Applied Optoelectronics swings to $6.3M Q3 profit
During the third quarter of 2026, AAOI's top three customers represented 41%, 28%, and 23% of revenue, while expansion commitments stood at $928.8 million.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Applied Optoelectronics, Inc. (AAOI) reported third-quarter 2026 revenue of $269.9 million, versus $118.6 million a year earlier, and net income of $6.3 million versus a $17.9 million loss. For the nine months ended September 30, 2026, revenue was $612.9 million and net loss was $30.8 million.
Cash and equivalents were $605.4 million as of September 30, 2026. During the nine months ended that date, operating cash use was $76.7 million and investing cash use was $1,109.5 million, including $702.1 million for property and equipment. Financing provided $1,591.6 million, including $1,590.6 million net from common-stock offerings. Equipment and facility commitments were $928.8 million, primarily for capacity expansion.
After September 30, 2026, AAOI completed its third at-the-market offering on October 1, 2026, selling approximately 5.7 million shares for approximately $588 million net. Under a three-year hyperscale-customer agreement, the customer is obligated, subject to conditions, to buy 10% of certain 1.6 Tb transceivers from June 2026 through May 2029; AAOI is obligated to supply them. On November 2, 2026, AAOI entered a five-year supply framework agreement and annual raw-material contract for purchases up to approximately $194.4 million annually, with aggregate prepayments up to $40 million; the supplier's ability to export and deliver is subject to Chinese regulatory approvals.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointThird-quarter revenue was $269.9 million, versus $118.6 million a year earlier.
- Moderate pointNet income was $6.3 million, compared with a $17.9 million loss a year earlier.
Negative
- Moderate pointAAOI's top three customers individually represented 41%, 28%, and 23% of third-quarter revenue.
Filing Explained
Holders can convert approximately $124.9 million principal of notes during the quarter ending December 31, 2026; settlement may include shares, but need not.
The company entered a
Holders of the 2030 notes may convert all or part of the approximately
Key Figures
Key Terms
ATM Offering financial
Molecular Beam Epitaxy technical
valuation allowance financial
Customer Warrant financial
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
How much revenue did AAOI report in the third quarter of 2026?
How much did AAOI's October 2026 ATM offering raise?
What does AAOI's hyperscale customer agreement require?
How concentrated was AAOI's customer base in the third quarter of 2026?
What conditions apply to AAOI's new raw-material supply agreement?
AI-generated analysis. How Rhea-AI works. Not financial advice.
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from __________ to __________
Commission File Number:
Applied Optoelectronics, Inc.
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| | ☒ | Accelerated filer | ☐ |
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| Non-accelerated filer | ☐ | Smaller reporting company | |
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| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 2, 2026, there were
Applied Optoelectronics, Inc.
Table of Contents
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| Part I. Financial Information |
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Condensed Consolidated Financial Statements (Unaudited) |
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| Condensed Consolidated Balance Sheets as of September 30, 2026 (Unaudited) and December 31, 2025 |
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| Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2026 and 2025 (Unaudited) |
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| Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months ended September 30, 2026 and 2025 (Unaudited) |
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| Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months ended September 30, 2026 and 2025 (Unaudited) |
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| Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2026 and 2025 (Unaudited) |
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| Notes To Condensed Consolidated Financial Statements (Unaudited) |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
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| Item 4. |
Controls and Procedures |
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| Part II. Other Information |
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| Item 1. |
Legal Proceedings |
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| Item 1A. |
Risk Factors |
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| Item 5. | Other Information | 34 |
| Item 6. |
Exhibits |
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| Signatures |
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Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Applied Optoelectronics, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
| September 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Land use rights, net | ||||||||
| Operating right of use assets | ||||||||
| Intangible assets, net | ||||||||
| Deferred income tax assets | ||||||||
| Other assets, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Bank acceptance payable | ||||||||
| Accrued liabilities | ||||||||
| Current lease liabilities - operating | ||||||||
| Current portion of long-term debt | ||||||||
| Total current liabilities | ||||||||
| Non-current lease liabilities - operating | ||||||||
| Non-current portion of long-term debt | ||||||||
| Convertible senior notes | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies (Note 18) | ||||||||
| Stockholders' equity: | ||||||||
| Preferred Stock; 5,000 shares authorized at $0.001 par value; no shares issued and outstanding at September 30, 2026 and December 31, 2025, respectively | ||||||||
| Common Stock; 120,000 shares authorized at $0.001 par value; 89,885 and 74,998 shares issued and outstanding at September 30, 2026 and December 31, 2025, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS' EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Applied Optoelectronics, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenue, net | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Total other income (expense), net | ||||||||||||||||
| Net income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax expense | ( | ) | ( | ) | ||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net income (loss) per share | ||||||||||||||||
| Basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average shares used to compute net income (loss) per share: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Applied Optoelectronics, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Gain (loss) on foreign currency translation adjustment | ( | ) | ||||||||||||||
| Comprehensive income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Applied Optoelectronics, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three and Nine Months ended September 30, 2026 and 2025
(Unaudited, in thousands, except for share amount)
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Additional | other | ||||||||||||||||||||||
| Number | paid-in | comprehensive | Accumulated | Stockholders' | ||||||||||||||||||||
| of shares | Amount | capital | gain (loss) | deficit | equity | |||||||||||||||||||
| June 30, 2026 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Issuance of restricted stock, net of shares withheld for employee tax | ( | ) | ( | ) | ||||||||||||||||||||
| Share-based compensation | — | |||||||||||||||||||||||
| Public offering of common stock, net | ||||||||||||||||||||||||
| Warrants contra revenue | — | |||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | ||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| September 30, 2026 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Additional | other | ||||||||||||||||||||||
| Number | paid-in | comprehensive | Accumulated | Stockholders' | ||||||||||||||||||||
| of shares | Amount | capital | gain (loss) | deficit | equity | |||||||||||||||||||
| June 30, 2025 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Issuance of restricted stock, net of shares withheld for employee tax | ( | ) | ( | ) | ||||||||||||||||||||
| Share-based compensation | — | |||||||||||||||||||||||
| Public offering of common stock, net | ||||||||||||||||||||||||
| Warrants contra revenue | — | |||||||||||||||||||||||
| Equity exchanged to shares | ||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||
| September 30, 2025 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Additional | other | ||||||||||||||||||||||
| Number | paid-in | comprehensive | Accumulated | Stockholders' | ||||||||||||||||||||
| of shares | Amount | capital | gain (loss) | deficit | equity | |||||||||||||||||||
| December 31, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Issuance of restricted stock, net of shares withheld for employee tax | ( | ) | ( | ) | ||||||||||||||||||||
| Share-based compensation | — | |||||||||||||||||||||||
| Public offering of common stock, net | ||||||||||||||||||||||||
| Convertible note to share | ||||||||||||||||||||||||
| Warrants contra revenue | — | |||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||
| September 30, 2026 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Additional | other | ||||||||||||||||||||||
| Number | paid-in | comprehensive | Retained | Stockholders' | ||||||||||||||||||||
| of shares | Amount | capital | gain (loss) | earnings | equity | |||||||||||||||||||
| December 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Issuance of restricted stock, net of shares withheld for employee tax | ( | ) | ( | ) | ||||||||||||||||||||
| Share-based compensation | — | |||||||||||||||||||||||
| Public offering of common stock, net | ||||||||||||||||||||||||
| Warrants contra revenue | — | |||||||||||||||||||||||
| Equity exchanged to shares | ||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||
| September 30, 2025 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Applied Optoelectronics, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
| Nine months ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Allowance for bad debt | ||||||||
| Inventory reserve adjustment | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Amortization of debt issuance costs and premium | ( | ) | ( | ) | ||||
| Deferred tax asset | ||||||||
| Loss on disposal of assets | ||||||||
| Share-based compensation | ||||||||
| Warrants contra revenue | ||||||||
| Unrealized foreign exchange loss (gain) | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, trade | ( | ) | ( | ) | ||||
| Inventories, net | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ( | ) | ||||
| Operating right of use asset | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Accrued liabilities | ||||||||
| Lease liability | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities: | ||||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
| Proceeds from disposal of equipment | ||||||||
| Prepayment for equipment and others | ( | ) | ( | ) | ||||
| Purchase of intangible assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities: | ||||||||
| Proceeds from issuance of notes payable and long-term debt | ||||||||
| Principal payment on long term debt | ( | ) | ||||||
| Proceeds from line of credit borrowings | ||||||||
| Repayments of line of credit borrowings | ( | ) | ( | ) | ||||
| Proceeds from bank acceptance payable | ||||||||
| Repayments of bank acceptance payable | ( | ) | ( | ) | ||||
| Repayment of convertible notes payable | ( | ) | ( | ) | ||||
| Payments of tax withholding on behalf of employees related to share-based compensation | ( | ) | ( | ) | ||||
| Changes in ADPI | ||||||||
| Proceeds from common stock offering, net | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ( | ) | ||||
| Net increase in cash, cash equivalents and restricted cash | ||||||||
| Cash, cash equivalents and restricted cash at beginning of period | ||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for: | ||||||||
| Interest, net of amounts capitalized | $ | $ | ||||||
| Income taxes | ||||||||
| Non-cash investing and financing activities: | ||||||||
| Net change in accounts payable related to property and equipment additions | $ | $ | ||||||
| Net change in deposits and prepaid for equipment related to property and equipment additions | ( | ) | ( | ) | ||||
| Non-cash operating and financing activities: | ||||||||
| Warrant issued and vested to customer | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Applied Optoelectronics, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Description of Business
Business Overview
Applied Optoelectronics, Inc. ("AOI" or the "Company") is a Delaware corporation. The Company is a leading, vertically integrated provider of fiber-optic networking products, primarily for four networking end-markets: internet and AI data centers, cable television ("CATV"), telecommunications ("telecom") and fiber-to-the-home ("FTTH"). The Company designs and manufactures a wide range of optical communications products at varying levels of integration, from components, subassemblies and modules to complete turn-key equipment.
The Company has manufacturing and research and development facilities located in the U.S., Taiwan and China. In the U.S., at its corporate headquarters and manufacturing facilities in Sugar Land, Texas, the Company primarily manufactures lasers and laser components as well as certain of its data center transceivers and performs research and development activities for laser component and optical module products and certain data center transceiver products. In addition, the Company has a research and development facility in Duluth, Georgia. The Company operates in Taipei, Taiwan and Ningbo, China through its wholly-owned subsidiary Prime World International Holdings, Ltd. ("Prime World", incorporated in the British Virgin Islands). Prime World operates a branch in Taipei, Taiwan, which primarily manufactures certain of its data center transceivers and certain CATV systems and equipment and performs research and development activities for the transceiver products. Prime World is the parent of Global Technology, Inc. ("Global", incorporated in the People’s Republic of China). Through Global, the Company primarily manufactures certain of its data center transceiver products, including subassemblies, as well as CATV systems and equipment, and performs research and development activities for CATV and certain data center transceiver products.
Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements of the Company as of September 30, 2026 and December 31, 2025 and for the three and nine months ended September 30, 2026 and September 30, 2025, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim information and with the instructions on Form 10-Q and Rule 10-01 of Regulation S-X pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). In accordance with those rules and regulations, the Company has omitted certain information and notes required by GAAP for annual consolidated financial statements. In the opinion of management, the condensed consolidated financial statements contain all adjustments, necessary for the fair statement of the Company’s financial position and results of operations for the periods presented. The year-end condensed balance sheet data was derived from audited financial statements. These condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K ("Annual Report") for the fiscal year ended December 31, 2025. The results of operations for the three and nine months ended September 30, 2026 are not necessarily indicative of the results expected for the entire fiscal year. All significant inter-company accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates in the consolidated financial statements and accompanying notes. Significant estimates and assumptions that impact these financial statements and the accompanying notes relate to, among other things, revenue recognition, allowance for credit losses, inventory reserve, valuation of long-lived assets, service and product warranty costs, share-based compensation expense, estimated useful lives of tangible and intangible assets, and taxes.
Note 2. Significant Accounting Policies
There have been no changes in the Company’s significant accounting policies for the three and nine months ended September 30, 2026, as compared to the significant accounting policies described in its 2025 Annual Report.
Recent Accounting Pronouncements Adopted
In November 2024, the Financial Accounting Standard Board ("FASB") issued Accounting Standard update ("ASU") 2024-04, Debt-Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. The amendments clarify the accounting for certain induced conversions of convertible debt instruments. The Company adopted this ASU effective January 1, 2026. The adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures because the Company did not enter into any transactions within the scope of the standard during the period.
In July 2025, the FASB issued ASU 2025-05—Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which added a practical expedient that assumes that current conditions as of the balance sheet date do not change for the remaining life of the asset when estimating expected credit losses for current accounts receivable and current contract assets. The guidance is effective for annual periods beginning after December 15, 2025. The Company has adopted this ASU and this ASU did not have a material impact on the Company's financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832), to establish the accounting for a government grant received by a business entity including guidance for (1) a grant related to an asset and (2) a grant related to income. For public business entities, the provisions of ASU 2025-10 are effective for fiscal years beginning after December 15, 2028. Early adoption is permitted. The Company is currently evaluating the requirements under this new standard, which may have a material impact on the timing of recognition and presentation of grants received on the Company's results of operations or financial condition.
In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. The ASU clarifies interim disclosure requirements and the applicability of Topic 270. The objective of the amendments is to provide further clarity about the current interim disclosure requirements. The ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. Adoption of this ASU can be applied as either a prospective or a retrospective approach. Early adoption is permitted. The Company is currently evaluating the provisions of this ASU and does not expect this ASU to have a material impact on its consolidated financial statements.
In December 2025, the FASB issued ASU 2025-12, Codification Improvements. The ASU addresses thirty-three items, representing the changes to the Codification that (1) clarify, (2) correct errors, or (3) make minor improvements. Generally, the amendments in this update are not intended to result in significant changes for most entities. The ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2026. The adoption method of this ASU may vary, on an issue-by-issue basis. Early adoption is permitted. The Company is currently evaluating the provisions of this ASU and does not expect this ASU to have a material impact on its consolidated financial statements.
There have been no other recent accounting pronouncements or changes in accounting pronouncements during the third quarter of 2026 that are of significance or potential significance to the Company.
Note 3. Revenue Recognition
Disaggregation of Revenue
Revenue is classified based on the location where the product is manufactured. For additional information on the disaggregated revenues by geographical region, see Note 17, "Segment and Geographic Information."
All of the Company's contracts have original expected durations of one year or less, and therefore the Company does not disclose remaining performance obligations.
Revenue is also classified by major product categories and is presented below (in thousands):
| Three months ended September 30, | ||||||||||||||||
| % of | % of | |||||||||||||||
| 2026 | Revenue | 2025 | Revenue | |||||||||||||
| Data Center | $ | % | $ | % | ||||||||||||
| CATV | % | % | ||||||||||||||
| Telecom | % | % | ||||||||||||||
| Other | % | % | ||||||||||||||
| Total Revenue | $ | % | $ | % | ||||||||||||
| Nine months ended September 30, | ||||||||||||||||
| % of | % of | |||||||||||||||
| 2026 | Revenue | 2025 | Revenue | |||||||||||||
| Data Center | $ | % | $ | % | ||||||||||||
| CATV | % | % | ||||||||||||||
| Telecom | % | % | ||||||||||||||
| Other | % | % | ||||||||||||||
| Total Revenue | $ | % | $ | % | ||||||||||||
Customer Warrant
On March 13, 2025, the Company issued a warrant (the "Customer Warrant") to a wholly-owned subsidiary of Amazon.com, Inc. to purchase up to an aggregate of
| At Grant Date | ||||
| Expected volatility | % | |||
| Weighted-average expected term (in years) | ||||
| Risk-free interest rate | % | |||
| Dividend yield | % | |||
| Fair value per ordinary share at grant date | $ | |||
For the nine months ended September 30, 2026, the Company recognized approximately $
Note 4. Leases
The Company leases space under non-cancellable operating leases for manufacturing facilities, office space (including research and development offices), warehouses, certain storage facilities and apartments. These leases do not contain contingent rent provisions. The Company also leases certain machinery, office equipment and a vehicle under operating leases. The Company determines if an arrangement is or contains a lease at contract inception. Many of its leases include both lease (e.g. fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g. common-area or other maintenance costs) which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. Several of the leases include one or more options to renew which have been assessed and either included or excluded from the calculation of the lease liability of the right of use ("ROU") asset based on management’s intentions and individual fact patterns. Several warehouses and apartments have non-cancellable lease terms of less than one-year and therefore, the Company has elected the practical expedient to exclude these short-term leases from its ROU asset and lease liabilities.
On October 7, 2024, Prime World entered into a Land and Building Lease Agreement with San Ho Enterprise Co., Ltd. ("San Ho Enterprise"), under which Prime World leases approximately
On September 1, 2025, Prime World entered into a Lease Agreement with International Games System Co., Ltd., under which Prime World leases a parcel of land with a total area of approximately
On September 19, 2025, the Company entered into a Lease Agreement with Coleman Logistics Assets LLC (“Coleman”), pursuant to which the Company leases approximately
On February 23, 2026, the Company entered into a Lease Agreement (the "Prior Lease") with Blue Ridge Commerce Center West LLC ("Blue Ridge"), pursuant to which the Company leased approximately
On May 8, 2026, the Company entered into three separate Lease Agreements with Hightower Phase I Owner, LLC ("Hightower"), pursuant to which the Company will lease three industrial buildings, located at 6000 McHard Road, Houston, Texas 77053 ("Building 1"), 6100 McHard Road, Houston, Texas 77053 ("Building 2") and 17255 Chimney Rock Road, Houston, Texas 77053 ("Building 3"). The leased premises may be used for manufacturing, warehouse and office use. Each lease has a term of 123 full calendar months, plus any partial month from the commencement date to the end of the calendar month in which the commencement date occurs. The commencement date will be the earliest of: (i) the date on which the Company occupies any portion of the applicable premises and begins conducting business therein, (ii) the date on which Hightower’s work is substantially completed, or (iii) the date on which such work would have been substantially completed but for any tenant delay days. Under each lease agreement, the Company is entitled to an initial rent abatement period during the first three months. Commencing in the fourth month, base rent escalates periodically throughout the term. Building 1 consists of approximately
On August 31, 2026, the Company entered into two separate lease agreements with Hightower Phase II Owner, LLC ("Hightower II"), an affiliate of Hightower, for two industrial buildings to be constructed at 17331 Chimney Rock Road ("Building 4") and 17433 Chimney Rock Road ("Building 5"), Houston, Texas 77053, consisting of approximately
On September 10, 2026, Global entered into a Factory Premises Lease Agreement with Ningbo Yiduofu Industrial Co., Ltd., under which Global will lease a building of approximately
As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Based on the applicable lease terms and current economic environment, the Company applies a location approach for determining the incremental borrowing rate.
Lease expense was included in general and administrative expenses and totaled $
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Operating lease expense | $ | $ | $ | $ | ||||||||||||
| Short Term lease expense | ||||||||||||||||
| Total lease expense | $ | $ | $ | $ | ||||||||||||
Maturities of lease liabilities are as follows for the future one-year fiscal year periods (in thousands):
| Fiscal years: | Operating | |||
| 2026 (remaining 3 months) | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 and thereafter | ||||
| Total lease payments | ||||
| Less imputed interest | ( | ) | ||
| Present value | $ | |||
The weighted average remaining lease term and discount rate for the leases were as follows for the periods indicated:
| Nine months ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Weighted average remaining lease term (years) - operating leases | ||||||||
| Weighted average discount rate - operating leases | % | % | ||||||
Supplemental cash flow information related to the leases was as follows for the periods indicated (in thousands):
| Nine months ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | ||||||
Note 5. Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the statement of financial position that sum to the total of the same such amounts in the statement of cash flows (in thousands):
| September 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | $ | ||||||
Restricted cash includes guarantee deposits for customs duties, a China government subsidy fund, and deposits as collateral in order to secure bank acceptance notes issued to vendors. As of September 30, 2026 and December 31, 2025, there was $
Note 6. Earnings (Loss) Per Share
Basic net income (loss) per share has been computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share has been computed using the weighted-average number of shares of common stock and dilutive potential common shares from restricted stock units, including performance-based stock units, and senior convertible notes outstanding during the period. In periods with net losses, dilutive securities are excluded from diluted earnings per share because their inclusion would be antidilutive. On March 13, 2025, the Company issued
The following table sets forth the computation of the basic and diluted net income (loss) per share for the periods indicated (in thousands):
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Numerator | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Denominator | ||||||||||||||||
| Weighted average shares - basic | ||||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||
| Restricted stock units | ||||||||||||||||
| Amazon warrant | ||||||||||||||||
| Weighted average shares - diluted | ||||||||||||||||
| Net income (loss) per share | ||||||||||||||||
| Basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
The following potentially dilutive securities were excluded from the diluted net loss per share as their effect would have been antidilutive (in thousands):
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Restricted stock units | ||||||||||||||||
| Shares for convertible senior notes | ||||||||||||||||
| Amazon warrant | ||||||||||||||||
| Total antidilutive shares | ||||||||||||||||
Note 7. Inventories
Inventories, net consist of the following for the periods indicated (in thousands):
| September 30, 2026 | December 31, 2025 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process and sub-assemblies | ||||||||
| Finished goods | ||||||||
| Allowance for inventory | ( | ) | ( | ) | ||||
| Total inventories | $ | $ | ||||||
For the three months ended September 30, 2026 and 2025, the inventory reserve adjustment expensed for inventory was $(
For the three months ended September 30, 2026 and 2025, the direct inventory write-offs related to scrap, discontinued products and damaged inventories were $
Note 8. Property, Plant & Equipment
Property, plant and equipment consisted of the following for the periods indicated (in thousands):
| September 30, 2026 | December 31, 2025 | |||||||
| Land | $ | $ | ||||||
| Land improvements | ||||||||
| Buildings and improvements | ||||||||
| Machinery and equipment | ||||||||
| Furniture and fixtures | ||||||||
| Computer equipment and software | ||||||||
| Transportation equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Construction in progress | ||||||||
| Total property, plant and equipment, net | $ | $ | ||||||
Capital Equipment Prepayments
Other assets, net primarily consist of long-term prepayments made in connection with the Company's capital expansion projects. As of September 30, 2026, other assets, net was $
For the three months ended September 30, 2026 and 2025, the depreciation expense of property, plant and equipment was $
Note 9. Intangible Assets, net
Intangible assets consisted of the following for the periods indicated (in thousands):
| September 30, 2026 | ||||||||||||
| Gross | Accumulated | Intangible | ||||||||||
| Amount | amortization | assets, net | ||||||||||
| Patents | $ | $ | ( | ) | $ | |||||||
| Trademarks | ( | ) | ||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||
| December 31, 2025 | ||||||||||||
| Gross | Accumulated | Intangible | ||||||||||
| Amount | amortization | assets, net | ||||||||||
| Patents | $ | $ | ( | ) | $ | |||||||
| Trademarks | ( | ) | ||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||
For the three months ended September 30, 2026 and 2025, amortization expense for intangible assets, included in general and administrative expenses on the statement of operations, was $
On September 30, 2026, future amortization expenses for intangible assets for future periods are estimated to be (in thousands):
| 2026 (remaining 3 months) | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 and thereafter | ||||
| Total | $ |
Note 10. Fair Value of Financial Instruments
The carrying value amounts of cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses, notes receivable and other current assets, accounts payable, accrued expenses, bank acceptance payable and other current liabilities approximate fair value because of the short-term maturity of these instruments. The Company believes that the interest rates in effect at each period end represent the current market rates for similar borrowings.
The Company's accounts receivable was $
The fair value of convertible senior notes is measured for disclosure purposes only. The fair value and carrying amount of our convertible senior notes as of September 30, 2026 was $
Note 11. Notes Payable and Long-Term Debt
Notes payable and long-term debt consisted of the following for the periods indicated (in thousands):
| September 30, 2026 | December 31, 2025 | |||||||
| Revolving line of credit and equipment term loan with a China bank up to $44.5 million with interest at 2.45% and 3%, maturing July 27, 2027 and June 12, 2032, respectively | $ | $ | ||||||
| Revolving line of credit with a China bank up to $14.8 million with interest at 2.45%, maturing March 26, 2027 | ||||||||
| Revolving line of credit and equipment term loan with a China bank up to $3.0 million with interest at 3%, maturing May 8, 2028 | ||||||||
| Revolving line of credit with a China bank up to $14.8 million with interest at 2.31%, maturing June 25, 2027 | ||||||||
| Revolving line of credit with a China bank up to $3.0 million with interest at 2.4%, maturing June 11, 2027 | ||||||||
| Revolving line of credit with a Taiwan bank up to $3.1 million with interest at 2.55%, maturing October 14, 2026 | ||||||||
| Revolving line of credit with a Taiwan bank up to $3.1 million with interest at 3.2%, maturing February 25, 2027 | ||||||||
| Revolving line of credit and equipment term loan with a Taiwan bank up to $8.8 million with interest at 3.4%, maturing July 15, 2029 | ||||||||
| A sale and purchase, and a finance lease agreement with a Taiwan financial institution up to $6.3 million with interest at 4.5%, maturing July 17, 2029 | ||||||||
| Total | $ | $ | ||||||
| Less current portion | ( | ) | ( | ) | ||||
| Non-current portion | $ | $ | ||||||
| Bank Acceptance Notes Payable | September 30, 2026 | December 31, 2025 | ||||||
| Bank acceptance notes issued to vendors with 0.05% handling fees | $ | $ | ||||||
SPD Credit Line
On July 29, 2025, Global entered into a five-year revolving credit line agreement with Shanghai Pudong Development Bank Co., Ltd. in Ningbo City, China ("SPD"), totaling 250,000,000 RMB (the "¥250M SPD Credit Line"), or approximately $
On June 11, 2026, Global entered into a one-year revolving credit line agreement with SPD increasing the ¥250M SPD Credit Line to
CCB Loan
On June 12, 2025, Global entered into a one-year credit facility with China Construction Bank Co., Ltd., in Ningbo, City, China ("CCB"), totaling
On June 26, 2025, Global entered into a five-year revolving credit line agreement with CCB, totaling
NBCB Loan
On June 23, 2025, Global entered into a five-year credit facility with Bank of Ningbo, in Ningbo City, China, totaling
CZB Loan
On December 26, 2025, Global entered into an asset pooling cooperation agreement with China Zheshang Bank in Ningbo City, China totaling
BOC Loan
On April 29, 2026, Global entered into a one-year credit facility with Bank of China in Ningbo City, China, totaling
BOKF Loan
On July 31, 2025, the Company entered into a Loan and Security Agreement with BOKF, NA dba BOK Financial, as agent for secured parties (the "BOKF Credit Facility"). The BOKF Credit Facility provides the Company with a three-year, $
Taishin Loan
On November 27, 2025, Prime World entered into a credit facility with Taishin International Bank in Taiwan, consisting of a NT$100,000,000 line of credit (the "NT$100M Credit Line"), or approximately $
On January 2, 2026, Prime World entered into a credit facility with First Commercial Bank in Taiwan, consisting of a NT$100,000,000 line of credit (the "FCB Credit Facility"), or approximately $
CTBC Loan
On June 11, 2026, Prime World entered into a credit facility with CTBC Bank Co., Ltd. in Taiwan, consisting of a NT$100,000,000 line of credit and a NT$180,000,000 equipment term loan (collectively, the "CTBC Credit Facility"), or approximately a total of $
Chailease Loan
On July 14, 2026, Prime World entered into a sale and purchase agreement and a finance lease agreement credit facility with Chailease Finance Co., Ltd. in Taiwan, providing financing of NT$200,000,000 (collectively, the "Chailease Financing Arrangement"), or approximately $
Covenants
As of September 30, 2026, we were in compliance with the covenants in the lending arrangements.
Unused Borrowing Capacity
Note 12. Convertible Senior Notes
On December 18, 2024, the Company entered into exchange agreements with certain holders of its
The 2030 Notes were issued pursuant to an Indenture, dated as of December 23, 2024 (the "Indenture"), between the Company, as issuer, and Computershare Trust Company, N.A., as trustee. The 2030 Notes bear interest at a rate of
During the three months ended June 30, 2026, a holder of the 2030 Notes exercised its conversion right with respect to $
The following table presents the carrying value of the 2030 Notes for the periods indicated (in thousands):
| September 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| 2030 Notes | ||||||||
| Principal | ||||||||
| Premium upon issuance | ||||||||
| Unamortized debt issuance costs | ( | ) | ( | ) | ||||
| Net carrying amount | ||||||||
| Total net carrying amount | $ | $ | ||||||
The conversion rate for the 2030 Notes is
The common stock sale price condition was satisfied during the three months ended September 30, 2026, as the last reported sale price of the Company's common stock exceeded
The 2030 Notes will be redeemable, in whole or in part (subject to certain limitations described in the Indenture), at the Company’s option at any time, and from time to time, on or after January 15, 2027 and on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the 2030 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of the Common Stock exceeds
In addition, the 2030 Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the 2030 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date (subject to the right of a holder of 2030 Notes as of the close of business on a record date to receive the related interest payment on the corresponding interest payment date), if the “Specified Divestiture” (as defined in the Indenture) is completed.
Calling any 2030 Note for redemption will constitute a "Make-Whole Fundamental Change" (as defined in the Indenture) with respect to that 2030 Note, in which case the conversion rate applicable to the conversion of that 2030 Note will be increased in certain circumstances if it is converted after it is called for redemption.
In addition, if the Specified Divestiture is completed, then unless the Company has previously elected to redeem all of the 2030 Notes, each holder of 2030 Notes will have the right to require the Company to repurchase its 2030 Notes for cash on a date of the Company’s choosing, which must be a business day that is no more than 35, nor less than 20, business days after the date the Company’s sends the related notice of Specified Divestiture. The repurchase price for a note tendered for such repurchase will be equal to the principal amount of the 2030 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date (subject to the right of a holder of 2030 Notes as of the close of business on a record date to receive the related interest payment on the corresponding interest payment date).
Moreover, if the Company undergoes a fundamental change, as described in the Indenture, holders of the 2030 Notes may require the Company to repurchase for cash all or part of their 2030 Notes at a repurchase price equal to
Additionally, the 2030 Notes are subject to customary events of default. The 2030 Notes do not restrict the Company’s ability to incur debt or liens. No sinking fund is provided for the 2030 Notes. There are no guarantors of the 2030 Notes.
Pursuant to the guidance in ASC 815-40, Contracts in Entity’s Own Equity, the Company evaluated whether the conversion feature of the note needed to be bifurcated from the host instrument as a freestanding financial instrument. Under ASC 815-40, to qualify for equity classification (or non-bifurcation, if embedded) the instrument (or embedded feature) must be both (1) indexed to the issuer’s own stock and (2) meet the requirements of the equity classification guidance. Based upon the Company’s analysis, it was determined the conversion option is indexed to its own stock and also met all the criteria for equity classification. Accordingly, the conversion option is not required to be bifurcated from the host instrument as a derivative.
Pursuant to ASC 815-15, the Company further determined that the contingent redemption features in the 2030 Notes are not required to be bifurcated from the host contract and accounted for separately. Additionally, the Company then evaluated whether the conversion feature needed to be separately accounted for as an equity component under ASC 470-20, Debt with Conversion and Other Options, and determined that the additional premium was not substantial. Accordingly, that amount was recognized as a premium on the 2030 Notes.
The following table sets forth interest expense information related to the 2026 Notes and 2030 Notes (in thousands):
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Contractual interest expense | $ | $ | $ | $ | ||||||||||||
| Amortization of debt issuance costs | ||||||||||||||||
| Total interest cost | $ | $ | $ | $ | ||||||||||||
| Effective interest rate | % | % | % | % | ||||||||||||
Note 13. Accrued Liabilities
Accrued liabilities consisted of the following for the periods indicated (in thousands):
| September 30, 2026 | December 31, 2025 | |||||||
| Accrued payroll | $ | $ | ||||||
| Accrued employee benefits | ||||||||
| Accrued state and local taxes | ||||||||
| Accrued interest | ||||||||
| Accrued shipping and tariff expenses | ||||||||
| Advanced payments | ||||||||
| Accrued commission expenses | ||||||||
| Accrued professional fees | ||||||||
| Accrued product warranty | ||||||||
| Accrued capital expenditure | ||||||||
| Accrued other-Donation | ||||||||
| Accrued other-Government fee | ||||||||
| Accrued other-Service fee | ||||||||
| Accrued other | ||||||||
| Total accrued liabilities | $ | $ | ||||||
Note 14. Other Income and Expense
Other income and expense consisted of the following for the periods indicated (in thousands):
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Loss on disposal of assets | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Government subsidy income | ||||||||||||||||
| Foreign exchange gain (loss) | ( | ) | ( | ) | ||||||||||||
| Other non-operating gain | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense), net | $ | $ | $ | $ | ||||||||||||
Government subsidy income primarily relates to grants received under government assistance programs, including grants received by the Company's China entity under local government incentive programs that support manufacturing operations, technology development, and capital investment, as well as the Texas Semiconductor Innovation Fund ("TSIF"). In April 2026, the Company and the State of Texas, Office of the Governor, Texas CHIPS Office entered into a grant agreement under the Texas Semiconductor Innovation Fund for the TSIF to reimburse the Company for qualifying expenditures not to exceed $
Note 15. Share-Based Compensation
Equity Plans
The Company’s board of directors and stockholders approved the following equity plans:
| ● | the 2023 Equity Inducement Plan ("Inducement Plan") | |
| ● | the 2026 Equity Incentive Plan ("2026 Plan") |
The Company has issued stock options, restricted stock awards ("RSAs") and restricted stock units ("RSUs") to employees, consultants and non-employee directors. Stock option awards generally vest over a four-year period and have a maximum term of ten years. Stock options under these plans have been granted with an exercise price equal to the fair market value on the date of the grant. Nonqualified and Incentive Stock Options, RSAs and RSUs may be granted from these plans.
Performance Based Incentive Plan
Starting in 2021, certain senior executives were granted performance stock units ("PSUs") under our equity plan, which generally vest over a three-year period subject to achievement of certain pre-established performance metrics. The number of shares of common stock that would ultimately be issued to settle PSUs granted ranged from
The following is a summary of PSU activity for the nine months ended September 30, 2026:
| Weighted | ||||||||||||||||
| Average Share | Weighted | Aggregate | ||||||||||||||
| Number of | Price on Date | Average | Intrinsic | |||||||||||||
| shares | of Release | Fair Value | Value | |||||||||||||
| (in thousands, except price data and Contractual Life) | ||||||||||||||||
| Outstanding at January 1, 2026 | — | $ | $ | |||||||||||||
| Granted | — | |||||||||||||||
| Vested | ( | ) | $ | |||||||||||||
| Cancelled/Forfeited | — | |||||||||||||||
| Outstanding, September 30, 2026 | — | $ | $ | |||||||||||||
| Vested and expected to vest | — | $ | $ | |||||||||||||
As of September 30, 2026, there was $
Restricted Stock Units
Restricted stock units are issued to employees through a vesting plan and distribution schedule after employee remains with the Company for a particular length of time. The following is a summary of RSU activity:
| Weighted | ||||||||||||||||
| Average Share | Weighted | Aggregate | ||||||||||||||
| Number of | Price on Date | Average | Intrinsic | |||||||||||||
| shares | of Release | Fair Value | Value | |||||||||||||
| (in thousands, except price data) | ||||||||||||||||
| Outstanding, January 1, 2026 | — | $ | $ | |||||||||||||
| Granted | — | |||||||||||||||
| Vested | ( | ) | $ | |||||||||||||
| Cancelled/Forfeited | ( | ) | — | |||||||||||||
| Outstanding, September 30, 2026 | — | $ | $ | |||||||||||||
| Vested and expected to vest | — | $ | $ | |||||||||||||
As of September 30, 2026, there was $
Share-Based Compensation
Employee share-based compensation expenses recognized for the periods indicated (in thousands):
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Share-based compensation - by expense types | ||||||||||||||||
| Cost of goods sold | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total share-based compensation expense | $ | $ | $ | $ | ||||||||||||
Note 16. Income Taxes
For the three months ended September 30, 2026, the Company recorded an income tax expense of $
For the three months ended September 30, 2026 and 2025, the effective tax rates were
The Company assesses the realizability of its DTAs, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies. In assessing the need for a valuation allowance, the Company considered both positive and negative evidence related to the likelihood of realization of deferred tax assets using a “more likely than not” standard. In making such assessment, more weight was given to evidence that could be objectively verified, including recent cumulative losses. Based on the Company’s review of this evidence, management determined that a full valuation allowance against all of the Company’s US and Taiwan net deferred tax assets remains appropriate as of September 30, 2026. However, the Company believes that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow it to reach a conclusion that a portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain DTAs and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that it is able to actually achieve.
The Company expects any earnings of foreign subsidiaries to be indefinitely invested outside the United States. As of December 31, 2025, however, the Company does not have any accumulated undistributed earnings generated by foreign subsidiaries and has estimated that its tax basis in foreign subsidiaries exceeds its book basis. The Company has concluded that no deferred tax asset (DTA) should be recorded because at the present time it does not expect that the temporary book-tax basis difference that would create this DTA will reverse in the foreseeable future.
Recent Tax Legislation
The Company evaluated the provisions of the One Big Beautiful Bill Act ("OBBBA"), which was enacted on July 4, 2025. Consistent with its prior assessment, the provisions related to domestic research and development expenditures, bonus depreciation, business interest expense limitations, or clean energy tax credits did not have a material impact on the Company's income tax provision or effective tax rate.
Note 17. Segment and Geographic Information
The Company operates in one reportable segment. The Company’s Chief Executive Officer, who is considered to be the chief operating decision maker ("CODM"), manages the Company’s operations as a whole and reviews financial information presented on a consolidated basis, accompanied by information about product revenue, for purposes of evaluating financial performance and allocating resources. Our CEO is the functional head of all operations and manufacturing. Our Board, in conjunction with our CODM, considers our consolidated performance and does not have individual financial or operating goals for each location, nor for any other subset of the Company's operations. As such, the Company has determined it operates as one reportable segment.
Our CODM uses net income or loss to allocate resources and assess performance. The CODM regularly reviews the consolidated net income or loss to make strategic decisions, such as capital expenditure plan, production plan and manpower allocation. The following table is in thousands.
| Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
| 2026 |
2025 |
2026 |
2025 |
|||||||||||||
| Revenues |
$ | $ | $ | $ | ||||||||||||
| Cost of goods sold |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Adjusted research and development |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Adjusted sales and marketing |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Adjusted general and administrative |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other segment items |
( |
) | ( |
) | ( |
) | ||||||||||
| Net income (loss) |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
We exclude share-based compensation and related expense, certain legal expenses associated with litigation and other one-time expenses from adjusted research and development, adjusted sales and marketing and adjusted general and administrative expenses.
Other segment items include share-based compensation expense, interest expense, interest income, certain legal expenses associated with litigation and other one-time items.
The following tables set forth the Company’s revenue and asset information by geographic region. Revenue is classified based on the location of where the product is manufactured. Long-lived assets in the tables below comprise property, plant, equipment, land use rights, right of use assets and intangible assets (in thousands):
| Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
| 2026 |
2025 |
2026 |
2025 |
|||||||||||||
| Revenues: |
||||||||||||||||
| United States |
$ | $ | $ | $ | ||||||||||||
| Taiwan |
||||||||||||||||
| China |
||||||||||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
| September 30, |
December 31, |
|||||||
| 2026 |
2025 |
|||||||
| Long-lived assets: |
||||||||
| United States |
$ | $ | ||||||
| Taiwan |
||||||||
| China |
||||||||
| Total |
$ | $ | ||||||
Note 18. Commitments and Contingencies
Litigation
From time to time, the Company may be subject to legal proceedings and litigation arising in the ordinary course of business, including, but not limited to, inquiries, investigations, audits and other regulatory proceedings. The Company records a loss provision when it believes it is both probable that a liability has been incurred and the amount can be reasonably estimated.
The Company believes that there are no claims or actions pending or threatened against it, the ultimate disposition of which would have a material adverse effect on it.
Other Contingencies
On August 9, 2021, the Company received a Taxes Notification of Audit Result ("Notice") from the Texas Comptroller’s Office (the "Comptroller"), for fiscal years between 2016 and 2019, informing the Company that the Comptroller believes the Company did not qualify for certain sales and use tax exemptions on various Research and Development purchases and accordingly the Company is liable for Sale and Use Tax in the amount of approximately $
On February 20, 2026, the United States Supreme Court issued a ruling invalidating certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA"). Following this ruling, the U.S. Court of International Trade issued an order directing U.S. Customs and Border Protection ("CBP") to establish a process for the submission and review of refund claims related to affected IEEPA tariffs. On April 20, 2026, CBP launched an online portal through which companies may submit IEEPA tariff refund requests. On April 29, 2026, the Company submitted refund claims totaling $
Purchase Obligations and Commitments
Kirby Property Acquisition. On April 7, 2026, the Company entered into a Purchase and Sale Agreement with SRPF D/Kirby Industrial, L.P. to acquire real property and improvements located at 14621 Kirby Drive and 11555 North Spectrum Boulevard, Pearland, Texas, consisting of approximately
Design-Build Agreement. On June 25, 2026, the Company entered into a design-build agreement with LCC3 Solution Inc. for the design and construction of approximately
Hightower Purchase Options. The Company's leases with Hightower Phase I Owner, LLC for Buildings 1, 2 and 3 include an option to purchase the buildings and related land for an aggregate purchase price of $
Other Capital Commitments. As of September 30, 2026, the Company had other outstanding purchase commitments for equipment and facility construction of approximately $
Note 19. Subsequent Events
Loan Agreement
On October 30, 2026, subsequent to the end of the reporting period, the Company entered into a $
ATM Completion
On October 1, 2026, the Company completed its third ATM Offering, selling approximately
Supply Agreement
On November 2, 2026, the Company entered into a five-year supply framework agreement and an annual purchase contract with a supplier for the purchase of a key raw material used in certain of its products. The annual contract provides for purchases of up to approximately $
The supplier’s ability to export and deliver the material is subject to obtaining and maintaining required regulatory approvals in China, and actual purchase quantities are subject to the quantities approved for export. If the required approvals are not obtained or maintained, the Company may cancel the annual contract and affected purchase orders and require the refund of applicable prepayments and other amounts paid. Because the agreements were entered into after September 30, 2026, no amounts relating to the agreements have been reflected in the Company’s condensed consolidated financial statements as of that date.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 September 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", 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. 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 artificial intelligence (“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 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 are expanding our manufacturing space in and around these existing facilities and are currently in the process of building out suitable facilities for this expansion. We expect the first of these new facilities to begin operation later in 2026.
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. 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 nine months ended September 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.
Subsequent to September 30, 2026, we signed a 3-year long term agreement (LTA) with a major hyperscale data center customer. Under this long term agreement, this customer is obligated, with certain conditions, to purchase 10% of certain 1.6 Tb data center transceiver products from us during the three-year period beginning June, 2026 and ending May, 2029. We are obligated to supply these products, including building any additional manufacturing capacity needed to fulfill this demand. We have also agreed to certain maximum pricing levels over the term of this agreement. Actual purchase volumes and revenue under the LTA will depend on the customer’s demand for the covered products, the satisfaction of the applicable conditions and our ability to meet our supply obligations.
LTAs of this type are not typical for our industry and AOI has not been a party to an agreement of this type before. We believe that this customer's desire to engage in an LTA of this type is a consequence of their belief that the demand for these components will remain strong for the next several years.
Although market demand remains favorable, the global economic environment continues to be 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 also 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 September 30, |
Nine months ended September 30, |
|||||||||||||||||||||||||||||||
| 2026 |
2025 |
2026 |
2025 |
|||||||||||||||||||||||||||||
| Revenue, net |
$ | 269,875 | 100.0 | % | $ | 118,630 | 100.0 | % | $ | 612,942 | 100.0 | % | $ | 321,441 | 100.0 | % | ||||||||||||||||
| Cost of goods sold |
193,720 | 71.8 | % | 85,367 | 72.0 | % | 439,664 | 71.7 | % | 226,472 | 70.5 | % | ||||||||||||||||||||
| Gross profit |
76,155 | 28.2 | % | 33,263 | 28.0 | % | 173,278 | 28.3 | % | 94,969 | 29.5 | % | ||||||||||||||||||||
| Operating expenses |
||||||||||||||||||||||||||||||||
| Research and development |
38,109 | 14.1 | % | 21,265 | 17.9 | % | 98,636 | 16.1 | % | 59,687 | 18.6 | % | ||||||||||||||||||||
| Sales and marketing |
7,875 | 2.9 | % | 9,871 | 8.3 | % | 25,712 | 4.2 | % | 23,363 | 7.3 | % | ||||||||||||||||||||
| General and administrative |
31,613 | 11.7 | % | 20,314 | 17.1 | % | 88,090 | 14.4 | % | 55,020 | 17.1 | % | ||||||||||||||||||||
| Total operating expenses |
77,597 | 28.7 | % | 51,450 | 43.3 | % | 212,438 | 34.7 | % | 138,070 | 43.0 | % | ||||||||||||||||||||
| Loss from operations |
(1,442 | ) | (0.5 | )% | (18,187 | ) | (15.3 | )% | (39,160 | ) | (6.4 | )% | (43,101 | ) | (13.5 | )% | ||||||||||||||||
| Other income (expense) |
||||||||||||||||||||||||||||||||
| Interest income |
3,094 | 1.2 | % | 451 | 0.4 | % | 8,079 | 1.3 | % | 961 | 0.3 | % | ||||||||||||||||||||
| Interest expense |
(1,221 | ) | (0.5 | )% | (902 | ) | (0.8 | )% | (3,011 | ) | (0.5 | )% | (2,653 | ) | (0.8 | )% | ||||||||||||||||
| Other income, net |
8,228 | 3.0 | % | 702 | 0.6 | % | 8,027 | 1.3 | % | 8,587 | 2.7 | % | ||||||||||||||||||||
| Total other income (expense), net |
10,101 | 3.7 | % | 251 | 0.2 | % | 13,095 | 2.1 | % | 6,895 | 2.2 | % | ||||||||||||||||||||
| Net income (loss) before income taxes |
8,659 | 3.2 | % | (17,936 | ) | (15.1 | )% | (26,065 | ) | (4.3 | )% | (36,206 | ) | (11.3 | )% | |||||||||||||||||
| Income tax expense |
(2,359 | ) | (0.9 | )% | — | — | % | (4,697 | ) | (0.7 | )% | — | — | % | ||||||||||||||||||
| Net income (loss) |
$ | 6,300 | 2.3 | % | $ | (17,936 | ) | (15.1 | )% | $ | (30,762 | ) | (5.0 | )% | $ | (36,206 | ) | (11.3 | )% | |||||||||||||
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 months and nine months ended September 30, 2026 and 2025 (in thousands, except percentages):
| Three months ended September 30, |
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| 2026 |
2025 |
Change |
||||||||||||||||||||||
| % of |
% of |
|||||||||||||||||||||||
| Amount |
Revenue |
Amount |
Revenue |
Amount |
% |
|||||||||||||||||||
| (in thousands, except percentages) |
||||||||||||||||||||||||
| Data Center |
$ | 155,609 | 57.7 | % | $ | 43,935 | 37.0 | % | $ | 111,674 | 254.2 | % | ||||||||||||
| CATV |
110,879 | 41.1 | % | 70,602 | 59.5 | % | 40,277 | 57.0 | % | |||||||||||||||
| Telecom |
2,727 | 1.0 | % | 3,742 | 3.2 | % | (1,015 | ) | (27.1 | )% | ||||||||||||||
| FTTH and Other |
660 | 0.2 | % | 351 | 0.3 | % | 309 | 88.0 | % | |||||||||||||||
| Total Revenue |
$ | 269,875 | 100.0 | % | $ | 118,630 | 100.0 | % | $ | 151,245 | 127.5 | % | ||||||||||||
| Nine months ended September 30, |
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| 2026 |
2025 |
Change |
||||||||||||||||||||||
| % of |
% of |
|||||||||||||||||||||||
| Amount |
Revenue |
Amount |
Revenue |
Amount |
% |
|||||||||||||||||||
| (in thousands, except percentages) |
||||||||||||||||||||||||
| Data Center |
$ | 344,675 | 56.2 | % | $ | 120,775 | 37.5 | % | $ | 223,900 | 185.4 | % | ||||||||||||
| CATV |
258,298 | 42.2 | % | 191,123 | 59.5 | % | 67,175 | 35.1 | % | |||||||||||||||
| Telecom |
8,698 | 1.4 | % | 8,618 | 2.7 | % | 80 | 0.9 | % | |||||||||||||||
| FTTH and Other |
1,271 | 0.2 | % | 925 | 0.3 | % | 346 | 37.4 | % | |||||||||||||||
| Total Revenue |
$ | 612,942 | 100.0 | % | $ | 321,441 | 100.0 | % | $ | 291,501 | 90.7 | % | ||||||||||||
Revenues for the three months ended September 30, 2026 increased by $151.2 million, or 127.5%, compared to the three months ended September 30, 2025. The increase was primarily driven by:
| ● |
$111.7 million increase in data center product revenues, reflecting continued strong customer demand from hyperscale customers and increased demand for our high-speed connectivity products; and |
| ● |
$40.3 million increase in CATV product revenues, primarily driven by higher sales volumes resulting from market share gains and continued deployment of our CATV products by our MSO customers. |
Revenues for the nine months ended September 30, 2026 increased by $291.5 million, or 90.7%, compared to the nine months ended September 30, 2025. The increase was primarily driven by:
| ● |
$223.9 million increase in data center product revenues reflecting continued strong demand and increased deployments of our high-speed connectivity products; and |
| ● |
$67.2 million increase in CATV product revenues primarily driven by higher sales volumes resulting from market share gains and continued deployment of our CATV products by our MSO customers. |
Future revenue trends are expected to depend on customer demand, customer deployment schedules, capital spending levels, competitive pricing, supply chain conditions and broader macroeconomic conditions.
For each of the three and nine months ended September 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 September 30, |
||||||||||||||||||||||||
| 2026 |
2025 |
Change |
||||||||||||||||||||||
| % of |
% of |
|||||||||||||||||||||||
| Amount |
Revenue |
Amount |
Revenue |
Amount |
% |
|||||||||||||||||||
| (in thousands, except percentages) |
||||||||||||||||||||||||
| Cost of goods sold |
$ | 193,720 | 71.8 | % | $ | 85,367 | 72.0 | % | $ | 108,353 | 126.9 | % | ||||||||||||
| Gross profit |
76,155 | 28.2 | % | 33,263 | 28.0 | % | 42,892 | 128.9 | % | |||||||||||||||
| Nine months ended September 30, |
|
|
||||||||||||||||||||||
| |
2026 |
2025 |
Change |
|||||||||||||||||||||
| |
% of |
% of |
|
|||||||||||||||||||||
| |
Amount |
Revenue |
Amount |
Revenue |
Amount |
% |
||||||||||||||||||
| |
(in thousands, except percentages) |
|||||||||||||||||||||||
| Cost of goods sold |
$ | 439,664 | 71.7 | % | $ | 226,472 | 70.5 | % | $ | 213,192 | 94.1 | % | ||||||||||||
| Gross profit |
173,278 | 28.3 | % | 94,969 | 29.5 | % | 78,309 | 82.5 | % | |||||||||||||||
Cost of goods sold increased by $108.4 million, or 126.9%, for the three months ended September 30, 2026, compared to the three months ended September 30, 2025. The increase was primarily attributable to:
| ● |
$85.3 million increase in direct material costs, primarily driven by higher raw material consumption related to certain data center products; |
| ● |
$13.0 million increase in direct labor costs, primarily due to increased production activity; |
| ● |
an increase in other manufacturing and production related costs of approximately $17.0 million, associated with higher production levels; and |
|
| ● | offset by $6.9 million decrease in inventory write-off and reserve adjustments. |
Cost of goods sold increased by $213.2 million, or 94.1%, for the nine months ended September 30, 2026, compared to the nine months ended September 30, 2025. The increase was primarily attributable to:
| ● |
$155.5 million increase in direct material, primarily due to higher production volumes; |
| ● |
$27.1 million increase in direct labor costs, primarily due to increased production ramp activity; |
| ● |
an increase in other manufacturing and production related costs of approximately $37.3 million, associated with changes in inventory demand forecasts; and |
|
| ● | offset by $6.7 million decrease in inventory write-off and reserve adjustments. |
Gross margin increased to 28.2% for the three months ended September 30, 2026, compared to 28.0% for the three months ended September 30, 2025. The increase in gross margin was primarily attributable to:
| ● |
more high-margin products sold; and | |
| ● | a lower inventory write-off of 2.7%. |
Gross profit increased by $42.9 million, or 128.9% for the three months ended September 30, 2026, compared to the three months ended September 30, 2025. The increase in gross profit was primarily attributable to:
| ● |
higher revenues, which contributed approximately $42.4 million to the increase in gross profit, and |
| ● |
a decrease in inventory write-off and reserve adjustments. |
| ● |
Unfavorable product mix along with increased inventory-related costs, partially offset by improved absorption of manufacturing costs associated with higher production volumes. |
Gross profit increased by $78.3 million, or 82.5% for the nine months ended September 30, 2026, compared to the nine months ended September 30, 2025. The increase in gross profit was primarily attributable to:
| ● |
higher revenues, which contributed approximately $86.1 million to the increase in gross profit; partially offset by |
| ● |
increased costs associated with certain data center products, which negatively impacted gross profit by approximately $7.8 million; and |
| ● |
a decrease in inventory write-off and reserve adjustments. |
| Three months ended September 30, |
||||||||||||||||||||||||
| 2026 |
2025 |
Change |
||||||||||||||||||||||
| % of |
% of |
|||||||||||||||||||||||
| Amount |
revenue |
Amount |
revenue |
Amount |
% |
|||||||||||||||||||
| (in thousands, except percentages) |
||||||||||||||||||||||||
| Research and development |
$ | 38,109 | 14.1 | % | $ | 21,265 | 17.9 | % | $ | 16,844 | 79.2 | % | ||||||||||||
| Sales and marketing |
7,875 | 2.9 | % | 9,871 | 8.3 | % | (1,996 | ) | (20.2 | )% | ||||||||||||||
| General and administrative |
31,613 | 11.7 | % | 20,314 | 17.1 | % | 11,299 | 55.6 | % | |||||||||||||||
| Total operating expenses |
$ | 77,597 | 28.7 | % | $ | 51,450 | 43.3 | % | $ | 26,147 | 50.8 | % | ||||||||||||
| Nine months ended September 30, |
||||||||||||||||||||||||
| 2026 |
2025 |
Change |
||||||||||||||||||||||
| % of |
% of |
|||||||||||||||||||||||
| Amount |
revenue |
Amount |
revenue |
Amount |
% |
|||||||||||||||||||
| (in thousands, except percentages) |
||||||||||||||||||||||||
| Research and development |
$ | 98,636 | 16.1 | % | $ | 59,687 | 18.6 | % | $ | 38,949 | 65.3 | % | ||||||||||||
| Sales and marketing |
25,712 | 4.2 | % | 23,363 | 7.3 | % | $ | 2,349 | 10.1 | % | ||||||||||||||
| General and administrative |
88,090 | 14.4 | % | 55,020 | 17.1 | % | $ | 33,070 | 60.1 | % | ||||||||||||||
| Total operating expenses |
$ | 212,438 | 34.7 | % | $ | 138,070 | 43.0 | % | $ | 74,368 | 53.9 | % | ||||||||||||
Research and Development Expense
Research and development expense increased by $16.8 million, or 79.2%, for the three months ended September 30, 2026 compared to the three months ended September 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 other new product development initiatives to support anticipated demand from certain customers. |
Research and development expense increased by $38.9 million, or 65.3%, for the nine months ended September 30, 2026 compared to the nine months ended September 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 |
| ● |
increased investment in data center products and other new product development initiatives to support anticipated demand from certain customers. |
Sales and Marketing Expense
Sales and marketing expense decreased by $2.0 million, or 20.2%, for the three months ended September 30, 2026 compared to the three months ended September 30, 2025. The decrease was primarily attributable to:
| ● |
lower shipping and logistics expenses of $1.8 million and reduced trade show spending of $1.2 million; |
| ● |
partially offset by higher facility-related costs of approximately $1.0 million. |
Sales and marketing expense increased by $2.3 million, or 10.1%, for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. The increase was primarily attributable to:
| ● |
higher shipping and logistics expenses of approximately $3.8 million associated with increased sales volumes and commercial activities, as well as increased facility-related costs of $1.3 million; |
| ● |
partially offset by lower trade show spending of approximately $1.5 million and lower personnel-related costs. |
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 through the remainder of 2026, although at a reduced level compared to 2025. Following the termination of tariffs imposed under IEEPA, the Administration implemented replacement measures under other provisions of federal law, including new tariffs under Section 301 of the Trade Act of 1974 that became effective July 24, 2026, subject to applicable exemptions. The trade environment remains uncertain, and additional tariff measures or changes to existing tariffs could affect our costs and pricing strategy. Accordingly, management cannot currently predict whether the reduction in tariff-related impacts will continue or the extent to which future tariff developments may affect our results of operations.
General and Administrative Expense
General and administrative expense increased by $11.3 million, or 55.6%, for the three months ended September 30, 2026 compared to the three months ended September 30, 2025. General and administrative expense increased by $33.1 million, or 60.1%, for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. The increase was primarily due to increased personnel-related costs, including increased share-based compensation expense, as well as expanded corporate infrastructure to support the Company's growth.
Other Income (Expense), Net
| Three months ended September 30, | ||||||||||||||||||||||||
| 2026 | 2025 | Change | ||||||||||||||||||||||
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revenue |
Amount |
% |
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| (in thousands, except percentages) |
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| Interest income |
$ | 3,094 | 1.2 | % | $ | 451 | 0.4 | % | $ | 2,643 | 586.0 | % | ||||||||||||
| Interest expense |
(1,221 | ) | (0.5 | )% | (902 | ) | (0.8 | )% | (319 | ) | 35.4 | % | ||||||||||||
| Other income, net |
8,228 | 3.0 | % | 702 | 0.6 | % | 7,526 | 1072.1 | % | |||||||||||||||
| Total other income (expense), net |
$ | 10,101 | 3.7 | % | $ | 251 | 0.2 | % | $ | 9,850 | 3,924.3 | % | ||||||||||||
| Nine months ended September 30, |
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| (in thousands, except percentages) |
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| Interest income |
$ | 8,079 | 1.3 | % | $ | 961 | 0.3 | % | $ | 7,118 | 740.7 | % | ||||||||||||
| Interest expense |
(3,011 | ) | (0.5 | )% | (2,653 | ) | (0.8 | )% | (358 | ) | 13.5 | % | ||||||||||||
| Other income, net |
8,027 | 1.3 | % | 8,587 | 2.7 | % | (560 | ) | (6.5 | )% | ||||||||||||||
| Total other income (expense), net |
$ | 13,095 | 2.1 | % | $ | 6,895 | 2.2 | % | $ | 6,200 | 89.9 | % | ||||||||||||
Interest income increased by $2.6 million, or 586.0%, for the three months ended September 30, 2026 compared to the three months ended September 30, 2025. Interest income increased by $7.1 million, or 740.7%, for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. The increases were primarily attributable to higher average cash and investment balances, as well as higher interest income earned on those balances during the period.
Interest expense increased by $0.3 million, or 35.4%, for the three months ended September 30, 2026 compared to the three months ended September 30, 2025. Interest expense increased by $0.4 million, or 13.5%, for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. The increases were primarily attributable to higher average outstanding debt balances and related financing costs during the period.
Other income (expenses) increased by $7.5 million, or 1,072.1%, for the three months ended September 30, 2026 compared to the three months ended September 30, 2025. The increase was primarily attributable to the government subsidy income recognized during the period, as well as the positive foreign exchange impact. Government subsidy income primarily relates to grants received by the Company's China entity under local government incentive programs. Included in government subsidy income for the three months ended September 30, 2026 was approximately $3.5 million of income recognized under the Texas Semiconductor Innovation Fund. The grants were recognized in earnings upon satisfaction of the applicable grant conditions and when receipt became reasonably assured. Other income (expenses) decreased by $0.6 million, or 6.5%, for the nine months ended September 30, 2026 compared to the nine months ended September 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 September 30, 2026 and 2025 were 27.3% and 0%, respectively. For the nine months ended September 30, 2026 and 2025, the effective tax rates were (18.0)% 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 September 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 Income (loss)
| Three months ended September 30, |
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revenue |
Amount |
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| (in thousands, except percentages) |
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| Net income (loss) |
$ | 6,300 | 2.3 | % | $ | (17,936 | ) | (15.1 | )% | $ | 24,236 | (135.1 | )% | |||||||||||
| Gain (loss) on foreign currency translation adjustment |
2,152 | 0.8 | % | (25 | ) | (0.0 | )% | 2,177 | (8,708.0 | )% | ||||||||||||||
| Comprehensive income (loss) |
$ | 8,452 | 3.1 | % | $ | (17,961 | ) | (15.1 | )% | $ | 26,413 | (147.1 | )% | |||||||||||
| Nine months ended September 30, |
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| (in thousands, except percentages) |
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| Net income (loss) |
$ | (30,762 | ) | (5.0 | )% | $ | (36,206 | ) | (11.3 | )% | $ | 5,444 | (15.0 | )% | ||||||||||
| Gain on foreign currency translation adjustment |
5,168 | 0.8 | % | 3,636 | 1.1 | % | 1,532 | 42.1 | % | |||||||||||||||
| Comprehensive income (loss) |
$ | (25,594 | ) | (4.2 | )% | $ | (32,570 | ) | (10.2 | )% | $ | 6,976 | (21.4 | )% | ||||||||||
Comprehensive income increased by $26.4 million, or 147.1%, for the three months ended September 30, 2026, compared to the three months ended September 30, 2025.
Comprehensive loss decreased by $7.0 million, or 21.4%, for the nine months ended September 30, 2026 as compared to the nine months ended September 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 income (loss).
Liquidity and Capital Resources
As of September 30, 2026, we had $63.4 million of unused borrowing capacity from all of our loan agreements. As of September 30, 2026, our cash, cash equivalents and restricted cash totaled $621.5 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.
Subsequent to September 30, 2026, the Company further strengthened its liquidity position by entering into a new $200 million credit agreement consisting of $30 million in revolving credit commitments and $170 million in initial term loan commitments, with the ability to request up to an additional $50 million of incremental term loan commitments, subject to specified conditions.
ATM Offerings
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, selling 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 having an aggregate offering price of up to $600 million (the "Second ATM Offering"), from time to time through the Sales Agents. On August 17, 2026, the Company completed the Second ATM Offering, selling approximately 3.3 million shares at a weighted average price of $183.06 per share, providing proceeds of approximately $588 million, net of expenses and underwriting discounts and commissions.
On August 21, 2026, the Company entered into an Equity Distribution Agreement (the "Third 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 "Third 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 Third 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 Third 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 Third 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.
On October 1, 2026, the Company completed the Third ATM Offering, selling approximately 5.7 million shares at a weighted average price of $105.36 per share, providing proceeds of approximately $588 million, net of expenses and underwriting discounts and commissions.
The details of the shares of common stock sold through the First ATM Offering, the Second ATM Offering and the Third ATM Offering as of the end of September 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 | ||||||||||||||||
| Raymond James & Associates, Inc. and Needham & Company, LLC |
August 2026 |
332,428 | 150.97 | 50,186 | 1,004 | 49,183 | ||||||||||||||||
| Raymond James & Associates, Inc. and Needham & Company, LLC |
September 2026 |
4,976,521 | 105.31 | 524,092 | 10,482 | 513,610 | ||||||||||||||||
| Total |
13,084,472 | $ | 1,624,092 | $ | 32,482 | $ | 1,591,610 | |||||||||||||||
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 $76.7 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):
| Nine months ended September 30, |
||||||||
| 2026 |
2025 |
|||||||
| Net cash used in operating activities |
$ | (76,653 | ) | $ | (144,851 | ) | ||
| Net cash used in investing activities |
(1,109,533 | ) | (125,672 | ) | ||||
| Net cash provided by financing activities |
1,591,645 | 348,248 | ||||||
| Effect of exchange rates on cash and cash equivalents |
(37 | ) | (6,141 | ) | ||||
| Net increase in cash and cash equivalents |
$ | 405,422 | $ | 71,584 | ||||
Net cash used in operating activities was $76.7 million during the nine months ended September 30, 2026 as compared to $144.9 million during the nine months ended September 30, 2025, a decrease of 47.1%. Net cash used in operating activities consisted of our net loss of $30.8 million, adjusted for non-cash items of $56.2 million, and a net use of cash from changes in working capital of $102.1 million.
The changes in working capital were primarily attributable to:
| ● |
Accounts receivable, which increased by approximately $169.8 million during the nine months ended September 30, 2026, as compared to an increase of approximately $107.2 million during the nine months ended September 30, 2025, an increase of 58.4%, primarily due to increased revenues. |
| ● |
Inventory, which increased by approximately $186.6 million during the nine months ended September 30, 2026, as compared to an increase of approximately $84.6 million during the nine months ended September 30, 2025, an increase of 120.6%, primarily due to production ramp and build to support anticipated customer demand, as well as longer lead times for certain components. |
| ● |
Accounts payable increased by $347.5 million during the nine months ended September 30, 2026, compared to an increase of approximately $45.2 million during the nine months ended September 30, 2025, an increase of 669.2%. The increase in the current period was primarily due to higher inventory and equipment purchases supporting business growth. |
Management believes these changes are consistent with ongoing production ramp activities and customer demand dynamics, which may result in variability in operating cash flows from period to period.
Customer Concentration
As of September 30, 2026, Digicomm represented approximately 56.7% 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 nine months ended September 30, 2026, revenues from Digicomm were approximately $257.0 million, representing approximately 41.9% of consolidated revenues. These revenues were primarily attributable to the CATV product category.
Investing Activities
Net cash used in investing activities was $1.11 billion during the nine months ended September 30, 2026, compared with $125.7 million during the nine months ended September 30, 2025, an increase of 782.9%, primarily driven by capital expenditures of $702.1 million, which included $315.4 million capital expenditures in the US, $177.4 million in Taiwan, and $209.3 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 capital expenditure 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.
During the third quarter of 2026, we entered into several agreements to support our manufacturing capacity expansion:
| ●
|
Blue Ridge Property Acquisition. On September 4, 2026, we exercised our purchase option under our lease with Blue Ridge Commerce Center West LLC and acquired the approximately 153,928-square-foot facility we previously leased in Houston, Texas for approximately $26.8 million in cash. This payment is included in capital expenditures for the period.
|
| ●
|
Hightower Phase II Leases. On August 31, 2026, we entered into leases with Hightower Phase II Owner, LLC for two industrial buildings, Buildings 4 and 5, to be constructed in Houston, Texas, totaling approximately 1.1 million rentable square feet, with substantial completion anticipated approximately 16 months after signing. Upon execution, we paid a $750,000 security deposit and approximately $2.55 million for specified design modifications. An additional $10.55 million in security deposits is payable following commencement. The leases include an option to purchase the buildings for approximately $146.6 million, subject to adjustment. The landlord may terminate the leases if we do not timely exercise, or fail to close our option to purchase Hightower Buildings 1, 2 and 3 for $102.25 million.
|
| ●
|
Ningbo Lease. On September 10, 2026, our subsidiary Global Technology, Inc. entered into a ten-year lease for an approximately 38,312-square-meter factory building in Ningbo, China, commencing September 16, 2026. We expect to incur capital expenditures to fit out the facility for production.
|
If we exercise the Hightower purchase options, our capital requirements would increase significantly. See Note 4, "Leases," and Note 18, "Commitments and Contingencies," for additional information.
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 $1.59 billion during the nine months ended September 30, 2026, compared with $348.2 million in the nine months ended September 30, 2025, an increase of 357.0%, primarily attributable to the net proceeds of $1.59 billion from the ATM Offerings, the net proceeds from line of credit borrowings of $20.5 million, the net proceeds of $40.0 million from issuance of notes payable and long-term debt, and net proceeds from bank acceptance payable of $16.5 million, partially offset by tax payments related to share-based compensation of $76.0 million.
Loans and Commitments
As of September 30, 2026, we have lending arrangements with one U.S. bank, four financial institutions in Taiwan, and five financial institutions in China. As of September 30, 2026, we were in compliance with the covenants in the lending arrangements. As of September 30, 2026, we had $63.4 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 $621.5 million as of September 30, 2026, an increase of approximately $405.4 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 new factories in Taiwan, China and the U.S., changes in our manufacturing capacity and the continuing market acceptance of our products.
As of September 30, 2026, we had a total loan balance (excluding convertible notes) of $96.6 million from various lenders and had $63.4 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 "ATM Offerings" above).
Subsequent to September 30, 2026, the Company further strengthened its liquidity position by entering into a new $200 million credit agreement consisting of $30 million in revolving credit commitments and $170 million in initial term loan commitments, with the ability to request up to an additional $50 million of incremental term loan commitments, subject to specified conditions.
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.
Except as described below, there have been no material changes during the nine months ended September 30, 2026 to the contractual obligations and commitments disclosed in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
During the nine months ended September 30, 2026, we entered into the following agreements in connection with our manufacturing capacity expansion, each of which is described in our Current Reports on Form 8-K filed with the SEC:
| ● |
Hightower Leases. Three leases with Hightower Phase I Owner, LLC, entered into on May 8, 2026, for Buildings 1, 2 and 3 in Houston, Texas, including an option to purchase the buildings for an aggregate price of $102.25 million. Two leases with its affiliate, Hightower Phase II Owner, LLC, entered into on August 31, 2026, for Buildings 4 and 5 to be constructed in Houston, Texas, each with a ten-year term and an option to purchase the buildings for an aggregate price of approximately $146.6 million, subject to adjustment. The Phase II leases may be terminated by the landlord if we do not timely exercise, or fail to close our purchase option under the Phase I leases. None of these leases had commenced as of September 30, 2026. |
| ● |
Blue Ridge Property Purchase. On September 4, 2026, we exercised our purchase option and acquired the property we previously leased from Blue Ridge Commerce Center West LLC in Houston, Texas, for approximately $26.8 million in cash. |
| ● |
Ningbo Lease. On September 10, 2026, our subsidiary Global Technology, Inc. entered into a ten-year lease for a factory building in Ningbo, China, commencing September 16, 2026, with annual rent of RMB 6.9 million, subject to periodic increases. |
On November 2, 2026, we entered into supply agreements to secure a source of a key raw material used in certain of our products. The agreements include material purchase and prepayment commitments and are subject to risks relating to required regulatory approvals in China. If performed as contemplated, the agreements may materially affect our future liquidity, inventory levels and working-capital requirements. See Note 19, “Subsequent Events,” to our condensed consolidated financial statements for additional information.
See Note 4, "Leases," and Note 18, "Commitments and Contingencies," for additional information.
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, operational efficiencies and continued cost optimization initiatives.
During the nine months ended September 30, 2026, we continued to experience 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.
Critical Accounting Estimates
Our condensed consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures. 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, valuation of long-lived assets, service and product warranty costs, share-based compensation expense, estimated useful lives of tangible and intangible assets, and income taxes. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. 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 may differ from these estimates and those differences may be material.
There have been no material changes to our critical accounting estimates as compared to those disclosed under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk affecting the Company, see Item 7A – Quantitative and Qualitative Disclosures about Market Risk in our Annual Report for the fiscal year ended December 31, 2025. We do not believe the Company’s exposure to market risk has changed materially since December 31, 2025.
We are affected by changes in currency exchange and interest rates. Our risk management programs are designed to reduce, but may not entirely eliminate, the impacts of these risks. We performed an evaluation of these risks to our financial positions as of December 31, 2025, and updated that analysis as of September 30, 2026, to determine whether material changes in market risks pertaining to currency and interest rates have occurred as a result of the changes in international trade policies, including tariffs and export controls. No material revisions were noted from the disclosures in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
Item 4. Controls and Procedures
The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2026. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2026 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
Information with respect to legal proceedings can be found in Note 18 to the Condensed Consolidated Financial Statements contained in Part 1, Item 1 of this report.
Item 1A. Risk Factors
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 September 30, 2026, there have been no material changes to those risk factors.
Item 5. Other Information
(a) None
(b) None
(c) During the three months ended September 30, 2026, none of our directors or executive officers adopted or terminated any Rule 10b5-1 trading arrangement or any non-Rule 10b5-1 trading arrangement (such terms are defined in Item 408 of Regulation S-K).
Item 6. Exhibits
See Exhibit Index.
EXHIBIT INDEX
| Number |
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Description |
| 3.1* | Restated Certificate of Incorporation (filed as Exhibit 3.2 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 12, 2025). | |
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| 3.2* |
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Amended and Restated Bylaws, as currently in effect (filed as Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 14, 2013). |
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| 3.3* | Amendment No. 1 to the Amended and Restated Bylaws, as currently in effect (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 2, 2025). | |
| 4.1* |
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Common Stock Specimen (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 15, 2015). |
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| 4.2* | Indenture, dated as of December 23, 2024 between Applied Optoelectronics, Inc. and Computershare Trust Company, as trustee (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 23, 2024). | |
| 4.3* |
Form of Note representing the Company’s 2.75% Convertible Senior Notes due 2030 (included as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 23, 2024). | |
| 4.4* | First Supplemental Indenture, dated as of December 23, 2024, between Applied Optoelectronics, Inc. and Computershare Trust Company, N.A., as trustee (included as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 23, 2024). | |
| 4.5* | Warrant to Purchase Common Stock of Applied Optoelectronics, Inc. by and between Applied Optoelectronics, Inc. and Amazon.com NV Investment Holdings LLC, dated as of March 13, 2025 (included as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 13, 2025). | |
| 10.1* † |
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Form of Indemnification Agreement (included as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 24, 2026). |
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| 10.2* |
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Lease Agreement (Building 4), dated August 31, 2026, by and between Applied Optoelectronics, Inc., and Hightower Phase II Owner, LLC. (included as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 1, 2026). |
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| 10.2.1* |
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Lease Agreement (Building 5), dated August 31, 2026, by and between Applied Optoelectronics, Inc., and Hightower Phase II Owner, LLC. (included as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 1, 2026). |
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| 10.3* |
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Purchase and Sale Agreement, dated September 4, 2026, by and between Applied Optoelectronics, Inc. and Blue Ridge Commerce Center West LLC. (included as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 10, 2026). |
| 10.4* | Translation of the Factory Premises Lease Agreement, dated September 10, 2026, between Global Technology, Inc. and Ningbo Yiduofu Industrial Co., Ltd. (included as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 15, 2026). | |
| 31.1** | Certification of Chief Executive Officer pursuant to Exchange Act Rule, 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2** |
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Certification of Chief Financial Officer pursuant to Exchange Act Rule, 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| 32.1** |
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Certification pursuant to 18 U.S.C. 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Chief Executive Officer and Chief Financial Officer. |
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| 101.INS** |
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Inline XBRL Instance – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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| 101.SCH** |
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Inline XBRL Taxonomy Extension Schema Document. |
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| 101.CAL** |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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| 101.DEF** |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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| 101.LAB** |
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Inline XBRL Taxonomy Extension Label Linkbase Document. |
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| 101.PRE** |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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| 104** |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* Incorporated herein by reference to the indicated filing.
** Filed herewith.
† Management contract, compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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APPLIED OPTOELECTRONICS, INC. |
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| Date: November 5, 2026 |
By: |
/s/ STEFAN J. MURRY |
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Stefan J. Murry |
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Chief Financial Officer |
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(principal financial officer and principal accounting officer) |