Applied Optoelectronics — Second Quarter 2026 Earnings Summary

Financial Performance

• GAAP revenue reached $191.9 million, a 86.2% increase year-over-year from $103.0 million in Q2 2025 and a 27.0% sequential increase from $151.1 million in Q1 2026.
• GAAP gross margin was 27.7%, down from 30.3% in Q2 2025 and 29.1% in Q1 2026; Non-GAAP gross margin was 29.8%, compared to 30.4% in Q2 2025 and 29.2% in Q1 2026.
• GAAP net loss was $22.8 million ($0.28 per basic share), widening from a $9.1 million loss ($0.16 per share) in Q2 2025 and a $14.3 million loss ($0.19 per share) in Q1 2026.
• Non-GAAP net income was $5.5 million ($0.06 per diluted share), a significant turnaround from a non-GAAP net loss of $8.8 million ($0.16 per share) in Q2 2025 and a non-GAAP net loss of $4.9 million ($0.07 per share) in Q1 2026.
• Total assets grew to $2.30 billion as of June 30, 2026, from $1.17 billion as of December 31, 2025, driven by increases in cash ($508.8 million vs. $216.0 million), accounts receivable ($314.0 million vs. $244.4 million), and inventories ($278.8 million vs. $183.1 million).
• Total liabilities increased to $633.2 million from $434.5 million, with current liabilities rising to $428.4 million and convertible senior notes remaining at approximately $129.1 million.
• Adjusted EBITDA for the quarter was a loss of $0.5 million, compared to a loss of $3.4 million in Q2 2025.

Guidance and Future Outlook

• Third Quarter 2026 revenue is expected to range between $255 million and $290 million.
• Third Quarter 2026 Non-GAAP gross margin is projected to be between 29% and 30.5%.
• Third Quarter 2026 Non-GAAP net income is forecasted to range from $10.1 million to $24.0 million, with Non-GAAP income per share between $0.11 and $0.26 based on approximately 92.8 million shares.
• Management forecasts demand for 800G transceivers and 1.6 Tb products will continue to outpace production capacity through mid-2027.
• The company anticipates steady sequential revenue growth for the remainder of 2026.
• Manufacturing capacity is currently approaching 200,000 units per month, with a target to produce around 650,000 pieces of 800G and 1.6 Tb products per month by the end of 2026.

Business Segments and Product Lines

• Datacenter segment revenue was $107.7 million in Q2 2026, up from $44.8 million in Q2 2025.
• CATV segment revenue was $80.6 million in Q2 2026, up from $56.0 million in Q2 2025.
• Telecom segment revenue was $3.4 million in Q2 2026, up from $1.9 million in Q2 2025.
• The company reported a strong volume ramp of 800G products, which more than doubled sequentially.
• High-volume adoption of 1.8 GHz CATV products contributed to strong results during the quarter.
• Significant R&D expenses increased to $34.9 million in Q2 2026 from $20.6 million in Q2 2025.
• Expenses associated with discontinued products totaled $3.6 million in Q2 2026, compared to zero in Q2 2025.

Market and Competitive Landscape

• The company positions itself as a key supplier to AI, cloud infrastructure, and CATV markets.
• Robust customer engagement is observed regarding 800G transceivers and 1.6 Tb products.
• The company supplies tier-one customers across cloud computing, CATV broadband, telecom, and FTTH markets.
• Management notes that fundamental drivers of long-term demand remain robust.

Risks and Challenges

• Forward-looking statements involve risks including reduction in customer order size or quantity, changes in demand due to industry conditions, and manufacturing cost volatility.
• Potential risks include supply chain disruptions, delays in shipments, and changes in the rate of design wins or customer acceptance of new products.
• The company relies on a small number of customers for a substantial portion of its revenues.
• Risks include potential pricing pressure, declines in customer product demand or deployment rates, and general economic conditions in the US and China.
• Regulatory risks include changes in international trade regulations, tariffs, and currency exchange rate fluctuations.
• Seasonality and negative effects on results are noted as potential risks.

Management Commentary and Tone

• Dr. Thompson Lin, CEO, described Q2 as a "pivotal quarter," highlighting record revenue for the fifth consecutive quarter and the return to non-GAAP profitability.
• Dr. Stefan Murry, CFO, stated results were "in line with or better than our expectations" and emphasized solid progress on production capacity ramp for 800G and 1.6Tb products.
• Management expressed confidence that demand will continue to outpace production capacity through mid-2027.
• The tone reflects optimism regarding the robust fundamental drivers for AI, cloud, and CATV markets.

Other Key Points

• The company returned to non-GAAP profitability in Q2 2026 after reporting non-GAAP losses in the prior two quarters.
• Cash, cash equivalents, and restricted cash increased significantly to $508.8 million from $216.0 million at the end of 2025.
• Property, Plant, and Equipment, Net increased to $697.1 million from $376.1 million, indicating significant capital investment in manufacturing capacity.
• The company will host a conference call on August 6, 2026, at 4:30 p.m. Eastern time to discuss results and outlook.
• Non-GAAP measures exclude stock-based compensation, amortization of intangible assets, non-recurring expenses, and expenses associated with discontinued products.
• A reconciliation of GAAP to Non-GAAP financial measures is provided, including Adjusted EBITDA calculations.