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Item 2 — Management's Discussion and Analysis
Applied Optoelectronics, Inc. · 10-Q · Q2 FY2026 · Period ended Jun 30, 2026
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You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the accompanying notes appearing elsewhere in this Quarterly Report on Form 10-Q for the period ended June 30, 2026 and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2025 included in our Annual Report. References to "Applied Optoelectronics," “we," "our" and "us" are to Applied Optoelectronics, Inc. and its subsidiaries unless otherwise specified or the context otherwise requires.
This Quarterly Report on Form 10-Q contains "forward-looking statements" that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Terminology such as "believe," "may," "estimate," "continue," "anticipate," "intend," "should," "could," "would," "target," "seek," "aim," "believe," "predicts," "think," "objectives," "optimistic," "new," "goal," "strategy," "potential," "is likely," "will," "expect," "plan," "project," "permit," or by other similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements.
We have based these forward-looking statements largely on our current expectations and projections about future events and industry and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified in "Part II —Item 1A. Risk Factors" provided below, those discussed in other documents we file with the SEC, including our Report on Form 10-K for the year ended December 31, 2025 and subsequent Quarterly Reports on Form 10-Q, and geopolitical tensions and conflicts, including with respect to international trade policies in areas such as tariffs and export controls, and the availability, timing and amount of refunds of previously paid tariffs. Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report.
Overview
We are a leading, vertically integrated provider of fiber-optic networking products. We target four networking end-markets: internet and AI data centers, CATV, telecom, and FTTH. We design and manufacture a range of optical communications products at varying levels of integration, from components, subassemblies and modules to complete turn-key equipment. In designing products for our customers, we typically begin with the fundamental building blocks of lasers and laser components. From these foundational products, we design and manufacture a wide range of products to meet our customers’ needs and specifications, and such products differ from each other by their end market, intended use and level of integration. We are primarily focused on the higher-performance segments within the internet data center, CATV, telecom and FTTH markets which increasingly demand faster connectivity and innovation.
Our vertically integrated manufacturing model provides us several advantages, including rapid product development, fast response times to customer requests and control over product quality and manufacturing costs.
The four end markets we target are all driven by significant bandwidth demand fueled by the growth of artificial intelligence (AI), cloud computing, network-connected devices, video traffic, and online social networking. Within the data center market, AI workloads are fueling the retooling of existing data centers and the construction of purpose-built data centers for AI, in both cases significantly increasing demand for higher speed optical networking technology. Existing internet data centers are also being upgraded with higher speed optical networking equipment to support ever-increasing data traffic. Within the CATV market, we benefit from a number of ongoing trends including the move to higher bandwidth networks among CATV service providers, especially the desire by CATV multiple system operators ("MSOs") to increase the return-path bandwidth available to offer to their customers. In the FTTH market, we benefit from continuing Passive Optical Networks ("PON") deployments and system updates among telecom service providers. In the telecom market, we benefit from deployment of new high-speed fiber-optic networks by telecom network operators, including 5G networks.
Our vertically integrated manufacturing model provides us several advantages, including rapid product development, fast response times to customer requests and greater control over product quality and manufacturing costs. We design, manufacture and integrate our own analog and digital lasers using a proprietary Molecular Beam Epitaxy ("MBE"), and Metal Organic Chemical Vapor Deposition ("MOCVD") alternative processes for the fabrication of lasers. We believe the use of both processes, and our knowledge of how to combine these processes with others to fabricate lasers is unique in our industry. We manufacture the majority of the laser chips and optical components that are used in our products. The lasers we manufacture are tested extensively to enable reliable operation over time and our devices are often highly tolerant of changes in temperature and humidity, making them well-suited to the CATV, FTTH and 5G telecom markets where networking equipment is often installed outdoors. All of our laser chips are manufactured in our facility in Sugar Land, Texas. We believe that our domestic production capacity for these devices gives us a competitive advantage over many of our competitors, as we believe that many of our customers prefer to source key components from suppliers who have domestic manufacturing capacity.
We have three manufacturing sites: Sugar Land, Texas, Ningbo, China and Taipei, Taiwan. Our research and development functions are generally partnered with our manufacturing locations, and we have an additional research and development facility in Duluth, Georgia. In our Sugar Land facility, we manufacture laser chips (utilizing our MBE and MOCVD processes), transceivers for the internet data center market, subassemblies and components. The subassemblies are used in the manufacture of components by our other manufacturing facilities or sold to third parties as modules. We manufacture our laser chips only within our Sugar Land facility, where our laser design team is located. In our Taiwan location, we manufacture optical components, such as our butterfly lasers, which incorporate laser chips, subassemblies and components manufactured within our Sugar Land facility. Additionally, in our Taiwan location, we manufacture transceivers for the internet data center, telecom, FTTH and other markets. We also manufacture CATV outdoor equipment including amplifiers. In our China facility, we do certain assembly operations on various products, including some optical subassemblies and transceivers for the CATV transmitters (at the headend), some CATV outdoor equipment and transceivers for our internet data center market. The extent of the assembly operations in our China facility do not always establish the country of origin for these products as China for U.S. tariff purposes. Each manufacturing facility conducts testing on the components, modules or subsystems it manufactures, and each facility is certified to ISO 9001:2015. Our facilities in Ningbo, China, Taipei, Taiwan, and Sugar Land, Texas are all certified to ISO 14001:2015. We have recently announced plans to expand our manufacturing space in and around the Sugar Land, Texas area and are currently in the process of building out suitable facilities for this expansion. We expect the first of these new facilities to begin production later in 2026.
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Our business depends on winning competitive bid selection processes to develop components, systems and equipment for use in our customers’ products. These selection processes are typically lengthy, and as a result our sales cycles will vary based on the level of customization required, market served, whether the design win is with an existing or new customer and whether our solution being designed in our customers’ product is our first generation or subsequent generation product. We do not have any long-term purchase commitments (in excess of one year) with any of our customers, most of whom purchase our products on a purchase order basis. However, once one of our solutions is incorporated into a customer’s design, we believe that our solution is likely to continue to be purchased for that design throughout that product’s life cycle because of the time and expense associated with redesigning the product or substituting an alternative solution.
Our principal executive offices are located at 13139 Jess Pirtle Blvd., Sugar Land, TX 77478, and our telephone number is (281) 295-1800.
Trends and Other Matters Affecting Our Business
Demand for our data center products remained strong during the six months ended June 30, 2026, driven by continued investments by hyperscale customers in artificial intelligence, cloud computing and high-speed networking infrastructure. We experienced significant growth in sales of data center products during the period, reflecting increased customer deployments and demand for higher speed optical connectivity solutions.
At the same time, the global economic environment remains subject to uncertainty resulting from evolving trade policies, tariffs, export controls, geopolitical developments and other macroeconomic factors. These conditions may impact the availability and cost of materials and components, customer purchasing decisions, deployment schedules and capital spending plans. In addition, changes in global trade policies and regulations could affect our manufacturing operations, supply chain and customer demand.
We continue to monitor these developments and have implemented strategies intended to reduce potential disruptions, including supply chain diversification, inventory management initiatives and operational efficiencies. However, future demand may be affected by changes in customer deployment schedules, inventory levels, capital spending plans and general market conditions.
Results of Operations
The following table sets forth our consolidated results of operations for the periods presented and as a percentage of our revenue for those periods (in thousands, except percentages):
Three months ended June 30, Six months ended June 30,
2026 2025 2026 2025
Revenue, net $ 191,922 100.0 % $ 102,952 100.0 % $ 343,066 100.0 % $ 202,811 100.0 %
Cost of goods sold 138,715 72.3 % 71,790 69.7 % 245,943 71.7 % 141,105 69.6 %
Gross profit 53,207 27.7 % 31,162 30.3 % 97,123 28.3 % 61,706 30.4 %
Operating expenses
Research and development 34,871 18.2 % 20,612 20.0 % 60,527 17.6 % 38,422 18.9 %
Sales and marketing 11,490 6.0 % 8,135 7.9 % 17,837 5.2 % 13,492 6.7 %
General and administrative 31,573 16.4 % 18,391 17.9 % 56,477 16.5 % 34,706 17.1 %
Total operating expenses 77,934 40.6 % 47,138 45.8 % 134,841 39.3 % 86,620 42.7 %
Loss from operations (24,727 ) (12.9 )% (15,976 ) (15.5 )% (37,718 ) (11.0 )% (24,914 ) (12.3 )%
Other income (expense)
Interest income 3,248 1.7 % 286 0.3 % 4,985 1.5 % 511 0.3 %
Interest expense (927 ) (0.5 )% (818 ) (0.8 )% (1,790 ) (0.5 )% (1,752 ) (0.9 )%
Other income, net 914 0.5 % 7,410 7.2 % (201 ) -0.1 % 7,885 3.9 %
Total other income (expense), net 3,235 1.7 % 6,878 6.7 % 2,994 0.9 % 6,644 3.3 %
Loss before income taxes (21,492 ) (11.2 )% (9,098 ) (8.8 )% (34,724 ) (10.1 )% (18,270 ) (9.0 )%
Income tax expense (1,289 ) (0.7 )% — — % (2,338 ) (0.7 )% — — %
Net loss $ (22,781 ) (11.9 )% $ (9,098 ) (8.8 )% $ (37,062 ) (10.8 )% $ (18,270 ) (9.0 )%
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Comparison of Financial Results
Revenue
We generate revenue through the sale of our products to equipment providers and network operators for the internet data center, CATV, telecom, FTTH and other markets. We derive a significant portion of our revenue from our top ten customers, and we anticipate that we will continue to do so for the foreseeable future. The following charts provide the revenue contribution from each of the markets we served for the three and six months ended June 30, 2026 and 2025 (in thousands, except percentages):
Three months ended June 30,
2026 2025 Change
% of % of
Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Data Center $ 107,662 56.1 % $ 44,791 43.5 % $ 62,871 140.4 %
CATV 80,578 42.0 % 56,019 54.4 % 24,559 43.8 %
Telecom 3,411 1.8 % 1,940 1.9 % 1,471 75.8 %
FTTH and Other 271 0.1 % 202 0.2 % 69 34.2 %
Total Revenue $ 191,922 100.0 % $ 102,952 100.0 % $ 88,970 86.4 %
Six months ended June 30,
2026 2025 Change
% of % of
Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Data Center $ 189,066 55.1 % $ 76,841 37.9 % $ 112,225 146.0 %
CATV 147,419 43.0 % 120,520 59.4 % 26,899 22.3 %
Telecom 5,971 1.7 % 4,876 2.4 % 1,095 22.5 %
FTTH and Other 610 0.2 % 574 0.3 % 36 6.3 %
Total Revenue $ 343,066 100.0 % $ 202,811 100.0 % $ 140,255 69.2 %
Revenues for the three months ended June 30, 2026 increased by $89.0 million, or 86.4%, compared to the three months ended June 30, 2025. The increase was primarily driven by:
● $62.9 million increase in data center product revenues, reflecting continued demand for our high-speed connectivity products; and
● $24.6 million increase in CATV product revenues, primarily driven by higher sales volume resulting from market share gains and continued aggressive deployment of our CATV products by our MSO customers.
Revenues for the six months ended June 30, 2026 increased by $140.3 million, or 69.2%, compared to the six months ended June 30, 2025. The increase was primarily driven by:
● $112.2 million increase in data center product revenues reflecting continued demand for our high-speed connectivity products; and
● $26.9 million increase in CATV product revenues primarily driven by higher sales volume resulting from market share gains and continued aggressive deployment of our CATV products by our MSO customers.
Future revenue trends are expected to depend on customer demand, customer deployment schedules, competitive pricing, supply chain conditions and broader macroeconomic conditions.
For the three months ended June 30, 2026 and 2025, our top ten customers represented 99% and 98% of our revenue, respectively. For the six months ended June 30, 2026 and 2025, our top ten customers represented 99% and 97% of our revenue, respectively. We believe that diversifying our customer base is critical for our future success, since reliance on a small number of key customers makes our ability to forecast future results dependent upon the accuracy of the forecasts we receive from those key customers. We continue to prioritize new customer acquisition and growth of diverse revenue streams.
Cost of goods sold and gross margin
Three months ended June 30,
2026 2025 Change
% of % of
Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Cost of goods sold $ 138,715 72.3 % $ 71,790 69.7 % $ 66,925 93.2 %
Gross profit 53,207 27.7 % 31,162 30.3 % 22,045 70.7 %
Six months ended June 30,
2026 2025 Change
% of % of
Amount Revenue Amount Revenue Amount %
(in thousands, except percentages)
Cost of goods sold $ 245,943 71.7 % $ 141,105 69.6 % $ 104,838 74.3 %
Gross profit 97,123 28.3 % 61,706 30.4 % 35,417 57.4 %
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Cost of goods sold increased by $66.9 million, or 93.2%, for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. The increase was primarily attributable to:
● $47.5 million increase in direct material costs, primarily due to higher production volumes;
● $8.6 million increase in direct labor costs, primarily due to increased production ramp activity;
● an increase in other manufacturing and production related costs of approximately $12.5 million, associated with higher production levels; and
● partially offset by $1.7 million decrease in inventory reserve adjustments.
Cost of goods sold increased by $104.8 million, or 74.3%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increase was primarily attributable to:
● $69.6 million increase in direct material, direct labor and other standard manufacturing costs, primarily due to higher production volumes;
● $14.1 million increase in direct labor costs, primarily due to increased production ramp activity;
● an increase in other manufacturing and production related costs of approximately $20.9 million, associated with changes in inventory demand forecasts; and
● a slight $0.2 million increase in inventory reserve adjustments.
Gross margin decreased to 27.7% for the three months ended June 30, 2026, compared to 30.3% for the three months ended June 30, 2025. Despite the decrease in gross margin percentage, gross profit increased by $22.0 million, or 70.7%, driven by higher revenues. The decrease in gross margin was primarily attributable to:
● increased direct material, direct labor and other manufacturing costs associated with increased production volumes; and
● partially offset by a lower inventory reserve adjustment of 2.2%.
The increase in gross profit was primarily attributable to:
● higher revenues, which contributed approximately $27.0 million to the increase in gross profit; and
● increased costs associated with certain data center products, which negatively impacted gross profit by approximately $5.0 million.
Gross margin decreased to 28.3% for the six
months ended
June 30, 2026, compared to 30.4% for the six months ended
June 30, 2025. Despite the decrease in gross margin percentage, gross profit increased by $35.4 million, or 57.4%, driven by higher revenues. The decrease in gross margin was primarily attributable to:
● improved absorption of manufacturing costs associated with higher production volumes, partially offset by increased inventory related costs and product mix.
The increase in gross profit was primarily attributable to:
● higher revenues, which contributed approximately $42.6 million to the increase in gross profit; and
● increased costs associated with certain data center products, which negatively impacted gross profit by approximately $7.2 million.
Management expects gross margin to increase in future periods as a result of product mix, cost optimization initiatives, and production efficiencies.
Operating Expenses
Three months ended June 30,
2026 2025 Change
% of % of
Amount revenue Amount revenue Amount %
(in thousands, except percentages)
Research and development $ 34,871 18.2 % $ 20,612 20.0 % $ 14,259 69.2 %
Sales and marketing 11,490 6.0 % 8,135 7.9 % 3,355 41.2 %
General and administrative 31,573 16.4 % 18,391 17.9 % 13,182 71.7 %
Total operating expenses $ 77,934 40.6 % $ 47,138 45.8 % $ 30,796 65.3 %
Six months ended June 30,
2026 2025 Change
% of % of
Amount revenue Amount revenue Amount %
(in thousands, except percentages)
Research and development $ 60,527 17.6 % $ 38,422 18.9 % $ 22,105 57.5 %
Sales and marketing 17,837 5.2 % 13,492 6.7 % $ 4,345 32.2 %
General and administrative 56,477 16.5 % 34,706 17.1 % $ 21,771 62.7 %
Total operating expenses $ 134,841 39.3 % $ 86,620 42.7 % $ 48,221 55.7 %
Research and Development Expense
Research and development expense increased by $14.3 million, or 69.2%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The increase was primarily attributable to:
● higher personnel-related expenses supporting product development activities; and
● increased engineering and development costs associated with data center products and new product development initiatives, including acceleration of planned development efforts to support anticipated demand from certain customers.
Research and development expense increased by $22.1 million, or 57.5%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increase was primarily attributable to:
● increased personnel-related expenses and increased R&D related project costs associated with new product development activities; and
● higher customer demand for new products and the acceleration of planned development efforts to support anticipated demand from certain customers.
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Sales and Marketing Expense
Sales and marketing expense increased by $3.4 million, or 41.2%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The increases were primarily attributable to:
● higher compensation and related costs associated with expanded sales efforts supporting data center and Quantum Bandwidth products; and
● higher shipping and logistics expenses, driven by accelerated customer demand, and the impact of tariffs of approximately $0.1 million.
Sales and marketing expense increased by $4.3 million, or 32.2%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increases were primarily attributable to:
● higher compensation and related costs associated with expanded sales efforts supporting data center and Quantum Bandwidth products; and
● higher shipping and logistics expenses, driven by accelerated customer demand, and the impact of tariffs of approximately $0.8 million.
Management continues to monitor tariff developments and their potential impact on its cost structure and pricing strategy. Based on current conditions, management expects shipping costs and tariff-related impacts to continue in 2026, likely at a reduced level compared to 2025 due to the Supreme Court’s decision overturning the IEEPA-related tariffs. Management cannot currently assess whether this tariff trend will continue given the Administration’s current stated goal to replace the IEEPA tariffs with tariffs under other sections of federal law (e.g. Section 301 tariffs, reciprocal tariffs, etc.).
General and Administrative Expense
General and administrative expense increased by $13.2 million, or 71.7%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. General and administrative expense increased by $21.8 million, or 62.7%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increase was primarily due to increased personnel-related expense and expanded corporate infrastructure to support company growth.
Other Income (Expense), Net
Three months ended June 30,
2026 2025 Change
% of % of
Amount revenue Amount revenue Amount %
(in thousands, except percentages)
Interest income $ 3,248 1.7 % $ 286 0.3 % $ 2,962 1,035.7 %
Interest expense (927 ) (0.5 )% (818 ) (0.8 )% (109 ) 13.3 %
Other income, net 914 0.5 % 7,410 7.2 % (6,496 ) (87.7 )%
Total other income (expense), net $ 3,235 1.7 % $ 6,878 6.7 % $ (3,643 ) (53.0 )%
Six months ended June 30,
2026 2025 Change
% of % of
Amount revenue Amount revenue Amount %
(in thousands, except percentages)
Interest income $ 4,985 1.5 % $ 511 0.3 % $ 4,474 875.5 %
Interest expense (1,790 ) (0.5 )% (1,752 ) (0.9 )% (38 ) 2.2 %
Other income, net (201 ) (0.1 )% 7,885 3.9 % (8,086 ) (102.5 )%
Total other income (expense), net $ 2,994 0.9 % $ 6,644 3.3 % $ (3,650 ) (54.9 )%
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Interest income increased by $3.0 million, or 1,035.7%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. Interest income increased by $4.5 million, or 875.5%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increase was primarily attributable to higher average cash and savings balances, as well as higher interest income earned on those balances during the period.
Interest expense increased by $0.1 million, or 13.3%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. Interest expense increased by $0.04 million, or 2.2%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increase was primarily attributable to changes in outstanding debt balances and related financing costs during the period.
Other income (expenses) decreased by $6.5 million, or 87.7%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. Other income (expenses) decreased by $8.1 million, or 102.5%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The decrease was mainly due to the negative foreign exchange impact.
Benefit (Provision) for Income Taxes
The Company’s effective tax rates for the three months ended June 30, 2026 and 2025 were (6.0)% and 0%, respectively. For the six months ended June 30, 2026 and 2025, the effective tax rates were (6.7)% and 0.0%, respectively. The effective tax rate varied from the federal statutory rate of 21% primarily due to the change of the valuation allowance on federal, state, and Taiwan deferred tax assets ("DTA"), and the R&D super deduction in China.
On August 9, 2022, the Creating Helpful Incentives to Produce Semiconductors Act ("CHIPS Act") was enacted. Among its provisions, the bill provides various federal grants, tax credits, and incentives for investment in the United States. To the extent that we make investments in expanding manufacturing in our semiconductor fabrication facility in Texas, we believe that the CHIPS Act would provide a refundable tax credit for certain equipment and facilities upgrades. We made significant investments in the three months ended June 30, 2026 which we believe should qualify for these credits, but we intend to continue to evaluate these and future investments for applicability to the tax credit provisions of the CHIPS Act.
Comprehensive Loss
Three months ended June 30,
2026 2025 Change
% of % of
Amount revenue Amount revenue Amount %
(in thousands, except percentages)
Net loss $ (22,781 ) (11.9 )% $ (9,098 ) (8.8 )% $ (13,683 ) 150.4 %
Gain on foreign currency translation adjustment 2,606 1.4 % 3,868 3.8 % (1,262 ) (32.6 )%
Comprehensive loss $ (20,175 ) (10.5 )% $ (5,230 ) (5.0 )% $ (14,945 ) 285.8 %
Six months ended June 30,
2026 2025 Change
% of % of
Amount revenue Amount revenue Amount %
(in thousands, except percentages)
Net loss $ (37,062 ) (10.8 )% $ (18,270 ) (9.0 )% $ (18,792 ) 102.9 %
Gain on foreign currency translation adjustment 3,016 0.9 % 3,661 1.8 % (645 ) (17.6 )%
Comprehensive loss $ (34,046 ) (9.9 )% $ (14,609 ) (7.2 )% $ (19,437 ) 133.0 %
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Comprehensive loss increased by $14.9 million, or 285.8%, for the three months ended June 30, 2026, compared to the three months ended June 30, 2025.
Comprehensive loss increased by $19.4 million, or 133.0%, for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025.
The functional currency for the Company’s operations is generally the applicable local currency. Accordingly, the assets and liabilities of companies whose functional currency is other than the U.S. dollar are included in the consolidated financial statements by translating the assets and liabilities into the U.S. dollar at the exchange rates applicable at the end of the reporting period. Translation gains or losses are accumulated in other comprehensive income (loss) in the consolidated statements of shareholders’ equity and are also included in comprehensive loss.
Liquidity and Capital Resources
As of June 30, 2026, we had $106.5 million of unused borrowing capacity from all of our loan agreements. As of June 30, 2026, our cash, cash equivalents and restricted cash totaled $508.8 million. Cash and cash equivalents are held for working capital purposes and are invested primarily in money market or time deposit funds. We do not enter into investments for trading or speculative purposes.
ATM Offerings
On December 18, 2024, the Company filed an automatic shelf registration statement on Form S-3ASR (Registration File No. 333-283905) (the "Automatic Shelf Registration Statement") with the U.S. Securities and Exchange Commission, which became effective immediately upon filing.
On February 26, 2026, the Company entered into an Equity Distribution Agreement (the "First EDA") with Raymond James & Associates and Needham & Company, LLC (collectively, the "Sales Agents" and each, a "Sales Agent") pursuant to which the Company could issue and sell shares of the Company’s common stock, par value $0.001 per share having an aggregate offering price of up to $250 million (the "First ATM Offering"), from time to time through the Sales Agents. On March 12, 2026, the Company entered into Amendment No. 1 to the First EDA with the Sales Agents, to increase the aggregate offering price from $250 million to $500 million. On April 2, 2026, the Company completed the First ATM Offering and sold approximately 4.8 million shares at a weighted average price of $103.51 per share, providing proceeds of approximately $490 million, net of expenses and underwriting discounts and commissions.
On May 14, 2026, the Company entered into an Equity Distribution Agreement (the "Second EDA") with the Sales Agents pursuant to which the Company could issue and sell shares of the Company's common stock, par value $0.001 per share (the "Shares") having an aggregate offering price of up to $600 million (the "Second ATM Offering"), from time to time through the Sales Agents.
Upon delivery of a placement notice and subject to the terms and conditions of the Second EDA, sales of the Shares were made through the Sales Agents in transactions that are deemed to be “at the market” offerings as defined in Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"), including sales made through the facilities of the Nasdaq Global Market, the principal trading market for the Company’s common stock, on any other existing trading market for the Company’s common stock, to or through a market maker or as otherwise agreed by the Company and the Sales Agents. In the placement notice, the Company would designate the maximum number of Shares to be sold through the Sales Agents, the time period during which sales were requested to be made, the minimum price for the Shares to be sold, and any limitation on the number of Shares that could be sold in any one day. Subject to the terms and conditions of the Second EDA, the Sales Agents would use their commercially reasonable efforts to sell Shares on the Company’s behalf up to the designated amount specified in the placement notice.
The Second EDA provided that each of the Sales Agents would be entitled to compensation of up to 2% of the gross sales price of the Shares sold through such Sales Agent from time to time. The Company also agreed to reimburse the Sales Agents for certain specified expenses in connection with the registration of Shares under state blue sky laws and any filing with, and clearance of the offering by, the Financial Industry Regulatory Authority Inc., not to exceed $10,000 in the aggregate, and any associated application fees incurred. The Company agreed to indemnify the Sales Agents against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Sales Agents could be required to make because of any of those liabilities.
The details of the shares of common stock sold through the First ATM Offering and the Second ATM Offering as of the end of June 30, 2026 are as follows (in thousands, except shares and weighted average per share price):
Distribution Agent Month Number of Shares Sold Weighted Average Per Share Price Gross Proceeds Compensation to Distribution Agent Net Proceeds
Raymond James & Associates, Inc. and Needham & Company, LLC March 2026 3,753,300 $ 104.03 $ 390,437 $ 7,809 $ 382,628
Raymond James & Associates, Inc. and Needham & Company, LLC April 2026 1,077,126 101.72 109,563 2,191 107,372
Raymond James & Associates, Inc. and Needham & Company, LLC May 2026 1,943,789 181.24 352,295 7,046 345,249
Raymond James & Associates, Inc. and Needham & Company, LLC June 2026 1,001,308 197.26 197,519 3,950 193,568
Total 7,775,523 $ 1,049,814 $ 20,996 $ 1,028,817
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Note Offerings
On December 23, 2024, the Company issued approximately $125.0 million aggregate principal amount of 2.75% convertible senior notes due 2030 (the "2030 Notes"), and on the same day consummated various separate, privately negotiated exchange agreements with certain holders of its 2026 Notes to exchange approximately $76.6 million principal amount of the 2026 Notes for aggregate consideration consisting of (i) $125.0 million aggregate principal amount of the 2030 Notes, (ii) 1,487,874 shares of the Company's common stock, par value $0.001 per share and (iii) approximately $0.9 million of cash in aggregate. Also, refer to Note 12 "Convertible Senior Notes" to the consolidated financial statements for further discussion of the 2030 Notes.
Operating Activities
The table below sets forth selected cash flow data for the periods presented (in thousands):
Six months ended June 30,
2026 2025
Net cash used in operating activities $ (73,781 ) $ (116,389 )
Net cash used in investing activities (633,713 ) (75,194 )
Net cash provided by financing activities 980,279 195,993
Effect of exchange rates on cash and cash equivalents 19,938 3,653
Net increase in cash and cash equivalents $ 292,723 $ 8,063
Net cash used in operating activities was $73.8 million during the six months ended June 30, 2026 as compared to $116.4 million during the six months ended June 30, 2025, a decrease of 36.6%. Net cash used in operating activities consisted of our net loss of $37.1 million, adjusted for non-cash items of $33.9 million, and a net use of cash from changes in working capital of $70.6 million.
The changes in working capital were primarily attributable to:
● Accounts receivable, which increased by approximately $69.6 million during the six months ended June 30, 2026, as compared to an increase of approximately $94.7 million during the six months ended June 30, 2025, a decrease of 26.4%, primarily due to faster customer payments.
● Inventory, which increased by approximately $94.1 million during the six months ended June 30, 2026, as compared to an increase of approximately $51.0 million during the six months ended June 30, 2025, an increase of 84.3%, primarily due to production ramp and build to support anticipated demand, as well as longer lead times for certain components.
● Accounts payable increased by $142.2 million during the six months ended June 30, 2026, compared to an increase of approximately $28.0 million during the six months ended June 30, 2025, an increase of 407.8%. The increase in the current period was primarily due to higher inventory and equipment purchases.
Management believes these changes are consistent with ongoing production ramp and customer demand dynamics, which may result in variability in operating cash flows from period to period.
Customer Concentration
As of June 30, 2026, Digicomm represented approximately 67.2% of total accounts receivable. This concentration is primarily attributable to customer purchasing patterns, shipment timing, and billing concentration. Management has extended longer than typical payment terms to Digicomm in order to ensure Digicomm has adequate inventory on hand to quickly provide products to customers when needed for their network builds. The Company has a multi-year history with Digicomm and over this period the Company’s collection experience has been good. Digicomm’s payment history has generally been relatively consistent over time. In addition, to the extent customers in the Company’s data center business continue to grow relative to Digicomm, Management expects Accounts Receivable concentration with Digicomm to decline.
The Company continues to monitor credit exposure and collection trends related to significant customers and does not believe this concentration will create a material credit‑risk.
For the six months ended June 30, 2026, revenues from Digicomm were approximately $147.0 million, representing approximately 42.8% of consolidated revenues. These revenues were primarily attributable to the CATV product category.
Investing Activities
Net cash used in investing activities was $633.7 million during the six months ended June 30, 2026 compared with $75.2 million in the six months ended June 30, 2025, an increase of 742.8%, primarily driven by capital expenditures of $335.1 million, which included $169.0 million capital expenditures in the US, $62.8 million in Taiwan, and $103.3 million in China. The increase in capital expenditures was primarily attributable to facility expansion and equipment purchases to support increased production capacity for the Company’s internet data center and broadband product lines, including investments related to Quantum Bandwidth products and the continued expansion of manufacturing operations for 400G, 800G, and 1.6T transceiver products. Management expects that 2026 CapEx will continue to be elevated above past year levels, driven by the need to expand production capacity to meet customer demand.
The increase in prepayments for equipment and others, primarily reflects advance payments for equipment and facility related capital expenditures associated with the Company's manufacturing expansion projects in the United States, Taiwan and China. These advance payments are expected to be reclassified to property, plant and equipment as the related assets are received and placed into service.
Management expects to continue to make investments in capacity expansion through at least the end of 2027 and believes that this expansion will provide adequate production capacity to meet expected demand for data center transceiver, semiconductor lasers, and Quantum Bandwidth broadband products, subject to demand variability, customer ramp timing, supply chain, and other factors. The Company expects to expand manufacturing operations in the U.S. and Taiwan during 2026 and 2027 primarily to support laser diode production and production of 800G and 1.6T transceivers.
Financing Activities
Net cash provided by financing activities was $980.3 million during the six months ended June 30, 2026 compared with $196.0 million in the six months ended June 30, 2025, an increase of 400.2%, primarily attributable to the net proceeds of $1.03 billion from the ATM Offering, the net proceeds from line of credit borrowings of $22.2 million, the net proceeds of $1.7 million from issuance of notes payable and long-term debt, partially offset by net proceeds from bank acceptance payable of $0.6 million, and tax payments related to share-based compensation of $71.2 million.
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Loans and Commitments
As of June 30, 2026, we have lending arrangements with one U.S. bank, three financial institutions in Taiwan, and six financial institutions in China. As of June 30, 2026, we were in compliance with the covenants in the lending arrangements. As of June 30, 2026, we had $106.5 million of unused borrowing capacity.
On December 23, 2024, the Company issued $125.0 million of 2.75% convertible senior notes due 2030. The 2030 Notes will mature on January 15, 2030, unless earlier repurchased, redeemed or converted in accordance with their terms.
See Note 11 "Notes Payable and Long-term Debt" and Note 12 "Convertible Senior Notes" of our Condensed Consolidated Financial Statements for a description of our notes payable and long-term debt and convertible senior notes.
Warrants
On March 13, 2025, we issued a warrant (the "Customer Warrant") to an Amazon affiliate to purchase up to an aggregate of 7,945,399 shares of the Company's common stock ("Warrant Shares") at an exercise price of $23.6956 per share. The Customer Warrant has a contractual term of 10 years. At the time of issuance, the Customer Warrant is exercisable to purchase 1,324,233 Warrant Shares. The remaining 6,621,166 Warrant Shares may vest over the next 10 years, dependent on aggregate purchases by Amazon of $4 billion of our products over this time period. See Note 3 "Revenue Recognition" of our Condensed Consolidated Financial Statements for additional description of the Warrant Shares.
Future Liquidity Needs
We had cash, cash equivalents and restricted cash of $508.8 million as of June 30, 2026, an increase of approximately $292.7 million compared to December 31, 2025. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support our research and development efforts, the expansion of our sales and marketing activities, the introduction of new and enhanced products, the building improvement of a new factory in Taiwan or U.S., changes in our manufacturing capacity and the continuing market acceptance of our products.
As of June 30, 2026, we had a total loan balance (excluding convertible notes) of $58.9 million from various lenders and had $106.5 million available borrowing capacity on existing credit lines. Should additional liquidity be needed, our Board may authorize issuance of additional common stock under an at-the-market offering in the future (see the discussion of "Liquidity and Capital Resources" in Item 2).
In the event we need additional liquidity, we will explore additional sources of liquidity. These additional sources of liquidity could include one, or a combination, of the following: (i) issuing equity or debt securities, (ii) incurring indebtedness secured by our assets and (iii) selling product lines, other assets and/or portions of our business. There can be no guarantee that we will be able to raise additional funds on terms acceptable to us, or at all.
Contractual Obligations and Commitments
Please refer to Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2025 for a complete discussion of its contractual obligations and commitments.
Inflation
Inflation in the United States has moderated in recent periods. However, certain cost components, including labor, materials, logistics and tariffs, remain elevated relative to historical levels. These cost pressures were partially offset by improved supply chain conditions and continued cost optimization initiatives.
During the six months ended June 30, 2026, we experienced continued inflationary pressures in certain areas of our operations. However, these pressures did not have a material impact on our business, financial condition, or results of operations. While we have implemented pricing actions, supply chain diversification initiatives and operational efficiencies to mitigate the effects of inflation, there can be no assurance that these measures will fully offset future cost increases. Continued inflationary pressures, particularly related to labor, tariffs and raw materials, could adversely affect our cost structure, gross margins and operating results in future periods.
In our Annual Report for the year ended December 31, 2025 and in the Notes to the Financial Statements herein, we identify our most critical accounting policies. In preparing the financial statements, we make assumptions, estimates and judgments that affect the amounts reported. We periodically evaluate our estimates and judgments that are most critical in nature which are related to revenue recognition, allowance for credit losses, inventory reserves, impairment of long-lived assets, service and product warranties, share based compensation expense, estimated useful lives of property and equipment, and income taxes. Our estimates are based on historical experience and on our future expectations that we believe are reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results are likely to differ from our current estimates and those differences may be material.
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