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Applied Optoelectronics, Inc.$19.74$.603.13%

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 Applied Optoelectronics Reports Third Quarter 2017 Results
   Tuesday, November 07, 2017 4:04:10 PM ET

Applied Optoelectronics, Inc. (AAOI ), a leading provider of fiber-optic access network products for the internet datacenter, cable broadband, fiber-to-the-home (FTTH) and telecom markets, today announced financial results for its third quarter ended Sept. 30, 2017.

"While our third quarter results were negatively impacted by lower demand from a large customer, we continued to experience solid demand from our other large datacenter customers, especially for our 100G CWDM transceivers, and revenue for our CATV products reached a new record," said Dr. Thompson Lin, Applied Optoelectronics, Inc. founder, president and CEO. "We remain confident in our leadership position in advanced optics. We are working diligently to diversify our customer base and are encouraged with the customer response so far, which led to nine design wins in the quarter, including three for our 100G products. We also continue to make progress on developing new innovative products and expanding our vertical integration to further extend the gap between AOI and the competition."

Third Quarter 2017 Financial Summary

-- Total revenue was $88.9 million, up 27% compared with $70.1 million in the third quarter of 2016, and down 24% compared with $117.4 million in the second quarter of 2017.

-- GAAP gross margin was 44.3%, compared with 33.0% in the third quarter of 2016 and 45.4% in the second quarter of 2017. Non-GAAP gross margin was 44.4%, compared with 33.1% in the third quarter of 2016 and 45.5% in the second quarter of 2017.

-- GAAP net income was $19.4 million, or $0.95 per diluted share, compared with net income of $17.7 million, or $0.97 per diluted share in the third quarter of 2016, and net income of $29.1 million, or $1.43 per diluted share in the second quarter of 2017.

-- Non-GAAP net income was $22.0 million, or $1.08 per diluted share, compared with non-GAAP net income of $7.0 million, or $0.38 per diluted share in the third quarter of 2016, and non-GAAP net income of $31.3 million, or $1.54 per diluted share in the second quarter of 2017.

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.

Fourth Quarter 2017 Business Outlook

For the fourth quarter of 2017, the company currently expects:

-- Revenue in the range of $81 million to $90 million.

-- Non-GAAP gross margin in the range of 41% to 43%.

-- Non-GAAP net income in the range of $16.6 million to $19.5 million, and non-GAAP fully diluted earnings per share in the range of $0.82 to $0.96 using approximately 20.3 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 today, Nov. 7, 2017 at 4:30 p.m. Eastern time / 3:30 p.m. Central time for analysts and investors to discuss its third quarter 2017 results and outlook for its fourth quarter 2017. Open to the public, investors may access the call by dialing (412) 717-9586. 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 run for five business days and may be accessed by dialing (412) 317-0088 and entering passcode 10113454.

Forward-Looking Information

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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: 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 internet datacenter, CATV, FTTH or Telecom markets; changes in the world economy (particularly in the United States and China); 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. 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. 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," "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. 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 and non-recurring 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, tax effects of stock-based compensation, and non-recurring expenses, if any, from our GAAP net income (loss). Included in our non-recurring expenses in Q3 2017 are certain consulting fees, employee severance expenses, and certain non-recurring expenses related to hurricane Harvey. Our non-GAAP earnings per share is calculated by dividing our non-GAAP net income by the fully diluted share count. 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 stock-based compensation expense and non-recurring expenses is appropriate because treatment of these items may vary for reasons unrelated to our overall operating performance;

-- 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 to evaluate our overall operating performance.

A reconciliation of our GAAP net income (loss) and GAAP earnings per share for Q3 2017 to our preliminary non-GAAP net income (loss) and earnings per share is provided below.

Non-GAAP measures should not be considered as an alternative to net income (loss), earnings 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 accessible 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 internet datacenter, CATV broadband, fiber-to-the-home and telecom 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 Relations

Maria Riley & Chelsea Lish

+1-415-217-7722

ir@ao-inc.com

Applied Optoelectronics, Inc.
Preliminary Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
                                                  September 30, 2017  December 31, 2016
ASSETS
CURRENT ASSETS
Cash, Cash Equivalents and Short term investments $         72,038    $         52,000
Accounts Receivable, Net                                    73,029              49,766
Inventories                                                 74,552              51,817
Other Receivables                                           7,684               1,501
Prepaid Expenses and Other Current Assets                   2,764               2,468
Total Current Assets                                        230,067             157,552
Cash restricted for Construction in Progress                -                   8
Property, Plant And Equipment, Net                          181,481             144,098
Land Use Rights, Net                                        797                 778
Intangible Assets, Net                                      4,041               3,993
Deferred Income Tax Assets                                  15,167              11,421
Other Assets                                                7,151               4,468
TOTAL ASSETS                                      $         438,704   $         322,318
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts Payable                                  $         50,993    $         36,375
Accrued Expenses                                            16,801              14,452
Accrued Income Tax                                          5,459               974
Bank Acceptance Payable                                     -                   307
Current Portion of Long Term Debt                           3,638               7,865
Total Current Liabilities                                   76,891              59,973
Notes Payable and Long Term Debt                            37,371              34,961
TOTAL LIABILITIES                                           114,262             94,934
STOCKHOLDERS’ EQUITY
TOTAL STOCKHOLDERS’ EQUITY                                  324,442             227,384
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY        $         438,704   $         322,318
Applied Optoelectronics, Inc.
Preliminary Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
                               Three Months Ended               Nine Months Ended
                               September 30,                    September 30,
Revenue                        2017            2016             2017             2016
CATV                           $      18,932   $      12,891    $      46,430    $      30,143
Datacenter                            65,819          52,949           244,711          133,209
FTTH                                  182             476              405              1,333
Other                                 3,946           3,821            10,928           11,128
Total Revenue                         88,879          70,137           302,474          175,813
Total Cost of Goods Sold              49,507          46,976           168,348          121,097
Total Gross Profit                    39,372          23,161           134,126          54,716
Operating Expenses:
Research and Development              9,190           8,362            24,695           24,572
Sales and Marketing                   2,551           1,594            6,612            4,884
General and Administrative            9,580           6,445            26,188           18,084
Total Operating Expenses              21,321          16,401           57,495           47,540
Operating Income                      18,051          6,760            76,631           7,176
Other Income (Expense):
Interest Income                       61              40               166              206
Interest Expense                      (248   )        (462   )         (792    )        (1,313  )
Other Income (Expense)                87              135              243              82
Foreign Exchange Gain (Loss)          (441   )        (69    )         (1,141  )        (614    )
Total Other Income (Expense):         (541   )        (356   )         (1,524  )        (1,639  )
Net Income before Income Taxes        17,510          6,404            75,107           5,537
Income Tax Benefit (Expense)          1,865           11,332           (6,872  )        11,472
Net Income                            19,375          17,736           68,235           17,009
Net income per share attributable to common stockholders
basic                          $      1.00     $      1.03      $      3.59      $      1.00
diluted                        $      0.95     $      0.97      $      3.39      $      0.95
Weighted-average shares used to compute net income per share attributable to common stockholders
basic                                 19,294          17,151           18,993           17,058
diluted                               20,423          18,361           20,134           17,954
Applied Optoelectronics, Inc.
Reconciliation of Statements of Operations under GAAP and Non-GAAP
(In thousands, except per share data)
(Unaudited)
                                                  Three Months Ended                                      Nine Months Ended
                                                  September 30,                                           September 30,
                                                  2017                                2016                2017            2016
GAAP total gross profit                           $                39,372           $ 23,161              $     134,126   $     54,716
Share-based compensation expense                                   125                52                        337             139
Non-GAAP total gross profit                                        39,497             23,213                    134,463         54,855
GAAP net income                                                    19,375             17,736                    68,235          17,009
Amortization of intangible assets                                  122                115                       360             337
Share-based compensation expense                                   2,082              1,046                     5,849           2,829
Non-recurring charges                                              378                535                       768             1,765
Loss (gain) from disposal of idle assets                           0                  4                         2               44
Unrealized exchange loss (gain)                                    60                 (624             )        207             (992    )
Non Recurring Tax benefit                                          0                  (11,856          )        (320    )       (11,856 )
Non-GAAP net income                                                22,017             6,956                     75,101          9,136
GAAP diluted net income (loss) per share          $                0.95             $ 0.97                $     3.39      $     0.95
Amortization of intangible assets                                  0.01               0.01                      0.02            0.02
Share-based compensation expense                                   0.10               0.06                      0.29            0.16
Non-recurring charges                                              0.02               0.03                      0.04            0.10
Loss (gain) from disposal of idle assets                           -                  0.00                      0.00            0.00
Unrealized exchange loss (gain)                                    0.00               (0.03            )        0.01            (0.06   )
Non Recurring Tax benefit                                          -                  (0.66            )        (0.02   )       (0.66   )
Non-GAAP diluted net income (loss) per share      $                1.08             $ 0.38                $     3.73      $     0.51
Shares used to compute diluted earnings per share                  20,423             18,361                    20,134          17,954
(a) Provided for the purpose of calculating gross profit as a percentage of revenue (gross margin).

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