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)
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| (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 |
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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.
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| Large accelerated filer | ☐ | | ☒ |
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| Non-accelerated filer | ☐ | Smaller reporting company | |
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| 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 November 4, 2024, there were
Applied Optoelectronics, Inc.
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| Item 1. |
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| Condensed Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023 |
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| Notes To Condensed Consolidated Financial Statements (Unaudited) |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 5. | Other Information | 29 |
| Item 6. |
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Item 1. Condensed Consolidated Financial Statements
Applied Optoelectronics, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
| September 30, | December 31, | |||||||
| | 2024 | 2023 | ||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable - trade, net of allowance of $ and $, respectively | ||||||||
| Notes receivable | ||||||||
| Inventories | ||||||||
| Prepaid income tax | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Land use rights, net | ||||||||
| Operating right of use asset | ||||||||
| Intangible assets, net | ||||||||
| Other assets, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Bank acceptance payable | ||||||||
| Accrued liabilities | ||||||||
| Unearned revenue | ||||||||
| Current lease liability - operating | ||||||||
| Current portion of notes payable and long-term debt | ||||||||
| Current portion of convertible senior notes | ||||||||
| Total current liabilities | ||||||||
| Non-current lease liability - operating | ||||||||
| Convertible senior notes | ||||||||
| TOTAL LIABILITIES | ||||||||
| Stockholders' equity: | ||||||||
| Preferred Stock; shares authorized at $ par value; shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Common Stock; shares authorized at $ par value; and shares issued and outstanding at September 30, 2024 and December 31, 2023, 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 share and per share data)
| Three months ended September 30, |
Nine months ended September 30, |
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2024 |
2023 |
2024 |
2023 |
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| Revenue, net |
$ | $ | $ | $ | ||||||||||||
| Cost of goods sold |
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| Gross profit |
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| Operating expenses |
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| Research and development |
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| Sales and marketing |
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| General and administrative |
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| Total operating expenses |
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| Loss from operations |
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| Other income (expense) |
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| Interest income |
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| Interest expense |
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| Other expense, net |
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| Total other income (expense), net |
( |
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| Loss before income taxes |
( |
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| Income tax expense |
( |
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| Net loss |
$ | ( |
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) | $ | ( |
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| Net loss per share |
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| Basic |
$ | ( |
) | $ | ( |
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| Diluted |
$ | ( |
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) | $ | ( |
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| Weighted average shares used to compute net loss per share: |
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| Basic |
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| Diluted |
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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)
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Three months ended September 30, |
Nine months ended September 30, |
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2024 |
2023 |
2024 |
2023 |
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| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
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| Gain (Loss) on foreign currency translation adjustment |
( |
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| Comprehensive loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
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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 Nine Months ended September 30, 2024 and 2023
(Unaudited, in thousands, except for share amount)
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Accumulated |
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Common Stock |
Additional |
other |
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Number |
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paid-in |
comprehensive |
Accumulated |
Stockholders' |
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of shares |
Amount |
capital |
gain (loss) |
deficit |
equity |
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| June 30, 2024 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Issuance of restricted stock, net of shares withheld for employee tax |
( |
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| Share-based compensation |
— | |||||||||||||||||||||||
| Public offering of common stock, net |
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| Foreign currency translation adjustment |
— | |||||||||||||||||||||||
| Net loss |
— | ( |
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| September 30, 2024 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
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Accumulated |
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Common Stock |
Additional |
other |
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Number |
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paid-in |
comprehensive |
Accumulated |
Stockholders' |
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of shares |
Amount |
capital |
gain (loss) |
deficit |
equity |
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| June 30, 2023 |
$ | $ | $ | ( |
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| Stock options exercised, net of shares withheld for employee tax |
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| Issuance of restricted stock, net of shares withheld for employee tax |
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| Share-based compensation |
— | |||||||||||||||||||||||
| Public offering of common stock, net |
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| Foreign currency translation adjustment |
— | — | ( |
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| Net loss |
— | ( |
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) | |||||||||||||||||||
| September 30, 2023 |
$ | $ | $ | ( |
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) | $ | |||||||||||||||
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Accumulated |
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Common Stock |
Additional |
other |
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Number |
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paid-in |
comprehensive |
Accumulated |
Stockholders' |
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of shares |
Amount |
capital |
gain (loss) |
deficit |
equity |
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| January 1, 2024 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock options exercised |
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| Issuance of restricted stock, net of shares withheld for employee tax |
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| Share-based compensation |
— | |||||||||||||||||||||||
| Public offering of common stock, net |
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| Shares converted by Notes holders |
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| Foreign currency translation adjustment |
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| Net loss |
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| September 30, 2024 |
$ | $ | $ | $ | ( |
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Accumulated |
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Common Stock |
Additional |
other |
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Number |
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paid-in |
comprehensive |
Retained |
Stockholders' |
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of shares |
Amount |
capital |
gain (loss) |
earnings |
equity |
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| January 1, 2023 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock options exercised, net of shares withheld for employee tax |
( |
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) | ||||||||||||||||||||
| Issuance of restricted stock, net of shares withheld for employee tax |
( |
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) | ||||||||||||||||||||
| Share-based compensation |
— | |||||||||||||||||||||||
| Public offering of common stock, net |
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| Foreign currency translation adjustment |
— | ( |
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| Net loss |
— | ( |
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| September 30, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
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)
| Nine months ended September 30, |
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2024 |
2023 |
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| Operating activities: |
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| Net loss |
$ | ( |
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| Adjustments to reconcile net loss to net cash used in operating activities: |
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| Allowance of bad debt |
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| Inventory reserve adjustment |
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| Depreciation and amortization |
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| Amortization of debt issuance costs |
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| Gain (loss) on disposal of assets |
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| Share-based compensation |
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| Unrealized foreign exchange (gain) |
( |
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| Changes in operating assets and liabilities: |
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| Accounts receivable, trade |
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| Trade Notes receivable |
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| Prepaid income tax |
( |
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| Inventories |
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| Other current assets |
( |
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| Operating right of use asset |
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| Accounts payable |
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| Accrued liabilities |
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| Accrued Income Tax |
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| Unearned revenue |
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| Lease liability |
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| Net cash used in operating activities |
( |
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| Investing activities: |
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| Purchase of property, plant and equipment |
( |
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| Proceeds from disposal of equipment |
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| Deposits and prepaid for equipment |
( |
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| Purchase of intangible assets |
( |
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| Net cash used in investing activities |
( |
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| Financing activities: |
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| Principal payments of long-term debt and notes payable |
( |
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| Proceeds from line of credit borrowings |
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| Repayments of line of credit borrowings |
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| Proceeds from bank acceptance payable |
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| Repayments of bank acceptance payable |
( |
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| Proceeds from issuance of convertible senior notes, net of debt issuance costs |
( |
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| Principal payments of financing lease |
( |
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| Exercise of stock options |
( |
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) | ||||
| Payments of tax withholding on behalf of employees related to share-based compensation |
( |
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| Proceeds from common stock offering, net |
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| Cash settlement of share-based compensation |
( |
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| Net cash provided by financing activities |
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| Effect of exchange rate changes on cash |
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| Net decrease in cash, cash equivalents and restricted cash |
( |
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| Cash, cash equivalents and restricted cash at beginning of period |
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| Cash, cash equivalents and restricted cash at end of period |
$ | $ | ||||||
| Supplemental disclosure of cash flow information: |
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| Cash paid for: |
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| Interest, net of amounts capitalized |
$ | $ | ||||||
| Income taxes |
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| Non-cash investing and financing activities: |
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| 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 |
( |
) | ||||||
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 and performs research and development activities for laser component and optical module 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 transceivers 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 September 30, 2024 and December 31, 2023 and for the three and nine months ended September 30, 2024 and September 30, 2023, 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, 2023. The results of operations for the three and nine months ended September 30, 2024 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 statements 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 doubtful accounts, 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.
Note 2. Significant Accounting Policies
There have been no changes in the Company’s significant accounting policies for the three and nine months ended September 30, 2024, as compared to the significant accounting policies described in its 2023 Annual Report.
Recent Accounting Pronouncements
There was no accounting pronouncement adopted in the third quarter of 2024.
Recent Accounting Pronouncements Yet to be Adopted
In December 2023, the Financial Accounting Standard Board ("FASB") issued Accounting Standard Update ("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. 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 financial statements and related disclosures.
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures", which requires the Company to expand the breadth and frequency of segment disclosures to include additional information about significant segment expenses, the chief operating decision maker (CODM) and other items, and also require the annual disclosures on an interim basis. This guidance is effective for annual periods beginning after December 15, 2023, with early adoption permitted. The standard will be effective for the Company beginning with 2024 10-K and interim periods afterwards. The Company has evaluated this new standard and intends to comply with the new disclosure requirements when required.
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, "Geographic Information."
Revenue is also classified by major product categories and is presented below (in thousands):
| Three months ended September 30, | ||||||||||||||||
| | % of | % of | ||||||||||||||
| | 2024 | Revenue | 2023 | Revenue | ||||||||||||
| Data Center | $ | % | $ | % | ||||||||||||
| CATV | % | % | ||||||||||||||
| Telecom | % | % | ||||||||||||||
| FTTH | % | % | ||||||||||||||
| Other | % | % | ||||||||||||||
| Total Revenue | $ | % | $ | % | ||||||||||||
| Nine months ended September 30, | ||||||||||||||||
| | % of | % of | ||||||||||||||
| | 2024 | Revenue | 2023 | Revenue | ||||||||||||
| Data Center | $ | % | $ | % | ||||||||||||
| CATV | % | % | ||||||||||||||
| Telecom | % | % | ||||||||||||||
| FTTH | % | % | ||||||||||||||
| 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 September 30, 2024 and December 31, 2023 was $
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Unearned revenue, beginning of period | $ | $ | $ | $ | ||||||||||||
| Additional unearned revenue | ||||||||||||||||
| Revenue recognized | ||||||||||||||||
| Unearned revenue, end of period | $ | $ | $ | $ | ||||||||||||
Note 4. Leases
The Company leases space under non-cancellable operating leases for certain manufacturing facilities, certain 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 an operating lease. 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.
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 was $
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Operating lease expense | $ | $ | $ | $ | ||||||||||||
| Financing lease expense | ||||||||||||||||
| Short Term lease expense | ||||||||||||||||
| Total lease expense | $ | $ | $ | $ | ||||||||||||
Maturities of lease liabilities are as follows for the future one-year periods ending September 30, 2024 (in thousands):
| Fiscal years: | Operating | |||
| 2024 (remaining 3 months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 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:
| Nine months ended September 30, | ||||||||
| | 2024 | 2023 | ||||||
| Weighted Average Remaining Lease Term (Years) - operating leases | ||||||||
| Weighted Average Remaining Lease Term (Years) - financing leases | — | |||||||
| Weighted Average Discount Rate - operating leases | % | % | ||||||
| Weighted Average Discount Rate - financing leases | % | |||||||
Supplemental cash flow information related to the leases was as follows for the periods indicated (in thousands):
| Nine months ended September 30, | ||||||||
| | 2024 | 2023 | ||||||
| Cash paid for amounts included in the measurement of lease liabilities | | | ||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Operating cash flows from financing lease | ||||||||
| Financing cash flows from financing lease | ||||||||
Note 5. Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted 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):
| September 30, | December 31, | |||||||
| | 2024 | 2023 | ||||||
| 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, China government subsidy fund, and compensating balances associated with certain credit facilities. As of September 30, 2024 and December 31, 2023, there were $
Note 6. 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.
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 September 30, | Nine months ended September 30, | |||||||||||||||
| | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| 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 September 30, | Nine months ended September 30, | |||||||||||||||
| | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Employee stock options | ||||||||||||||||
| Restricted stock units | ||||||||||||||||
| Shares for convertible senior notes | ||||||||||||||||
| Total antidilutive shares | ||||||||||||||||
Note 7. Inventories
Inventories, net of inventory write-downs, consist of the following for the periods indicated (in thousands):
| | September 30, 2024 | December 31, 2023 | ||||||
| Raw materials | $ | $ | ||||||
| Work in process and sub-assemblies | ||||||||
| Finished goods | ||||||||
| Allowance for inventory | ( | ) | ( | ) | ||||
| Total inventories | $ | $ | ||||||
For the three months ended September 30, 2024 and 2023, the inventory reserve adjustment expensed for inventory was $
For the three months ended September 30, 2024 and 2023, 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):
| | September 30, 2024 | December 31, 2023 | ||||||
| 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 September 30, 2024 and 2023, the depreciation expense of property, plant and equipment was $
As of September 30, 2024, 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):
| September 30, 2024 | ||||||||||||
| | Gross | Accumulated | Intangible | |||||||||
| | Amount | amortization | assets, net | |||||||||
| Patents | $ | $ | ( | ) | $ | |||||||
| Trademarks | ( | ) | ||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||
| December 31, 2023 | ||||||||||||
| | Gross | Accumulated | Intangible | |||||||||
| | Amount | amortization | assets, net | |||||||||
| Patents | $ | $ | ( | ) | $ | |||||||
| Trademarks | ( | ) | ||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||
For the three months ended September 30, 2024 and 2023, amortization expense for intangible assets, included in general and administrative expenses on the statement of operations, was $
On September 30, 2024, future amortization expenses for intangible assets for future periods are estimated to be (in thousands):
| 2024 (remaining 3 months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 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 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 September 30, 2024 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):
| September 30, 2024 | December 31, 2023 | |||||||
| Revolving line of credit with a China bank up to $ million with interest between % to %, maturing | $ | $ | ||||||
| Credit facility with a China bank up to $ million with interest between % and %, maturing | ||||||||
| Total | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Non-current portion | $ | $ | ||||||
| Bank Acceptance Notes Payable | September 30, 2024 | December 31, 2023 | ||||||
| Bank acceptance notes issued to vendors with a % handling fees |
|
| ||||||
The current portion of long-term debt is the amount payable within one year of the balance sheet date of September 30, 2024.
Maturities of long-term debt are as follows for the future one-year periods ending September 30, 2024 (in thousands):
| Within one year | $ | |||
| Beyond one year | ||||
| Total outstanding | $ |
On May 24, 2019, the Company’s China subsidiary, 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, the Company's China Subsidiary, Global, entered a security agreement with China Zheshang Bank in Ningbo City, China ("CZB") for a -year credit line agreement, totaling
As of September 30, 2024 and December 31, 2023, the Company had $
As of September 30, 2024 and December 31, 2023, there was $
Note 12. Convertible Senior Notes
On March 5, 2019, the Company issued $
The 2026 Notes were issued pursuant to an Indenture, dated as of December 5, 2023, (the "Indenture"), between the Company and Computershare Trust Company, N.A., as trustee. 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.
The following table presents the carrying value of the 2026 Notes for the periods indicated (in thousands):
| September 30, | December 31, | |||||||
| | 2024 | 2023 | ||||||
| Principal | $ | $ | ||||||
| Unamortized debt issuance costs | ( | ) | ( | ) | ||||
| Net carrying amount | $ | $ | ||||||
The conversion rate for the 2026 Notes is
Currently there are no guarantors of the 2026 Notes, but the 2026 Notes would be fully and unconditionally guaranteed, on a senior, unsecured basis by certain of the Company’s future domestic subsidiaries, should any such subsidiaries be formed. The 2026 Notes are the Company’s senior, unsecured obligations and are equal in right of payment with existing and future senior, unsecured indebtedness, senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated to the 2026 Notes and effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness. The Note Guarantee (as defined in the Indenture) of each future guarantor, if any, will be such guarantor’s senior, unsecured obligations and is equal in right of payment with existing and future senior, unsecured indebtedness, senior in right of payment to such future guarantor’s existing and future indebtedness that is expressly subordinated to the 2026 Notes and effectively subordinated to such future guarantor’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness.
The Indenture contains covenants that limit the Company’s ability and the ability of our subsidiaries to, among other things: (i) incur or guarantee additional indebtedness or issue disqualified stock; and (ii) create or incur liens.
The 2026 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 December 15, 2024 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 2026 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 Company’s common stock exceeds
In addition, the 2026 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 2026 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 2026 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 Company completes the "Specified Divestiture" of (x) one or more of its manufacturing facilities located in the People’s Republic of China and/or (y) significant assets located in the People’s Republic of China which relate to the Company’s transceiver business and multi-channel optical sub-assembly products (or any substantially related assets), for aggregate consideration in cash to the Company of not less than the U.S. Dollar equivalent of $
Calling any Convertible Note for redemption will constitute a “Make-whole fundamental change” (as defined in the Indenture) with respect to that Convertible Note, in which case the conversion rate applicable to the conversion of that Convertible 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 each holder of 2026 Notes will have the right to require the Company to repurchase its 2026 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 we send 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 2026 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 2026 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 2026 Notes may require the Company to repurchase for cash all or part of their 2026 Notes at a repurchase price equal to
Additionally, the 2026 Notes are subject to customary events of default. No sinking fund is provided for the 2026 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 contained in ASC 815-40-25-7 and 815-40-25-10. Accordingly, the conversion option is not required to be bifurcated from the host instrument as a freestanding financial instrument. Since the conversion feature meets the equity scope exception from derivative accounting, 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. The Company determined that notes should be accounted for in their entirety as a liability.
The Company incurred approximately $
The following table sets forth interest expense information related to the 2024 Notes and 2026 Notes (in thousands):
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| 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):