AAOI

Applied Optoelectronics, Inc. (NASDAQ: AAOI), a leading provider of fiber-optic access network products for the cable broadband, internet datacenter, telecom and fiber-to-the-home (FTTH) markets, today announced financial results for its fourth quarter and full year ended December 31, 2022.

“We are pleased to report revenue in line with our expectations and continued improvement in our non-GAAP gross margin, which exceeded our guidance range as our cost reduction efforts and favorable product mix had a greater than expected positive impact on our fourth quarter results,” said Dr. Thompson Lin, Applied Optoelectronics Inc. Founder, President and Chief Executive Officer. “We generated the highest quarterly CATV revenue in the Company’s history this quarter and we continue to see robust demand. With respect to the transaction that we announced in September 2022 that we have entered into an agreement with Yuhan Optoelectronic Technology for the sale of our manufacturing facilities located in the People's Republic of China and certain assets related to our transceiver business and multi-channel optical sub-assembly products for the internet datacenter, telecom and FTTH markets, we continue to advance work on required regulatory approvals and continue to expect that the transaction will close in 2023.”

Fourth Quarter 2022 Financial Summary

• GAAP revenue was $61.6 million, compared with $54.4 million in the fourth quarter of 2021 and $56.7 million in the third quarter of 2022.
• GAAP gross margin was 10.1%, compared with 14.9% in the fourth quarter of 2021 and 17.2% in the third quarter of 2022. Non-GAAP gross margin was 21.4%, compared with 17.6% in the fourth quarter of 2021 and 18.0% in the third quarter of 2022.
• GAAP net loss was $20.3 million, or $0.71 per basic share, compared with net loss of $14.5 million, or $0.54 per basic share in the fourth quarter of 2021, and a net loss of $15.6 million, or $0.56 per basic share in the third quarter of 2022.
• Non-GAAP net loss was $5.4 million, or $0.19 per basic share, compared with non-GAAP net loss of $5.5 million, or $0.20 per basic share in the fourth quarter of 2021, and a non-GAAP net loss of $7.1 million, or $0.26 per basic share in the third quarter of 2022.

Full Year 2022 Financial Summary

• GAAP revenue was $222.8 million, compared with $211.6 million in 2021.
• GAAP gross margin was 15.1%, compared with 17.8% in 2021. Non-GAAP gross margin was 18.5% compared to 21.7% in 2021.
• GAAP net loss was $66.4 million, or $2.38 per basic share, compared with net loss of $54.2 million, or $2.01 per basic share in 2021.
• Non-GAAP net loss was $28.0 million, or $1.01 per basic share, compared with non-GAAP net loss of $20.4 million, or $0.76 per basic share in 2021.

A reconciliation between all GAAP and non-GAAP information referenced above is contained in the tables below. Please also refer to “Non-GAAP Financial Measures” below for a description of these non-GAAP financial measures.

First Quarter 2023 Business Outlook (+)

For the first quarter of 2023, the company currently expects:

• Revenue in the range of $52 million to $55 million.
• Non-GAAP gross margin in the range of 23% to 24%.
• Non-GAAP net loss in the range of $4.4 million to $5.3 million, and non-GAAP loss per share in the range of $0.15 to $0.19 using approximately 28.9 million shares.

(+) Please refer to the note below on forward-looking statements and the risks involved with such statements as well as the note on non-GAAP financial measures.

Conference Call Information

The company will host a conference call and webcast on February 23, 2023 to discuss its fourth quarter and full year 2022 financial results and outlook for its first quarter 2023 at 4:30 p.m. Eastern time / 3:30 p.m. Central time. The call can be accessed by dialing 844-890-1794 (domestic) or 412-717-9586 (international). A live audio webcast of the conference call along with supplemental financial information will also be accessible on the company's website at investors.ao-inc.com. Following the webcast, an archived version will be available on the website for one year. A telephonic replay of the call will be available one hour after the call and will be available until March 2, 2023, at 11:59 p.m. Eastern Time / 10:59 p.m. Central Time and may be accessed by dialing 877-344-7529 (domestic) or 412-317-0088 (international) and entering passcode 5238771.

Forward-Looking Information

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terminology such as "believe," "may," "estimate," "continue," "anticipate," "intend," "should," "could," "would," "target," "seek," "aim," "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. These statements include management’s beliefs and expectations related to our outlook for the first quarter of 2023. Such forward-looking statements reflect the views of management at the time such statements are made. These forward-looking statements involve risks and uncertainties, as well as assumptions and current expectations, which could cause the company's actual results to differ materially from those anticipated in such forward-looking statements. These risks and uncertainties include but are not limited to: the impact of the COVID-19 pandemic on our business and financial results; reduction in the size or quantity of customer orders; change in demand for the company's products due to industry conditions; changes in manufacturing operations; volatility in manufacturing costs; delays in shipments of products; disruptions in the supply chain; change in the rate of design wins or the rate of customer acceptance of new products; the company's reliance on a small number of customers for a substantial portion of its revenues; potential pricing pressure; a decline in demand for our customers' products or their rate of deployment of their products; general conditions in the cable television (CATV) broadband, internet datacenter, telecom, or fiber-to-the-home (FTTH) markets; changes in the world economy (particularly in the United States and China); changes in the regulation and taxation of international trade, including the imposition of tariffs; changes in currency exchange rates; the negative effects of seasonality; and other risks and uncertainties described more fully in the company's documents filed with or furnished to the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2021 and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022. More information about these and other risks that may impact the company's business are set forth in the "Risk Factors" section of the company's quarterly and annual reports on file with the Securities and Exchange Commission. You should not rely on forward-looking statements as predictions of future events. All forward-looking statements in this press release are based upon information available to us as of the date hereof, and qualified in their entirety by this cautionary statement. Except as required by law, we assume no obligation to update forward-looking statements for any reason after the date of this press release to conform these statements to actual results or to changes in the company's expectations.

Non-GAAP Financial Measures

We provide non-GAAP gross margin, non-GAAP net income (loss), and non-GAAP earnings per share to eliminate the impact of items that we do not consider indicative of our overall operating performance. To arrive at our non-GAAP gross margin, we exclude stock-based compensation expense, expenses associated with discontinued products, and non-recurring (income) expenses, if any, from our GAAP gross margin. To arrive at our non-GAAP net income (loss), we exclude all amortization of intangible assets, stock-based compensation expense, non-recurring expenses, unrealized foreign exchange loss (gain), losses from the disposal of idle assets, if any, non-GAAP tax benefit (expenses), and expenses associated with discontinued products, from our GAAP net income (loss). Included in our non-recurring expenses in Q4 2022 and Q4 2021, and FY 2022 and FY 2021, are certain non-recurring expenses related to extreme weather and pandemic events and non-recurring tax expenses or benefits (if any), and employee severance expenses (if any). In computing our non-GAAP income tax benefit (expense), we have applied an estimate of our annual effective income tax rate and applied it to our net income before income taxes. Our non-GAAP diluted net loss per share is calculated by dividing our non-GAAP net loss by the fully diluted share count (for periods in which non-GAAP net income is positive) or basic share count (for periods in which our non-GAAP net income is negative). We believe that our non-GAAP measures are useful to investors in evaluating our operating performance for the following reasons:

• We believe that elimination of items such as amortization of intangible assets, stock-based compensation expense, non-recurring revenue and expenses, losses from the disposal of idle assets, unrealized foreign exchange gain or loss, and depreciation on certain equipment undergoing reconfiguration is appropriate because treatment of these items may vary for reasons unrelated to our overall operating performance;
• We believe that elimination of expenses associated with discontinued products, including depreciation and inventory obsolescence is appropriate because these expenses are not indicative of our ongoing operations;
• We believe that estimating non-GAAP income taxes allows comparison with prior periods and provides additional information regarding the generation of potential future deferred tax assets;
• We believe that non-GAAP measures provide better comparability with our past financial performance, period-to-period results and with our peer companies, many of which also use similar non-GAAP financial measures; and
• We anticipate that investors and securities analysts will utilize non-GAAP measures as a supplement to GAAP measures to evaluate our overall operating performance.

A reconciliation of our GAAP net income (loss) and GAAP earnings (loss) per share for Q4 2022 and FY 2022 to our non-GAAP net income (loss) and earnings (loss) per share is provided below, together with corresponding reconciliations for Q4 2021 and FY 2021.

Non-GAAP measures should not be considered as an alternative to net income (loss), earnings (loss) per share, or any other measure of financial performance calculated and presented in accordance with GAAP. Our non-GAAP measures may not be comparable to similarly titled measures of other organizations because other organizations may not calculate such other non-GAAP measures in the same manner. We have not reconciled the non-GAAP measures included in our guidance to the appropriate GAAP financial measures because the GAAP measures are not readily determinable on a forward-looking basis. GAAP measures that impact our non-GAAP financial measures may include stock-based compensation expense, non-recurring expenses, amortization of intangible assets, unrealized exchange loss (gain), asset impairment charges, and loss (gain) from disposal of idle assets. These GAAP measures cannot be reasonably predicted and may directly impact our non-GAAP gross margin, our non-GAAP net income and our non-GAAP fully-diluted earnings per share, although changes with respect to certain of these measures may offset other changes. In addition, certain of these measures are out of our control. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measures is not available without unreasonable effort.

About Applied Optoelectronics

Applied Optoelectronics Inc. (AOI) is a leading developer and manufacturer of advanced optical products, including components, modules and equipment. AOI's products are the building blocks for broadband fiber access networks around the world, where they are used in the CATV broadband, internet datacenter, telecom and FTTH markets. AOI supplies optical networking lasers, components and equipment to tier-1 customers in all four of these markets. In addition to its corporate headquarters, wafer fab and advanced engineering and production facilities in Sugar Land, TX, AOI has engineering and manufacturing facilities in Taipei, Taiwan and Ningbo, China. For additional information, visit www.ao-inc.com.

Investor Relations Contacts:

The Blueshirt Group, Investor RelationsLindsay Savarese+1-212-331-8417ir@ao-inc.com

Cassidy Fuller+1-415-217-4968                ir@ao-inc.com

Applied Optoelectronics, Inc.
Preliminary Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
	December 31, 2022		December 31, 2021
ASSETS
CURRENT ASSETS
Cash, Cash Equivalents and Restricted Cash	$	35,587	$	41,136
Accounts Receivable, Net		61,175		47,944
Notes receivable		339		8,148
Inventories		79,679		92,516
Prepaid Income Tax		-		1
Prepaid Expenses and Other Current Assets		6,384		4,334
Total Current Assets		183,164		194,079
Property, Plant And Equipment, Net		210,184		243,035
Land Use Rights, Net		5,238		5,856
Operating Right of Use Asset		5,566		7,078
Financing Right of Use Asset		26		57
Intangible Assets, Net		3,699		3,836
Other Assets		386		518
TOTAL ASSETS	$	408,263	$	454,459
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable	$	47,845	$	34,402
Bank Acceptance Payable		12,337		8,198
Accrued Expenses		17,222		15,587
Deferred Revenue		3,000		-
Current Lease Liability-Operating		1,041		1,062
Current Lease Liability-Financing		63		19
Current Portion of Notes Payable and Long Term Debt		57,074		49,689
Total Current Liabilities		138,582		108,957
Notes Payable and Long Term Debt		-		5,000
Convertible Senior Notes		79,506		78,680
Other Long-Term Liabilities		5,505		7,252
TOTAL LIABILITIES		223,593		199,889
STOCKHOLDERS' EQUITY
TOTAL STOCKHOLDERS' EQUITY		184,670		254,570
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	408,263	$	454,459

Applied Optoelectronics, Inc.
Preliminary Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
	Three Months EndedDecember 31,							Twelve Months EndedDecember 31,
Revenue		2022			2021				2022			2021
CATV	$	38,216		$	25,200			$	118,169		$	94,538
Datacenter		16,485			24,928				77,094			97,188
Telecom		6,365			3,288				24,727			16,248
FTTH		4			173				129			956
Other		514			819				2,699			2,635
Total Revenue		61,584			54,408				222,818			211,565
Total Cost of Goods Sold		55,359			46,314				189,191			173,850
Total Gross Profit		6,225			8,094				33,627			37,715
Operating Expenses:
Research and Development		9,224			9,229				36,244			41,220
Sales and Marketing		2,616			2,324				9,723			10,899
General and Administrative		12,749			10,167				46,658			42,362
Total Operating Expenses		24,589			21,720				92,625			94,481
Operating Loss		(18,364	)		(13,626	)			(58,998	)		(56,766	)
Other Income (Expense):
Interest Income		36			21				126			70
Interest Expense		(1,888	)		(1,462	)			(6,319	)		(5,619	)
Other Income (Expense), net		(34	)		529				(1,205	)		8,155
Total Other Income (Expense):		(1,886	)		(912	)			(7,398	)		2,606
Net loss before Income Taxes		(20,250	)		(14,538	)			(66,396	)		(54,160	)
Income Tax Expense		(1	)		(2	)			(1	)		(2	)
Net loss	$	(20,251	)	$	(14,540	)		$	(66,397	)	$	(54,162	)
Net loss per share attributable to common stockholders
basic	$	(0.71	)	$	(0.54	)		$	(2.38	)	$	(2.01	)
diluted	$	(0.71	)	$	(0.54	)		$	(2.38	)	$	(2.01	)
Weighted-average shares used to compute net loss per share attributable to common stockholders
basic		28,460			27,173				27,846			26,912
diluted		28,460			27,173				27,846			26,912

Applied Optoelectronics, Inc.
Reconciliation of Statements of Operations under GAAP and Non-GAAP
(In thousands, except per share data)
(Unaudited)
	Three Months EndedDecember 31,							Twelve Months EndedDecember 31,
		2022			2021				2022			2021
GAAP revenue	$	61,584		$	54,408			$	222,818		$	211,565
Non-recurring customer credit		-			-				-			-
Non-GAAP revenue	$	61,584		$	54,408			$	222,818		$	211,565
GAAP total gross profit (a)	$	6,225		$	8,094			$	33,627		$	37,715
Share-based compensation expense		118			196				489			886
Non-recurring expense		5			32				261			118
Expenses associated with discontinued products		6,802			1,242				6,858			7,212
Non-GAAP total gross profit (a)	$	13,150		$	9,564			$	41,235		$	45,931
GAAP net loss	$	(20,251	)	$	(14,540	)		$	(66,397	)	$	(54,162	)
Share-based compensation expense		2,357			3,199				9,602			12,123
Expenses associated with discontinued products		6,802			1,242				6,859			7,212
Non-cash expenses associated with discontinued products		1,147			1,173				4,625			4,811
Amortization of intangible assets		157			151				616			600
Non-recurring (income) expense		15			531				233			(5,174	)
Unrealized exchange loss (gain)		(434	)		(339	)			1,809			703
Non-GAAP tax benefit		4,793			3,101				14,638			13,466
Non-GAAP net loss	$	(5,414	)	$	(5,482	)		$	(28,015	)	$	(20,421	)
GAAP diluted net loss per share	$	(0.71	)	$	(0.54	)		$	(2.38	)	$	(2.01	)
Share-based compensation expense		0.08			0.12				0.34			0.45
Expenses associated with discontinued products		0.24			0.05				0.24			0.27
Non-cash expenses associated with discontinued products		0.04			0.04				0.17			0.18
Amortization of intangible assets		0.01			0.01				0.02			0.02
Non-recurring (income) expense		-			0.02				0.01			(0.19	)
Unrealized exchange loss (gain)		(0.02	)		(0.01	)			0.07			0.02
Non-GAAP tax benefit		0.17			0.11				0.52			0.50
Non-GAAP diluted net loss per share	$	(0.19	)	$	(0.20	)		$	(1.01	)	$	(0.76	)
Shares used to compute diluted loss per share		28,460			27,173				27,846			26,912
Shares used to compute diluted earnings per share		28,460			27,173				27,846			26,912
(a) Provided for the purpose of calculating gross profit as a percentage of revenue (gross margin).