UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-36083
Applied Optoelectronics, Inc.
(Exact name of registrant as specified in its charter)
|
Delaware |
76-0533927 |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
13139 Jess Pirtle Blvd.
Sugar Land, TX 77478
(Address of principal executive offices)
(281) 295-1800
(Registrant’s telephone number)
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 (“Exchange Act”) 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. Yes ☒ No ☐
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
☒ |
|
|
|
|
Accelerated filer |
☐ |
|
|
|
|
Non-accelerated filer |
☐ |
|
|
|
|
Smaller reporting company |
☐ |
|
|
|
|
Emerging growth company |
☐ |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
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 |
|
Common Stock, Par value $0.001 |
AAOI |
NASDAQ Global Market |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: as of May 2, 2019 there were 19,939,626 shares of the registrant’s Common Stock outstanding.
Applied Optoelectronics, Inc.
2
Item 1. Condensed Consolidated Financial Statements
Applied Optoelectronics, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share data)
|
|
|
March 31, |
|
December 31, |
|
||
|
|
|
2019 |
|
2018 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
74,930 |
|
$ |
55,646 |
|
|
Restricted cash |
|
|
2,529 |
|
|
2,358 |
|
|
Accounts receivable - trade, net of allowance of $32 and $31, respectively |
|
|
32,123 |
|
|
30,534 |
|
|
Notes receivable |
|
|
79 |
|
|
— |
|
|
Inventories |
|
|
84,464 |
|
|
93,256 |
|
|
Prepaid income tax |
|
|
1,423 |
|
|
1,188 |
|
|
Prepaid expenses and other current assets |
|
|
7,726 |
|
|
11,293 |
|
|
Total current assets |
|
|
203,274 |
|
|
194,275 |
|
|
Property, plant and equipment, net |
|
|
242,623 |
|
|
234,211 |
|
|
Land use rights, net |
|
|
5,894 |
|
|
5,814 |
|
|
Operating right of use asset |
|
|
8,293 |
|
|
— |
|
|
Intangible assets, net |
|
|
4,001 |
|
|
3,977 |
|
|
Deferred income tax assets |
|
|
24,188 |
|
|
21,714 |
|
|
Other assets, net |
|
|
2,932 |
|
|
6,849 |
|
|
TOTAL ASSETS |
|
$ |
491,205 |
|
$ |
466,840 |
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Current portion of notes payable and long-term debt |
|
$ |
18,168 |
|
$ |
23,589 |
|
|
Accounts payable |
|
|
28,332 |
|
|
29,910 |
|
|
Bank acceptance payable |
|
|
5,198 |
|
|
4,628 |
|
|
Current lease liability |
|
|
1,053 |
|
|
— |
|
|
Accrued liabilities |
|
|
12,424 |
|
|
19,291 |
|
|
Total current liabilities |
|
|
65,175 |
|
|
77,418 |
|
|
Notes payable and long-term debt, less current portion |
|
|
17,535 |
|
|
60,328 |
|
|
Convertible senior notes |
|
|
76,439 |
|
|
— |
|
|
Non-current lease liability |
|
|
8,438 |
|
|
— |
|
|
TOTAL LIABILITIES |
|
|
167,587 |
|
|
137,746 |
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
Preferred Stock; 5,000 shares authorized at $0.001 par value; no shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively |
|
|
— |
|
|
— |
|
|
Common Stock; 45,000 shares authorized at $0.001 par value; 19,888 and 19,810 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively |
|
|
20 |
|
|
20 |
|
|
Additional paid-in capital |
|
|
295,130 |
|
|
292,480 |
|
|
Accumulated other comprehensive income |
|
|
2,950 |
|
|
602 |
|
|
Retained earnings |
|
|
25,518 |
|
|
35,992 |
|
|
TOTAL STOCKHOLDERS' EQUITY |
|
|
323,618 |
|
|
329,094 |
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
|
$ |
491,205 |
|
$ |
466,840 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Applied Optoelectronics, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share data)
|
|
|
Three months ended March 31, |
|
||||
|
|
|
2019 |
|
2018 |
|
||
|
Revenue, net |
|
$ |
52,719 |
|
$ |
65,239 |
|
|
Cost of goods sold |
|
|
40,368 |
|
|
39,403 |
|
|
Gross profit |
|
|
12,351 |
|
|
25,836 |
|
|
Operating expenses |
|
|
|
|
|
|
|
|
Research and development |
|
|
11,185 |
|
|
11,736 |
|
|
Sales and marketing |
|
|
2,595 |
|
|
2,474 |
|
|
General and administrative |
|
|
10,440 |
|
|
9,456 |
|
|
Total operating expenses |
|
|
24,220 |
|
|
23,666 |
|
|
Income (loss) from operations |
|
|
(11,869) |
|
|
2,170 |
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
Interest income |
|
|
72 |
|
|
52 |
|
|
Interest expense |
|
|
(996) |
|
|
(71) |
|
|
Other expense, net |
|
|
(155) |
|
|
(1,027) |
|
|
Total other expense, net |
|
|
(1,079) |
|
|
(1,046) |
|
|
Income (loss) before income taxes |
|
|
(12,948) |
|
|
1,124 |
|
|
Income tax benefit |
|
|
2,474 |
|
|
996 |
|
|
Net income (loss) |
|
$ |
(10,474) |
|
$ |
2,120 |
|
|
Net income (loss) per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.53) |
|
$ |
0.11 |
|
|
Diluted |
|
$ |
(0.53) |
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute net income (loss) per share: |
|
|
|
|
|
|
|
|
Basic |
|
|
19,863,080 |
|
|
19,492,251 |
|
|
Diluted |
|
|
19,863,080 |
|
|
19,988,575 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Applied Optoelectronics, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands)
|
|
|
Three months ended March 31, |
|
||||
|
|
|
2019 |
|
2018 |
|
||
|
Net income (loss) |
|
$ |
(10,474) |
|
$ |
2,120 |
|
|
Gain on foreign currency translation adjustment |
|
|
2,348 |
|
|
6,335 |
|
|
Comprehensive income (loss) |
|
$ |
(8,126) |
|
$ |
8,455 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Applied Optoelectronics, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three months ended March 31, 2019 and 2018
(Unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
||
|
|
|
Preferred Stock |
|
Common Stock |
|
Additional |
|
other |
|
|
|
|
|
|
|||||||||
|
|
|
Number |
|
|
|
|
Number |
|
|
|
|
paid-in |
|
comprehensive |
|
Retained |
|
Stockholders' |
|
||||
|
|
|
of shares |
|
Amount |
|
of shares |
|
Amount |
|
capital |
|
gain (loss) |
|
earnings |
|
equity |
|
||||||
|
January 1, 2019 |
|
— |
|
$ |
— |
|
19,810 |
|
$ |
20 |
|
$ |
292,480 |
|
$ |
602 |
|
$ |
35,992 |
|
$ |
329,094 |
|
|
Stock options exercised, net of shares withheld for employee tax |
|
— |
|
|
— |
|
1 |
|
|
— |
|
|
7 |
|
|
— |
|
|
— |
|
|
7 |
|
|
Issuance of restricted stock, net of shares withheld for employee tax |
|
— |
|
|
— |
|
77 |
|
|
— |
|
|
(299) |
|
|
— |
|
|
— |
|
|
(299) |
|
|
Share-based compensation |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
2,942 |
|
|
— |
|
|
— |
|
|
2,942 |
|
|
Foreign currency translation adjustment |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
2,348 |
|
|
— |
|
|
2,348 |
|
|
Other |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Net loss |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(10,474) |
|
|
(10,474) |
|
|
March 31, 2019 |
|
— |
|
$ |
— |
|
19,888 |
|
$ |
20 |
|
$ |
295,130 |
|
$ |
2,950 |
|
$ |
25,518 |
|
$ |
323,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
||
|
|
|
Preferred Stock |
|
Common Stock |
|
Additional |
|
other |
|
|
|
|
|
|
|||||||||
|
|
|
Number |
|
|
|
|
Number |
|
|
|
|
paid-in |
|
comprehensive |
|
Retained |
|
Stockholders' |
|
||||
|
|
|
of shares |
|
Amount |
|
of shares |
|
Amount |
|
capital |
|
gain (loss) |
|
earnings |
|
equity |
|
||||||
|
January 1, 2018 |
|
— |
|
$ |
— |
|
19,451 |
|
$ |
19 |
|
$ |
285,376 |
|
$ |
9,743 |
|
$ |
38,138 |
|
$ |
333,276 |
|
|
Stock options exercised, net of shares withheld for employee tax |
|
— |
|
|
— |
|
38 |
|
|
— |
|
|
(609) |
|
|
— |
|
|
— |
|
|
(609) |
|
|
Issuance of restricted stock, net of shares withheld for employee tax |
|
— |
|
|
— |
|
49 |
|
|
1 |
|
|
(398) |
|
|
— |
|
|
— |
|
|
(397) |
|
|
Share-based compensation |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
2,569 |
|
|
— |
|
|
— |
|
|
2,569 |
|
|
Foreign currency translation adjustment |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
6,335 |
|
|
— |
|
|
6,335 |
|
|
Net income |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2,120 |
|
|
2,120 |
|
|
March 31, 2018 |
|
— |
|
$ |
— |
|
19,538 |
|
$ |
20 |
|
$ |
286,938 |
|
$ |
16,078 |
|
$ |
40,258 |
|
$ |
343,294 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Applied Optoelectronics, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
|
|
|
Three months ended March 31, |
|
||||
|
|
|
2019 |
|
2018 |
|
||
|
Operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(10,474) |
|
$ |
2,120 |
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Lower of cost or market reserve adjustment to inventory |
|
|
2,287 |
|
|
877 |
|
|
Depreciation and amortization |
|
|
5,948 |
|
|
6,964 |
|
|
Amortization of debt issuance costs |
|
|
243 |
|
|
— |
|
|
Deferred income taxes, net |
|
|
(2,474) |
|
|
(1,103) |
|
|
Loss (gain) on disposal of assets |
|
|
9 |
|
|
(1) |
|
|
Share-based compensation |
|
|
2,942 |
|
|
2,569 |
|
|
Unrealized foreign exchange gain |
|
|
(249) |
|
|
(710) |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable, trade |
|
|
(1,589) |
|
|
6,195 |
|
|
Notes receivable |
|
|
(79) |
|
|
— |
|
|
Prepaid income tax |
|
|
(224) |
|
|
109 |
|
|
Inventories |
|
|
7,304 |
|
|
(15,761) |
|
|
Other current assets |
|
|
3,670 |
|
|
(1,870) |
|
|
Operating right of use asset |
|
|
245 |
|
|
— |
|
|
Accounts payable |
|
|
(1,579) |
|
|
2,599 |
|
|
Accrued liabilities |
|
|
(5,698) |
|
|
(6,052) |
|
|
Lease liability |
|
|
(242) |
|
|
— |
|
|
Net cash provided by (used in) operating activities |
|
|
40 |
|
|
(4,064) |
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Maturities of short-term investments |
|
|
— |
|
|
36 |
|
|
Purchase of property, plant and equipment |
|
|
(12,812) |
|
|
(9,659) |
|
|
Purchase of land use rights |
|
|
— |
|
|
(5,591) |
|
|
Proceeds from disposal of equipment |
|
|
1 |
|
|
— |
|
|
Deposits and prepaid for equipment |
|
|
3,931 |
|
|
3,128 |
|
|
Purchase of intangible assets |
|
|
(155) |
|
|
(134) |
|
|
Net cash used in investing activities |
|
|
(9,035) |
|
|
(12,220) |
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of notes payable and long-term debt, net of debt issuance costs |
|
|
6,488 |
|
|
26,556 |
|
|
Principal payments of long-term debt and notes payable |
|
|
(40,132) |
|
|
(341) |
|
|
Proceeds from line of credit borrowings |
|
|
10,859 |
|
|
44,953 |
|
|
Repayments of line of credit borrowings |
|
|
(25,747) |
|
|
(55,583) |
|
|
Proceeds from bank acceptance payable |
|
|
2,382 |
|
|
— |
|
|
Repayments of bank acceptance payable |
|
|
(1,917) |
|
|
— |
|
|
Proceeds from issuance of convertible senior notes, net of debt issuance costs |
|
|
76,378 |
|
|
— |
|
|
Exercise of stock options |
|
|
7 |
|
|
52 |
|
|
Payments of tax withholding on behalf of employees related to share-based compensation |
|
|
(299) |
|
|
(1,061) |
|
|
Net cash provided by financing activities |
|
|
28,019 |
|
|
14,576 |
|
|
Effect of exchange rate changes on cash |
|
|
431 |
|
|
1,059 |
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
19,455 |
|
|
(649) |
|
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
58,004 |
|
|
83,948 |
|
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
77,459 |
|
$ |
83,299 |
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
421 |
|
$ |
58 |
|
|
Income taxes |
|
|
224 |
|
|
— |
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Net change in accounts payable related to property and equipment additions |
|
|
(2,168) |
|
|
(1,138) |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
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, telecommunications and fiber-to-the-home. 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 also 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 also 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 Cable TV Broadband (“CATV”) systems and equipment, and performs research and development activities for the CATV products.
Interim Financial Statements
The unaudited condensed consolidated financial statements of the Company as of March 31, 2019 and December 31, 2018 and for the three months ended March 31, 2019 and March 31, 2018, 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, 2018. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results expected for the entire fiscal year. All significant intercompany 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 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, allowance for doubtful accounts, inventory reserve, product warranty costs, share-based compensation expense, estimated useful lives of property and equipment, and taxes.
Note 2. Significant Accounting Policies
There have been no changes in the Company’s significant accounting policies for the three months ended March 31, 2019, as compared to the significant accounting policies described in its 2018 Annual Report, except as described below.
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Recent Accounting Pronouncements
Recent Accounting Pronouncements Adopted in 2019
On February 25, 2016, the FASB released Accounting Standards Update (ASU) No. 2016-02, Leases, to complete its project to overhaul lease accounting. The ASU codifies ASC 842, Leases, which will replace the guidance in ASC 840. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. The Company adopted this ASU on January 1, 2019 without any impact to beginning retained earnings. Upon adoption of the new lease standard, the Company elected the package of practical expedients which allowed it to carry forward the historical lease classification on existing leases at adoption. In addition, the Company elected the short-term lease recognition exemption for all leases that qualify. The Company also elected the practical expedient to not separate lease and non-lease components for all of its leases. The Company has implemented internal controls to enable the presentation of financial information on adoption. The standard has a material impact on the Company’s consolidated balance sheet, but did not have an impact in its consolidated income statements. The most significant effects of adopting the new standard relate to the recognition of new ROU assets and lease liabilities on its balance sheet for its Taiwan branch. See Note 4, "Operating Leases" for additional information on the required disclosures related to the impact of adopting this standard.
In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for nonemployee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The Company adopted this ASU on January 1, 2019 with no impact on its consolidated financial statements.
Recent Accounting Pronouncements Yet to be Adopted
In June 2016, the FASB issued ASU 2016-13 Financial Instruments - Credit Losses, Measurement of Credit Losses on Financial Instruments, which changes the way entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net earnings. The new standard is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. Based on the composition of the Company’s investment portfolio, current market conditions, and historical credit loss activity, the adoption of ASU 2016-13 is not expected to have a material impact on its consolidated financial statements.
Note 3. Revenue Recognition
The adoption of Topic 606 represents a change in accounting principle that will provide financial statement readers with enhanced revenue recognition disclosures. In accordance with Topic 606, revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of products or services. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. Certain customers may receive cash and/or non-cash incentives, which are accounted for as variable consideration. To achieve this core principle, the Company applies the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to performance obligations in the contract; and (v) recognize revenue when or as the Company satisfies a performance obligation. The Company generally satisfies performance obligations at a point in time. Revenue is recognized based on the transaction price at the time the related performance obligation is satisfied by transferring a promised product or service to a customer.
Disaggregation of Revenue
Revenue is classified based on the location of where the product is manufactured. For additional information on the disaggregated revenues by geographical region, see Note 17, "Geographic Information.”
9
Revenue is also classified by major product category and is presented below (in thousands):
|
|
|
Three months ended March 31, |
||||||||
|
|
|
2019 |
|
% of Revenue |
|
2018 |
|
% of Revenue |
||
|
Data Center |
|
$ |
38,499 |
|
73.0% |
|
$ |
50,583 |
|
77.5% |
|
CATV |
|
|
11,962 |
|
22.7% |
|
|
10,568 |
|
16.2% |
|
Telecom |
|
|
1,738 |
|
3.3% |
|
|
3,586 |
|
5.5% |
|
FTTH |
|
|
94 |
|
0.2% |
|
|
111 |
|
0.2% |
|
Other |
|
|
426 |
|
0.8% |
|
|
391 |
|
0.6% |
|
Total Revenue |
|
$ |
52,719 |
|
100.0% |
|
$ |
65,239 |
|
100.0% |
Note 4. Operating Leases
The Company leases space under non-cancelable operating leases for manufacturing facilities, research and development offices and certain storage facilities and apartments. These leases do not contain contingent rent provisions. The Company also leases certain machinery, office equipment and a vehicle under operating leases. 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 ROU asset based on management’s intentions and individual fact patterns. Several warehouses and apartments have a non-cancelable 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 are the rates 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.
The Components of lease expense were as follows for the periods indicated (in thousands):
|
|
Three months ended March 31, |
|
|
|
|
2019 |
|
Operating lease expense |
$ |
323 |
|
Short Term lease expense |
|
29 |
|
Total lease expense |
$ |
352 |
Maturities of lease liabilities are as follows for the future one-year periods ending March 31, (in thousands):
|
2020 |
$ |
1,378 |
|
2021 |
|
1,205 |
|
2022 |
|
1,080 |
|
2023 |
|
1,051 |
|
2024 |
|
1,074 |
|
2025 and thereafter |
|
5,765 |
|
Total lease payments |
$ |
11,553 |
|
Less imputed interest |
|
(2,062) |
|
Present value |
$ |
9,491 |
10
The weighted average remaining lease term and discount rate for operating leases were as follows for the periods indicated:
|
|
March 31, |
|
|
2019 |
|
Weighted Average Remaining Lease Term (Years) |
9.81 |
|
Weighted Average Discount Rate |
3.17% |
Supplemental cash flow information related to operating leases was as follows for the periods indicated (in thousands):
|
|
Three months ended March 31, |
|
|
2019 |
|
Cash paid for amounts included in the measurement of lease liabilities |
|
|
Operating cash flows from operating leases |
332 |
|
Operating cash flows from financing lease |
— |
|
Financing cash flows from financing lease |
— |
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
— |
|
Right-of-use assets obtained in exchange for new finance lease liabilities |
— |
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):
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2019 |
|
2018 |
|
|
Cash and cash equivalents |
$ |
74,930 |
|
$ |
55,646 |
|
Restricted cash |
|
2,529 |
|
|
2,358 |
|
Total cash, cash equivalents and restricted cash shown in the statement of cash flows |
$ |
77,459 |
|
$ |
58,004 |
Restricted cash includes guarantee deposits for customs duties and compensating balances required for certain credit facilities.
Note 6. Earnings Per Share
Basic net income (loss) per share has been computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net income (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 earnings per share are the same.
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The following table sets forth the computation of the basic and diluted net income (loss) per share for the periods indicated (in thousands, except per share amounts):
|
|
|
Three months ended March 31, |
|
||||
|
|
|
2019 |
|
2018 |
|
||
|
Numerator: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(10,474) |
|
$ |
2,120 |
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average shares used to compute net income (loss) per share |
|
|
|
|
|
|
|
|
Basic |
|
|
19,863 |
|
|
19,492 |
|
|
Effect of dilutive options and restricted stock units |
|
|
— |
|
|
497 |
|
|
Diluted |
|
|
19,863 |
|
|
19,989 |
|
|
Net income (loss) per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.53) |
|
$ |
0.11 |
|
|
Diluted |
|
$ |
(0.53) |
|
$ |
0.11 |
|
The following potentially dilutive securities were excluded from the diluted net income (loss) per share as their effect would have been antidilutive (in thousands):
|
|
|
Three months ended March 31, |
|
|
||
|
|
|
2019 |
|
2018 |
|
|
|
Employee stock options |
|
93 |
|
— |
|
|
|
Restricted stock units |
|
10 |
|
— |
|
|
|
Shares for convertible senior notes |
|
4,587 |
|
— |
|
|
|
Total antidilutive shares |
|
4,690 |
|
— |
|
|
Note 7. Inventories
Inventories, net of inventory write-downs, consist of the following for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019 |
|
December 31, 2018 |
|
||
|
Raw materials |
|
$ |
27,473 |
|
$ |
30,214 |
|
|
Work in process and sub-assemblies |
|
|
53,642 |
|
|
49,192 |
|
|
Finished goods |
|
|
3,349 |
|
|
13,850 |
|
|
Total inventory |
|
$ |
84,464 |
|
$ |
93,256 |
|
The lower of cost or market adjustment expensed for inventory for the three months ended March 31, 2019 and 2018 was $2.3 million and $0.9 million, respectively.
12
Note 8. Property, Plant & Equipment
Property, plant and equipment consisted of the following for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019 |
|
December 31, 2018 |
|
||
|
Land improvements |
|
$ |
806 |
|
$ |
806 |
|
|
Building and improvements |
|
|
82,945 |
|
|
80,960 |
|
|
Machinery and equipment |
|
|
225,650 |
|
|
214,718 |
|
|
Furniture and fixtures |
|
|
5,123 |
|
|
5,043 |
|
|
Computer equipment and software |
|
|
9,808 |
|
|
9,709 |
|
|
Transportation equipment |
|
|
664 |
|
|
658 |
|
|
|
|
|
324,996 |
|
|
311,894 |
|
|
Less accumulated depreciation and amortization |
|
|
(101,049) |
|
|
(95,233) |
|
|
|
|
|
223,947 |
|
|
216,661 |
|
|
Construction in progress |
|
|
17,575 |
|
|||