Slide 1: Investor Presentation Third Quarter 2023
INVESTOR PRESENTATION THIRD QUARTER 2023 Nasdaq: AAOI
Slide 2: Forward Looking Statements & Non-GAAP Financial Measures
Forwar d Looking Statements & Non-GAAP Financial Measur es This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terminology such as "believe," "may," "estimate,"
Slide 3: Industry and Market Data
Industr y and Mar ket Data The information contained herein includes information provided by third-parties, such as market research firms. None of the Company, its affiliates or any third-parties that provided information to the Company (i) guarantee the accuracy, completeness, timeliness or availab
Slide 4: Investment Highlights
A Leader in Advanced Optics INVESTMENT HIGHLIGHTS Dynamic Markets Marquee Customers Proprietary Manufacturing Diversifying Customer Base 4
Slide 5: A leading provider of optical access products that enable the gigabit age
A leading provider of optical access products that enable the gigabit age 5
Slide 6: Q3 2023 Highlights and Q4 2023 Outlook
Q3 2023 Highlights and Q4 2023 Outlook • Revenue of $62.5 million, in-line with guidance range Q3 2023 Revenue Breakdown • Increase in revenue was largely driven by growth in 100G and 400G datacenter business 5% 1% 16% • Revenue from 100G products nearly tripled year-over-year, while revenue for 400
Slide 7: Bandwidth Demand Drives Revenue
Bandwidth Demand Drives Revenue Devices $400 DATA CENTER $350 $300 11%* CAGR Video CATV $250 $200 $150 Cloud Telecom $100 $50 $0 Social FTTH 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 ANNUAL REVENUE ($M) 7 * CAGR calculated from 2013 through 2022.
Slide 8: Four End-Markets With Strong Demand Drivers
Four End-Markets With Strong Demand Drivers • DOCSIS 3.1 & 4.0 upgrade cycle Cable Television • International market opportunities • Continued outsourcing of design and production • Increasing size of datacenters Datacenter • Higher-speed interconnect - 1G to (10G/40G/100G/200G/400G/800G) • Continuo
Slide 9: Growth Expected in Datacenter Market
Growth Expected in Datacenter Market Total High-Speed (100G or greater) Market to Exceed $10 Billion in 2027 400G CAGR 27% 2021-2027 $12,000 $10,000 $8,000 Revenue ($m) $6,000 $4,000 $2,000 $- 2021 2022 2023 2024 2025 2026 2027 100G 200G 400G 800G Source: Omdia © 2022 Omdia • Source: High-speed (fro
Slide 10: Datacenter Market Characteristics Differ From Telecom Optical Component Market
DATACENTER MARKET CHARACTERISTICS DIFFER FROM CHARACTERISTICS OF TELECOM OPTICAL COMPONENT MARKET Vertical Integration & In-house Manufacturing DATACENTER MARKET TELECOM MARKET Rapid product development cycles favor Telecom applications have much longer controlling a substantial part of the producti
Slide 11: Growth Expected in Datacenter Market: 100G Technology Options
Growth Expected in Datacenter Market Optimal Distance 100G Technology Lasers # Fibers Transceiver Cost* Fiber Cost/m* 100G Technology (d) Short-Reach (SR) Short-Reach (SR) AOC 4xVCSEL 8 $ $ <150m AOC Intra-Datacenter 4x1310-nm DFB (AOI) OR Long-Reach, PSM-4 1x1310-nm high 8 $ $$$ 150m<d<500m Lon
Slide 12: Current 400G Transceiver Form-factors
Current 400G Transceiver Form-factors 100G single Lambda Considerations for Designers: Reach Distance Data Center Unique Spec IEEE Standards MSA Backward Compatibility - 400G SR8* - 70m for OM3, Connector Termination 100m for OM4 - 400G SR4.2 - Latch Mechanism - 100G DR* - Mating Process 500m - 400G
Slide 13: 5G Requirements for Front/Mid-Haul Optics
5G Requirements for Front/Mid-Haul Optics Small-Cell Proliferation and C-RAN Evolution Is Expected to Create Need for New Optical Solutions 25 Gbps/50 Gbps/100 Gbps transceivers needed Front-Haul: Mid-Haul: • Link remote radio head (RRH) to base station • Longer distances typical in C-RAN (Cloud-Rad
Slide 14: Vertical Integration
VERTICAL Faster time to market INTEGRATION Cost advantages High yield manufacturing A KEY Flexible capacity support D I F F E R E N T I AT O R Rapid response to customer & market demand 14
Slide 15: A Closer Look…
A Closer Look… CRYSTAL GROWTH LIGHT ENGINE AUTOMATION (Epitaxy) ASSEMBLY AOI’s Differentiation: AOI’s Differentiation: AOI’s Differentiation: Robust silicon optical bench Combination of proprietary Custom-designed and proprietary platform technology leveraged across MBE and MOCVD processes productio
Slide 16: A Closer Look…
A Closer Look… Automated Receiver Sub- Assembly Decreased Labor by 58% and Improved Quality Control Automated Robotic Test Automated Light Engine Final Stations Increase Assembly Decreased Labor Throughput, Decrease by 85% and Improved Human Error in Handling Process Control and Quality 16
Slide 17: Vertical Integration replicated across markets speeds time to market
Vertical Integration In-house production and development of advanced laser diodes and light engines replicated across markets speeds time to market DATA CENTER CATV Telecom FTTH SUBSYSTEM EQUIPMENT MODULES/TRANSCEIVERS OPTICAL PACKAGED DEVICES OPTICAL SUBASSEMBLY CHIPS PROCESSED WAFER EPITAXY WAFER
Slide 18: Research & Development, Manufacturing & Operations
LOCATION MANUFACTURING R&D • CATV Equipment Ningbo, China • Laser & Detector packaging 1,463 Employees* • Light Engine • Transceivers LOCATION MANUFACTURING R&D LOCATION MANUFACTURING R&D • Wafer Fab • Laser packaging Houston, TX • Laser chips Taipei, Taiwan • Light Engine • Laser Packaging • Silico
Slide 19: Financial Review
Financial Review 19
Slide 20: Financial Performance
Financial Performance ANNUAL REVENUE BY END MARKET CATV Data Center FTTH & Other $382.3 $260.7 $268.4 * $235.1 ** $222.8 $211.6 $190.9 2016 2017 2018 2019 2020 2021 2022 YOY GROWTH 37% 47% (30)% (29)% 23% (10)% 5% * Reflects a $900 thousand credit issued to a customer, which is adjusted out of our n
Slide 21: Recent Financial Performance
Recent Financial Performance QUARTERLY REVENUE BY END MARKET CATV Data Center FTTH & Other $61.6 $62.5 $65* $56.7 $53.0 $56.7 Q3 2022 Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023E * Reflects midpoint of Q4 2023 guidance of $63 million to $67 million provided in Q3 2023 earnings press release on 11/9/23 2
Slide 22: Q3/23 Results
$ Q3/23 IN MILLIONS EXCEPT % TOTAL REVENUE $ 62.5 CATV $ 10.3 DATACENTER $ 48.8 TELECOM $ 3.1 Q3/23 Results GROSS MARGIN 32.5% NON-GAAP* OPERATING LOSS $ 1.0 NET LOSS $ 1.7 CASH** $ 31.2 22 *Please refer to the Safe Harbor statement on the use of Non-GAAP metrics, as well as the attached GAAP-non-GA
Slide 23: Balance Sheet Highlights
Balance Sheet Highlights IN MILLIONS 9/30/2021 9/30/2022 9/30/2023 CASH(1) $49 $35 $31 WORKING CAPITAL(2) $107 $57 $(24) PROPERTY, PLANT & $242 $212 $194 EQUIPMENT, NET TOTAL ASSETS $463 $414 $374 TOTAL DEBT(3) $67 $65 $46 STOCKHOLDERS’ EQUITY $264 $199 $178 (1) Cash: Cash, cash equivalents, short-t
Slide 24: Investment Summary
A leader In Advanced Optics Focus on fast growing markets including hyperscale datacenters INVESTMENT Marquee global customers SUMMARY Extensive internally developed technology Manufacturing expertise creates differentiation & sustains margin Operating model provides significant leverage 24
Slide 25: Questions
QUESTIONS 25
Slide 26: Appendix
APPENDIX 26
Slide 27: Management Team
MANAGEMENT TEAM Dr. Thompson Lin Dr. Stefan Murry FOUNDER, PRESIDENT & CEO CFO & CSO 27+ YEARS 27+ YEARS Dr. Alex Anselm David Kuo Dr. Fred Chang SEMICONDUCTOR PRODUCTS GENERAL COUNSEL & CHIEF Joshua Yeh COMPONENT BU HEAD DIVISION HEAD COMPLIANCE OFFICER ASIA GM 22+ YEARS 24+ YEARS 15+ YEARS 18+ YEA
Slide 28: Non-GAAP Financial Measures
NON-GAAP FINANCIAL MEASURES We provide non-GAAP gross margin, non-GAAP net income (loss), adjusted EBITDA, and non-GAAP earnings per share to eliminate the impact of items that we do not consider indicative of our overall operating performance. To arrive at our non-GAAP gross margin, we exclude stoc
Slide 29: Non-GAAP Financial Measures
NON-GAAP FINANCIAL MEASURES A reconciliation of our GAAP net income (loss) and GAAP earnings (loss) per share for Q3 2023 to our non-GAAP net income (loss) and earnings (loss) per share is provided in our Q3 2023 earnings press release and below, together with corresponding reconciliations for Q3 20
Slide 30: Non-GAAP Reconciliation
NON-GAAP RECONCILIATION Applied Optoelectronics, Inc. GAAP to Non-GAAP Reconciliation (In thousands) Preliminary Unaudited 3Q21 4Q21 CY2021 1Q22 2Q22 3Q22 4Q22 CY2022 1Q23 2Q23 3Q23 GAAP revenue 53,267 54,408 211,565 52,242 52,299 56,693 61,584 222,818 53,030 41,615 62,547 Non-recurring customer cre
Slide 31: Non-GAAP Reconciliation
NON-GAAP RECONCILIATION Applied Optoelectronics, Inc. GAAP to Non-GAAP Reconciliation (In thousands) Preliminary Unaudited 3Q21 4Q21 CY2021 1Q22 2Q22 3Q22 4Q22 CY2022 1Q23 2Q23 3Q23 GAAP operating income (loss) (15,453) (13,626) (56,766) (14,239) (12,899) (13,496) (18,364) (58,998) (14,167) (15,965)