Applied Optoelectronics, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. AOI designs and manufactures fiber-optic networking products for CATV, data center, telecom, and FTTH markets. Financial amounts below are in USD millions unless noted.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $52.3 | $54.2 | $104.5 | $103.9 |
| Gross profit / margin | $8.6 / 16.5% | $10.8 / 19.9% | $17.7 / 16.9% | $21.5 / 20.7% |
| Operating loss | $(12.9) | $(13.6) | $(27.1) | $(27.7) |
| Net loss | $(14.5) | $(8.2) | $(30.5) | $(23.8) |
| Basic and diluted loss per share | $(0.52) | $(0.31) | $(1.11) | $(0.89) |
- Q2 revenue fell 3.5% year over year; first-half revenue rose 0.6%. Q2 CATV revenue declined, while telecom revenue increased; first-half data-center revenue decreased.
- Gross margin contracted by 3.4 percentage points in Q2 and 3.8 points for the first half, which management attributed chiefly to product mix, higher raw-material costs, and supply-chain disruptions.
- Operating expenses fell 11.9% in Q2 and 8.9% in the first half, including lower R&D and sales and marketing costs. Operating losses narrowed modestly, but net losses widened.
- Q2 2021 and first-half 2021 results included $6.2 million of PPP loan-forgiveness income; 2022 had no comparable gain.
Cash, liquidity, and debt
- At June 30, cash and cash equivalents were $33.7 million; restricted cash was $7.0 million, for total cash, cash equivalents, and restricted cash of $40.7 million. Current assets were $194.4 million and current liabilities $129.8 million.
- For the first half, operating cash use was $1.4 million, investing cash use was $2.0 million, and financing provided $2.0 million. Cash, cash equivalents, and restricted cash declined $0.5 million.
- Current notes payable and long-term debt totaled $53.6 million, all classified as current at quarter-end; convertible senior notes had a $79.1 million carrying value ($80.5 million principal), bear 5% interest, and mature March 2024. Bank acceptance payables were $10.3 million.
- AOI reported $14.8 million of unused borrowing capacity at June 30 and compliance with Truist credit-facility covenants. It repaid the $17 million Truist revolving borrowing on July 5, 2022. Management said existing cash, operating cash flows, and available credit should cover anticipated needs for the next 12 months, while noting additional funding may be needed depending on business and investment needs.
Outlook, risks, and notable items
- Management said customer forecasts and backlog indicated elevated CATV demand could continue into 2023, and it expected increased demand for 400G data-center products through the end of 2022. The filing provides no quantified earnings or revenue guidance.
- COVID-related restrictions in China and delayed semiconductor-component shipments disrupted supply. Alternative components and higher input, shipping, and labor costs pressured margins; management said the future cost impact was difficult to estimate.
- The top ten customers represented 87.1% of Q2 revenue. AOI noted that customer concentration makes forecasts dependent on a small number of customers and said it was pursuing diversification.
- AOI recorded no impairment after testing long-lived assets despite its continued loss history. Foreign-currency translation reduced first-half comprehensive income by $8.8 million.
- A Texas sales-and-use-tax audit for 2016–2019 resulted in a $0.4 million payment; management estimated a further assessment of $0.2–$0.4 million, with no final assessment reported.
- Management identified no material changes to previously disclosed risk factors. The company’s disclosure controls were reported effective as of June 30.
Most important facts to verify
- Whether CATV and 400G demand expectations were realized, and whether supply constraints and higher component costs continued to affect margins.
- How the July repayment of the $17 million Truist borrowing affected cash, available credit, and near-term liquidity.
- The timing and repayment terms of current borrowings, the 2024 convertible-note maturity, and access to China credit facilities, including lenders’ stated discretion to accelerate draws in certain circumstances.
- Customer concentration and the progress of efforts to diversify revenue.
- The final outcome of the Texas tax audit and the amount of any additional liability.
- The filing’s comprehensive-loss disclosures are inconsistent: the financial statement totals Q2 comprehensive loss at $22.0 million, while MD&A reports $22.3 million. The source text does not reconcile the difference.