APPLIED OPTOELECTRONICS, INC. (AAOI)·Q3 2025 Earnings Summary

Executive Summary

• Q3 revenue reached a record $118.6M, up 15% sequentially and 82% YoY, with non-GAAP gross margin at 31.0% and non-GAAP EPS of -$0.09, all in-line with guidance; strength in CATV offset a modest datacenter shortfall tied to shipment timing delays that shifted ~$6.6M of 400G revenue into Q4 .
• Management reiterated 800G qualifications are “near the final stages” and expects “meaningful shipments” in Q4; exit-2025 800G capacity targeted at ~100k units/month with ~35% U.S.-made, positioning AOI as a scaled domestic supplier into AI/datacenter demand .
• Q4 guide: revenue $125–$140M, non-GAAP GM 29–31%, non-GAAP EPS -$0.13 to -$0.04; CATV to moderate to $50–$55M while datacenter steps up (400G-led with initial 800G) .
• Narrative catalysts: record CATV momentum (1.8 GHz amplifiers + QuantumLink software), imminent 800G qualifications, U.S. capacity build-out, and resolution of Q3 shipping/receiving timing issues with a new hyperscale customer .

What Went Well and What Went Wrong

• What Went Well

  • Record quarter: “highest quarterly revenue in our history,” driven by record CATV ($70.6M, +26% QoQ, >3x YoY); diversified mix offset datacenter timing .
  • 800G progress: “near the final stage of qualification” with “meaningful shipments” expected in Q4; thousands of samples delivered; capacity scaling underway .
  • U.S. manufacturing advantage: exiting year with ~100k/month 800G capacity (~35% U.S.); customers “strongly prefer” North American production, with onshoring of suppliers underway .

• What Went Wrong

  • Datacenter timing: ~$6.6M of 400G shipments to a new hyperscale customer missed Q3 cutoff due to shipping/receiving system sync; booked in early Q4; 400G revenue down YoY .
  • Margin mix: management flagged data center mix as a near-term gross margin headwind even as non-GAAP GM improved YoY to 31% .
  • OpEx and tariffs: non-GAAP OpEx rose with higher shipping costs; direct tariff hit of ~$1.1M to the income statement and ~$1.9M on CapEx in Q3 .

Financial Results

Headline results vs prior periods (oldest → newest):

Segment revenue ($USD Millions):

KPIs and balance sheet highlights:

Actual vs S&P Global consensus (estimates marked with an asterisk; Values retrieved from S&P Global):

• Q3’25: slight revenue miss and inline EPS loss; Q2’25: miss on both revenue and EPS; Q1’25: slight revenue and EPS upside; Q3’24: revenue beat but EPS worse than expected. Values retrieved from S&P Global.

Non-GAAP reconciliation dynamics (selected items): Q3 non-GAAP net loss excludes share-based comp, discontinued product items, amortization, non-recurring items, unrealized FX, and non-GAAP tax, reducing GAAP net loss of -$17.9M to non-GAAP -$5.4M .

Guidance Changes

No dividends/guided tax/OI&E were provided.

Earnings Call Themes & Trends

Management Commentary

• “We successfully delivered revenue, gross margin, and non-GAAP EPS in line with our expectations… record CATV revenue… highest quarterly revenue in our history.” — Thompson Lin .
• “We are nearing… the final stages of 800G product qualification… we will produce meaningful shipments of 800G products in the fourth quarter.” — Thompson Lin .
• “We expect to exit this year with a production capacity of around 100,000 units of 800G transceivers per month, with about 35% of this production being done in the U.S.” — Stefan Murry .
• “Approximately $6.6 million in shipments of 400G transceivers… not recognized into revenue during the quarter due to various shipping and receiving delays, and… booked in Q4.” — Management .
• “Customers have a strong preference for production in North America… less than 10% of the value of components… sourced from China” in 800G/1.6T, with a pathway to near-zero. — Stefan Murry .

Q&A Highlights

• CATV outlook: $300M+ in 2026 still achievable; Q4 CATV moderates to $50–$55M after exceptional Q3 .
• 400G dynamics: moving toward “run-rate” capacity; Q4 capacity ~60k/month rising to ~110–120k/month by Q2’26; near-term revenue growth primarily 400G .
• 800G timing: volume orders expected imminently; meaningful Q4 shipments; 1.6T revenue expected later in 2026; thousands of 800G samples delivered across customers .
• Funding/capacity: Q3 CapEx $49.9M; 2025 CapEx likely above prior $150M top-end; potential ~$200M customer investment under discussion; pursuing state/federal support; targeting substantial profitability in 2026 per management’s tone .
• Shipping delay clarification: single new hyperscale customer; system integration/inventory systems timing; resolved in the first days of Q4 .

Estimates Context

• Q3 2025 printed slightly below consensus revenue and essentially inline non-GAAP EPS loss; the guide implies a sequential revenue increase with mix shift from CATV to datacenter and initial 800G, suggesting Street may need to raise 400G volumes and incorporate early 800G revenues while moderating CATV in Q4 .
• Near-term margins: management sees gradual GM improvement but notes datacenter mix as a headwind; non-GAAP OpEx expected at $48–$50M/quarter, which likely keeps EPS negative near term even as revenue ramps .
• Consensus snapshots and outcomes are summarized in the “Actual vs S&P Global consensus” table. Values retrieved from S&P Global.

Key Takeaways for Investors

• Record CATV performance and software attach underpin Q3 strength; expect normalization in Q4 as datacenter (400G-led) becomes the growth driver .
• 800G is on the cusp of qualification across several hyperscalers with “meaningful” Q4 shipments; capacity exiting 2025 (~100k/month, ~35% U.S.) positions AOI as a scaled domestic supplier in AI optics .
• Short-term EPS likely remains negative given mix and OpEx ($48–$50M/quarter), but revenue growth and capacity additions should improve operating leverage into 2026 .
• U.S. production preference and supplier onshoring are structural tailwinds; AOI’s in-house laser capability mitigates industry laser shortages and supports scale-up .
• Watch for: formal 800G qualifications/orders, sustained 400G capacity adds, Q4 datacenter outperformance, and updates on funding (customer/state/federal) to support U.S. expansion .
• Risk checks: customer concentration (two >10% customers at 66%/24%), tariff volatility, and execution on rapid capex scale-up .

Appendix: Additional Q3 2025 Press Release (Product)

• AOI showcased a 100G VCSEL-based 800G OSFP 2xSR4 transceiver at ECOC 2025, highlighting cost/power advantages for short-reach links and vertically integrated VCSEL production for supply assurance in AI/datacenter clusters .

Values retrieved from S&P Global for all consensus estimate figures.