering | April 8, 2025 | ~5.7 million | ~$100,000 | ~$98,000 | | Second ATM Offering | June 18, 2025 | ~5.7 million | $100,000 | $98,000 | | Total | | ~11.4 million | ~$200,000 | ~$196,000 | - The company issued a warrant to an Amazon affiliate on March 13, 2025, for up to ~7.9 million shares, with vesting tied to up to $4 billion in product purchases over 10 years[161] Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risk exposure is largely unchanged since year-end 2024, but international trade policy risks, particularly U.S.-China, remain significant - The company's exposure to market risk has not changed materially since year-end 2024[169] - An analysis as of June 30, 2025, confirmed no material revisions were needed to the market risk disclosures from the 2024 Form 10-K, despite changes in international trade policies[170] Item 4. Controls and Procedures Management confirmed effective disclosure controls and procedures as of June 30, 2025, with no material changes to internal control over financial reporting - Management concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective[172] - There were no changes in internal control over financial reporting during the second quarter of 2025 that have materially affected, or are reasonably likely to materially affect, these controls[173] Part II. Other Information Item 1. Legal Proceedings No material adverse legal claims are pending, but a $1.0 million sales tax dispute with the Texas Comptroller's Office is ongoing with an indeterminable outcome - The company believes there are no pending legal proceedings that would have a material adverse effect on it[99][175] - A sales tax dispute with the Texas Comptroller's Office for approximately $1.0 million is ongoing, with the outcome currently indeterminable[100] Item 1A. Risk Factors Geopolitical tensions and volatile international trade policies, including new U.S. tariffs on Taiwan, pose significant risks to revenue, costs, and supply chain - A key risk factor is the heightened geopolitical tension and uncertainty in international trade policies, especially tariffs and export controls involving the U.S., China, and Taiwan[177] - As of early August 2025, the U.S. has imposed a 20% temporary tariff on most imports from Taiwan, effective August 7, 2025, which could directly impact the company's operations[177] - While not significantly impacted by tariffs on China to date, the company warns that future trade barriers could materially and adversely affect its revenue, operations, and financial condition[178] Item 5. Other Information SVP and Chief Legal Officer David Kuo adopted a Rule 10b5-1 trading plan on May 15, 2025, for the potential sale of up to 44,500 common stock shares - David Kuo, SVP and Chief Legal Officer, adopted a Rule 10b5-1 trading plan on May 15, 2025, for the potential sale of up to 44,500 shares of common stock[180] Item 6. Exhibits This section indexes all exhibits filed with the Form 10-Q, including corporate governance documents, convertible note indentures, the Amazon warrant, and officer certifications - The Exhibit Index lists all documents filed with or incorporated by reference into the quarterly report, including certifications by the CEO and CFO[181][183][185]