Revenue Performance - Revenue for the three months ended March 31, 2024, was $40,673,000, a decrease of 23.3% compared to $53,030,000 for the same period in 2023[118]. - Data center revenue increased by 42.4% to $28,986,000, representing 71.3% of total revenue, while CATV revenue decreased by 68.6% to $8,736,000, representing 21.5% of total revenue[121]. - The company’s top ten customers accounted for 92% of revenue in the three months ended March 31, 2024, highlighting the need for diversification in the customer base[122]. Profitability and Loss - Gross profit for the three months ended March 31, 2024, was $7,591,000, with a gross margin of 18.7%, compared to a gross profit of $9,244,000 and a margin of 17.4% in the same period of 2023[118]. - The net loss for the three months ended March 31, 2024, was $23,170,000, or 57.0% of revenue, compared to a net loss of $16,292,000, or 30.8% of revenue, in the same period of 2023[118]. - Comprehensive loss increased by $10.2 million, or 69.5%, for the three months ended March 31, 2024, primarily due to the increase in net loss and foreign currency translation adjustments[134]. Operating Expenses - Operating expenses totaled $29,237,000, representing 71.9% of revenue, with research and development expenses increasing to $11,712,000, or 28.8% of revenue[118]. - Research and development expenses increased by $3.2 million, or 37.2%, for the three months ended March 31, 2024, primarily due to increased personnel-related expenses and project costs[126]. - Sales and marketing expenses increased by $1.5 million, or 63.2%, for the three months ended March 31, 2024, driven by business development efforts on quantum bandwidth products[127]. - General and administrative expenses increased by $1.2 million, or 9.4%, for the three months ended March 31, 2024, mainly due to higher legal fees and share-based compensation[128]. Cash Flow and Financing - For the three months ended March 31, 2024, net cash used in operating activities was $28.5 million, compared to $9.4 million for the same period in 2023, reflecting a significant increase in cash outflow[143][144]. - Net cash used in investing activities for the three months ended March 31, 2024, was $8.1 million, up from $0.8 million in the same period of 2023, primarily due to the purchase of additional plant, machinery, and equipment[145]. - Net cash used in financing activities for the three months ended March 31, 2024, was $1.4 million, a decrease from a cash inflow of $1.1 million in the same period of 2023, attributed to net repayment of bank acceptance[146]. - The company sold approximately 270,000 shares of common stock with gross proceeds of approximately $4.0 million under the current ATM Offering[139]. Strategic Initiatives - The company has entered into a five-year supply agreement with Microsoft to design and manufacture data center products, indicating a strategic focus on expanding partnerships[122]. - The company anticipates increased demand for 400G data center products through the end of 2024 based on customer forecasts[122]. - The company operates three manufacturing sites in Sugar Land, Texas, Ningbo, China, and Taipei, Taiwan, with a focus on maintaining domestic production capacity for competitive advantage[110]. - The company is experiencing a transition in the CATV market due to the shift from DOCSIS 3.1 to DOCSIS 4.0, impacting order volumes for older products[121]. Financial Position - As of March 31, 2024, the company had $29.4 million of unused borrowing capacity from all loan agreements and cash, cash equivalents, and restricted cash totaling $17.4 million[135]. - As of March 31, 2024, the company had $29.4 million of unused borrowing capacity and a total loan balance of $24.1 million from various lenders in China[147][152]. - The company anticipates future capital requirements will depend on growth rate, R&D spending, and expansion of sales and marketing activities, with cash and cash equivalents decreasing by approximately $37.7 million compared to December 31, 2023[151]. - The construction of a new factory in Ningbo, China, is estimated to cost approximately $27.5 million, with $27.4 million already paid as of March 31, 2024[150]. - The company issued $80.2 million of 5.25% convertible senior notes due in 2026 on December 5, 2023, following the payoff of $80.5 million of 5% convertible senior notes due in 2024[148]. Economic Environment - The annual inflation rate in the US was 3.4% in 2023, which has not materially impacted the company's sales or operating results during the three months ended March 31, 2024[154]. - The net loss for the three months ended March 31, 2024, was $23.2 million, which included non-cash items of $10.2 million, while the net loss for the same period in 2023 was $16.3 million[143][144]. - Interest income increased by $0.2 million, or 688.3%, for the three months ended March 31, 2024, due to higher saving balances and interest rates[130].
Applied Optoelectronics(AAOI) - 2024 Q1 - Quarterly Report