UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 001-36083 Applied Optoelectronics, Inc. (Exact name of registrant as specified in its charter) Delaware 76-05 ...

Revenue and Market Performance - Revenue in 2022 was $222.8 million, with a gross margin of 15.1%, and a net loss of $66.4 million[16] - 53.0% of total revenue in 2022 came from the CATV market, while 34.6% came from the internet data center market[16] - Revenue in 2022 was $222.8 million, with a gross margin of 15.1%, compared to $211.6 million and 17.8% in 2021, and $234.6 million and 21.5% in 2020[188] - CATV market contributed 53.0% of total revenue in 2022, while the internet data center market contributed 34.6%[188] - Revenue from the CATV market increased to 53.0% in 2022 from 44.6% in 2021, driven by strong demand for products with architecture improvements[189][191] - ATX accounted for 47.3% of revenue in 2022, up from 25.6% in 2021, while Microsoft accounted for 18.4% of revenue in 2022, down from 38.3% in 2020[189] - The company expects continued sales of 40 Gbps and 100 Gbps products in 2023, with 100 Gbps sales likely to exceed 40 Gbps sales[192] - Revenue is historically concentrated in the data center market, but since 2021, it has been split between the CATV and data center markets, with efforts to diversify the customer base through new sales staff and products[205] - Two and three customers accounted for over 10% of revenue in 2022 and 2021, respectively, highlighting customer concentration[205] Key Customers and Market Segments - Key customers in the CATV market in 2022 included ATX Networks Corp. (47.3% of revenue), Cisco Systems, Inc. (1.9% of revenue), and CommScope (1.7% of revenue)[17] - Key customers in the data center market in 2022 included Microsoft Corp. (18.4% of revenue), a U.S.-based large datacenter operator (5.9% of revenue), and a U.S.-based NEM (3.6% of revenue)[17] - The CATV market is the largest and most established market, with significant revenue from headend, node, and distribution equipment[12] - The internet data center market is the second largest market, with a focus on supplying optical transceivers to large internet-based data center operators[13] - The telecom market primarily supplies lasers and transceivers for advanced 5G mobile network deployments[14] - In 2022, revenue from CATV, internet data center, telecom, FTTH, and other markets accounted for 53.0%, 34.6%, 11.1%, 0.1%, and 1.2% of total revenue, respectively[58] Divestiture and Strategic Transactions - The company entered into a divestiture agreement with Yuhan Optoelectronic Technology (Shanghai) Co., Ltd for $150 million USD, subject to regulatory approval[18][19] - The company is divesting its manufacturing facilities in China for $150 million USD, with the transaction expected to close in 2023[82] - The divestiture may disrupt business operations and create uncertainty, potentially affecting customer and supplier relationships[83] - The divestiture could have a dilutive impact on future earnings if the company cannot offset the loss of revenue associated with the transaction[84] - The divestiture of the company's China manufacturing facilities is subject to CFIUS approval and other regulatory conditions, which may delay or prevent the transaction[86] - Failure to complete the divestiture could result in a $3 million termination fee and substantial transaction costs, regardless of completion[87] - The company entered into a divestiture agreement to sell its manufacturing facilities in China for $150 million, expected to close in 2023[196][197] - The company anticipates investing between 4% and 10% of the estimated proceeds from the divestiture in exchange for a 10% equity interest in the purchaser[197] Manufacturing and Supply Chain - The company's vertically integrated manufacturing model provides advantages in rapid product development, fast response times, and control over product quality and costs[15] - The company relies on a limited number of suppliers for critical raw materials and components, and any supply interruption could adversely affect its business[113][114] - The company's supply chain restrictions due to COVID-19 improved in the latter part of 2022, with further improvements expected in 2023[201] - The company is focusing on lowering material costs, enhancing production efficiency, and introducing new products to address pricing pressure[202][203] - Product pricing is established at market introduction and through periodic negotiations, with no automatic price reductions, and the company faces less downward price pressure due to market dynamics and outsourced design services[204] - Manufacturing problems, including delays, disruptions, or quality control issues, could lead to lost sales and damaged customer relationships[104] - The company's high fixed cost base, with 1,851 employees in manufacturing and R&D as of December 31, 2022, makes it difficult to adjust quickly to changing market conditions[105] - The company maintains manufacturing and R&D facilities in the U.S., China, and Taiwan, with significant square footage dedicated to operations[179] - 23.0%, 46.2%, and 36.3% of the company's revenue in 2022, 2021, and 2020 respectively was attributable to products manufactured in China[156] - 42.2%, 42.2%, and 40.6% of the company's property, plant, and equipment was located in China as of December 31, 2022, 2021, and 2020 respectively[156] - The company's manufacturing operations are based in Ningbo, China and Taipei, Taiwan[151] Research and Development - The company aims to extend its leadership in CATV networking and continue to penetrate the internet data center market[32] - Company continues to invest in new products, new technology, and production infrastructure to maintain competitive position[33] - Company has technology leadership in semiconductor laser manufacturing, electronic technologies, optical hybrid integration, and mixed-signal semiconductor design[36] - Company utilizes MBE and MOCVD processes for semiconductor laser manufacturing, offering advantages like longer operating lives and improved efficiency[37] - Company has developed laser enhancement technology to address deficiencies in traditional communications devices, essential for higher capacity CATV and FTTH systems[38] - Company’s optical hybrid-integration technology reduces size, power consumption, and complexity of optical devices, enabling data rates of 40 Gbps and above[39] - Company’s mixed-signal design expertise supports the evolution of CATV networks from analog to hybrid networks, addressing unique design challenges[41] - As of December 31, 2022, the company had 217 R&D employees, including seven with Ph.D. degrees, and operates R&D facilities in Texas, Georgia, China, and Taiwan[46] - Significant investment in product development, with R&D expenses primarily allocated to customer-specific product development, enhancing efficiency through close customer coordination[206] Intellectual Property and Patents - Company owns 165 U.S. issued patents and 130 patents in China and Taiwan, with patents expiring between 2023 and 2042[49] - The company faces risks related to intellectual property protection, including potential litigation costs and challenges in enforcing rights globally[166][167][168] - Intellectual property disputes could lead to significant expenses, product redesigns, or revenue losses[170][171] Competitive Landscape - The optical networking market is intensely competitive with major competitors including EMCORE Corporation, Finisar Corporation, Intel Corporation, and others[62] - Competitors have larger financial resources and may acquire companies to gain new technologies, potentially displacing the company's products[63] Financial and Operational Risks - The company's top ten customers accounted for 87.2%, 84.7%, and 84.3% of revenue in 2022, 2021, and 2020, respectively, with ATX representing 47.3% of revenue in 2022[89] - Customer demand is difficult to forecast accurately, leading to potential mismatches in production and demand, which could strain resources and reduce gross margins[91] - The company's ability to qualify new products with customers is critical, and delays or failures in this process could adversely affect revenue and results of operations[92] - The company may incur significant expenses up to 18 months before receiving the first order for new products, impacting financial condition and results of operations[97] - The company's revenues and operating results are likely to fluctuate significantly due to factors outside its control, such as order timing, size, and customer acceptance criteria[103] - Quarterly revenue and operating results are expected to continue varying significantly, leading to potential stock price volatility due to factors like demand fluctuations and supply disruptions[108] - The company has U.S. accumulated net operating loss carryforwards (NOLs) of approximately $111.5 million, federal and state R&D credits of $10.5 million, business interest expense carryforwards of $18.7 million, and foreign tax credits of $4.6 million as of December 31, 2022[119] - The company faces significant foreign currency exposure due to fluctuations among the U.S. dollar, Chinese Renminbi (RMB), and New Taiwan dollar (NT dollar), impacting revenue, costs, and expenses[120][121] - The company has not entered into any hedging transactions to mitigate foreign currency exchange risk, and future hedging efforts may be limited or ineffective[122] - The company's products are complex and may contain defects, potentially leading to significant costs, loss of customers, and litigation[115] - The company's operations are vulnerable to natural disasters, epidemics, and other catastrophic events, particularly in its facilities in the U.S., China, and Taiwan[127] - The company is subject to export and import control laws, which could restrict its ability to sell products in certain countries and adversely affect its business[128][129] - The company may pursue acquisitions to enhance its product portfolio or technology roadmap, but these acquisitions involve risks such as integration difficulties and unanticipated costs[123][124] - The company may consider divestitures of businesses that are no longer strategically aligned, which could adversely impact its financial condition and results of operations[125] - The company's ability to attract and retain highly skilled personnel is critical to its success, and competition for such personnel is intense[111][112] - The company had approximately $148.9 million of consolidated indebtedness as of December 31, 2022[133] - The company's loan agreements contain restrictive covenants that limit its ability to incur additional debt, create liens, or change the nature of its business[136] - The company may need additional financing for expansion of R&D, manufacturing capabilities, and acquisitions of complementary businesses[138] - The company faces risks from data breaches and cyberattacks, which could compromise sensitive data and intellectual property[141] - The company's international operations are subject to risks including trade barriers, currency fluctuations, and legal and regulatory challenges[152] - The Chinese economy's transition to a market-oriented system and government control over resource allocation and foreign exchange could adversely affect the company's business[157] - Frequent changes in Chinese laws and regulations, including intellectual property protections, may lead to increased costs and legal uncertainties[158] - High turnover rates of direct labor in China's manufacturing sector could negatively impact production and operational results[159][160] - Loans and capital contributions to the company's China subsidiary are subject to strict regulatory approvals and statutory limits, potentially affecting liquidity and expansion plans[161][162] - Chinese labor laws, including the Labor Contract Law, may increase operating costs and reduce flexibility in managing workforce[163] - The company's stock price is subject to volatility due to market fluctuations, economic conditions, and industry-specific factors[172][173] - Provisions in the company's charter documents and Delaware law could discourage takeovers and reduce stock market value[174][175] Sustainability and Environmental Initiatives - The company is committed to obtaining at least 20% of its energy from renewable sources and reducing hazardous waste generation by 10% over five years[72] - The company faces increasing complexity in product design due to new environmental regulations, particularly in the European Union and China[74] - The company is focusing on sustainability initiatives, including exploring alternative energy sources and improving technology efficiency[75] COVID-19 Response - The company has implemented significant health-related measures in response to the COVID-19 pandemic, including mandatory face-masks and social-distancing protocols[68] Design Wins and Product Development - The company had 12 design wins in 2022, down from 20 in 2021 and 30 in 2020[195] Geographic Revenue Distribution - 18.53%, 22.7%, and 25.4% of the company's revenue in 2022, 2021, and 2020 respectively was derived from sales outside of North America[151] Tariffs and Trade Risks - The company faces risks from U.S. tariffs on China imports, with five rounds of tariffs implemented between July 2018 and February 2020[147]

Applied Optoelectronics, Inc. (NASDAQ:AAOI) Q4 2022 Earnings Conference Call February 23, 2023 4:30 PM ET Company Participants Lindsay Savarese - Investor Relations Thompson Lin - Founder, President, Chief Executive Officer, and Chairman of the Board Stefan Murry - Chief Financial Officer and Chief Strategy Officer Conference Call Participants Simon Leopold - Raymond James Tim Savageaux - Northland Capital Markets Operator Good afternoon. I will be your conference operator. At this time, I would like to wel ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 001-36083 Applied Optoelectronics, Inc. (Exact name of registrant as specified in its c ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 001-36083 Applied Optoelectronics, Inc. (Exact name of registrant as specified in its charte ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 001-36083 Applied Optoelectronics, Inc. (Exact name of registrant as specified in its chart ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-36083 Applied Optoelectronics, Inc. (Exact name of registrant as specified in its charter) Delaware 76-0533927 (St ...