AAOI 10-K & 10-Q changes, risk factors and insider trading

The four end markets we target are all driven by significant bandwidth demand fueled by the growth of network-connected devices, video traffic, cloud computing and online social networking. Within the internet data center market, we benefit from the increasing use of higher-capacity optical networking technology as a replacement for older, lower-speed optical interconnects, particularly as speeds reach 800 Gbps800Gbps and above, as well as the movement to open internet data center architectures and the increasing use of in-house equipment design among leading internet companies. 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 MSOs to increase the return-path bandwidth available to offer to their customers. In the FTTH market, we benefit from continuing PON deployments and system upgrades 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.

In 2024,2025, 20232024 and 2022,2023, our revenue was $249.4$455.7 million, $217.6$249.4 million and $222.8$217.6 million, and our gross margin was 24.8%,30.1%, 27.1%24.8% and 15.1%,27.1%, respectively. We have grown our annual revenue at a compound annual growth rate, or CAGR, of 6.7%5.7% between 20142016 and 2024.2025. In the years ended December 31, 2024,2025, 20232024 and 2022,2023, we had net loss of $186.7$38.2 million, $56.0$186.7 million and $66.4$56.0 million, respectively. At December 31, 20242025 and 2023,2024, our accumulated deficit was $451.9$491.0 million and $265.1$451.9 million, respectively. In 2024,2025, we earned 59.5%53.8% of our total revenue from the CATV market and 42.9% of our total revenue from the internet data center market and 35.2% of our total revenue from the CATV market.

We sell our products to leading OEMs in the CATV, telecom, and FTTH markets as well as internet data center operators and CATV MSOs. In 2024,2025, revenue from CATV market, the internet data center market, CATV market, telecom market, FTTH and other markets provided 59.5%,53.8%, 35.2%,42.9%, 4.4%3.0% and 0.9%0.3% of our revenue, respectively, compared to 64.9%,35.2%, 27.5%,59.5%, 6.4%4.4% and 1.2%0.9%, ofrespectively, ourin 2023 revenue, respectively.2024. In 2024, our key customers in the internet data center market included Microsoft, Oracle and a U.S. based datacenter equipment manufacturer. In 2024, 2023, and 2022, Microsoft accounted for 43.7%, 46.6%, and 18.4% of our revenue and a Oracle accounted for 12.4%, 8.8% and 5.9% of our revenue, respectively. In 2024,2025, our key customer in the CATV market was Digicomm,Digicomm. aIn provider2025, of logistics solutions2024, and a distributor of equipment to CATV MSOs. In 2024, 2023, and 2022, Digicomm accounted for 34.1%,53.1%, 34.1% and 11.3% of our revenue, respectively, and 0%in 2023, ATX Networks accounted for 15.6% of our revenue. In 2025, our key customer in the internet data center market was Microsoft. In 2025, 2024 and 2023, Microsoft accounted for 28.8%, 46.6% and 18.4% of our revenue, respectively, and in 2024, Oracle accounted for 12.4% of our revenue.

In 2024,2025, our increase of revenue of 14.6%82.8% over the prior-year was driven primarily by increased demanddemands both for our CATV products and internet data center products, which we believe is arising from demand for products necessary for new data center construction along with data center upgrades to enable new technologies like AI, and the demand recovery in the CATV market, offset by the lack of revenue from Non-Recurring Engineering ("NRE") projects.AI. Based on customer forecasts and order backlog we believe that this elevated data center demand will likely continue into 2025.2026. We also believe that sales in our CATV market will increase in 2025.2026.

We expect continued sales of our 40 GbpsGbps, 100 Gbps, and 100400 Gbps products in 2025,2026, and we expect that sales of 400800 Gbps products will likely exceed sales of 100400 Gbps products later in 2025.2026. However, quarter-to-quarter results may show considerable variability as is usual in a period of technology transition. Similar to revenue, our gross margins can fluctuate materially depending on a variety of factors including average selling price changes, product mix, global supply chain situation, raw material cost reduction or increase, manufacturing utilization rate and changes in manufacturing efficiency. We currently expect to see material revenue from 800G products in 2025.

Our product pricing is established when the product is initially introduced to the market, and thereafter through periodic negotiations with customers. We generally do not agree to periodic automatic price reductions. Furthermore, due to the dynamics in the CATV market and the value of our outsourced design services to our customers, we believe we face less downward price pressure than many of our competitors in this market. We sell a wide variety of products among our four target markets and our gross margin is heavily dependent in any quarter on the product mix achieved during that period as well as any price changes that we have agreed upon with our customers.

Customer Concentration within End Markets. Our revenue tends to be split primarily between CATV market and data center market. Moreover, within these markets, revenue tends to be concentrated among a small number of customers. We have taken several actions to increase the diversity of our customer base. These actions include hiring additional sales staff to improve our ability to serve new customers and introduction of new products that we believe will appeal to new customers. Furthermore, we have developed additional original design manufacturer, or ODM, relationships with customers in each of our target markets which should enable us to diversify our revenue base. We had two customers that accounted for more than 10% of our revenue in 2025 and three customers that accounted for more than 10% of our revenue in 20242024. andGiven 2023,the respectively.size of our data center customers, however, we continue to expect high concentration of our revenue with the largest of these customers.

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 we expect to receive in exchange for transferring products or providing services. A majority of our annual sales are denominated in U.S. dollars, but some sales from our Taiwan location and China-based subsidiary are denominated in NT dollars and RMB, respectively. For the year ended December 31, 2024,2025, 44.8%57.5% of our total revenue was manufactured at our China-based subsidiary, with $0.8$3.4 million denominated in RMB and 50.8%38.2% of our total revenue was from products manufactured at our Taiwan-based facility, with no revenue denominated in NT dollars. We expect a similar (negligible) portion of our sales to be denominated in foreign currencies in 2025.2026. In 2026, we expect to expand our manufacturing operations in the U.S. and Taiwan, with these two locations contributing more meaningfully to total revenue than in prior years.

We manufacture products in three of our four facilities located in the U.S., Taiwan and China. Generally, laser chips and optical components are manufactured in our Sugar Land facility, and optical components, subassemblies and optical equipment are manufactured in our Taiwan and China facility. Because of our vertical integration model, we generally utilize our own optical component products in our semi-finished and finished goods that we sell between and among our respective manufacturing operations. We base those internal sales upon established transfer pricing methodologies. However, we eliminate all of those internal sales, and cost of goods sold transactions, to arrive at total revenue and cost of goods sold on a consolidated basis.

We are uncertain whether the demand for our internet data center, CATV, telecom and FTTH products is seasonal, as our sales data does not indicate a significant trend with respect to these products. We began to manufacture a meaningful quantity of CATV and internet data center products in ourOur Ningbo, China factory in 2017 and 2020, respectively. This factory experiences a lengthy shut-down associated with the Lunar New Year holiday which occurs in Q1the first quarter of each year. In addition to the factory shut-down, it is also common for employees in the factory to fail to return to work following resumption of operations. In the years 2025, 2024, 2023, and 2022,2023, the percentage of employees in our China factory who resigned or were terminated during Q1,the first quarter, relative to the average number of employees during the quarter was 17.2%,7.9%, 17.2% and 53.8% and 66.1%,, respectively. We believe that the turnover in 2022 was higher than usual due to the COVID-19 pandemic which caused travel restrictions, additional health check requirements, and a lengthy shutdown of operations in Ningbo. As a result of employee turnover, we must hire and train replacement employees. These replacement employees require a period of training and improvement, and this impacts the quantity of products we can produce in the quarter. The combined effect of the factory shut-down and employee turnover in the quarter may also contribute to negative seasonality in Q1.the first quarter. In 2024,2025, we began to produce more of our CATV and internet data center products outside of China which we believe will be instrumental in further alleviating some of the typical seasonality that we see in Q1.the first quarter.

Revenue increased by $31.7$206.4 millionmillion, or 14.6%82.8%, from 20232024 to 2024.2025. The increase was driven primarily by increased demand in the CATV market, which we believe is due to marketlarge acceptancescale ondeployments of our newly release DOCSIS 4.0 products in 2024,2025, and increased demand for our internet data center products, arising from demand for products necessary for new data center construction along with data center upgrades to enable new technologies like AI, offset by the lack of NRE project revenue in 2024.AI. Based on customer forecasts and order backlog we believe that this elevated data center demand will likely continue into 2025.2026. We also believe that sales in our CATV market will increase in 20252026 as a result of further adoption of our DOCSIS 4.0 products.products, including adoption by new customers.

Sales and marketing expense increased by $7.1$12.1 million, or 64.0%,66.7%, from 20232024 to 2024.2025. These increases were primarily due to more sales effort for our Quantum Bandwidth™ products and higher shipping expenses.expenses, including tariffs.

General and administrative expense increased by $6.4$16.1 million, or 12.0%,27.1%, from 20232024 to 2024.2025. These increases were primarily due to the higher professional service fees and increased headcount and offset by decreased share-based compensation expense.compensation.

Interest expense decreased by $2.6$3.3 million, or 27.6%48.8%, from 20232024 to 2024.2025. The decrease was primarily due to thea debtlower issuanceeffective costinterest ofrate the 2026 Notes, which was replaced withon the 2030 Notes in 2025 and the fourth quarterabsence of 2024loss on extinguishment, which was recognized asin loss extinguishment cost. Interest expense2024 in 2023connection includedwith the interestexchange expense fromof the CIT2030 loan,Notes whichwith wethe terminated2026 in Q4 2023.Notes.

Other expense increasedof by$109.9 $104.0million million,in or2024 1,771.4% from 2023shifted to 2024.other income of $9.6 million in 2025. This increasefavorable variance was primarily due to the absence of debt extinguishment costcosts relatingrelated to the 2026 Notes, reflectingwhich in the prior period reflected the difference between the bookcarrying value of the 2026 Notes and itstheir fair value at the time of settlement. ThisThe settlement resulted in a one-time loss recognized in the prior period, contributingwhich to the overall rise inincreased non-operating expenses. In 2025, the company recorded $1.9 million foreign currency exchange gains and $4.9 million of government subsidies in other income.

Benefit (provisionexpense) for income taxes

Our income tax provisionbenefit (expense) consists of U.S. income tax, state taxes, and Taiwan and China income tax recorded during the periods. Our effective tax rate is affected by recurring items, such as tax rates in state and foreign jurisdictions andjurisdictions, the relative amounts of income we earn in those jurisdictions.jurisdictions, and valuation allowances on our deferred taxes.

WeThe recordedincome notax federalbenefit in the year ended December 31, 2025 was due primarily to the release of the valuation allowance on our wholly owned subsidiary, Global Technology, Inc. The income tax expense for the yearsyear ended December 31, 2024 and December 31, 2023. The income tax expense in the years ended December 31, 2024 and December 31, 2023 was primarily related to the state tax provision and the recording of a valuation allowance on our deferred tax assets.

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 December 23, 2024, the Company issued an aggregate of 1,036,458 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $33.97 per share, in a registered direct offering (the "Registered Direct Offering"). The Registered Direct Offering was made pursuant to the Automatic Shelf Registration Statement. The Registered Direct Offering closed on December 23, 2024.

On December 5, 2023, the Company issued approximately $80.2 million aggregate principal amount of 5.250% convertible senior notes due 2026 (the “"2026 Notes”"), andbearing interest at a rate of 5.250% per year maturing on theDecember same5, day2026, consummatedunless variousearlier separate,repurchased, privatelyredeemed negotiatedor exchangeconverted agreementsin accordance with certaintheir holdersterms. The sale of itsthe 20242026 Notes togenerated exchangenet orproceeds repurchaseof approximately$76.2 $80.2million, after expenses. On July 30, 2025, the Company retired the final $3.5 million principal amount of the 2024 Notes for aggregate consideration consisting of approximately $81.1 million in cash, which includedand accrued and unpaid interest on the 20242026 Notes,Notes andby approximatelyexchanging 466,368such outstanding principal for 239,404 shares of the Company's common stock,stock parand valueby $0.001paying perthe share.accrued and outstanding interest in cash. Also refer to Note L “Convertible Senior Notes” to the consolidated financial statements for further discussion of the 2026 Notes.

In 2024,2025, our financing activities provided $142.2$527.9 million in cash. This increase in cash was primarily due to $113$518.9 million of net proceeds from our First ATM Offering and Second ATM Offering,offerings, and around $30$19.6 million from thenet 2030proceeds Notes.from line of credit borrowing and bank acceptance payable.

In 2023,2024, our financing activities provided $40.6$142.2 million in cash. This increase in cash was primarily due to $69.0$113 million of net proceeds from our ATM Offering,offerings, $76.1and around $30 million from the 20262030 Notes, offset by the repayment of 2024 Notes amounting to $80.2 million and repayment of line of credit borrowings of $34.2 million.Notes.

In 2022,2023, our financing activities provided $10.8$40.6 million in cash. This increase in cash was primarily due to $12.2 million of net proceeds from line of credit borrowing, $5.1 million of net proceeds from bank acceptance payable and $1.2$69.0 million of net proceeds from our ATM Offering.offering, These$76.1 activitiesmillion werefrom the 2026 Notes, offset by $7.3the repayment of the 2024 Notes amounting to $80.2 million debtand repayment andof $0.5line millionof relatedcredit toborrowings taxof withholding$34.2 associated with employee share-based compensation.million.

On December 5, 2023, the Company issued $80.2 million of 5.250% convertible senior notes due 2026. The 2026 Notes willwere to mature on December 15, 2026, unless earlier repurchased, redeemed or converted in accordance with their terms. AsOn ofJuly December30, 31, 2024,2025, the outstandingCompany retired the final $3.5 million principal amountand remainingaccrued and unpaid interest on the 2026 Notes isby $3.5exchanging million.such outstanding principal for 239,404 shares of the Company's common stock and by paying the accrued and outstanding interest in cash.

On December 23, 2024, the Company issuesissued $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.

We have outstanding notes payable and debt with varying maturities with various financial institutions. As of December 31, 2024,2025, our notes payable and debt had an amount of $26.7$34.0 million, $22.4 million of which is due within 12 months. Further information regarding our notes payable is provided in Note K – Notes Payable and Long-Term Debt in the Notes to Consolidated Financial Statements in this Form 10-K. We also have fixed-rate convertible senior notes. As of December 31, 2024, the 2026 Notes had a principal amount of $3.5 million and future interest payments associated with the 2026 Notes totaled $0.2 million. As of December 31, 2024,2025, the 2030 Notes had an aggregate principal amount of $125 million and future interest payments associated with the 2030 Notes totaled $13.9$10.5 million. Further information regarding our convertible senior notes is provided in Note L – Convertible Senior Notes in the Notes to Consolidated Financial Statements in this Form 10-K. In addition, we have operating leases for certain property and equipment with an expected term at the commencement date of more than 12 months. As of December 31, 2024,2025, the future minimum payments required under these leases totaled $12.3$63.2 million, with $1.7$5.2 million payable within 12 months. Further information regarding our leases is provided in Note D – Leases to Consolidated Financial Statements in this Form 10-K.

The annual inflation rate in the US came down to 2.9%2.7% in 2024,2025, compared with 3.4%2.9% in 2023.2024. Even though the inflation has slowed from the peak, it remained above the Federal Reserve's objective of 2%. The annual inflation rate in Taiwan came down to around 1.7% in 2025 from 2.1% in 2024 from 2.7% in 2023.2024. The cost of inflation was reflected in increases in shipping costs, labor rates, and in costs of some raw materials. We believe these decreases are related to the supply chain pressure easing and decreasing commodity prices, however the labor market is still tight, and the wage pressure is still high. We cannot be sure when or if prices will return to pre-pandemic levels. Compared to other major economies in the world, China has a stable level of inflation, which has not had a significant impact on our sales or operating results. However, there is no guarantee that we may increase selling prices or reduce costs to fully mitigate the effect of inflation on our costs, which may adversely impact our sales margins and profitability.

On the basis of this evaluation, as of December 31, 2024, a valuation allowance of $94.8 million has been recorded related to deferred tax assets to recognize only2025, the portioncompany ofrecognized the$7.6 million deferred tax assets that are more likely than not to be realized. The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

Investing in our common stock involves a high degree of risk. See Part I, Item 1A, "Risk Factors", of our Annual Report on Form 10-K for the year ended December 31, 2025 for a detailed discussion of the risk factors affecting our Company. As of MarchJune 31,30, 2026, there have been no material changes to those risk factors.

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 MarchJune 31,30, 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.

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.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.

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.

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, cloud computing and online social networking. Within the internet data center market, weAI benefitworkloads fromare fueling the increasing useretooling of higher-capacityexisting data centers and the construction of purpose-built data centers for AI, in both cases significantly increasing demand for higher speed optical networking technologytechnology. as a replacement for older, lower-speed optical interconnects, particularly as speeds reach 800 Gbps and above, as well as the movement to openExisting internet data centercenters architecturesare andalso thebeing increasingupgraded usewith ofhigher in-housespeed optical networking equipment designto amongsupport leadingever-increasing internetdata companies.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.

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 manufacturesmanufactures, 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.

We continue to monitor these developments and have implemented mitigationstrategies strategies,intended to reduce potential disruptions, including pricing adjustments, supply chain diversification, inventory management initiatives and operational efficiencies. However, thesefuture effortsdemand may notbe fullyaffected offsetby thechanges impactin ofcustomer increaseddeployment costsschedules, orinventory supplylevels, disruptions.capital Accordingly,spending these conditions could materiallyplans and adverselygeneral affectmarket our business, results of operations, and financial condition.conditions.

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 MarchJune 31,30, 2026 and 2025 (in thousands, except percentages):

Revenues for the three months ended MarchJune 31,30, 2026 increased by $51.3$89.0 million, or 51.4%,86.4%, compared to the three months ended MarchJune 31,30, 2025. The increase was primarily attributabledriven toby:

For the three months ended MarchJune 31,30, 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 increased by $37.9$66.9 million, or 54.7%,93.2%, for the three months ended MarchJune 31,30, 20262026, compared to the three months ended MarchJune 31,30, 2025. The increase was primarily attributable to:

Gross margin decreased to 29.1%27.7% for the three months ended MarchJune 31,30, 2026, compared to 30.6%30.3% infor the three months ended MarchJune 31,30, 2025. Despite the decrease in gross margin percentage, gross profit increased by $13.4$22.0 millionmillion, or 43.8%,70.7%, driven by higher revenues. The decrease in gross margin iswas primarily attributable to:

Sales and marketing expense increased by $1.0$3.4 million, or 18.5%,41.2%, for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. The increases were primarily attributable to:

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 IEPPA-relatedIEEPA-related tariffs. Management cannot currently assess whether this tariff trend will continue given the Administration’s current stated goal to replace the IEPPAIEEPA tariffs with tariffs under other sections of federal law (e.g. Section 301 tariffs, reciprocal tariffs, etc.).

General and administrative expense increased by $8.6$13.2 million, or 52.7%,71.7%, for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 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 increasesincrease werewas primarily due to increased personnel-related expense and expanded corporate infrastructure to support company growth.

Interest income increased by $1.5$3.0 million, or 675.4%,1,035.7%, for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 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 dueprimarily attributable to higher savingaverage cash and savings balances, as well as higher interest income earned on those balances induring the first quarter of 2026.period.

OtherInterest incomeexpense (expenses) decreasedincreased by $1.6$0.1 million, or 334.7%,13.3%, for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 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 decreaseincrease was mainlyprimarily dueattributable to changes in outstanding debt balances and related financing costs during the negative foreign exchange impact.period.

The Company’s effective tax rates for the three months ended MarchJune 31,30, 2026 and 2025 were (7.96.0)% 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 MarchJune 31,30, 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 increased by $4.5$14.9 million, or 47.9%,285.8%, for the three months ended MarchJune 31,30, 2026 as2026, compared to the three months ended MarchJune 31,30, 2025.

As of MarchJune 31,30, 2026, we had $61.7$106.5 million of unused borrowing capacity from all of our loan agreements. As of MarchJune 31,30, 2026, our cash, cash equivalents and restricted cash totaled $449.4$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.

On February 26, 2026, the Company entered into an Equity Distribution Agreement (the "AgreementFirst 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 (the "Shares") 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.

Upon delivery of a placement notice and subject to the terms and conditions of the Agreement,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 Agreement,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 AgreementSecond 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 MarchJune 31,30, 2026 are as follows (in thousands, except shares and weighted average per share price):

Net cash used in operating activities was $85.4$73.8 million during the threesix months ended MarchJune 31,30, 2026 as compared to $50.9$116.4 million during the threesix months ended MarchJune 31,30, 2025, ana increasedecrease of 67.6%.36.6%. Net cash used in operating activities consisted of our net loss of $14.3$37.1 million, adjusted for non-cash items of $19.0$33.9 million, and a net use of cash from changes in working capital of $90.1$70.6 million.

As of MarchJune 31,30, 2026, Digicomm represented approximately 74.5%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.

For the threesix months ended MarchJune 31,30, 2026, revenues from Digicomm were approximately $66.7$147.0 million, representing approximately 44.1%42.8% of consolidated revenues. These revenues were primarily attributable to the CATV product category.

Net cash used in investing activities was $68.1$633.7 million during the threesix months ended MarchJune 31,30, 2026 compared with $36.3$75.2 million in the threesix months ended MarchJune 31,30, 2025.2025, Thean increase wasof 742.8%, primarily driven by capital expenditures of $58.2$335.1 million, which included $26.6$169.0 million capital expenditures in the US, $9.9$62.8 million in Taiwan, and $21.7$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. Based on current demand trends, Management expects that 2026 CapEx will continue to be materiallyelevated higherabove thanpast 2025year CapEx.levels, driven by the need to expand production capacity to meet customer demand.

Net cash provided by financing activities was $389.3$980.3 million during the threesix months ended MarchJune 31,30, 2026 compared with $70.0$196.0 million in the threesix months ended MarchJune 31,30, 2025.2025, Thean increase wasof 400.2%, primarily attributable to the net proceeds of $382.4$1.03 millionbillion from the ATM Offering, the net proceeds from line of credit borrowings of $6.8$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 $1.8$0.6 million, partially offset byand tax payments related to share-based compensation of $1.7$71.2 million.

As of MarchJune 31,30, 2026, we have lending arrangements with one U.S. bank, twothree financial institutioninstitutions in Taiwan, and foursix financial institutions in China. As of MarchJune 31,30, 2026, we were in compliance with the covenants in the lending arrangements. As of MarchJune 31,30, 2026, we had $61.7$106.5 million of unused borrowing capacity.

We had cash, cash equivalents and restricted cash of $449.4$508.8 million as of MarchJune 31,30, 2026, an increase of approximately $233.4$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 MarchJune 31,30, 2026, we had a total loan balance (excluding convertible notes) of $41.2$58.9 million from various lenders and had $61.7$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).

During the threesix months ended MarchJune 31,30, 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. Compared to other global markets, China has experienced relatively stable inflationary conditions. While we have implemented pricing actionsactions, 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.