Executive Summary

Q4 delivered strong top-line acceleration with revenue up 54% QoQ and 66% YoY to $100.3M, driven by CATV 1.8 GHz amplifier shipments and steady datacenter demand; non-GAAP gross margin improved sequentially to 28.9% and non-GAAP EPS was ($0.02), in line with guidance ranges .
GAAP results included a one-time ~$112M loss tied to the December convertible notes exchange, resulting in GAAP EPS of ($2.60) for Q4; non-GAAP net loss narrowed to $1.0M as mix improved and CATV ramped .
Q1 2025 outlook guides revenue to $94–$104M and non-GAAP gross margin to 29.0%–30.5%; management also guided non-GAAP OpEx to $32–$33M and flagged Chinese New Year-related labor constraints as a near-term capacity limiter rather than demand .
Strategic setup: sizable 2025 capex ($120–$150M) to expand U.S. and Taiwan capacity for 400G/800G/1.6T, a major North American MSO deploying Quantum Bandwidth amplifiers, and balance sheet actions extending converts to 2030—all key catalysts for AI/optics exposure despite near-term CATV plateau/install limitations and customer concentration risk .

What Went Well and What Went Wrong

What Went Well
- CATV inflected: CATV revenue rose to $52.2M, >4x YoY and >2x QoQ, driven by 1.8 GHz amplifier shipments; a top North American cable operator placed a substantial Quantum Bandwidth order that began shipping in Q1 .
- Mix and margins improved sequentially: non-GAAP gross margin rose to 28.9% vs 25.0% in Q3 as CATV mix and manufacturing efficiencies improved; management reiterated a long-term target of ~40% non-GAAP gross margin .
- Datacenter pipeline building: 400G orders are increasing across existing and a new hyperscaler; first significant 800G demand forecasts support a 2H25 ramp; capacity expansions underway in Texas and Taiwan .
What Went Wrong
- GAAP loss from financing charge: Q4 GAAP net loss was ($119.7)M due to a ~$112M one-time loss from the convertible note exchange; while strategically beneficial, it pressured reported earnings .
- Non-GAAP profitability still negative: non-GAAP net loss was ($1.0)M and non-GAAP operating loss ($2.5)M as R&D spend stepped up for 800G/1.6T and Quantum products; non-GAAP OpEx at $31.5M (31.4% of revenue) .
- Customer concentration/installation gating: top 10 customers were 97% of revenue; a single CATV distributor was 52% of revenue; CATV volume is constrained by field installation cadence, implying a plateau near term .

Financial Results

Metric	Q4 2023	Q3 2024	Q4 2024
Revenue ($M)	$60.5	$65.2	$100.3
GAAP Gross Margin %	35.7%	24.4%	28.7%
Non-GAAP Gross Margin %	36.4%	25.0%	28.9%
GAAP Net Income ($M)	($13.9)	($17.8)	($119.7)
Non-GAAP Net Income ($M)	$1.6	($8.8)	($1.0)
GAAP EPS (basic)	($0.38)	($0.42)	($2.60)
Non-GAAP EPS (basic)	$0.04	($0.21)	($0.02)
Operating Loss ($M)	($4.5)	($16.5)	($6.5)
Adjusted EBITDA ($M)	$4.8	($7.7)	$2.4

Segment revenue ($M)

Segment	Q4 2023	Q3 2024	Q4 2024
Datacenter	$44.5	$40.9	$44.2
CATV	$12.6	$20.9	$52.2
Telecom	$2.8	$2.8	$3.5
FTTH	$0.0	$0.0	$0.003
Other	$0.6	$0.5	$0.3
Total	$60.5	$65.2	$100.3

Key KPIs and balance sheet

KPI	Q3 2024	Q4 2024
Cash, equivalents & restricted ($M)	$41.4	$79.1
Inventory ($M)	$64.4	$88.1
Total debt excl. converts ($M)	$39.4	$46.0
Top 10 customers (% of revenue)	n/a	97%
>10% customers (mix)	n/a	DC: 31%, 11%; CATV: 52%
Non-GAAP OpEx ($M)	n/a	$31.5 (31.4% rev)
Capex ($M)	Q3: n/a	Q4: $25.7; FY: $48.8
2025 Capex outlook	—	$120–$150M

Note: GAAP one-time ~$112M loss related to convertible note exchange drove Q4 GAAP net loss .

Guidance Changes

Forward guidance

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	Q1 2025	n/a	$94–$104M	n/a
Non-GAAP Gross Margin	Q1 2025	n/a	29.0%–30.5%	n/a
Non-GAAP Net Income	Q1 2025	n/a	($3.6)M to $0.0M	n/a
Non-GAAP EPS (basic)	Q1 2025	n/a	($0.07) to $0.00 (49.6M shares)	n/a
Non-GAAP OpEx	Q1 2025	n/a	$32–$33M (qualitative)	n/a

Q4 guidance vs actual (as set on Nov 7, 2024)

Metric	Q4 2024 Guidance (set Nov 7, 2024)	Q4 2024 Actual	Outcome
Revenue	$94–$104M	$100.3M	In line
Non-GAAP Gross Margin	27.5%–29.5%	28.9%	In line
Non-GAAP EPS (basic)	($0.04) to $0.04	($0.02)	In line

Management notes: Q1 revenue limited by labor/capacity due to Chinese New Year, not demand; CATV expected to plateau due to field installation constraints while datacenter drives growth .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 & Q3 2024)	Current Period (Q4 2024)	Trend
Datacenter 400G	Began receiving 400G orders from another large hyperscaler (Q2) ; ramped in Q3 with double-digit DC growth	400G orders increasing with existing and new hyperscaler; 100G declining	Strengthening mix shift toward 400G
Datacenter 800G/1.6T	Early interest; stepped-up R&D spend for 1.6T (Q3)	First significant 800G demand forecasts; ramp expected 2H25; planning capacity for 800G/1.6T	Visibility improving; ramp window intact
CATV (1.8 GHz amps)	Q2 slowdown ahead of DOCSIS 4.0; expected ramp in Q3 ; Q3 CATV more than tripled QoQ	Q4 CATV >4x YoY, >2x QoQ; substantial Quantum Bandwidth order from top NA cable operator; MSO deployment underway	Strong ramp; near-term plateau due to install cadence
Supply chain/seasonality	n/a	Q1 constrained by Chinese New Year manpower, not demand	Temporary capacity bottleneck
Regulatory/legal	n/a	Patent suit vs Accelight on several 100G/400G transceivers (Dec 17)	Asserting IP protection
Financing/balance sheet	n/a	Exchanged 2026 converts into 2030 notes; registered direct to bolster cash; one-time loss in Q4	Extended maturity, improved flexibility

Management Commentary

CEO: “We continued to see increasing orders in our datacenter business… We saw a significant increase in our CATV business due to a ramp in orders for our 1.8 GHz amplifier products… [and] received a substantial order for our Quantum Bandwidth networking products from a top North American cable operator” .
CFO: “We expect continued improvement in our gross margins as we see the impact of manufacturing efficiencies in our CATV production, and improved product mix… we expect to make sizeable capex investments… We believe our US-based production ability, automated manufacturing and extensive experience uniquely position us [to] meet our customer’s needs” .
CFO on outlook and capex: “For the year, we expect between $120 million and $150 million in total CapEx… Included… is adding significant production capacity in Texas, which we expect will make us one of the largest… domestic producer[s] of datacenter transceivers for AI applications” .
CEO on Q1 dynamic: “Q1 guidance is not limited by demand… revenue is limited by our capacity, especially in manpower [around Chinese New Year]” .

Q&A Highlights

Capacity and capex focus on datacenter: 2025 capex primarily targets 800G/1.6T; substantial U.S. investment planned; aggregate 800G demand forecasts align with monthly production targets discussed by management .
400G trajectory and capacity: 400G demand up ~4x YoY; capacity is being added prudently to match demand across product variants .
CATV plateau mechanics: Despite strong orders, installs are gated by field crews and logistics; expect plateau near term while datacenter drives growth .
Lead times and qualification: Datacenter lead times ~8–10 weeks; 800G near final qualification with 3–4 customers; minimal 800G revenue recognized in Q4 .
Financing optionality: Strategic investment discussions ongoing to support capacity; not a prerequisite for executing 2025 capex plan .

Estimates Context

Wall Street consensus from S&P Global could not be retrieved due to a data access limit at the time of analysis; as a result, explicit “vs. consensus” comparisons are unavailable. Results were in line with the company’s Q4 guidance (revenue, non-GAAP GM, non-GAAP EPS), and Q1 guidance frames near-term expectations .
Note: S&P Global estimates data unavailable at time of request; comparisons to consensus are not included.

Key Takeaways for Investors

CATV drove the Q4 beat on growth and mix: 1.8 GHz amplifiers and a substantial order from a top NA operator fueled sequential and YoY acceleration; near-term plateau reflects installation gating, not demand .
Datacenter inflection set for 2H25: 400G strength continues while 800G demand forecasts support a 2H25 ramp; management is scaling U.S./Taiwan capacity and automation to meet AI-related transceiver demand .
Margin trajectory improving: Non-GAAP GM rose 390 bps QoQ to 28.9% on mix/efficiencies; management reiterates a long-term ~40% non-GAAP GM target, with Q1 guided higher to 29%–30.5% .
Balance sheet repositioned: 2026 converts exchanged for 2030 notes and additional equity bolstered cash; GAAP Q4 included a one-time ~$112M loss from the exchange .
Investment cycle is large but targeted: 2025 capex of $120–$150M aims to secure leadership in AI datacenter optics; discussions for potential strategic investment continue, but execution is not contingent on them .
Concentration risk remains elevated: Top 10 customers at 97% and a single CATV distributor at 52% of Q4 revenue underscore exposure to a few accounts and deployment schedules .
Near-term setup: Q1 revenue guide mirrors Q4; temporary labor constraints (CNY) limit Q1 capacity; watch for continued CATV deployment pace and 400G shipments, and milestones on 800G qualifications .

Appendix: Additional context

Legal/IP: AOI filed a patent infringement suit against Accelight covering several 100G/400G transceivers—consistent with defending core DC optics IP .
Organization: AOI appointed a VP of Sales for Quantum Bandwidth to scale broadband access go-to-market with MSOs .

APPLIED OPTOELECTRONICS, INC. (AAOI)·Q4 2024 Earnings Summary