# Applied Optoelectronics, Inc.: Form 10-Q for the period ended Jun 30, 2024

- Company: [Applied Optoelectronics, Inc.](/companies/aaoi.md) (CIK 1158114)
- Form: 10-Q
- Filed: 2024-08-06
- Accepted by EDGAR: Aug 6, 2024, 16:12 ET
- Period: 2024-06-30
- Accession: 0001437749-24-024888
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1158114/000143774924024888/aaoi20240630_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1158114/000143774924024888/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $43.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2024-01-01 to 2024-06-30 | $83.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-04-01 to 2024-06-30 | $33.7m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2024-01-01 to 2024-06-30 | $66.8m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-04-01 to 2024-06-30 | $9.6m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2024-01-01 to 2024-06-30 | $17.2m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-04-01 to 2024-06-30 | $13.1m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2024-01-01 to 2024-06-30 | $24.8m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | −$26.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-01-01 to 2024-06-30 | −$47.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-04-01 to 2024-06-30 | $1.7m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 6 months, 2024-01-01 to 2024-06-30 | $3.4m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-04-01 to 2024-06-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-01-01 to 2024-06-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | −$26.1m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | −$49.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.66 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | −$1.27 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.66 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | −$1.27 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 39,364,720 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 38,863,694 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | −$30.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-01-01 to 2024-06-30 | $8.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-06-30 | $10.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-30 | $133.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $348.0m | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $80.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-06-30 | $161.5m | us-gaap:Liabilities |
| Long-term debt | at 2024-06-30 | $0 | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-06-30 | $22.5m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-06-30 | $186.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 39,640 characters.

*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, 2024 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, 2023 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, and those discussed in other documents we file with the SEC, including our Report on Form 10-K for the year ended December 31, 2023 and subsequent Quarterly Reports on Form 10-Q. 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 MSOs to increase the return-path bandwidth available to offer to their customers. In the FTTH market, we benefit from continuing 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, or 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), 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. In our China facility, we take advantage of lower labor costs and manufacture certain more labor intensive components and optical equipment systems, such as optical subassemblies and transceivers for the CATV transmitters (at the headend), CATV outdoor equipment (at the node) and internet data center market. 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.

### Termination of the Divestiture Agreement with Yuhan Optoelectronic Technology (Shanghai) Co., Ltd

On September 15, 2022, the Company and Prime World International Holdings Ltd. (the "Seller") entered into the Purchase Agreement with Yuhan Optoelectronic Technology (Shanghai) Co., Ltd. (the "Purchaser") for the sale of the manufacturing facilities in the People's Republic of China and certain assets related to its transceiver business and multi-channel optical sub-assembly products. On September 12, 2023, we delivered a notice of termination to the Purchaser to terminate the Purchase Agreement as a result of the Purchaser's failure to satisfy certain of its material obligations under the Purchase Agreement. In doing so, we also asserted the right to recover a break-up fee from the Purchaser. On December 22, 2023, the Purchaser filed for arbitration in Hong Kong with the Hong Kong International Arbitration Centre disputing the validity of our termination notice and seeking specific performance with respect to the transactions contemplated by the Purchase Agreement, which would in any case remain subject to regulatory approvals. We filed our response on January 22, 2024, generally denying the Purchaser’s allegations and asserting certain counterclaims. The HKIAC Tribunal issued a procedural order on April 17, 2024 setting the evidentiary hearing to be held on September 2025. We are not able to determine the outcome of this dispute or the likelihood or amount of our loss or recovery, if any, arising from this matter.

### 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, 2024 |  | 2023 |  | Six months ended June 30, 2024 |  | Six months ended June 30, 2023 |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue, net | $43,270 | 100.0% | $41,615 | 100.0% | $83,943 | 100.0% | $94,645 | 100.0% |
| Cost of goods sold | 33,708 | 77.9% | 33,717 | 81.0% | 66,790 | 79.6% | 77,503 | 81.9% |
| Gross profit | 9,562 | 22.1% | 7,898 | 19.0% | 17,153 | 20.4% | 17,142 | 18.1% |
| Operating expenses | ​ |  | ​ |  | ​ |  | ​ |  |
| Research and development | 13,078 | 30.2% | 8,640 | 20.8% | 24,790 | 29.6% | 17,176 | 18.1% |
| Sales and marketing | 5,910 | 13.7% | 2,269 | 5.5% | 9,707 | 11.6% | 4,596 | 4.9% |
| General and administrative | 16,818 | 38.9% | 12,954 | 31.1% | 30,545 | 36.4% | 25,502 | 26.9% |
| Total operating expenses | 35,806 | 82.8% | 23,863 | 57.3% | 65,042 | 77.6% | 47,274 | 49.9% |
| Loss from operations | (26,244) | (60.7)% | (15,965) | (38.4)% | (47,889) | (57.1)% | (30,132) | (31.8)% |
| Other income (expense) | ​ |  | ​ |  | ​ |  | ​ |  |
| Interest income | 93 | 0.2% | 37 | 0.1% | 353 | 0.4% | 70 | 0.1% |
| Interest expense | (1,693) | (3.9)% | (2,175) | (5.2)% | (3,369) | (4.0)% | (4,312) | (4.6)% |
| Other income, net | 1,729 | 4.0% | 1,167 | 2.8% | 1,620 | 1.9% | 1,145 | 1.2% |
| Total other income (expense), net | 129 | 0.3% | (971) | (2.3)% | (1,396) | (1.7)% | (3,097) | (3.3)% |
| Loss before income taxes | (26,115) | (60.4)% | (16,936) | (40.7)% | (49,285) | (58.8)% | (33,229) | (35.1)% |
| Income tax expense | — | — | (8) | (0.0)% | — | — | (8) | (0.0)% |
| Net loss | $(26,115) | (60.4)% | $(16,944) | (40.7)% | $(49,285) | (58.8)% | $(33,237) | (35.1)% |

21

### 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, 2024 and 2023 (in thousands, except percentages):

| ​ ​ | Three months ended June 30, 2024 | % of Revenue | 2023 | % of Revenue | Change ​ Amount% | ​ |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Data Center | $34,352 | 79.4% | $27,571 | 66.2% | $6,781 | 24.6% |
| CATV | 5,818 | 13.5% | 9,343 | 22.5% | (3,525) | (37.7)% |
| Telecom | 2,379 | 5.4% | 4,231 | 10.2% | (1,852) | (43.8)% |
| FTTH | — | —% | 55 | 0.1% | (55) | (100.0)% |
| Other | 721 | 1.7% | 415 | 1.0% | 306 | 73.7% |
| Total Revenue | $43,270 | 100.0% | $41,615 | 100.0% | $1,655 | 4.0% |

*(in thousands, except percentages)*

| ​ ​ ​ | Six months ended June 30, 2024 2024 | % of Revenue | 2023 2023 | % of Revenue | Change ​ Amount% | ​ |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Data Center | $63,338 | 75.4% | $47,924 | 50.6% | 15,414 | 32.2% |
| CATV | 14,554 | 17.3% | 37,123 | 39.2% | (22,569) | (60.8)% |
| Telecom | 4,648 | 5.5% | 7,938 | 8.4% | (3,290) | (41.4)% |
| FTTH | — | 0.1% | 57 | 0.1% | (57) | (100.0)% |
| Other | 1,403 | 1.7% | 1,603 | 1.7% | (200) | (12.5)% |
| Total Revenue | $83,943 | 100.0% | $94,645 | 100.0% | $(10,702) | (11.3)% |

The changes in revenue during the three and six months ended June 30, 2024 and 2023 were primarily due to increased demand from major data center customers, offset by weak demand from CATV and Telecom customers. CATV demand in the 3 months ended June 30, 2024 was lower than in the corresponding period in the prior year largely due to a pending technology transition from older-generation products compliant with the Data Over Cable Service Interface Specification (DOCSIS) version 3.1, to the newer DOCSIS 4.0 standard. Due to the pending transition from the older to newer standard, customers are placing fewer orders for the older products and instead reducing their inventory of such products.

We have begun to see increased orders for our 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 2024. We entered into a supply agreement with Microsoft to design certain datacenter 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.

In addition to our existing datacenter customers, we have also begun to receive orders from a hyperscale datacenter 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 datacenter business is related to efforts by these customers to increase processing capacity within their datacenters, largely to accommodate applications enabled by generative artificial intelligence ("AI").

For the three months ended June 30, 2024 and 2023, our top ten customers represented 94% and 88.1% of our revenue, respectively. For the six months ended June 30, 2024 and 2023, our top ten customers represented 92.7% and 90.6% 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

*(in thousands, except percentages)*

| ​ ​ ​ ​ | Three months ended June 30, 2024 Amount | % of Revenue | 2023 Amount | % of Revenue | ​ Change Amount% | ​ ​ |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Cost of goods sold | $33,708 | 77.9% | 33,717 | 81.0% | $(9) | (0.0)% |
| Gross margin | 9,562 | 22.1% | 7,898 | 19.0% | 1,664 | 21.1% |

*(in thousands, except percentages)*

| ​ ​ ​ ​ | Six months ended June 30, 2024 Amount | % of Revenue | 2023 Amount | % of Revenue | ​ Change Amount% | ​ ​ |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Cost of goods sold | $66,790 | 79.6% | $77,503 | 81.9% | $(10,713) | (13.8)% |
| Gross margin | 17,153 | 20.4% | 17,142 | 18.1% | 11 | 0.1% |

22

Cost of goods sold was approximately the same for the three months ended June 30, 2024 and June 30, 2023. Cost of goods sold decreased by $10.7 million for the six months ended June 30, 2024 ,compared to the six months ended June 30, 2023 primarily due to lower sales, lower inventory write-off expenses and lower inventory reserve expenses in 2024.

Gross margin increased by $1.7 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase is primarily due to more sales of higher-margin datacenter products in the second quarter 2024, compared to the second quarter 2023. Gross profit was approximately the same for both six months ended June 30, 2024 and June 30, 2023.

#### Operating expenses

*(in thousands, except percentages)*

| ​ ​ ​ ​ | Three months ended June 30, 2024 ​ Amount | % of revenue | 2023 ​ Amount | % of revenue | ​ Change ​ Amount% | ​ ​ |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and development | $13,078 | 30.2% | $8,640 | 20.8% | $4,438 | 51.4% |
| Sales and marketing | 5,910 | 13.7% | 2,269 | 5.5% | 3,641 | 160.5% |
| General and administrative | 16,818 | 38.9% | 12,954 | 31.1% | 3,864 | 29.8% |
| Total operating expenses | $35,806 | 82.8% | $23,863 | 57.3% | $11,943 | 50.0% |

*(in thousands, except percentages)*

| ​ ​ ​ ​ | Six months ended June 30, 2024 ​ Amount | % of revenue | 2023 ​ Amount | % of revenue | ​ Change ​ Amount% | ​ ​ |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and development | $24,790 | 29.6% | $17,176 | 18.1% | $7,614 | 44.3% |
| Sales and marketing | 9,707 | 11.6% | 4,596 | 4.9% | 5,111 | 111.2% |
| General and administrative | 30,545 | 36.4% | 25,502 | 26.9% | 5,043 | 19.8% |
| Total operating expenses | $65,042 | 77.6% | $47,274 | 49.9% | $17,768 | 37.6% |

#### Research and development expense

Research and development expense increased by $4.4 million, or 51.4% for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Research and development expense increased by $7.6 million, or 44.3% for the six months ended June 30, 2024 compared to the same period ended June 30, 2023. The increases were primarily due to increased personnel-related expense, increased R&D related project costs and increased R&D consulting fees for ongoing R&D projects.

#### Sales and marketing expense

Sales and marketing expense increased by $3.6 million, or 160.5% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Sales and marketing expense increased by $5.1 million, or 111.2 % for the six months ended June 30, 2024 compared to the same period ended June 30, 2023. The increases were primarily due to the increased business development effort in our CATV and Datacenter businesses and higher shipping costs.

#### General and administrative expense

General and administrative expense increased by $3.9 million, or 29.8% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. General and administrative expense increased by $5.0 million, or 19.8% for the six months ended June 30, 2024 compared to the same period ended June 30, 2023. The increases were primarily due to higher legal fees and higher share-based compensation expense.

#### Other income (expense), net

*(in thousands, except percentages)*

| ​ ​ ​ ​ | Three months ended June 30, 2024 ​ Amount | % of revenue | 2023 Amount | % of revenue | Change ​ Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest income | $93 | 0.2% | $37 | 0.1% | $56 | 151.4% |
| Interest expense | (1,693) | (3.9)% | (2,175) | (5.2)% | 482 | (22.2)% |
| Other income (expense), net | 1,729 | 4.0% | 1,167 | 2.8% | 562 | 48.2% |
| Total other income (expense), net | $129 | 0.3% | $(971) | (2.3)% | $1,100 | (113.3)% |

*(in thousands, except percentages)*

| ​ ​ ​ ​ | Six months ended June 30, 2024 ​ Amount | % of revenue | 2023 Amount | % of revenue | Change ​ Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest income | $353 | 0.4% | $70 | 0.1% | $283 | 404.3% |
| Interest expense | (3,369) | (4.0)% | (4,312) | (4.6)% | 943 | (21.9)% |
| Other income (expense), net | 1,620 | 1.9% | 1,145 | 1.2% | 475 | 41.5% |
| Total other income (expense), net | $(1,396) | (1.7)% | $(3,097) | (3.3)% | $1,701 | (54.9)% |

Interest income increased by $56 thousand, or 151.4% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Interest income increased by $283 thousand or 404.3% for the six months ended June 30, 2024 compared to the same period ended June 30, 2023. The increases were due to higher saving balances and higher interest rate on our saving account in the first half year of 2024.

Interest expense decreased by $0.5 million, or 22.2% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Interest expense decreased by $0.9 million, or 21.9% for the six months ended June 30, 2024 compared to the same period ended June 30, 2023. The decreases were due to the termination of the loan with CIT Northbridge in November 2023.

Other income (expenses) increased by $0.6 million, or 48.2%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Other income (expenses) increased by $0.5 million, or 41.5%, for the six months ended June 30, 2024 compared to the same period ended June 30, 2023.These increases were mainly due to the resolution of legal matters, more government subsidy and positive foreign exchange impact.

#### Benefit (provision) for income taxes

The Company’s effective tax rate for the three months ended June 30, 2024 and 2023 was 0%. The 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 did not make significant such investments in the six months ended June 30, 2024, but we intend to continue to evaluate future investments for applicability to the tax credit provisions of the CHIPS Act.

#### Comprehensive Loss

*(in thousands, except percentages)*

| ​ ​ ​ ​ | Three months ended June 30, 2024 ​ Amount | % of revenue | 2023 Amount | % of revenue | ​ Change ​ Amount% | ​ |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net loss | $(26,115) | (60.4)% | $(16,944) | (40.7)% | $(9,171) | 54.1% |
| Loss on foreign currency translation adjustment | (845) | (2.0)% | (5,293) | (12.7)% | 4,448 | (84.0)% |
| Comprehensive loss | $(26,960) | (62.4)% | $(22,237) | (53.4)% | $(4,723) | 21.2% |

*(in thousands, except percentages)*

| ​ ​ ​ ​ | Six months ended June 30, 2024 ​ Amount | % of revenue | 2023 Amount | % of revenue | ​ Change ​ Amount% | ​ |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net loss | $(49,285) | (58.8)% | $(33,237) | (35.1)% | $(14,248) | 42.9% |
| Loss on foreign currency translation adjustment | (2,506) | (3.0)% | (3,654) | (3.9)% | 1,148 | 31.4% |
| Comprehensive loss | $(51,791) | (61.8)% | $(36,891) | (39.0)% | $(13,100) | 35.5% |

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Comprehensive loss increased by $4.7 million, or 21.2%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 Comprehensive loss increased by $13.1 million, or 35.5%, for the six months ended June 30, 2024 as compared to the same period ended June 30, 2023 The changes were primarily due to increase of net loss of $9.2 million and $14.2 million respectively, and foreign currency translation adjustments for non-U.S. dollar functional currency operations of $4.4 million and $1.1 million, respectively.

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, 2024, we had $29.4 million of unused borrowing capacity from all of our loan agreements. As of June 30, 2024, our cash, cash equivalents and restricted cash totaled $16.1 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 January 5, 2023, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission, which was declared effective on March 21, 2023, providing for the public offer and sale of certain securities of the Company from time to time, at our discretion, up to an aggregate amount of $185 million.

On March 13, 2024, we entered into an Equity Distribution Agreement (the "Agreement") with Raymond James & Associates (the "Sales Agent") pursuant to which the Company may 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 $25 million (the "ATM Offering"), from time to time through the Sales Agent. Upon delivery of a placement notice and subject to the terms and conditions of the Agreement, sales, if any, of the Shares will be made through the Sales Agent 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 Agent. In the placement notice, the Company will designate the maximum number of Shares to be sold through the Sales Agent, the time period during which sales are requested to be made, the minimum price for the Shares to be sold, and any limitation on the number of Shares that may be sold in any one day. Subject to the terms and conditions of the Agreement, the Sales Agent will use its commercially reasonable efforts to sell Shares on the Company’s behalf up to the designated amount specified in the placement notice. The Company has no obligation to sell any Shares under the Agreement and may at any time suspend offers and sales of the Shares under the Agreement.

The Agreement provides that the Sales Agent will be entitled to compensation of up to 2% of the gross sales price of the Shares sold through the Sales Agent from time to time. The Company has also agreed to reimburse the Sales Agent 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. Additionally, if the Agreement is terminated under certain circumstances, and the Company fails to sell a minimum amount of the Shares as set forth in the Agreement, then the Company has agreed to reimburse the Sales Agent for reasonable out-of-pocket expenses, including the reasonable fees and disbursements of counsel incurred by the Sales Agent, up to a maximum of $30,000 in the aggregate. The Company agreed to indemnify the Sales Agent against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Sales Agent may be required to make because of any of those liabilities.

As of June 30, 2024, we have sold approximately 1.7 million shares of the Company's common stock with an aggregate offering price of approximately $20.5 million under the current ATM Offering.

The details of the shares of common stock sold through the ATM Offering 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 2024 | 270,066 | $14.7664 | $4,000 | $80 | $3,920 |
| Raymond James & Associates, Inc. May 2024 | 718,605 | 12.0967 | 8,693 | 174 | 8,519 |
| Raymond James & Associates, Inc. Jun 2024 | 760,055 | 10.2962 | 7,826 | 157 | 7,669 |
| Total | 1,748,726 |  | $20,519 | $411 | $20,108 |

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#### 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.

#### Operating activities

The table below sets forth selected cash flow data for the periods presented (in thousands):

| ​ | Six months ended June 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by (used in) operating activities | $(30,470) | $5,868 |
| Net cash (used in) investing activities | (12,156) | (1,910) |
| Net cash provided by (used in) financing activities | 3,097 | (11,786) |
| Effect of exchange rates on cash and cash equivalents | 550 | 853 |
| Net decrease in cash and cash equivalents | $(38,979) | $(6,975) |

For the six months ended June 30, 2024, net cash used in operating activities was $30.5 million. Net cash used in operating activities consisted of our net loss of $49.3 million after exclusion of non-cash items of $30.5 million. Cash decreased due to accounts receivable increase of $11.4 million, accrued liability decrease of $1.2 million, offset by inventory decrease of $5.6 million.

For the six months ended June 30, 2023, net cash generated in operating activities was $5.9 million. Net cash provided by operating activities consisted of our net loss of $33.2 million after exclusion of non-cash items of $20.4 million. Cash increased due to a net decrease in accounts and trade notes receivable of $18.1 million, together with a decrease in inventory of $7.0 million and a major customer advance payment for unearned revenue of $8.7 million, offset with a decrease in accounts payable of $12.7 million and accrued liabilities of $2.4 million, respectively.

#### Investing activities

For the six months ended June 30, 2024, net cash used in investing activities was $12.2 million, mainly for the purchase of additional plant, machinery and equipment.

For the six months ended June 30, 2023, net cash used in investing activities was $1.9 million, mainly for the purchase of additional plant, machinery and equipment.

#### Financing activities

For the six months ended June 30, 2024, net cash provided by financing activities was $3.1 million. This increase was due to the proceeds from the ATM program of $20 million, offset by the net repayment of bank acceptance of $10.4 million, cash settlement and other related tax payment of share-based compensation of $5.5 million.

For the six months ended June 30, 2023, net cash used in financing activities was $11.8 million. This decrease in cash was due to repayment of $18.6 million on our lines of credit and repayment of $3.3 million bank acceptances payable, offset by net proceeds of $10.3 million from the ATM Offering.

#### Loans and commitments

We have lending arrangements with two financial institutions in China. Currently, in the US, we do not have any lending arrangement. As of June 30, 2024, we were in compliance with the covenant in the lending arrangements.

As of June 30, 2024, we had $29.4 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.

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, 2024, 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 service in the year 2024 after the construction is completed for the building interior work. Property will be transferred from construction in progress to building and improvement at that time.

#### Future liquidity needs

We had cash, cash equivalents and restricted cash of $16.1 million as of June 30, 2024, a decrease of approximately $39.0 million compared to December 31, 2023. 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 and other facilities at our Ningbo, China location, changes in our manufacturing capacity and the continuing market acceptance of our products.

As of June 30, 2024, we had a total loan balance (excluding convertible notes) of $22.5 million from various lenders in China and had $29.4 million available borrowing capacity on existing credit lines. Should additional liquidity be needed, our Board has authorized issuance of equity totaling up to $25million under the ATM Offering (see the discussion of "Liquidity and Capital Resources" in Item 2). As of June 30, 2024, we had raised $20.5 million under the authorized ATM Offering, and still had $4.5 million available.

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, 2023 for a complete discussion of its contractual obligations and commitments.

### Inflation

The annual inflation rate in the US reduced 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 2.7% in 2023 from 2.95% in 2022. 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. We cannot be sure when or if prices will return to pre-pandemic levels. 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 three months ended June 30, 2024. 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, 2023 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.

## Market risk

As filed, 328 characters.

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, 2023. We do not believe the Company’s exposure to market risk has changed materially since December 31, 2023.

## Controls and procedures

As filed, 1,876 characters.

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, 2024. 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.

## Risk factors

As filed, 316 characters.

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, 2023 for a detailed discussion of the risk factors affecting our Company. As of June 30, 2024, there have been no material changes to those risk factors.

Filed Aug 6, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-024888. Last ingested by Listed: Oct 30, 2026, 11:12 ET. No prices; not investment advice.