Good afternoon. I will be your conference operator on today's call. At this time, I would like to welcome everyone to Applied Optoelectronics, Inc.'s fourth quarter and full year 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. To withdraw a question, please press star, then 2. Please also note that this call is being recorded today. I will now turn the call over to Lindsay Savarese, Investor Relations for Applied Optoelectronics, Inc. Ms. Savarese, you may begin.

Thank you. I am Lindsay Savarese, Investor Relations for Applied Optoelectronics, Inc. I am pleased to welcome you to Applied Optoelectronics, Inc.'s fourth quarter and full year 2025 financial results conference call. After the market closed today, Applied Optoelectronics, Inc. issued a press release announcing its fourth quarter and full year 2025 financial results and provided its outlook for 2026. The release is also available on the company's website at ao-inc.com. This call is being recorded and webcast live. A link to the recording can be found on the Investor Relations section of the Applied Optoelectronics, Inc. website and will be archived for one year. Joining us on today's call is Dr. Thompson Lin, Applied Optoelectronics, Inc.'s Founder, Chairman, and CEO, and Dr. Stefan Murry, Applied Optoelectronics, Inc.'s Chief Financial Officer and Chief Strategy Officer. Thompson will give an overview of Applied Optoelectronics, Inc.'s Q4 results, and Stefan will provide financial details and the outlook for 2026. A question-and-answer session will follow our prepared remarks. Before we begin, I would like to remind you to review Applied Optoelectronics, Inc.'s Safe Harbor statement. On today's call, management will make forward-looking statements. These forward-looking statements involve risks and uncertainties, as well as assumptions and current expectations, which could cause the company's actual results, levels of activity, performance, or achievements of the company or its industry to differ materially from those expressed or implied in such forward-looking statements. In some cases, we can identify forward-looking statements by terminology such as believes, forecasts, anticipates, estimates, suggests, intends, predicts, expects, plans, may, should, could, would, will, potential, or thinks, or by the negative of those terms, or other similar expressions that convey uncertainty of future events or outcomes. The company has based these forward-looking statements on its current expectations, assumptions, estimates, and projections. While the…

Thank you, Lindsay. Thank you for joining our call today. We are pleased to deliver record fourth quarter results that were in line with or better than our expectations, and which came off the strongest year in our company history. Our results were driven by robust demand in both our CATV and data center business. In 2025, total revenue increased 83% compared to 2024 to a record $456,000,000. Data center revenue of $196,000,000 increased 32% compared to 2024, while our CATV revenue nearly tripled to $245,000,000 in the same period. We enter 2026 with strong momentum, and due to the thoughtful investment we have made, we have materially expanded our manufacturing capacity. We believe this positions us well to meet increasing customer demand and will lead to accelerating growth this year. During the quarter, we announced that we received our fourth 800G volume order from one of our major hyperscale customers to support its AI data center growth. This was an important milestone in our next generation data center roadmap and follows the successful qualification of our 800G products by the customer. It also reflects both the strength of our product portfolio and the deepened relationship we have with this hyperscale customer. We continue to work with this customer to finalize the firmware used in this module to ensure interoperability across their network, which we believe will be completed in March. We have begun ramping our production of this 800G module in anticipation of a strong volume ramp starting in Q2. Forecast demand for 800G modules are projected to exceed our production capacities to mid-2027, and we are working to add additional capacity to meet this demand. During the quarter, we saw particular strength for our 400G products with this customer, which more than offset our 800G revenue, which came…

Thank you, Thompson. As Thompson mentioned, we are pleased to deliver record fourth quarter results that were in line with or better than our expectations, which capped off the strongest year in our company's history. Our performance was driven by robust demand in both our CATV and data center businesses. We enter 2026 with strong momentum, and due to the thoughtful investments we have made, we have materially expanded our manufacturing capacity. We believe this positions us well to meet increasing customer demand and will lead to accelerating growth this year. Throughout 2025, our focus remained on a few key priorities: one, scaling our next generation data center products, including both 400G and 800G solutions; two, expanding our production capacity in a disciplined manner to support anticipated demand, particularly in our Texas factory; three, diversifying our revenue base; and four, strengthening operational execution to improve our margins and long-term profitability. I am pleased to report that we made significant progress on each of these fronts and these will continue to be key priorities in 2026. Importantly, we saw, and continue to see, strong customer engagement around 800G and 1.6 terabit products, particularly as AI-driven data center investments accelerate. In 2025, total revenue increased 83% compared to 2024 to a record $456,000,000. Data center revenue of $190,000,000 increased 32% compared to 2024, while our CATV revenue nearly tripled to $245,000,000 in the same period. Additionally, we expanded our gross margins and made progress on our path to profitability. Turning to the quarter, in Q4 we delivered revenue of $134,300,000, which was in line with our guidance range of $125,000,000 to $140,000,000. We recorded non-GAAP gross margin of 31.4%, which was above our guidance range of 29% to 31%. Our non-GAAP loss per share of $0.01 was narrower than our guidance range…

We will now begin the question-and-answer session. Again, to ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw a question, you may press star, then 2. At this time, we will take our first question, which will come from Simon Matthew Leopold with Raymond James. Please go ahead.

First, just a very quick clarification, if I might. I missed the value you mentioned on 800G revenue. I know you had a little bit of a software firmware glitch and said it was below the guided or the $4,000,000 or so. But what was the value of 800G in the quarter? A lot below or a little below?

We did not break out exactly, but it was a bit below $4,000,000.

A lot below is delayed to Q1, but we have emphasized the end of the day may be big in Q2 next year. Plus the target—our revenue in this year is $1,000,000,000.

And I wanted to really focus on the trajectory for gross margin improvement. I want to maybe first start with understanding how much of your laser production is in-house today versus external merchant lasers. And I guess I appreciate that typically, as you ramp production, there is sort of a learning curve of improving yields and things like that. So I would like to make sure we have a good understanding of really the timeline or trajectory to achieve that target you mentioned of 40%. So sort of where are we now, and what is the roadmap? Thank you.

I see no end because, as I say, the gross margin for 1.6 is much, much higher than the other product. And I would say that, okay, on the monthly revenue, as we say, I think by Q2, sometime in Q2, like June, July, or something like that, the revenue, like $378,000,000. So it depends on the portion of 1.6T transceiver. So at that time, I believe the gross margin should be 35% to 38% overall gross margin for all the transceiver revenue. So we believe we can achieve 40% gross margin by, like, Q3 or Q4 next year.

By the way, Simon, just to make sure you are on the same page, the revenue figures that Thompson mentioned were 2027 Q2, not this year.

Yes. It is very important. Okay. No mistake.

Thank you for that because I wrote down 2026. So you anticipated my mistake. No one can do this on the road. Okay.

No. It is impossible. No. I appreciate that. No. Thank you for that. And then

Before I pass, maybe just a quick check-in on the cable TV side of the business in that it sounds like you remain very confident in the trajectory. However, the outlook offered by the big cable operators was not as inspiring. Can you sort of help folks triangulate between the CapEx forecast and your involvement in cable TV upgrades? Thank you.

Sure, Simon. I mean, I think as we have said consistently, the overall CapEx numbers are one thing, but where the money gets spent is another thing. And I think they are spending this year and next year a significant amount of their spend is going towards the amplifiers, the outside plant part of the network. And that is where we play. So are some other parts of the network, in the nodes and other things, that maybe are slower to ramp, although I think those are also ramping, you know, pretty significantly as well. So it really—you have to look at it on a kind of granular basis. The other thing is we have got a lot of new customers that we alluded to in the call earlier. We will start to see some significant contribution from those newer customers as well. So it is not just the, you know, one or two or three top largest MSOs, but also a wider swath of smaller companies that are contributing to our revenue.

And, Simon, let you know by end of this year, I would say more than 95% of laser will be AI laser. Because right now, there is a huge issue of laser shortage. And, actually, even some supplier to us want to get this from them. We—we had at least one year, even longer. So that is why we announced we will invest $300,000,000 in Texas—triple, even more than triple. The purpose, as we said, we need to increase our laser capacity by Q2 next year, and that is to fulfill our transceiver demand. And let me emphasize: the transceiver demand is much bigger than what we projected. Right now, the number we say, the $378,000,000 of transceiver revenue, in June, July next year—okay, not this year—it is limited by our capacity and the supply chain. It is not limited by the customer demand.

Thank you for taking my questions.

And our next question will come from Michael Edward Genovese with Rosenblatt Securities. Please go ahead.

Great. Thanks very much. So it sounds like instead of having a steady kind of ramp, this 800G we are expecting to come in with really big numbers starting 2Q this year and then, you know, huge numbers next year—by 2Q next year. I guess for the ramp in 2Q this year, could you just go over some of the milestones, maybe talk about the issue on the firmware, but also the ongoing qualification milestones that you have to hit to kind of have that ramp in 2Q?

Right. So as you mentioned, in order for the ramp to start in earnest, our 800G products have to be interoperable with all the different platforms that are out there at this particular customer. There is a lot of them. So the firmware has to be modified to work with all those different platforms. Hardware-wise, everything is fine. No problem with that. Firmware is good on most of the platforms. We just have to make some tweaks to get it to work across all of the different platforms that they have. And that is really—the customer and us have agreed that that should be done in the middle of next month. So a couple of weeks, three weeks from now, something like that. And then that is basically the last hurdle to kind of unleash the ramp. As we talked about, we have already started manufacturing products for that ramp. So from a manufacturing standpoint, we are gearing up. Just to touch on the beginning part of that question, too, about kind of nonlinearity of the ramp, that is because what you are seeing is our production capacity coming online. Right? It is not gated by demand, it is gated by our ability to produce, and that does not come on in a linear fashion. Right? You build a production line and you get a step function, not a smooth ramp.

Yes. Let me emphasize. Because every customer has so many different switch, transceiver supplier, so many different kind of ASIC. And, you know, when a customer adds more switch, this will change the firmware. We were supposed to get a green light to ship out already in December. The delay is not our problem or whatever. It is because, you know, how come build AI—you know, the whole system is much more complicated than before. That is why it takes much longer. And right now, I think we feel very comfortable. And right now, let me say, we have got almost two years of loading forecast from more than one customer. Let me say that, okay? For 800G. And, right now, let me say that more than one customer, at least two or even three, they would like to buy all the transceiver we can make for 800G and 1.6. Because Applied Optoelectronics, Inc. laser. And right now, it is limited by our capacity and the manpower and the supply chain. So that is why we are trying everything to ramp up. It takes time. It takes time. That is why I say going on this year, we say $1,000,000,000. And let me say that dimension is much, much bigger than $1,000,000,000. But that is a number we feel comfortable. At least we feel minimum 99% confident we can deliver. Otherwise, the revenue will be much bigger than that. Let me say that. Same thing for the 1.6T transceiver for the, you know, dual—right next year is still limited by supply chain. So there is a lot of issues we need to solve. And the other thing I am going to tell you, in the short term, we should receive more than $100,000,000 of 800G transceiver orders within a few months—maybe, I do not know, one month, two months—for sure less than three months. We should receive more than $200,000,000 of 1.6T transceiver orders. Alright? Transceiver orders. We are not buying the transceivers or receiving the orders—zero. We do not buy transceiver. We make transceiver. So for sure, okay, that is how great the market is. But, you know, so many things—this is okay? It is very complex. The whole team is working crazy. You know? This is a good problem. Yep. We are—we are going to talk to—let me say that. Alright?

I got it. Sounds great. I guess, is it fair to say that it sounds as though when you say demand on the 800G side is already very high, does that mean orders? Like, I mean, do you have that level of orders already in for 800G?

Coming soon. At least from two customers. Because they want to make sure we commit to our promise. You know? You have the problem—yes, we will give us the loading forecast. But to make sure we guarantee what we promise, then sometime we need to allow agreement and sign down. For sure they give us order, okay? This is at least by this year, or something like that.

Perfect. And last question for me. On the 500,000 units, I think you said by end of this year, and I think that is 800G and 1.6. Just the mix between Taiwan and the U.S.—I mean, it sounds like you are expanding capacity in both places. Is it, I guess, harder and more expensive to do it here, which is why only a quarter of the capacity will be here? Would you prefer to have more here if it was easier? What is the goal—what is the decision making on where to put it?

It takes longer time to expand in the U.S. I think the investment is great. I think it is the, I would say, the best in the U.S., let me say that. But let me say that by end of next year, I would say more than 55% would be manufactured in the U.S., or even 60% or 65% for 1.6T. Because that is why we just—we just got—you know, we just did groundbreaking a few weeks ago. It takes time. We need more cleanroom, more space. It is quite expensive. And it takes time to do the cleanroom. Then we can have equipment, then we do a qualification and training. It takes time, but catching up. Alright? So the number will change a lot, but let me say that more than 80% to 85% of investment will be in Texas.

Okay. Perfect. Thanks so much. Really exciting. Looking forward to following this more and to seeing you guys at OFC. Thank you.

Thanks. And our next question will come from George Notter with Wolfe Research. Please go ahead.

Hi, guys. Thanks very much. Really impressive conversation here in terms of the demand profile. I guess I am just curious about what you are seeing on tariffs. Obviously, we have had some moves on tariffs recently. 15% across-the-board tariff. I am not sure if transceivers are going to be exempt or what the situation is. But can you just talk about kind of the tariff situation, maybe the perception your customers have on tariffs, and how that may or may not be translating into orders? Thanks.

Yeah. I guess there are two ways to say that. First of all, I mean, I think anybody that is telling you they confidently know exactly what the tariff situation is going to be throughout the year is probably not being truthful. I certainly do not. You know, we have a viewpoint on, you know, obviously, on the current tariffs. It is pretty much in line with where we have been in terms of tariffs. I mean, I do not expect—if things stay the same as they are now, I do not expect it to dramatically change, you know, kind of the tariff picture that we outlined on the call earlier. That being said, you know, we are looking at the options in terms of the IEEPA tariffs. Those have been outlawed. At least there is some pathway where we might be able to recoup some of those. The other thing that I have said pretty consistently, and I think it ties in with Thompson’s earlier comments—while it takes a while to build capacity in the United States, the one place where I am pretty confident in saying it is not going to be tariffed is product that is made in the U.S. And that is what we are scaling up to do. So the more—as time goes on—the more we can do in the U.S. and the more that we can attract other supply chain partners, which we are doing, to move their production to the U.S. as well, that will help us. You know, in the long term, that is going to be the solution for really minimizing the tariff impact.

Got it. And then the comment about recouping tariffs—I think you said you were the shipper of record. Is there—how much could that be? What is the potential, you know, upside you guys could get if indeed you can recoup those? Thanks.

I mean, sure. If we could recoup all of it, you know, we had about $4,600,000, I believe, just last quarter in tariffs. We probably paid last year $7,000,000 or $8,000,000 in tariffs overall. Again, we are still analyzing exactly how many of those are IEEPA-related; not all tariffs are that way. So there is a lot of nuance there. But, I mean, you know, it is not going to dramatically change our picture, but it certainly would be a welcome cash flow development for sure.

Great. Thanks, guys.

Yep.

Again, if you have a question, you may press star then 1 to join the queue. Our next question will come from Ryan Boyer Koontz with Needham & Company. Please go ahead.

Great, thanks. Just maybe stepping back a little bit, as you think about the ramp in 400G with your large customer and 800G, which is pending, maybe you can compare the production and demand view—compare and contrast between those two—that gives you confidence in executing your own capacity and visibility from your customer for those two different product lines.

Great. Thank you. Sure. I mean, the 400G products, as we said, are going to continue—I think there is going to be continued strength in the sales of those products, driven by a couple of large customers, much the same ones that we have already been shipping to, although we are seeing increased demand from at least one of those customers. As we said in our prepared remarks earlier, 800G is expected to dominate those sales starting in Q2 of this year. So, you know, we will see more revenue in 800G in Q2 than we did in 400G. And then moving through the year and into next year, I think we are going to continue to see very strong ramp in 800G, because that is most closely associated with AI. Right? That is the closest to the AI compute clusters, at least until we get to 1.6 terabit later this year.

That is helpful. And then, you know, on your laser supply, indium phosphide—you know, we were down into your facility in the fall. Where are you in terms of, you know, the equipment you need and kind of lead times with regards to expanding indium phosphide production, and any color you could give us there in terms of building out your new facilities and acquiring the necessary equipment? Thank you.

Yeah. I mean, as Thompson mentioned, we are planning to triple our production of indium phosphide related devices here—laser devices made on indium phosphide materials—by the middle part of next year, and we have line of sight into all that equipment. Some of it has already been— I mean, it would be a long conversation to go through every piece of equipment and what the schedule is. But the bottom line is when we talk about tripling our capacity, that includes the equipment that we either have on order or have line of sight into order that will be delivered in time to accommodate that ramp.

Great. And just maybe one last I can squeeze in. In terms of cable TV, you mentioned another customer. I assume that is a large U.S. customer that is moving forward at 1.8 GHz here in terms of DOCSIS 4.0 ESD.

Yeah. It is. We have a number of customers. I would—again, I want to caution, none of those customers are as large as our largest customer, okay? But in aggregate, I think they could be a significant contributor to the revenue, which is what I was trying to outline earlier in response to Simon's question.

Great. Appreciate that. Thanks.

Yep.

And our next question will come from Tim Savageaux with Northland Capital Markets. Please go ahead.

Hi, good afternoon. A couple of questions I wanted to follow up on. Looks like, given the increase in cable in Q1, you expect data center revenues up about $10,000,000. I guess, what is driving that if you do not expect 800G to ramp until Q2?

Well, I think we are going to see two things. We will see a growth in 400G, continued growth in 400G, and then we also do expect to see some in 800G, just not, you know, the dramatic ramp that we expect to see starting in Q2.

Okay. Great. So principally 400G. And you mentioned some, I guess, near-term gross margin headwinds driven by mix, I think you said, but you do have cable TV up in Q1. So I want to get a little more color on what is happening gross margin-wise there.

In Q1—yeah, as we said, I mean, at the end of the day, you look at our guidance, it is kind of a wash in terms of gross margin. We are seeing, you know, a little bit of headwind coming from the product mix, especially—you know, 400G, as I mentioned earlier, is going to continue to grow in Q1 until later when 800G starts to take over. Meanwhile, in cable, gross margins there are better, and they are actually expanding. So that is kind of the put and take on that. That is why it ended up being kind of a wash.

As we said, with the brain now—800G—we need time to fine tune the production in the year. That is why this is early stage of volume—make 800G. That is why we—that is why I say by Q2 next year, the overall gross margin will be 35% to 38% just for transceiver. By end of next year, we believe we can achieve more than 40% goal gross margin for all the transceiver by Q4 2027.

Okay. Let me just—one and a half more here. You mentioned expectations for 800G to, I guess, dominate revenue. Trying to get a sense of what that means in Q2. You should have about, you know, in the $40,000,000 range for 100G, probably will be in the $40,000,000 a quarter range for 400G. Would you expect 800G to be larger than both of those combined in Q2? Or how might you frame that?

What we are saying is it will be our largest segment within the data center. You know, it will be the largest—it will be the largest revenue of those three: 800G, 100G, 400G. I think it will be more than $25,000,000.

Or $30,000,000, I know, something like that. As I said, the issue right now is not the demand, okay? The Q1—the Q4 delay—due to the firmware optimization. But Q2, Q3 is limited by our capacity. Alright. It is not a demand issue. Let me say that. Because as we say, we received demand from the customer—from two customers. Even—I say we got the order from them pretty soon, within a few weeks. Then the next issue is the supply chain and our manufacturing capacity. So I would say I am very confident to $25,000,000, but customer demand could be $35,000,000 to $40,000,000. So we will just see how—we feel comfortable right now. The numbers we say here are not a customer demand issue. It is Applied Optoelectronics, Inc. manufacturing and supply chain issue. Let me say that.

Okay. Great. And then I guess last question for me. You talked about the potential for $1,000,000,000 in revenue in calendar 2026, I think, or in total. I wonder, from a customer standpoint, how would you expect customer concentration to look in that scenario? And I know you have a big guy on the cable side. I am principally talking about data center. Do you think—if you break down the revenue, right, if you just take a round number of a billion, would you—if you break down—would one customer be at half of that, or what have you?

So if you break down the revenue, right, if you just take a round number of a billion, subtract the $300,000,000-ish that we have in cable TV, that gives you $700,000,000-ish left over. Right now, I would expect that is going to be dominated by—most of that is going to be two large hyperscale customers, and they will probably be roughly equivalent, you know, exiting the year. We will see how that plays out. It is pretty early to say exactly how the timing on that is going to go. But I would expect at least two to be sort of comparable in size—let us put it that way—and then, obviously, a third one that would be, you know, smaller in scale but still significant.

So I would say we would have three hyperscale customers to be more than 10%, or much more than 10%, for the whole year.

Got it. Appreciate that color. Thanks very much.

Yep. Alright. Thank you.

At this time, we have no further questions. I will turn the call now over to Dr. Thompson Lin for any closing remarks.

Okay. And thank you for joining this call today. As always, we want to extend a thank you to our investors, customers, and employees for your continued support. We continue to believe the fundamental drivers of long-term demand for our business remain robust, and we are uniquely positioned to deliver and to drive value from those opportunities. We look forward to seeing many of you at upcoming investor conferences as well as OFC. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.