|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from __________ to __________
Commission File Number:
Applied Optoelectronics, Inc.
(Exact name of registrant as specified in its charter)
|
|
|
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Trading Symbol(s) |
Trading Name of each exchange on which registered |
|
|
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
|
Large accelerated filer |
☐ |
|
☒ |
|
|
Non-accelerated filer |
☐ |
Smaller reporting company |
|
|
|
Emerging growth company |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 5, 2025, there were
Applied Optoelectronics, Inc.
|
Page |
||
|
|
||
|
Item 1. |
||
|
|
||
|
Condensed Consolidated Balance Sheets as of June 30, 2025 (Unaudited) and December 31, 2024 |
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
Notes To Condensed Consolidated Financial Statements (Unaudited) |
||
|
|
||
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
|
|
||
|
Item 3. |
||
|
|
||
|
Item 4. |
||
|
|
||
|
Item 1. |
||
|
Item 1A. |
||
| Item 5. | Other Information | 31 |
|
Item 6. |
||
Item 1. Condensed Consolidated Financial Statements
Applied Optoelectronics, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
|
June 30, |
December 31, |
|||||||
|
|
2025 |
2024 |
||||||
|
ASSETS |
||||||||
|
Current Assets |
||||||||
|
Cash and cash equivalents |
$ |
|
$ |
|
||||
|
Restricted cash |
|
|
||||||
|
Accounts receivable, net |
|
|
||||||
|
Inventories, net |
|
|
||||||
|
Prepaid expenses and other current assets |
|
|
||||||
|
Total current assets |
|
|
||||||
|
Property, plant and equipment, net |
|
|
||||||
|
Land use rights, net |
|
|
||||||
|
Operating right of use assets |
|
|
||||||
|
Intangible assets, net |
|
|
||||||
|
Other assets, net |
|
|
||||||
|
TOTAL ASSETS |
$ |
|
$ |
|
||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||
|
Current liabilities |
||||||||
|
Accounts payable |
$ |
|
$ |
|
||||
|
Bank acceptance payable |
|
|
||||||
|
Accrued liabilities |
|
|
||||||
|
Current lease liabilities - operating |
|
|
||||||
|
Current portion of notes payable and long-term debt |
|
|
||||||
|
Total current liabilities |
|
|
||||||
|
Non-current lease liabilities - operating |
|
|
||||||
|
Long term debt |
|
|
||||||
|
Convertible senior notes |
|
|
||||||
|
TOTAL LIABILITIES |
|
|
||||||
|
Commitments and contingencies (Note 18) |
||||||||
|
Stockholders' equity: |
||||||||
|
Preferred Stock; shares authorized at $ par value; shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively |
|
|
||||||
|
Common Stock; and shares authorized at $ par value; and shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively |
|
|
||||||
|
Additional paid-in capital |
|
|
||||||
|
Accumulated other comprehensive income |
|
(
|
) | |||||
|
Accumulated deficit |
(
|
) |
(
|
) | ||||
|
TOTAL STOCKHOLDERS' EQUITY |
|
|
||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ |
|
$ |
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Applied Optoelectronics, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
|
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
|
|
2025 |
2024 |
2025 |
2024 |
||||||||||||
|
Revenue, net |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Cost of goods sold |
|
|
|
|
||||||||||||
|
Gross profit |
|
|
|
|
||||||||||||
|
Operating expenses |
|
|
||||||||||||||
|
Research and development |
|
|
|
|
||||||||||||
|
Sales and marketing |
|
|
|
|
||||||||||||
|
General and administrative |
|
|
|
|
||||||||||||
|
Total operating expenses |
|
|
|
|
||||||||||||
|
Loss from operations |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
|
Other income (expense) |
|
|
||||||||||||||
|
Interest income |
|
|
|
|
||||||||||||
|
Interest expense |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
|
Other income (expense) |
|
|
|
|
||||||||||||
|
Total other income (expense), net |
|
|
|
(
|
) | |||||||||||
|
Loss before income taxes |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
|
Income tax expense |
|
|
|
|
||||||||||||
|
Net loss |
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | ||||
|
Net loss per share |
|
|
|
|
||||||||||||
|
Basic |
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | ||||
|
Diluted |
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | ||||
|
|
|
|
|
|
||||||||||||
|
Weighted average shares used to compute net loss per share: |
|
|
|
|
||||||||||||
|
Basic |
|
|
|
|
||||||||||||
|
Diluted |
|
|
|
|
||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Applied Optoelectronics, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands)
|
|
Three months ended June 30, |
Six months ended June 30, |
||||||||||||||
|
|
2025 |
2024 |
2025 |
2024 |
||||||||||||
|
Net loss |
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | ||||
|
Gain (Loss) on foreign currency translation adjustment |
|
(
|
) |
|
(
|
) | ||||||||||
|
Comprehensive loss |
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Applied Optoelectronics, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three and Six Months ended June 30, 2025 and 2024
(Unaudited, in thousands, except for share amount )
|
|
|
|
Accumulated |
|
|
|||||||||||||||||||
|
|
Common Stock |
Additional |
other |
|
|
|||||||||||||||||||
|
|
Number |
|
paid-in |
comprehensive |
Accumulated |
Stockholders' |
||||||||||||||||||
|
|
of shares |
Amount |
capital |
gain (loss) |
deficit |
equity |
||||||||||||||||||
|
March 31, 2025 |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
|||||||||||
|
Issuance of restricted stock, net of shares withheld for employee tax |
|
|
(
|
) |
|
|
(
|
) | ||||||||||||||||
|
Share-based compensation |
— |
|
|
|
|
|
||||||||||||||||||
|
Public offering of common stock, net |
|
|
|
|
|
|
||||||||||||||||||
|
Warrants contra revenue |
— |
|
|
|
|
|
||||||||||||||||||
|
Foreign currency translation adjustment |
— |
|
|
|
|
|
||||||||||||||||||
|
Net loss |
— |
|
|
|
(
|
) |
(
|
) | ||||||||||||||||
|
June 30, 2025 |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
|
||||||||||||
|
|
|
|
Accumulated |
|
|
|||||||||||||||||||
|
|
Common Stock |
Additional |
other |
|
|
|||||||||||||||||||
|
|
Number |
|
paid-in |
comprehensive |
Accumulated |
Stockholders' |
||||||||||||||||||
|
|
of shares |
Amount |
capital |
gain (loss) |
deficit |
equity |
||||||||||||||||||
|
March 31, 2024 |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
|||||||||||
|
Issuance of restricted stock, net of shares withheld for employee tax |
|
|
(
|
) |
|
|
(
|
) | ||||||||||||||||
|
Share-based compensation |
— |
|
|
|
|
|
||||||||||||||||||
|
Public offering of common stock, net |
|
|
|
|
|
|
||||||||||||||||||
|
Foreign currency translation adjustment |
— |
|
|
(
|
) |
|
(
|
) | ||||||||||||||||
|
Net loss |
— |
|
|
|
(
|
) |
(
|
) | ||||||||||||||||
|
June 30, 2024 |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
|||||||||||
|
|
|
|
Accumulated |
|
|
|||||||||||||||||||
|
|
Common Stock |
Additional |
other |
|
|
|||||||||||||||||||
|
|
Number |
|
paid-in |
comprehensive |
Accumulated |
Stockholders' |
||||||||||||||||||
|
|
of shares |
Amount |
capital |
gain (loss) |
deficit |
equity |
||||||||||||||||||
|
December 31, 2024 |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
|||||||||||
|
Issuance of restricted stock, net of shares withheld for employee tax |
|
|
(
|
) |
|
|
(
|
) | ||||||||||||||||
|
Share-based compensation |
— |
|
|
|
|
|
||||||||||||||||||
|
Public offering of common stock, net |
|
|
|
|
|
|
||||||||||||||||||
|
Warrants contra revenue |
— |
|
|
|
|
|
||||||||||||||||||
|
Foreign currency translation adjustment |
— |
|
|
|
|
|
||||||||||||||||||
|
Net loss |
— |
|
|
|
(
|
) |
(
|
) | ||||||||||||||||
|
June 30, 2025 |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
|
||||||||||||
|
|
|
|
Accumulated |
|
|
|||||||||||||||||||
|
|
Common Stock |
Additional |
other |
|
|
|||||||||||||||||||
|
|
Number |
|
paid-in |
comprehensive |
Retained |
Stockholders' |
||||||||||||||||||
|
|
of shares |
Amount |
capital |
gain (loss) |
earnings |
equity |
||||||||||||||||||
|
December 31, 2023 |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
|
||||||||||||
|
Stock options exercised, net of shares withheld for employee tax |
|
|
(
|
) |
|
|
(
|
) | ||||||||||||||||
|
Issuance of restricted stock, net of shares withheld for employee tax |
|
|
(
|
) |
|
|
(
|
) | ||||||||||||||||
|
Share-based compensation |
— |
|
|
|
|
|
||||||||||||||||||
|
Public offering of common stock, net |
|
|
|
|
|
|
||||||||||||||||||
|
Shares converted by Note Holder |
|
|
|
|
|
|
||||||||||||||||||
|
Foreign currency translation adjustment |
— |
|
|
(
|
) |
(
|
) |
(
|
) | |||||||||||||||
|
Net loss |
— |
|
|
|
(
|
) |
(
|
) | ||||||||||||||||
|
June 30, 2024 |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
|||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Applied Optoelectronics, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
|
Six months ended June 30, |
||||||||
|
|
2025 |
2024 |
||||||
|
Operating activities: |
|
|
||||||
|
Net loss |
$ |
(
|
) | $ |
(
|
) | ||
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|||||||
|
Allowance for credit losses |
|
|
||||||
|
Inventory reserve adjustment |
|
|
||||||
|
Depreciation and amortization |
|
|
||||||
|
Amortization of debt issuance costs and premium |
(
|
) |
|
|||||
|
Gain (loss) on disposal of assets |
|
|
||||||
|
Share-based compensation |
|
|
||||||
|
Warrants contra revenue |
|
|
||||||
|
Unrealized foreign exchange (gain) |
(
|
) |
|
|||||
|
Changes in operating assets and liabilities: |
||||||||
|
Accounts receivable, trade |
(
|
) |
(
|
) | ||||
|
Trade notes receivable |
|
(
|
) | |||||
|
Inventories, net |
(
|
) |
|
|||||
|
Other current assets |
(
|
) |
|
|||||
|
Operating right of use asset |
(
|
) |
|
|||||
|
Accounts payable |
|
|
||||||
|
Accrued liabilities |
|
(
|
) | |||||
|
Unearned revenue |
|
(
|
) | |||||
|
Lease liability |
|
(
|
) | |||||
|
Net cash used in operating activities |
(
|
) |
(
|
) | ||||
|
Investing activities: |
||||||||
|
Purchase of property, plant and equipment |
(
|
) |
(
|
) | ||||
|
Deposits and prepaid for equipment |
(
|
) |
(
|
) | ||||
|
Purchase of intangible assets |
(
|
) |
(
|
) | ||||
|
Net cash used in investing activities |
(
|
) |
(
|
) | ||||
|
Financing activities: |
||||||||
|
Proceeds from line of credit borrowings |
|
|
||||||
|
Repayments of line of credit borrowings |
(
|
) |
(
|
) | ||||
|
Proceeds from bank acceptance payable |
|
|
||||||
|
Repayments of bank acceptance payable |
(
|
) |
(
|
) | ||||
|
Payments of tax withholding on behalf of employees related to share-based compensation |
(
|
) |
(
|
) | ||||
|
Payment on convertible notes |
(
|
) |
(
|
) | ||||
|
Proceeds from common stock offering, net |
|
|
||||||
|
Cash settlement of Share-based compensation |
|
(
|
) | |||||
|
Net cash provided by financing activities |
|
|
||||||
|
Effect of exchange rate changes on cash |
|
|
||||||
|
Net decrease in cash, cash equivalents and restricted cash |
|
(
|
) | |||||
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
||||||
|
Cash, cash equivalents and restricted cash at end of period |
$ |
|
$ |
|
||||
|
Supplemental disclosure of cash flow information: |
||||||||
|
Cash paid for: |
||||||||
|
Interest, net of amounts capitalized |
$ |
|
$ |
|
||||
|
Non-cash investing and financing activities: |
||||||||
|
Net change in accounts payable related to property and equipment additions |
$ |
|
$ |
(
|
) | |||
|
Net change in deposits and prepaid for equipment related to property and equipment additions |
(
|
) |
|
|||||
|
Non-cash operating and financing activities: |
||||||||
|
Warrant issued and vested to customer |
$ |
|
|
|||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Applied Optoelectronics, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Description of Business
Business Overview
Applied Optoelectronics, Inc. ("AOI" or the "Company") is a Delaware corporation. The Company is a leading, vertically integrated provider of fiber-optic networking products, primarily for four networking end-markets: internet data center, cable television ("CATV"), telecommunications ("telecom") and fiber-to-the-home ("FTTH"). The Company designs and manufactures a wide range of optical communications products at varying levels of integration, from components, subassemblies and modules to complete turn-key equipment.
The Company has manufacturing and research and development facilities located in the U.S., Taiwan and China. In the U.S., at its corporate headquarters and manufacturing facilities in Sugar Land, Texas, the Company primarily manufactures lasers and laser components as well as certain of its data center transceivers and performs research and development activities for laser component and optical module products and certain data center transceiver products. In addition, the Company has a research and development facility in Duluth, Georgia. The Company operates in Taipei, Taiwan and Ningbo, China through its wholly-owned subsidiary Prime World International Holdings, Ltd. ("Prime World", incorporated in the British Virgin Islands). Prime World operates a branch in Taipei, Taiwan, which primarily manufactures certain of its data center transceivers and certain CATV systems and equipment and performs research and development activities for the transceiver products. Prime World is the parent of Global Technology, Inc. ("Global", incorporated in the People’s Republic of China). Through Global, the Company primarily manufactures certain of its data center transceiver products, including subassemblies, as well as CATV systems and equipment, and performs research and development activities for CATV and certain data center transceiver products.
Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements of the Company as of June 30, 2025 and December 31, 2024 and for the three and six months ended June 30, 2025 and June 30, 2024 , have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim information and with the instructions on Form 10 -Q and Rule 10 - 01 of Regulation S- X pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). In accordance with those rules and regulations, the Company has omitted certain information and notes required by GAAP for annual consolidated financial statements. In the opinion of management, the condensed consolidated financial statements contain all adjustments, except as otherwise noted, necessary for the fair presentation of the Company’s financial position and results of operations for the periods presented. The year-end condensed balance sheet data was derived from audited financial statements. These condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10 -K ("Annual Report") for the fiscal year ended December 31, 2024 . The results of operations for the three and six months ended June 30, 2025 are not necessarily indicative of the results expected for the entire fiscal year. All significant inter-company accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates in the consolidated financial statement s and accompanying notes. Significant estimates and assumptions that impact these financial statements and the accompanying notes relate to, among other things, revenue recognition, allowance for credit losses, inventory reserve, impairment of long-lived assets, service and product warranty costs, share-based compensation expense, estimated useful lives of tangible and intangible assets, and taxes.
|
Product Warranty
|
The Company generally offers a
-year limited warranty for its products but it can extend for longer periods of
to
years for certain products sold to certain customers. The Company estimates the costs that
may
be incurred under its basic limited warranty and records a liability for the amount of such costs at the time when product defects occur. Factors that affect the Company’s warranty liability include the historical and anticipated rates of warranty claims and cost to repair. While the Company believes that its warranty accrual is adequate, the actual warranty costs
may
exceed the accrual, in which case the cost of sales will increase in the future. As of
June, 30, 2025
and
December 31, 2024,
the amount of accrued warranty was $
Note 2. Significant Accounting Policies
There have been no changes in the Company’s significant accounting policies for the three and six months ended June 30, 2025 , as compared to the significant accounting policies described in its 2024 Annual Report.
Recent Accounting Pronouncements
There was no accounting pronouncement adopted in the second quarter of 2025.
Recent Accounting Pronouncements Yet to be Adopted
In November 2024, the FASB issued ASU 2024 - 03 "Income Statement: Reporting Comprehensive Income/Expense Disaggregation Disclosures (Subtopic 220 - 40 )" to improve the disclosures about an entity's expenses. Upon adoption, we will be required to disclose in the notes a disaggregation of certain expense categories included within the expense captions of the income statement. The standard is effective for our 2027 annual period, and our interim periods beginning in 2028. The Company is currently evaluating the impact of the new standard will have on its annual financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023 - 09 "Income Taxes (Topic 740 ): "Improvements to Income Tax Disclosures", which requires the Company to disclose disaggregated jurisdictional and categorical information for the tax rate reconciliation, income taxes paid and other income tax related amounts. This guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. ASU 2023 - 09 will be effective for the Company for the year ending December 31, 2025. The adoption is expected to enhance the Company's Notes to the Consolidated Financial Statements. The Company is currently evaluating the impact the new standard will have on its annual financial statements and related disclosures.
In October 2023, the FASB issued ASU 2023 - 06 "Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative", which amends U.S. GAAP to include 14 disclosure requirements that are currently required under SEC Regulation S- X or Regulation S-K. Each amendment will be effective on the date on which the SEC removes the related disclosure requirement from SEC Regulation S- X or Regulation S-K. The Company has evaluated the new standard and determined that it will have no material impact on its financial statements or disclosures since the Company is already subject to the relevant SEC disclosure requirements.
Note 3. Revenue Recognition
Disaggregation of Revenue
Revenue is classified based on the location where the product is manufactured. For additional information on the disaggregated revenues by geographical region, see Note 17, "Segment and Geographic Information."
Revenue is also classified by major product categories and is presented below (in thousands):
|
Three months ended June 30, |
||||||||||||||||
|
% of |
% of |
|||||||||||||||
|
|
2025 |
Revenue |
2024 |
Revenue |
||||||||||||
|
CATV |
$ |
|
|
% | $ |
|
|
% | ||||||||
|
Data Center |
|
|
% |
|
|
% | ||||||||||
|
Telecom |
|
|
% |
|
|
% | ||||||||||
|
Other |
|
|
% |
|
|
% | ||||||||||
|
Total Revenue |
$ |
|
|
% | $ |
|
|
% | ||||||||
|
Six months ended June 30, |
||||||||||||||||
|
|
% of |
% of |
||||||||||||||
|
|
2025 |
Revenue |
2024 |
Revenue |
||||||||||||
|
CATV |
$ |
|
|
% | $ |
|
|
% | ||||||||
|
Data Center |
|
|
% |
|
|
% | ||||||||||
|
Telecom |
|
|
% |
|
|
% | ||||||||||
|
Other |
|
|
% |
|
|
% | ||||||||||
|
Total Revenue |
$ |
|
|
% | $ |
|
|
% | ||||||||
Unearned Revenue
We record unearned revenues when cash payments are received or due in advance of our performance, including amounts which are refundable. Unearned revenues solely relate to statement of work with Microsoft regarding contract prices allocated to the performance obligations that are unsatisfied, or partially unsatisfied, as of the balance sheet dates. Unearned revenue balance as of
June 30, 2025
and
December 31, 2024
were both zero. For the
three
months ended
June 30, 2025
and
2024
, revenue recognized from the unearned revenue balance was $
|
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
|
2025 |
2024 |
2025 |
2024 |
|||||||||||||
|
Unearned revenue, beginning of period |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Additional unearned revenue |
|
|
|
|
||||||||||||
|
Revenue recognized |
|
|
|
|
||||||||||||
|
Unearned revenue, end of period |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Customer Warrant
On
March 13, 2025,
the Company issued a warrant (the "Customer Warrant") to a wholly-owned subsidiary of Amazon.com, Inc. ("Warrant holder") to purchase up to an aggregate of
| At Grant Date | ||||
| Expected volatility |
|
% | ||
| Weighted-average expected term (in years) |
|
|||
| Risk-free interest rate |
|
% | ||
| Dividend yield |
|
% | ||
| Fair value per ordinary share at grant date | $ |
|
||
Note 4. Leases
The Company leases space under non-cancellable operating leases for manufacturing facilities, research and development offices and certain storage facilities and apartments. These leases do not contain contingent rent provisions. The Company also leases certain machinery, office equipment and a vehicle under operating leases. The Company determines if an arrangement is or contains a lease at contract inception. Many of its leases include both lease (e.g. fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g. common-area or other maintenance costs) which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. Several of the leases include one or more options to renew which have been assessed and either included or excluded from the calculation of the lease liability of the right of use ("ROU") asset based on management’s intentions and individual fact patterns. Several warehouses and apartments have non-cancellable lease terms of less than one -year and therefore, the Company has elected the practical expedient to exclude these short-term leases from its ROU asset and lease liabilities
On
October 7, 2024,
Prime World entered into a Land and Building Lease Agreement with San Ho Enterprise Co., Ltd., under which Prime World will lease approximately
On
June 7, 2025,
Prime World entered into a Land and Building Lease Agreement with San Ho Electric Machinery Industry Co., Ltd., under which Prime World will lease a parcel of land with a total area of approximately
As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Based on the applicable lease terms and current economic environment, the Company applies a location approach for determining the incremental borrowing rate.
Lease expense is included under general and administrative expenses and were $
|
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
|
|
2025 |
2024 |
2025 |
2024 |
||||||||||||
|
Operating lease expense |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Short Term lease expense |
|
|
|
|
||||||||||||
|
Total lease expense |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Maturities of lease liabilities are as follows for the future one -year periods ending June 30, 2025 (in thousands):
|
Fiscal years: |
Operating |
|||
|
2025 (remaining 6 months) |
$ |
|
||
|
2026 |
|
|||
|
2027 |
|
|||
|
2028 |
|
|||
|
2029 |
|
|||
|
2030 and thereafter |
|
|||
|
Total lease payments |
|
|||
|
Less imputed interest |
(
|
) | ||
|
Present value |
$ |
|
||
The weighted average remaining lease term and discount rate for the leases were as follows for the periods indicated:
|
Six months ended June 30, |
||||||||
|
|
2025 |
2024 |
||||||
|
Weighted Average Remaining Lease Term (Years) - operating leases |
|
|
||||||
|
Weighted Average Discount Rate - operating leases |
|
% |
|
% | ||||
Supplemental cash flow information related to the leases was as follows for the periods indicated (in thousands):
|
Six months ended June 30, |
||||||||
|
|
2025 |
2024 |
||||||
|
Cash paid for amounts included in the measurement of lease liabilities |
|
|
||||||
|
Operating cash flows from operating leases |
$ |
|
$ |
|
||||
Note 5. Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of c ash, cash equivalents and r estricted cash reported within the statement of financial position that sum to the total of the same such amounts in the statement of cash flows (in thousands):
|
June 30, |
December 31, |
|||||||
|
|
2025 |
2024 |
||||||
|
Cash and cash equivalents |
$ |
|
$ |
|
||||
|
Restricted cash |
|
|
||||||
|
Total cash, cash equivalents and restricted cash shown in the statement of cash flows |
$ |
|
$ |
|
||||
Restricted cash includes guarantee deposits for customs duties, a China government subsidy fund, and deposits as collateral in order to secure bank acceptance notes issued to vendors. As of
June 30, 2025
and
December 31, 2024
, there was $
Note 6. Earnings (Loss) Per Share
Basic net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share has been computed using the weighted-average number of shares of common stock and dilutive potential common shares from stock options, restricted stock units and senior convertible notes outstanding during the period. In periods with net losses, normally dilutive shares become anti-dilutive. Therefore, basic and diluted loss per share are the same. On
March 13, 2025,
the Company issued
The following table sets forth the computation of the basic and diluted net loss per share for the periods indicated (in thousands):
|
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
|
|
2025 |
2024 |
2025 |
2024 |
||||||||||||
|
Numerator: |
|
|
|
|
||||||||||||
|
Net loss |
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | ||||
|
Denominator: |
|
|
|
|
||||||||||||
|
Weighted average shares used to compute net loss per share |
|
|
|
|
||||||||||||
|
Basic |
|
|
|
|
||||||||||||
|
Diluted |
|
|
|
|
||||||||||||
|
Net loss per share |
|
|
|
|
||||||||||||
|
Basic |
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | ||||
|
Diluted |
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | ||||
The following potentially dilutive securities were excluded from the diluted net loss per share as their effect would have been antidilutive (in thousands):
|
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
|
|
2025 |
2024 |
2025 |
2024 |
||||||||||||
|
Restricted stock units |
|
|
|
|
||||||||||||
|
Shares for convertible senior notes |
|
|
|
|
||||||||||||
|
Total antidilutive shares |
|
|
|
|
||||||||||||
Note 7. Inventories
Inventories, net consist of the following for the periods indicated (in thousands):
|
|
June 30, 2025 |
December 31, 2024 |
||||||
|
Raw materials |
$ |
|
$ |
|
||||
|
Work in process and sub-assemblies |
|
|
||||||
|
Finished goods |
|
|
||||||
|
Allowance for inventory |
(
|
) |
(
|
) | ||||
|
Total inventories |
$ |
|
$ |
|
||||
For the
three
months ended
June 30, 2025
and
2024
, the inventory reserve adjustment expensed for inventory was $
For the
three
months ended
June 30, 2025
and
2024
, the direct inventory write-offs related to scrap, discontinued products and damaged inventories were $
Note 8. Property, Plant & Equipment
Property, plant and equipment consisted of the following for the periods indicated (in thousands):
|
|
June 30, 2025 |
December 31, 2024 |
||||||
|
Land improvements |
$ |
|
$ |
|
||||
|
Buildings and improvements |
|
|
||||||
|
Machinery and equipment |
|
|
||||||
|
Furniture and fixtures |
|
|
||||||
|
Computer equipment and software |
|
|
||||||
|
Transportation equipment |
|
|
||||||
|
|
|
|
||||||
|
Less accumulated depreciation |
(
|
) |
(
|
) | ||||
|
|
|
|
||||||
|
Construction in progress |
|
|
||||||
|
Land |
|
|
||||||
|
Total property, plant and equipment, net |
$ |
|
$ |
|
||||
For the
three
months ended
June 30, 2025
and
2024
, the depreciation expense of property, plant and equipment was $
As of June 30, 2025 , the Company concluded that its continued loss history constitutes a triggering event as described in ASC 360 - 10 - 35 - 21, Property, Plant, and Equipment . The Company performed a recoverability test and concluded that future undiscounted cash flows exceed the carrying amount of the Company’s long-lived assets and therefore no impairment charge was recorded.
Note 9. Intangible Assets, net
Intangible assets consisted of the following for the periods indicated (in thousands):
|
June 30, 2025 |
||||||||||||
|
|
Gross |
Accumulated |
Intangible |
|||||||||
|
|
Amount |
amortization |
assets, net |
|||||||||
|
Patents |
$ |
|
$ |
(
|
) | $ |
|
|||||
|
Trademarks |
|
(
|
) |
|
||||||||
|
Total intangible assets |
$ |
|
$ |
(
|
) | $ |
|
|||||
|
December 31, 2024 |
||||||||||||
|
|
Gross |
Accumulated |
Intangible |
|||||||||
|
|
Amount |
amortization |
assets, net |
|||||||||
|
Patents |
$ |
|
$ |
(
|
) | $ |
|
|||||
|
Trademarks |
|
(
|
) |
|
||||||||
|
Total intangible assets |
$ |
|
$ |
(
|
) | $ |
|
|||||
For the
three
months ended
June 30, 2025
and
2024
, amortization expense for intangible assets, included in general and administrative expenses on the sta
tement of
operations, was $
On June 30, 2025 , future amortization expenses for intangible assets for future periods are estimated to be (in thousands):
|
2025 (remaining 6 months) |
$ |
|
||
|
2026 |
|
|||
|
2027 |
|
|||
|
2028 |
|
|||
|
2029 |
|
|||
|
2030 and thereafter |
|
|||
| $ |
|
Note 10. Fair Value of Financial Instruments
The carrying value amounts of cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses, notes receivable and other current assets, accounts payable, accrued expenses, bank acceptance payable and other current liabilities approximate fair value because of the short-term maturity of these instruments. The Company believes that the interest rates in effect at each period end represent the current market rates for similar borrowings.
The Company's accounts receivable was $
The fair value of convertible senior notes is measured for disclosure purposes only. The fair value and carrying amount of our convertible senior notes as of
June 30, 2025
was $
Note 11. Notes Payable and Long-Term Debt
Notes payable and long-term debt consisted of the following for the periods indicated (in thousands):
|
June 30, 2025 |
December 31, 2024 |
|||||||
|
Revolving line of credit with a China bank up to $ million with interest between % and %, maturing |
$ |
|
$ |
|
||||
|
Credit facility with a China bank up to $ million with interest between % and %, maturing |
|
|
||||||
|
Revolving line of credit with a China bank up to $ million with interest at %, maturing |
|
|
||||||
|
Total |
|
|
||||||
|
Less current portion |
(
|
) |
(
|
) | ||||
|
Non-current portion |
$ |
|
$ |
|
||||
|
Bank Acceptance Notes Payable |
June 30, 2025 | December 31, 2024 | ||||||
|
Bank acceptance notes issued to vendors with zero handling fees |
$ |
|
$ |
|
||||
The loans are all within one year of the balance sheet date of June 30, 2025.
On
May 24, 2019,
Global entered into a
-year revolving credit line agreement, totaling
On
May 24, 2024,
Global renewed the SPD Credit Line for a
-year revolving credit line, totaling
On
June 7, 2022,
Global entered into a security agreement with China Zheshang Bank in Ningbo City, China ("CZB") for a
-year credit line agreement, totaling
.
On
June 12, 2025,
Global entered into a
-year credit facility with China Construction Bank Co., Ltd., in Ningbo, City, China ("CCB"), totaling
On
June 26, 2025,
Global entered into a
-year revolving credit line agreement with CCB, totaling
As of
June 30, 2025
and
December 31, 2024
, the Company had $
As of
June 30, 2025
and
December 31, 2024
, there
was $
Note 12. Convertible Senior Notes
On
March 5, 2019,
the Company issued $
The 2026 Notes bear interest at a rate of 5.250% per year and pay interest semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2024. The 2026 Notes mature on December 15, 2026, unless earlier converted, redeemed or repurchased in accordance with their terms.
On
December 18, 2024,
the Company entered into exchange agreements with certain holders of the
2026
Notes to exchange approximately $
The
2030
Notes were issued pursuant to an Indenture, dated as of
December 23, 2024 (
the "Indenture"), between the Company, as issuer, and Computershare Trust Company, N.A., as trustee. The
2030
Notes bear interest at a rate of
The following table presents the carrying value of the 2026 Notes and the 2030 Notes for the periods indicated (in thousands):
|
June 30, |
December 31, |
|||||||
|
|
2025 |
2024 |
||||||
|
2026 Notes |
||||||||
|
Principal |
$ |
|
$ |
|
||||
|
Unamortized debt issuance costs |
|
(
|
) | |||||
|
Net carrying amount |
|
|
||||||
|
2030 Notes |
||||||||
|
Principal |
|
|
||||||
|
Premium upon issuance |
|
|
||||||
|
Unamortized debt issuance costs |
(
|
) |
(
|
) | ||||
|
Net carrying amount |
|
|
||||||
|
Total net carrying amount |
$ |
|
$ |
|
||||
The conversion rate for the
2030
Notes is
The
2030
Notes will be redeemable, in whole or in part (subject to certain limitations described in the Indenture), at the Company’s option at any time, and from time to time, on or after
January 15, 2027
and on or before the
40th
scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the
2030
Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of the Common Stock exceeds
In addition, the 2030 Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the 2030 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date (subject to the right of a holder of 2030 Notes as of the close of business on a record date to receive the related interest payment on the corresponding interest payment date), if the “Specified Divestiture” (as defined in the Indenture) is completed.
Calling any 2030 Note for redemption will constitute a "Make-Whole Fundamental Change" (as defined in the Indenture) with respect to that 2030 Note, in which case the conversion rate applicable to the conversion of that 2030 Note will be increased in certain circumstances if it is converted after it is called for redemption.
In addition, if the Specified Divestiture is completed, then unless the Company has previously elected to redeem all of the 2030 Notes, each holder of 2030 Notes will have the right to require the Company to repurchase its 2030 Notes for cash on a date of the Company’s choosing, which must be a business day that is no more than 35, nor less than 20, business days after the date the Company’s sends the related notice of Specified Divestiture. The repurchase price for a note tendered for such repurchase will be equal to the principal amount of the 2030 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date (subject to the right of a holder of 2030 Notes as of the close of business on a record date to receive the related interest payment on the corresponding interest payment date).
Moreover, if the Company undergoes a fundamental change, as described in the Indenture, holders of the
2030
Notes
may
require the Company to repurchase for cash all or part of their
2030
Notes at a repurchase price equal to
Additionally, the 2030 Notes are subject to customary events of default. The 2030 Notes do not restrict the Company’s ability to incur debt or liens. No sinking fund is provided for the 2030 Notes. There are no guarantors of the 2030 Notes.
Pursuant to the guidance in ASC 815 - 40, Contracts in Entity’s Own Equity, the Company evaluated whether the conversion feature of the note needed to be bifurcated from the host instrument as a freestanding financial instrument. Under ASC 815 - 40, to qualify for equity classification (or non-bifurcation, if embedded) the instrument (or embedded feature) must be both ( 1 ) indexed to the issuer’s own stock and ( 2 ) meet the requirements of the equity classification guidance. Based upon the Company’s analysis, it was determined the conversion option is indexed to its own stock and also met all the criteria for equity classification. Accordingly, the conversion option is not required to be bifurcated from the host instrument as a derivative.
Pursuant to ASC 815 - 15, the Company further determined that the contingent redemption features in the 2030 Notes are not required to be bifurcated from the host contract and accounted for separately. Additionally, the Company then evaluated whether the conversion feature needed to be separately accounted for as an equity component under ASC 470 - 20, Debt with Conversion and Other Options, and determined that the additional premium was not substantial. Accordingly, that amount was recognized as a premium on the 2030 Notes.
The following table sets forth interest expense information related to the 2026 Notes and 2030 Notes (in thousands):
|
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
|
|
2025 |
2024 |
2025 |
2024 |
||||||||||||
|
Contractual interest expense |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Amortization of debt issuance costs |
|
|
|
|
||||||||||||
|
Total interest cost |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Effective interest rate |
|
% |
|
% |
|
% |
|
% | ||||||||
Note 13. Accrued Liabilities
Accrued liabilities consisted of the following for the periods indicated (in thousands):
|
June 30, 2025 |
December 31, 2024 |
|||||||
|
Accrued payroll |
$ |
|
$ |
|
||||
|
Accrued employee benefits |
|
|
||||||
|
Accrued state and local taxes |
|
|
||||||
|
Accrued interest |
|
|
||||||
|
Accrued shipping and tariff expenses |
|
|
||||||
|
Advanced payments |
|
|
||||||
|
Accrued commission expenses |
|
|
||||||
|
Accrued professional fees |
|
|
||||||
|
Accrued product warranty |
|
|
||||||
|
Accrued other |
|
|
||||||
|
Total accrued liabilities |
$ |
|
$ |
|
||||
Note 14. Other Income and Expense
Other income and expense consisted of the following for the periods indicated (in thousands):
|
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
|
|
2025 |
2024 |
2025 |
2024 |
||||||||||||
|
Loss on disposal of assets |
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | ||||
|
Government subsidy income |
|
|
|
|
||||||||||||
|
Foreign exchange gain |
|
|
|
|
||||||||||||
|
Other non-operating gain |
|
|
|
|
||||||||||||
|
Total other income (expenses) , net |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Note 15. Share-Based Compensation
Equity Plans
The Company’s board of directors and stockholders approved the following equity plans:
|
● |
the 2013 Equity Incentive Plan ( "2013 Plan") |
|
● |
the 2021 Equity Incentive Plan ( "2021 Plan") |
|
| ● | the 2023 Equity Inducement Plan ("Inducement Plan") |
The Company has issued stock options, restricted stock awards ("RSAs") and restricted stock units ("RSUs") to employees, consultants and non-employee directors. Stock option awards generally vest over a -year period and have a maximum term of years. Stock options under these plans have been granted with an exercise price equal to the fair market value on the date of the grant. Nonqualified and Incentive Stock Options, RSAs and RSUs may be granted from these plans.
Performance Based Incentive Plan
Starting in
2021,
certain senior executives were granted performance stock units ("PSUs") under our Amended and Restated
2021
Equity Incentive Plan (
"2021
Plan"), which generally vest over a
-year period subject to achievement of certain pre-established performance metrics. The number of shares of common stock that would ultimately be issued to settle PSUs granted ranged from
The following is a summary of PSU activity for the six months ended June 30, 2025:
|
|
| Weighted | | |||||||||||||
|
|
|
Average |
Weighted |
Aggregate |
||||||||||||
|
|
Number of |
Exercise |
Average |
Intrinsic |
||||||||||||
|
|
shares |
Price |
Fair Value |
Value |
||||||||||||
|
|
(in thousands, except price data and Contractual Life) |
|||||||||||||||
|
Outstanding at January 1, 2025 |
|
— | $ |
|
$ |
|
||||||||||
|
Granted |
|
— |
|
|
||||||||||||
|
Exercised |
(
|
) | $ |
|
|
|
||||||||||
|
Forfeited |
|
— |
|
|
||||||||||||
|
Outstanding, June 30, 2025 |
|
— |
|
|
||||||||||||
|
Vested and expected to vest |
|
— | $ |
|
$ |
|
||||||||||
As of
June 30, 2025
, there was $
Restricted Stock Units
The following is a summary of RSU activity:
|
|
Weighted |
|
|
|||||||||||||
|
|
|
Average Share |
Weighted |
Aggregate |
||||||||||||
|
|
Number of |
Price on Date |
Average Fair |
Intrinsic |
||||||||||||
|
|
shares |
of Release |
Value |
Value |
||||||||||||
|
|
(in thousands, except price data) |
|||||||||||||||
|
Outstanding, January 1, 2025 |
|
— | $ |
|
$ |
|
||||||||||
|
Granted |
|
— |
|
|
||||||||||||
|
Released |
(
|
) | $ |
|
|
|
||||||||||
|
Cancelled/Forfeited |
(
|
) | — |
|
|
|||||||||||
|
Outstanding, June 30, 2025 |
|
— |
|
|
||||||||||||
|
Vested and expected to vest |
|
— | $ |
|
$ |
|
||||||||||
As of
June 30, 2025
, there was
$
Share-Based Compensation
Employee share-based compensation expenses recognized for the periods indicated (in thousands):
|
Three months ended |
Six months ended |
|||||||||||||||
|
|
June 30, |
June 30, |
||||||||||||||
|
|
2025 |
2024 |
2025 |
2024 |
||||||||||||
|
Share-based compensation - by expense types |
|
|
|
|
||||||||||||
|
Cost of goods sold |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Research and development |
|
|
|
|
||||||||||||
|
Sales and marketing |
|
|
|
|
||||||||||||
|
General and administrative |
|
|
|
|
||||||||||||
|
Total share-based compensation expense |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Note 16. Income Taxes
For the
three
months ended
June 30, 2025
and
2024,
the effective tax rate varied from the federal statutory rate of
The Company continually monitors and performs an assessment of the realizability of its DTAs, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies. In assessing the need for a valuation allowance, the Company considered both positive and negative evidence related to the likelihood of realization of deferred tax assets using a “more likely than not” standard. In making such assessment, more weight was given to evidence that could be objectively verified, including recent cumulative losses. Based on the Company’s review of this evidence, management determined that a full valuation allowance against all of the Company’s net deferred tax assets at June 30, 2025 was appropriate.
On July 4, 2025, new U.S tax legislation was signed into law (known as the "One Big Beautiful Bill Act" or "OBBBA") which includes, among other provisions, changes to the U.S. corporate income tax system including the allowance of immediate expensing of qualifying research and development expenses and permanent extensions of certain provisions within the Tax Cuts and Jobs Act. In addition, the OBBBA makes changes to certain U.S. corporate and international tax provisions which are generally not effective until 2026. For example, as a U.S. domiciled company, the income from the Company's foreign subsidiaries is subject to the U.S. tax provisions under Internal Revenue Code Section 951A, which, as amended by the OBBBA, generally will require that net Controlled Foreign Corporation (“CFC”) tested income (formerly referred to as global intangible low-taxed income, or GILTI) be included in the taxable income of U.S. entities for tax years after December 31, 2025. We are currently evaluating the impact of the new legislation but does not expect it to have a material impact on our financial statements since we currently have a full valuation allowance applied against our deferred tax assets.
Note 17. Segment and Geographic Information
The Company operates in
Our CODM uses net income or loss to allocate resources and assess performance. The CODM regularly reviews the consolidated net income or loss to make strategic decisions, such as capital expenditure plan, production plan and manpower allocation.
|
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
|
|
2025 |
2024 |
2025 |
2024 |
||||||||||||
|
Revenues |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Cost of goods sold |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
|
Adjusted research and development |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
|
Adjusted sales and marketing |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
|
Adjusted general and administrative |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
|
Other segment items |
|
(
|
) |
(
|
) |
(
|
) | |||||||||
|
Total |
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | ||||
We exclude share-based compensation and related expense, certain legal expenses associated with litigation and other one -time expenses from adjusted research and development, adjusted sales and marketing and adjusted general and administrative expenses.
Other segment items include share-based compensation expense, interest expense, interest income, certain legal expenses associated with litigation and other one -time items.
The following tables set forth the Company’s revenue and asset information by geographic region. Revenue is classified based on the location of where the product is manufactured. Long-lived assets in the tables below comprise property, plant, equipment, land use rights, right of use assets and intangible assets (in thousands):
|
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
|
|
2025 |
2024 |
2025 |
2024 |
||||||||||||
|
Revenues: |
|
|
|
|
||||||||||||
|
United States |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Taiwan |
|
|
|
|
||||||||||||
|
China |
|
|
|
|
||||||||||||
|
Total |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
|
June 30, |
December 31, |
||||||
|
|
2025 |
2024 |
||||||
|
Long-lived assets: |
|
|
||||||
|
United States |
$ |
|
$ |
|
||||
|
Taiwan |
|
|
||||||
|
China |
|
|
||||||
|
Total |
$ |
|
$ |
|
||||
Note 18. Contingencies
Litigation
From time to time, the Company may be subject to legal proceedings and litigation arising in the ordinary course of business, including, but not limited to, inquiries, investigations, audits and other regulatory proceedings, such as described below. The Company records a loss provision when it believes it is both probable that a liability has been incurred and the amount can be reasonably estimated.
The Company believes that there are no claims or actions pending or threatened against it, the ultimate disposition of which would have a material adverse effect on it.
Other Contingencies
On
August 9, 2021,
the Company received a Taxes Notification of Audit Result ("Notice") from the Texas Comptroller’s Office (the "Comptroller"), for fiscal years between
2016
and
2019,
informing the Company that the Comptroller believes the Company did
not
qualify for certain sales and use tax exemptions on various Research and Development purchases and accordingly the Company is liable for Sale and Use Tax in the amount of approximately $
Note 19. Subsequent Events
On July 4, 2025, the President signed into law the One Big Beautiful Bill Act, which includes several significant corporate tax changes. See Note 16, "Income Taxes" for additional information.
On
July 18, 2025,
Global entered into a
one
-year credit facility with Shanghai Pudong Development Bank Co., Ltd., in Ningbo City, China, totaling
82,000,000
RMB (the
SPD Credit Facility"), or approximately $
On July 23, 2025, Global used the SPD Credit Facility, together with other available funds, to repay the amounts outstanding under the Credit Facility. Upon repayment, Global terminated the Credit Facility effective July 23, 2025. See Note 11, "Bank Acceptance Notes Payable" for additional information.
On
July 30, 2025,
the Company retired the final $
On
July 31, 2025,
the Company entered into a Loan and Security Agreement with BOKF, NA dba BOK Financial (the "BOKF Credit Line"). The BOKF Credit Line provides the Company with a
-year, $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the accompanying notes appearing elsewhere in this Quarterly Report on Form 10-Q for the period ended June 30, 2025 and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2024 included in our Annual Report. References to "Applied Optoelectronics," “we," "our" and "us" are to Applied Optoelectronics, Inc. and its subsidiaries unless otherwise specified or the context otherwise requires.
This Quarterly Report on Form 10-Q contains "forward-looking statements" that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 are intended to identify forward-looking statements.
We have based these forward-looking statements largely on our current expectations and projections about future events and industry and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified in "Part II —Item 1A. Risk Factors" provided below, those discussed in other documents we file with the SEC, including our Report on Form 10-K for the year ended December 31, 2024 and subsequent Quarterly Reports on Form 10-Q, and geopolitical tensions and conflicts, including with respect to international trade policies in areas such as tariffs and export controls. Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report.
Overview
We are a leading, vertically integrated provider of fiber-optic networking products. We target four networking end-markets: internet data centers, cable television ("CATV"), telecommunications ("telecom"), and fiber-to-the-home ("FTTH"). We design and manufacture a range of optical communications products at varying levels of integration, from components, subassemblies and modules to complete turn-key equipment. In designing products for our customers, we typically begin with the fundamental building blocks of lasers and laser components. From these foundational products, we design and manufacture a wide range of products to meet our customers’ needs and specifications, and such products differ from each other by their end market, intended use and level of integration. We are primarily focused on the higher-performance segments within the internet data center, CATV, telecom and FTTH markets which increasingly demand faster connectivity and innovation.
The four end markets we target are all driven by significant bandwidth demand fueled by the growth of network-connected devices, video traffic, cloud computing and online social networking. Within the internet data center market, we benefit from the increasing use of higher-capacity optical networking technology as a replacement for older, lower-speed optical interconnects, particularly as speeds reach 800 Gbps and above, as well as the movement to open internet data center architectures and the increasing use of in-house equipment design among leading internet companies. Within the CATV market, we benefit from a number of ongoing trends including the move to higher bandwidth networks among CATV service providers, especially the desire by CATV multiple system operators ("MSOs") to increase the return-path bandwidth available to offer to their customers. In the FTTH market, we benefit from continuing Passive Optical Networks ("PON") deployments and system updates among telecom service providers. In the telecom market, we benefit from deployment of new high-speed fiber-optic networks by telecom network operators, including 5G networks.
Our vertically integrated manufacturing model provides us several advantages, including rapid product development, fast response times to customer requests and greater control over product quality and manufacturing costs. We design, manufacture and integrate our own analog and digital lasers using a proprietary Molecular Beam Epitaxy ("MBE"), and Metal Organic Chemical Vapor Deposition ("MOCVD") alternative processes for the fabrication of lasers. We believe the use of both processes, and our knowledge of how to combine these processes with others to fabricate lasers is unique in our industry. We manufacture the majority of the laser chips and optical components that are used in our products. The lasers we manufacture are tested extensively to enable reliable operation over time and our devices are often highly tolerant of changes in temperature and humidity, making them well-suited to the CATV, FTTH and 5G telecom markets where networking equipment is often installed outdoors. All of our laser chips are manufactured in our facility in Sugar Land, Texas. We believe that our domestic production capacity for these devices gives us a competitive advantage over many of our competitors, as we believe that many of our customers prefer to source key components from suppliers who have domestic manufacturing capacity.
We have three manufacturing sites: Sugar Land, Texas, Ningbo, China and Taipei, Taiwan. Our research and development functions are generally partnered with our manufacturing locations, and we have an additional research and development facility in Duluth, Georgia. In our Sugar Land facility, we manufacture laser chips (utilizing our MBE and MOCVD processes), transceivers for the internet data center market, subassemblies and components. The subassemblies are used in the manufacture of components by our other manufacturing facilities or sold to third parties as modules. We manufacture our laser chips only within our Sugar Land facility, where our laser design team is located. In our Taiwan location, we manufacture optical components, such as our butterfly lasers, which incorporate laser chips, subassemblies and components manufactured within our Sugar Land facility. Additionally, in our Taiwan location, we manufacture transceivers for the internet data center, telecom, FTTH and other markets. We also manufacture CATV outdoor equipment including amplifiers. In our China facility, we do certain assembly operations on various products, including some optical subassemblies and transceivers for the CATV transmitters (at the headend), some CATV outdoor equipment and transceivers for our internet data center market. The extent of the assembly operations in our China facility do not always establish the country of origin for these products as China for U.S. tariff purposes. Each manufacturing facility conducts testing on the components, modules or subsystems it manufactures and each facility is certified to ISO 9001:2015. Our facilities in Ningbo, China, Taipei, Taiwan, and Sugar Land, Texas are all certified to ISO 14001:2015.
Our business depends on winning competitive bid selection processes to develop components, systems and equipment for use in our customers’ products. These selection processes are typically lengthy, and as a result our sales cycles will vary based on the level of customization required, market served, whether the design win is with an existing or new customer and whether our solution being designed in our customers’ product is our first generation or subsequent generation product. We do not have any long-term purchase commitments (in excess of one year) with any of our customers, most of whom purchase our products on a purchase order basis. However, once one of our solutions is incorporated into a customer’s design, we believe that our solution is likely to continue to be purchased for that design throughout that product’s life cycle because of the time and expense associated with redesigning the product or substituting an alternative solution.
Our principal executive offices are located at 13139 Jess Pirtle Blvd., Sugar Land, TX 77478, and our telephone number is (281) 295-1800.
Trends and Other Matters Affecting Our Business
In early 2025, the U.S. Presidential administration implemented significant new tariffs on foreign imports impacting multiple countries, commodities and industries, and these new tariffs and export restrictions also prompted retaliatory tariffs and export restrictions from certain countries. As of April, certain tariffs and retaliatory tariffs have been delayed, but a number of the new tariffs remain in effect, including significant tariffs and trade sanctions between the United States and China. In mid-May, the U.S. administration issued an executive order suspending certain previously announced tariff increases on China and temporarily reinstating a lower baseline tariff for a 90-day period. As of early August, the 90-day suspension is approaching its end, and the U.S. has imposed a 20% temporary tariff on most imports from Taiwan, effective August 7, 2025. The U.S. remains in active tariff negotiations with key trading partners, including China and Taiwan, though the final outcomes of these negotiations remain uncertain. Although we have not been significantly impacted by the increased tariffs imposed on China to date, newly imposed or future tariffs, trade restrictions and retaliatory measures could result in revenue reduction, cost increases on material used in our products or significant production delays, which could adversely affect our business, financial condition, operational results and cash flows.
Results of Operations
The following table set forth our consolidated results of operations for the periods presented and as a percentage of our revenue for those periods (in thousands, except percentages):
|
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||||||||||||||||||
|
|
2025 |
2024 |
2025 |
2024 |
||||||||||||||||||||||||||||
|
Revenue, net |
$ | 102,952 | 100.0 | % | $ | 43,270 | 100.0 | % | $ | 202,811 | 100.0 | % | $ | 83,943 | 100.0 | % | ||||||||||||||||
|
Cost of goods sold |
71,790 | 69.7 | % | 33,708 | 77.9 | % | 141,105 | 69.6 | % | 66,790 | 79.6 | % | ||||||||||||||||||||
|
Gross profit |
31,162 | 30.3 | % | 9,562 | 22.1 | % | 61,706 | 30.4 | % | 17,153 | 20.4 | % | ||||||||||||||||||||
|
Operating expenses |
|
|
|
|
||||||||||||||||||||||||||||
|
Research and development |
20,612 | 20.0 | % | 13,078 | 30.2 | % | 38,422 | 18.9 | % | 24,790 | 29.6 | % | ||||||||||||||||||||
|
Sales and marketing |
8,135 | 7.9 | % | 5,910 | 13.7 | % | 13,492 | 6.7 | % | 9,707 | 11.6 | % | ||||||||||||||||||||
|
General and administrative |
18,391 | 17.9 | % | 16,818 | 38.9 | % | 34,706 | 17.1 | % | 30,545 | 36.4 | % | ||||||||||||||||||||
|
Total operating expenses |
47,138 | 45.8 | % | 35,806 | 82.8 | % | 86,620 | 42.7 | % | 65,042 | 77.6 | % | ||||||||||||||||||||
|
Loss from operations |
(15,976 | ) | (15.5 | )% | (26,244 | ) | (60.7 | )% | (24,914 | ) | (12.3 | )% | (47,889 | ) | 57.1 | % | ||||||||||||||||
|
Other income (expense) |
|
|
|
|
||||||||||||||||||||||||||||
|
Interest income |
286 | 0.3 | % | 93 | 0.2 | % | 511 | 0.3 | % | 353 | 0.4 | % | ||||||||||||||||||||
|
Interest expense |
(818 | ) | (0.8 | )% | (1,693 | ) | (3.9 | )% | (1,752 | ) | -0.9 | % | (3,369 | ) | (4.0 | )% | ||||||||||||||||
|
Other income, net |
7,410 | 7.2 | % | 1,729 | 4.0 | % | 7,885 | 3.9 | % | 1,620 | 1.9 | % | ||||||||||||||||||||
|
Total other income (expense), net |
6,878 | 6.7 | % | 129 | 0.3 | % | 6,644 | 3.3 | % | (1,396 | ) | (1.7 | )% | |||||||||||||||||||
|
Loss before income taxes |
(9,098 | ) | (8.8 | )% | (26,115 | ) | (60.4 | )% | (18,270 | ) | (9.0 | )% | (49,285 | ) | (58.8 | )% | ||||||||||||||||
|
Income tax expense |
— | — | — | — | % | — | — | — | — | % | ||||||||||||||||||||||
|
Net loss |
$ | (9,098 | ) | (8.8 | )% | $ | (26,115 | ) | (60.4 | )% | $ | (18,270 | ) | (9.0 | )% | $ | (49,285 | ) | (58.8 | )% | ||||||||||||
Comparison of Financial Results
Revenue
We generate revenue through the sale of our products to equipment providers and network operators for the internet data center, CATV, telecom, FTTH and other markets. We derive a significant portion of our revenue from our top ten customers, and we anticipate that we will continue to do so for the foreseeable future. The following charts provide the revenue contribution from each of the markets we served for the three and six months ended June 30, 2025 and 2024 (in thousands, except percentages):
|
Three months ended June 30, |
||||||||||||||||||||||||
|
2025 |
2024 |
Change |
||||||||||||||||||||||
|
|
% of |
% of |
|
|
||||||||||||||||||||
|
|
Amount |
Revenue |
Amount |
Revenue |
Amount |
% | ||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||||||
|
CATV |
$ | 56,019 | 54.4 | % | $ | 5,818 | 13.4 | % | $ | 50,201 | 862.9 | % | ||||||||||||
|
Data Center |
44,791 | 43.5 | % | 34,352 | 79.4 | % | 10,439 | 30.4 | % | |||||||||||||||
|
Telecom |
1,940 | 1.9 | % | 2,379 | 5.5 | % | (439 | ) | (18.5 | )% | ||||||||||||||
|
Other |
202 | 0.2 | % | 721 | 1.7 | % | (519 | ) | (72.0 | )% | ||||||||||||||
|
Total Revenue |
$ | 102,952 | 100.0 | % | $ | 43,270 | 100.0 | % | $ | 59,682 | 137.9 | % | ||||||||||||
|
Six months ended June 30, |
||||||||||||||||||||||||
|
|
2025 |
2024 |
Change |
|||||||||||||||||||||
|
% of |
% of |
|
|
|||||||||||||||||||||
|
|
Amount |
Revenue |
Amount |
Revenue |
Amount |
% | ||||||||||||||||||
|
(in thousands, except percentages) |
||||||||||||||||||||||||
|
CATV |
$ | 120,520 | 59.4 | % | $ | 14,554 | 17.3 | % | $ | 105,966 | 728.1 | % | ||||||||||||
|
Data Center |
76,841 | 37.9 | % | 63,338 | 75.5 | % | 13,503 | 21.3 | % | |||||||||||||||
|
Telecom |
4,876 | 2.4 | % | 4,648 | 5.5 | % | 228 | 4.9 | % | |||||||||||||||
|
Other |
574 | 0.3 | % | 1,403 | 1.7 | % | (829 | ) | (59.1 | )% | ||||||||||||||
|
Total Revenue |
$ | 202,811 | 100.0 | % | $ | 83,943 | 100.0 | % | $ | 118,868 | 141.6 | % | ||||||||||||
The changes in revenue during both the three months and the six months ended June 30, 2025 and 2024 were primarily due to increased demand from customers.
We continue to see increased orders for our 100G and 400G data center products from several large customers. Based on forecasts from our customers, we expect increased demand for these products through the end of 2025. We entered into a supply agreement with Microsoft to design certain data center goods and to build a supply chain to manufacture, assemble, sell and ship the goods to them or an authorized purchasing entity. The initial term of the agreement is five years with automatic renewal unless terminated earlier. We continue to expect revenue from this contract to increase in 2025 compared to 2024.
In addition to our existing data center customers, we have also begun to receive orders from a hyperscale data center customer from which we have not received significant orders in several years. While the new customer interaction is not material within the quarter, we believe that both this new customer interaction and much of the growth in our existing data center business is related to efforts by these customers to increase processing capacity within their data centers, largely to accommodate applications enabled by generative artificial intelligence ("AI").
For the second quarter of 2025, CATV revenue increased $50.2 million, or 862.9%, compared to the second quarter of 2024. For the six months ended June 30, 2025 and 2024, CATV increased $106.0 million, or 728.1%. The increases were due to the recovery in market demand for our products, which is being driven by the beginning of a major network upgrade project by a major North American MSO customer.
For the three months ended June 30, 2025 and 2024, our top ten customers represented 98% and 94% of our revenue, respectively. For the six months ended June 30, 2025 and 2024, our top ten customers represented 97% and 93% of our revenue, respectively. We believe that diversifying our customer base is critical for our future success, since reliance on a small number of key customers makes our ability to forecast future results dependent upon the accuracy of the forecasts we receive from those key customers. We continue to prioritize new customer acquisition and growth of diverse revenue streams.
Cost of goods sold and gross margin
|
Three months ended June 30, |
|
|
||||||||||||||||||||||
|
|
2025 |
2024 |
Change |
|||||||||||||||||||||
|
|
% of |
% of |
|
|||||||||||||||||||||
|
|
Amount |
Revenue |
Amount |
Revenue |
Amount |
% |
||||||||||||||||||
|
|
(in thousands, except percentages) |
|||||||||||||||||||||||
|
Cost of goods sold |
$ | 71,790 | 69.7 | % | $ | 33,708 | 77.9 | % | $ | 38,082 | 113.0 | % | ||||||||||||
|
Gross profit |
31,162 | 30.3 | % | 9,562 | 22.1 | % | 21,600 | 225.9 | % | |||||||||||||||
|
Six months ended June 30, |
|
|
||||||||||||||||||||||
|
|
2025 |
2024 |
Change |
|||||||||||||||||||||
|
|
% of |
% of |
|
|||||||||||||||||||||
|
|
Amount |
Revenue |
Amount |
Revenue |
Amount |
% | ||||||||||||||||||
|
|
(in thousands, except percentages) |
|||||||||||||||||||||||
|
Cost of goods sold |
$ | 141,105 | 69.6 | % | $ | 66,790 | 79.6 | % | $ | 74,315 | 111.3 | % | ||||||||||||
|
Gross margin |
61,706 | 30.4 | % | 17,153 | 20.4 | % | 44,553 | 259.7 | % | |||||||||||||||
Cost of goods sold increased by $38.1 million, or 113.0%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 . Cost of goods sold increased by $74.3 million, or 111.3%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 . The increase in cost of goods sold was mainly due to increased revenue .
Gross profit increased by $21.6 million, or 225.9%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 . Gross profit increased by $44.6 million, or 259.7%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 . The increase is primarily due to higher sales on our high gross margin products and ongoing efforts to reduce production costs.
Operating expenses
|
Three months ended June 30, |
|
|
||||||||||||||||||||||
|
|
2025 |
2024 |
Change |
|||||||||||||||||||||
|
|
|
% of |
|
% of |
|
|
||||||||||||||||||
|
|
Amount |
revenue |
Amount |
revenue |
Amount |
% |
||||||||||||||||||
|
|
(in thousands, except percentages) |
|||||||||||||||||||||||
|
Research and development |
$ | 20,612 | 20.0 | % | $ | 13,078 | 30.2 | % | $ | 7,534 | 57.6 | % | ||||||||||||
|
Sales and marketing |
8,135 | 7.9 | % | 5,910 | 13.7 | % | 2,225 | 37.6 | % | |||||||||||||||
|
General and administrative |
18,391 | 17.9 | % | 16,818 | 38.9 | % | 1,573 | 9.4 | % | |||||||||||||||
|
Total operating expenses |
$ | 47,138 | 45.8 | % | $ | 35,806 | 82.8 | % | $ | 11,332 | 31.6 | % | ||||||||||||
|
Six months ended June 30, |
|
|
||||||||||||||||||||||
|
|
2025 |
2024 |
Change |
|||||||||||||||||||||
|
|
|
% of |
|
% of |
|
|
||||||||||||||||||
|
|
Amount |
revenue |
Amount |
revenue |
Amount |
% | ||||||||||||||||||
|
|
(in thousands, except percentages) |
|||||||||||||||||||||||
|
Research and development |
$ | 38,422 | 18.9 | % | $ | 24,790 | 29.6 | % | $ | 13,632 | 55.0 | % | ||||||||||||
|
Sales and marketing |
13,492 | 6.7 | % | 9,707 | 11.6 | % | 3,785 | 39.0 | % | |||||||||||||||
|
General and administrative |
34,706 | 17.1 | % | 30,545 | 36.4 | % | 4,161 | 13.6 | % | |||||||||||||||
|
Total operating expenses |
$ | 86,620 | 42.7 | % | $ | 65,042 | 77.6 | % | $ | 21,578 | 33.2 | % | ||||||||||||
Research and development expense
Research and development expense increased by $7.5 million, or 57.6%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 . Research and development expense increased by $13.6 million, or 55.0%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 . The increases were primarily due to increased personnel-related expense and increased R&D related project costs. The increases in R&D expenses were driven by customer demand for new products as well as acceleration of previously-planned project expenditures which were necessary to accommodate accelerated demand projections for these products from certain customers.
Sales and marketing expense
Sales and marketing expense increased by $2.2 million, or 37.6%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. Sales and marketing expense increased by $3.8 million, or 39.0%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. The increases were primarily due to the increased business development effort in our CATV and data center businesses along with higher shipping costs.
General and administrative expense
General and administrative expense increased by $1.6 million, or 9.4%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 . General and administrative expense increased by $4.2 million, or 13.6%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 . The increases were primarily due to increased personnel-related expense.
Other income (expense), net
|
Three months ended June 30, |
Change |
|||||||||||||||||||||||
|
|
2025 |
2024 |
||||||||||||||||||||||
|
|
|
% of |
% of |
|
||||||||||||||||||||
|
|
Amount |
revenue |
Amount |
revenue |
Amount |
% |
||||||||||||||||||
|
|
(in thousands, except percentages) |
|||||||||||||||||||||||
|
Interest income |
$ | 286 | 0.3 | % | $ | 93 | 0.2 | % | $ | 193 | 207.5 | % | ||||||||||||
|
Interest expense |
(818 | ) | (0.8 | )% | (1,693 | ) | (3.9 | )% | 875 | (51.7 | )% | |||||||||||||
|
Other income (expense), net |
7,410 | 7.2 | % | 1,729 | 4.0 | % | 5,681 | 328.6 | % | |||||||||||||||
|
Total other income (expense), net |
$ | 6,878 | 6.7 | % | $ | 129 | 0.3 | % | $ | 6,749 | 5,231.8 | % | ||||||||||||
|
Six months ended June 30, |
Change |
|||||||||||||||||||||||
|
|
2025 |
2024 |
||||||||||||||||||||||
|
|
|
% of |
% of |
|
||||||||||||||||||||
|
|
Amount |
revenue |
Amount |
revenue |
Amount |
% | ||||||||||||||||||
|
|
(in thousands, except percentages) |
|||||||||||||||||||||||
|
Interest income |
$ | 511 | 0.3 | % | $ | 353 | 0.4 | % | $ | 158 | 44.8 | % | ||||||||||||
|
Interest expense |
(1,752 | ) | (0.9 | )% | (3,369 | ) | (4.0 | )% | 1,617 | (48.0 | )% | |||||||||||||
|
Other income (expense), net |
7,885 | 3.9 | % | 1,620 | 1.9 | % | 6,265 | 386.7 | % | |||||||||||||||
|
Total other income (expense), net |
$ | 6,644 | 3.3 | % | $ | (1,396 | ) | (1.7 | )% | $ | 8,040 | (575.9 | )% | |||||||||||
Interest income increased by $0.2 million, or 207.5%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. Interest income increased by $0.2 million, or 44.8%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. The increase was due to higher saving balances in the second quarter of 2025 .
Interest expense decreased by $0.9 million, or 51.7%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. Interest expense decreased by $1.6 million, or 48.0%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. The decrease was due to the lower effective interest rate for our 2030 Notes.
Other income (expenses) increased by $5.7 million, or 328.6%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 . Other income (expenses) increased by $6.3 million, or 386.7%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 . The increase was mainly due to the increased government subsidy income and positive foreign exchange impact.
Benefit (provision) for income taxes
The Company’s effective tax rate for the three months ended June 30, 2025 and 2024 was 0%. T he effective tax rate varied from the federal statutory rate of 21% primarily due to the change of the valuation allowance on federal, state, Taiwan, and China deferred tax assets ("DTA").
On August 9, 2022, the Creating Helpful Incentives to Produce Semiconductors Act ("CHIPS Act") was enacted. Among its provisions, the bill provides various federal grants, tax credits, and incentives for investment in the United States. On August 16, 2022, the Inflation Reduction Act ("IRA") was also signed into law. Among other provisions, the IRA imposes a 15% corporate alternative minimum tax ("Corporate AMT") for tax years beginning after December 31, 2022, imposes a 1% excise tax on corporate stock repurchases after December 31, 2022, and provides tax incentives to promote various energy efficient initiatives. To the extent that we make investments in expanding manufacturing in our semiconductor fabrication facility in Texas, we believe that the CHIPS Act would provide a refundable tax credit for certain equipment and facilities upgrades. We made significant investments in the six months ended June 30, 2025 which we believe should qualify for these credits, but we intend to continue to evaluate these and future investments for applicability to the tax credit provisions of the CHIPS Act.
Comprehensive Loss
|
Three months ended June 30, |
|
|
||||||||||||||||||||||
|
|
2025 |
2024 |
Change |
|||||||||||||||||||||
|
|
|
% of |
% of |
|
||||||||||||||||||||
|
|
Amount |
revenue |
Amount |
revenue |
Amount |
% |
||||||||||||||||||
|
|
(in thousands, except percentages) |
|||||||||||||||||||||||
|
Net loss |
$ | (9,098 | ) | (8.8 | )% | $ | (26,115 | ) | (60.4 | )% | $ | 17,017 | (65.2 | )% | ||||||||||
|
Loss on foreign currency translation adjustment |
3,868 | 3.8 | % | (843 | ) | (1.9 | )% | 4,711 | (558.8 | )% | ||||||||||||||
|
Comprehensive loss |
$ | (5,230 | ) | (5.1 | )% | $ | (26,958 | ) | (62.4 | )% | $ | 21,728 | (80.6 | )% | ||||||||||
|
Six months ended June 30, |
|
|
||||||||||||||||||||||
|
|
2025 |
2024 |
Change |
|||||||||||||||||||||
|
|
|
% of |
% of |
|
||||||||||||||||||||
|
|
Amount |
revenue |
Amount |
revenue |
Amount |
% | ||||||||||||||||||
|
|
(in thousands, except percentages) |
|||||||||||||||||||||||
|
Net loss |
$ | (18,270 | ) | (9.0 | )% | $ | (49,285 | ) | (58.8 | )% | $ | 31,015 | (62.9 | )% | ||||||||||
|
Gain (Loss) on foreign currency translation adjustment |
3,661 | 1.8 | % | (2,506 | ) | (3.0 | )% | $ | 6,167 | (246.1 | )% | |||||||||||||
|
Comprehensive loss |
$ | (14,609 | ) | (7.2 | )% | $ | (51,791 | ) | (61.8 | )% | $ | 37,182 | (71.8 | )% | ||||||||||
Comprehensive loss decreased by $21.7 million, or 80.6%, for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024 . Comprehensive loss decreased by $37.2 million, or 71.8%, for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024 .
The functional currency for the Company’s operations is generally the applicable local currency. Accordingly, the assets and liabilities of companies whose functional currency is other than the U.S. dollar are included in the consolidated financial statements by translating the assets and liabilities into the U.S. dollar at the exchange rates applicable at the end of the reporting period. Translation gains or losses are accumulated in other comprehensive income (loss) in the consolidated statements of shareholders’ equity and are also included in comprehensive loss.
Liquidity and Capital Resources
As of June 30, 2025, we ha d $31.2 million of unused borrowing capacity from all of our loan agreements. As of June 30, 2025, our cash, cash equivalents and restricted cash totale d $87.2 million. Cash and cash equivalents are held for working capital purposes and are invested primarily in money market or time deposit funds. We do not enter into investments for trading or speculative purposes.
ATM Offerings
On May 28, 2025, the Company entered into an Equity Distribution Agreement (the "Agreement") with Raymond James & Associates and Needham & Company, LLC (collectively, the "Sales Agents" and each, a "Sales Agent") pursuant to which the Company could issue and sell shares of the Company’s common stock, par value $0.001 per share (the "Shares") having an aggregate offering price of up to $100 million (the "Second ATM Offering"), from time to time through the Sales Agents. Upon delivery of a placement notice and subject to the terms and conditions of the Agreement, sales of the Shares were made through the Sales Agents in transactions that are deemed to be “at the market” offerings as defined in Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"), including sales made through the facilities of the Nasdaq Global Market, the principal trading market for the Company’s common stock, on any other existing trading market for the Company’s common stock, to or through a market maker or as otherwise agreed by the Company and the Sales Agents. In the placement notice, the Company would designate the maximum number of Shares to be sold through the Sales Agents, the time period during which sales were requested to be made, the minimum price for the Shares to be sold, and any limitation on the number of Shares that could be sold in any one day. Subject to the terms and conditions of the Agreement, the Sales Agents would use their commercially reasonable efforts to sell Shares on the Company’s behalf up to the designated amount specified in the placement notice.
The Agreement provided that each of the Sales Agents would be entitled to compensation of up to 2% of the gross sales price of the Shares sold through such Sales Agent from time to time. The Company also agreed to reimburse the Sales Agents for certain specified expenses in connection with the registration of Shares under state blue sky laws and any filing with, and clearance of the offering by, the Financial Industry Regulatory Authority Inc., not to exceed $10,000 in the aggregate, and any associated application fees incurred. The Company agreed to indemnify the Sales Agents against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Sales Agents could be required to make because of any of those liabilities.
On June 18, 2025, the Company completed the Second ATM Offering and sold approximately 5.7 million shares at a weighted average price of $17.46 per share, providing proceeds of approximately $98 million, net of expenses and underwriting discounts and commissions.
The details of the shares of common stock sold through the First ATM Offering and Second ATM Offering as of the end of June 30, 2025 are as follows (in thousands, except shares and weighted average per share price):
|
Distribution Agent |
Month |
Number of Shares Sold |
Weighted Average Per Share Price |
Gross Proceeds |
Compensation to Distribution Agent |
Net Proceeds |
||||||||||||||||
|
Raymond James & Associates, Inc. |
March 2025 |
3,535,650 | $ | 20.71 | $ | 73,219 | $ | 1,464 | $ | 71,755 | ||||||||||||
|
Raymond James & Associates, Inc. |
April 2025 |
2,110,057 | 12.69 | 26,781 | 536 | 26,245 | ||||||||||||||||
|
Raymond James & Associates, Inc. |
June 2025 |
5,725,948 | 17.46 | 100,000 | 2,000 | 98,000 | ||||||||||||||||
|
Total |
11,371,655 | $ | 200,000 | $ | 4,000 | $ | 196,000 | |||||||||||||||
Note Offerings
On December 5, 2023, the Company issued $80.2 million of 5.25% convertible senior notes due 2026 (the "2026 Notes"), bearing interest at a rate of 5.25% per year maturing on December 5, 2026, unless earlier repurchased, redeemed or converted in accordance with their terms. The sale of the 2026 Notes generated net proceeds of $76.2 million, after expenses. Also, refer to Note 12 "Convertible Senior Notes" to the consolidated financial statements for further discussion of the 2026 Notes.
On December 23, 2024, the Company issued approximately $125.0 million aggregate principal amount of 2.750% convertible senior notes due 2030 (the "2030 Notes"), and on the same day consummated various separate, privately negotiated exchange agreements with certain holders of its 2026 Notes to exchange approximately $76.6 million principal amount of the 2026 Notes for aggregate consideration consisting of (i) $125.0 million aggregate principal amount of the 2030 Notes, (ii) 1,487,874 shares of the Company's common stock, par value $0.001 per share and (iii) approximately $0.9 million of cash in aggregate. Also, refer to Note 12 "Convertible Senior Notes" to the consolidated financial statements for further discussion of the 2030 Notes.
Operating activities
The table below sets forth selected cash flow data for the periods presented (in thousands):
|
Six months ended June 30, |
||||||||
|
|
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 | ||||||
|
Effect of exchange rates on cash and cash equivalents |
3,653 | 550 | ||||||
|
Net increase (decrease) in cash and cash equivalents |
$ | 8,063 | $ | (38,979 | ) | |||
For the six months ended June 30, 2025, net cash used in operating activities was $116.4 million. Net cash used in operating activities consisted of our net loss of $18.3 million after exclusion of non-cash items of $15.9 million. Cash decreased due to an increase in accounts receivable of $94.7 million and an increase in inventory of $51.0 million, partially offset by an increase in accounts payable of $28.0 million.
Investing activities
For the six months ended June 30, 2025, net cash used in investing activities was $75.2 million, mainly for the purchase of additional property, plant, and equipment.
Financing activities
For the six months ended June 30, 2025, net cash provided by financing activities was $196.0 million. This increase was due to the net proceeds of $195.8 million from the ATM Offering and proceed of bank acceptance payable of $12.7 million, partially offset by tax payments related share-based compensation of $7.8 million.
Loans and commitments
As of June 30, 2025, we do not have a bank loan agreement with any U.S. financial institution. However, we may explore lending opportunities in the U.S. in the future. As of June 30, 2025, w e have lending arrangements with two financial institutions in China. As of June 30, 2025 , we were in compliance with the covenants in the lending arrangements. As of June 30, 2025 , we had $31.2 million of unused borrowing capacity.
On December 5, 2023, we issued $80.2 million of 5.25% convertible senior notes due in 2026. The 2026 Notes mature on December 5, 2026, unless earlier repurchased, redeemed or converted in accordance with their terms. As of June 30, 2025, the outstanding principal amount remaining on the 2026 Notes is $3.5 million.
On December 23, 2024, the Company issued $125.0 million of 2.75% convertible senior notes due 2030. The 2030 Notes will mature on January 15, 2030, unless earlier repurchased, redeemed or converted in accordance with their terms.
See Note 11 "Notes Payable and Long-term Debt" and Note 12 "Convertible Senior Notes" of our Condensed Consolidated Financial Statements for a description of our notes payable and long-term debt and convertible senior notes.
China factory construction
On February 8, 2018, we entered into a construction contract with Zhejiang Xinyu Construction Group Co., Ltd. for the construction of a new factory and other facilities at our Ningbo, China location. Construction costs for these facilities under this contract are estimated to total approximately $27.5 million. As of June 30, 2025, construction of the building shell is complete, and approximately $27.4 million of this total cost has been paid and the remaining portion will be paid in yearly installments for three years after final inspection. We anticipate additional expenses for building improvements to the factory and we are in the process of evaluating the timing of these expenditures and obtaining bids for any such work. Based on forecasts, we believe the factory will be placed in full service in the year 2025 after the construction is completed for the building interior work. Property has been transferred from construction in progress to building and improvement in 2024.
Warrants
On March 13, 2025, we issued a warrant (the "Customer Warrant") to an Amazon affiliate ("Warrant Holder") to purchase up to an aggregate of 7,945,399 shares of the Company's common stock ("Warrant Shares") at an exercise price of $23.6956 per share. The Customer Warrant has a contractual term of 10 years. At the time of issuance, the Customer Warrant is exercisable to purchase 1,324,233 Warrant Shares. The remaining 6,621,166 Warrant Shares may vest over the next 10 years, dependent on aggregate purchases by Amazon of $4 billion of our products over this time period.
Future liquidity needs
We had cash, cash equivalents and restricted cash of $87.2 million as of June 30, 2025, an increase of approximately $8.1 million compared to December 31, 2024. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support our research and development efforts, the expansion of our sales and marketing activities, the introduction of new and enhanced products, the building improvement of a new factory in Taiwan or U.S., changes in our manufacturing capacity and the continuing market acceptance of our products.
As of June 30, 2025, we had a total loan balance (excluding convertible notes) of $22.2 million from various lenders in China and had $31.2 million available borrowing capacity on existing credit lines. Should additional liquidity be needed, our Board may authorize issuance of additional common stock under an at-the-market offering in the future (see the discussion of "Liquidity and Capital Resources" in Item 2).
In the event we need additional liquidity, we will explore additional sources of liquidity. These additional sources of liquidity could include one, or a combination, of the following: (i) issuing equity or debt securities, (ii) incurring indebtedness secured by our assets and (iii) selling product lines, other assets and/or portions of our business. There can be no guarantee that we will be able to raise additional funds on terms acceptable to us, or at all.
Contractual Obligations and Commitments
Please refer to Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024 for a complete discussion of its contractual obligations and commitments.
Inflation
The annual inflation rate in the US came down to 2.9% in 2024, compared to 3.4% in 2023. Even though inflation has slowed from the peak, it remained well above the Federal Reserve's objective of 2%. The annual inflation rate in Taiwan came down to 2.1% in 2024 from 2.7% in 2023. The cost of inflation was reflected in increases in shipping costs, labor rates, and in costs of some raw materials. We believe these decreases are related to the supply chain pressure easing and decreasing commodity prices, however the labor market is still tight, and the wage pressure is still high. Compared to other major economies in the world, China has a stable level of inflation, which has not had a significant impact on our sales or operating results. We do not believe that inflation had a material impact on our business, financial condition, or results of operations during the six months ended June 30, 2025. However, there is no guarantee that we may increase selling prices or reduce costs to fully mitigate the effect of inflation on our costs, which may adversely impact our sales margins and profitability.
Critical Accounting Policies and Estimates
In our Annual Report for the year ended December 31, 2024 and in the Notes to the Financial Statements herein, we identify our most critical accounting policies. In preparing the financial statements, we make assumptions, estimates and judgments that affect the amounts reported. We periodically evaluate our estimates and judgments that are most critical in nature which are related to revenue recognition, allowance for credit losses, inventory reserves, impairment of long-lived assets, service and product warranties, share based compensation expense, estimated useful lives of property and equipment, and income taxes. Our estimates are based on historical experience and on our future expectations that we believe are reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results are likely to differ from our current estimates and those differences may be material.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk affecting the Company, see Item 7A – Quantitative and Qualitative Disclosures about Market Risk in our Annual Report for the fiscal year ended December 31, 2024. We do not believe the Company’s exposure to market risk has changed materially since December 31, 2024.
We are affected by changes in currency exchange and interest rates. Our risk management programs are designed to reduce, but may not entirely eliminate, the impacts of these risks. We performed an evaluation of these risks to our financial positions as of December 31, 2024, and updated that analysis as of June 30, 2025, to determine whether material changes in market risks pertaining to currency and interest rates have occurred as a result of the changes in international trade policies, including tariffs and export controls. No material revisions were noted since disclosing "Quantitative and Qualitative Disclosures About Market Risk" within MD&A, in our 2024 Form 10-K. Risks related to changes in international trade policies, including tariffs and export controls, particularly those involving the United States and China are described under "Risk Factors."
Item 4. Controls and Procedures
The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2025. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three month period covered by this Quarterly Report on Form 10-Q, which were identified in connection with management’s evaluation required by the Rules 13a-15(d) and 15d-15(d) under the Exchange Act that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Information with respect to legal proceedings can be found in Note 18 to the Condensed Consolidated Financial Statements contained in Part 1, Item 1 of this report.
Investing in our common stock involves a high degree of risk. See Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2024 f or a detailed discussion of the risk factors affecting our Company. As of June 30, 2025, there have been no material changes to those risk factors, except as described below.
Recently elevated geopolitical tensions, volatility and uncertainty with respect to international trade policies, including tariffs and export controls, may have a material adverse impact on our business, the markets in which we compete and the world economy.
In recent months since April 2025, the United States and its trading partners have imposed, expanded and revised a wide range of tariffs, reciprocal tariffs, and other trade restrictions—often with minimal notice—disrupting global trade and affecting a wide spectrum of raw materials, components, and finished goods. U.S.-China trade tensions, in particular, have intensified, resulting in elevated tariff rates and signaling the potential for further measures, including those targeting the semiconductor sector. In mid-May, the U.S. administration issued an executive order suspending certain previously announced tariff increases on China and temporarily reinstating a lower baseline tariff for a 90-day period. As of early August, the 90-day suspension is approaching its end, and the U.S. has imposed a 20% temporary tariff on most imports from Taiwan, effective August 7, 2025. The U.S. remains engaged in active tariff negotiations with key trading partners, including China and Taiwan, though the final outcomes of these negotiations remain uncertain.
Although we have not been significantly impacted by the increased tariffs imposed on China to date, the continuation, escalation, or expansion of tariffs and other trade barriers—as well as heightened geopolitical tensions and increased uncertainty regarding global trade and regulatory policy, particularly involving the United States, China and Taiwan—could adversely affect our business both directly and indirectly, including through impacts on consumer and business confidence, currency and interest rate volatility, commodity and equity markets, inflation, financing conditions, and broader international economic relations. These developments could materially and adversely affect our revenue, operations, financial condition, cost structure, competitiveness, supply chain logistics, product pricing and demand, and profitability, and could also amplify other risks described in our 2024 Form 10-K.
Although we seek to mitigate the effects of these challenges through pricing adjustments, supply chain diversification, and operational efficiencies, we may not be able to fully offset increased costs or secure timely alternative sources. In addition, customers may resist price increases or seek alternative suppliers, which could adversely affect our sales volumes.
(a)
(b)
None
(c) The adoption or termination of contracts, instructions or written plans for the purchase or sale of our securities by our Section 16 officers and directors for the three months ended June 30, 2025, each of which is intended to satisfy the affirmative defense conditions of Rule 10b5 - 1 (c) under the Exchange Act ("Rule 10b5 - 1" ), were as follows:
| Name | Title | Action | Date Adopted | Expiration Date | Aggregate # of Securities to be Purchased/Sold |
| ( 1 ) | | | August 14, 2026 |
( 1 ) David Kuo, our Senior Vice President and Chief Legal Officer, entered into a Rule 10b5 - 1 Plan on May 15, 2025. Mr. Kuo's plan provides for the potential sale of up to shares of the Company's common stock. The plan is set to expire on August 14, 2026, or upon the earlier completion of all authorized transactions under the plan.
See Exhibit Index.
EXHIBIT INDEX
* Incorporated herein by reference to the indicated filing.
** Filed herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
APPLIED OPTOELECTRONICS, INC. |
|
|
|
|
|
|
Date: August 7, 2025 |
By: |
/s/ STEFAN J. MURRY |
|
|
|
Stefan J. Murry |
|
|
|
Chief Financial Officer |
|
|
|
(principal financial officer and principal accounting officer) |