AXTI AXT Inc

AXT, Inc. (NasdaqGS: AXTI), a leading manufacturer of compound semiconductor wafer substrates, today reported financial results for the third quarter, ended September 30, 2023.

Management Qualitative Comments

“The demand environment in the third quarter of 2023 remained stable, and we were pleased to see some encouraging early signs of improvement in the data center market, resulting in modestly higher indium phosphide revenue quarter over quarter,” said Morris Young, chief executive officer. “While inventory rationalization may persist into the new year, we believe that the trends that have driven our revenue and customer expansion remain very much intact. Further, we have executed well in our development of larger diameter substrates that will pave the way for our opportunities in next-generation devices spanning data center, consumer, and other markets. As we navigate the near-term environment, we will continue to prioritize cost savings and efficiency, and are focused on accelerating our return to profitability.”

Third Quarter 2023 Results

• Revenue for the third quarter of 2023 was $17.4 million, compared with $18.6 million for the second quarter of 2023 and $35.2 million for the third quarter of 2022.
• GAAP gross margin was 10.7 percent of revenue for the third quarter of 2023, compared with 9.2 percent of revenue for the second quarter of 2023 and 42.0 percent of revenue for the third quarter of 2022.

• Non-GAAP gross margin was 11.3 percent of revenue for the third quarter of 2023, compared with 9.8 percent of revenue for the second quarter of 2023 and 42.2 percent of revenue for the third quarter of 2022.
• GAAP operating expenses were $8.6 million for the third quarter of 2023, compared with $8.6 million for the second quarter of 2023 and $10.2 million for the third quarter of 2022.

• Non-GAAP operating expenses were $7.8 million for the third quarter of 2023, compared with $7.8 million for the second quarter of 2023 and $9.2 million for the third quarter of 2022.

• GAAP operating profit/(loss) for the third quarter of 2023 was an operating loss of ($6.7) million, compared with an operating loss of ($6.8) million for the second quarter of 2023 and an operating profit of $4.6 million for the third quarter of 2022.

• Non-GAAP operating profit/(loss) for the third quarter of 2023 was an operating loss of ($5.8) million, compared with an operating loss of ($5.9) million for the second quarter of 2023 and an operating profit of $5.6 million for the third quarter of 2022.

• Non-operating income and expense, taxes and minority interest for the third quarter of 2023 was a net gain of $0.9 million, compared with a net gain of $1.8 million in the second quarter of 2023 and a net gain of $1.2 million for the third quarter of 2022.

• GAAP net income/(loss), after minority interests, for the third quarter of 2023 was a net loss of ($5.8) million, or ($0.14) per share, compared with a net loss of ($5.1) million, or ($0.12) per share, for the second quarter of 2023 and net income of $5.8 million, or $0.13 per share, for the third quarter of 2022.

• Non-GAAP net income/(loss) for the third quarter of 2023 was a net loss of ($4.9) million, or ($0.12) per share, compared with a net loss of ($4.2) million, or ($0.10) per share, for the second quarter of 2023 and net income of $6.8 million, or $0.16 per share, for the third quarter of 2022.

STAR Market Listing Update

On January 10, 2022, AXT announced that Beijing Tongmei Xtal Technology Co., Ltd. (“Tongmei”), its subsidiary in Beijing, China, submitted to the Shanghai Stock Exchange (the “SSE”) its application to list its shares in an initial public offering (the “IPO”) on the SSE’s Sci-Tech innovAtion boaRd (the “STAR Market”) and the application was accepted for review. Subsequently, Tongmei responded to several rounds of questions received from the SSE. On July 12, 2022, the SSE approved the listing of Tongmei’s shares in an IPO on the STAR Market. On August 1, 2022, the China Securities Regulatory Commission (the “CSRC”) accepted for review Tongmei’s IPO application. The STAR Market IPO remains subject to review and approval by the CSRC and other authorities. The process of going public on the STAR Market includes several periods of review and, therefore, is a lengthy process. Subject to review and approval by the CSRC and other authorities, Tongmei hopes to accomplish this goal in the coming months. AXT has posted a brief summary of the plan and the process on its website at http://www.axt.com.

Conference Call

The company will host a conference call to discuss these results today at 1:30 p.m. PT. The conference call can be accessed at (888) 300-4150 (passcode 7175811). The call will also be simulcast at www.axt.com. Replays will be available at (800) 770-2030 (passcode 7175811) until November 16, 2023. Financial and statistical information to be discussed in the call will be available on the company’s website immediately prior to commencement of the call. Additional investor information can be accessed at http://www.axt.com or by calling the company’s Investor Relations Department at (510) 438-4700.About AXT, Inc.

AXT is a material science company that develops and manufactures high-performance compound and single element semiconductor wafer substrates comprising indium phosphide (InP), gallium arsenide (GaAs) and germanium (Ge). The company’s wafer substrates are used when a typical silicon wafer substrate cannot meet the performance requirements of a semiconductor or optoelectronic device. End markets include 5G infrastructure, data center connectivity (silicon photonics), passive optical networks, LED lighting, lasers, sensors, power amplifiers for wireless devices and satellite solar cells. AXT’s worldwide headquarters are in Fremont, California where the company maintains sales, administration and customer service functions. AXT has its Asia headquarters in Beijing, China and manufacturing facilities in three separate locations in China. In addition, as part of its supply chain strategy, the company has partial ownership in more than ten companies in China producing raw materials and consumables for its manufacturing process. For more information, see AXT’s website at http://www.axt.com.

Safe Harbor Statement

The foregoing paragraphs contain forward-looking statements within the meaning of the Federal securities laws, including, for example, statements regarding the timing and completion of the proposed listing of shares of Tongmei on the STAR Market. Additional examples of forward-looking statements include statements regarding the market demand for our products, our product mix, our growth prospects and opportunities for continued business expansion, including trends, new applications and the ramping of Tier-1 customers, our market opportunity, our ability to lead our industry, our expectations with respect to our business prospects and financial results, including our gross margin performance, and our development of larger diameter substrates that we believe will enable the next generation of technology innovation across a number of end-markets. These forward-looking statements are based upon assumptions that are subject to uncertainties and factors relating to the company’s operations and business environment, which could cause actual results to differ materially from those expressed or implied in the forward-looking statements contained in the foregoing discussion. These uncertainties and factors include but are not limited to: the requests for redemptions by private equity funds in China of investments in Tongmei, the administrative challenges in satisfying the requirements of various government agencies in China in connection with the listing of shares of Tongmei on the STAR Market, continued open access to companies to list shares on the STAR Market, investor enthusiasm for new listings of shares on the STAR Market and geopolitical tensions between China and the United States. Additional uncertainties and factors include, but are not limited to: the timing and receipt of significant orders; the cancellation of orders and return of product; emerging applications using chips or devices fabricated on our substrates; end-user acceptance of products containing chips or devices fabricated on our substrates; our ability to bring new products to market; product announcements by our competitors; the ability to control costs and improve efficiency; the ability to utilize our manufacturing capacity; product yields and their impact on gross margins; the relocation of manufacturing lines and ramping of production; possible factory shutdowns as a result of air pollution in China or COVID-19; COVID-19 or other outbreaks of a contagious disease; tariffs and other trade war issues; the financial performance of our partially owned supply chain companies; policies and regulations in China; and other factors as set forth in the company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q and other filings made with the Securities and Exchange Commission. Each of these factors is difficult to predict and many are beyond the company’s control. The company does not undertake any obligation to update any forward-looking statement, as a result of new information, future events or otherwise.

FINANCIAL TABLES TO FOLLOW

AXT, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited, in thousands, except per share data)
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
		2023				2022				2023				2022
Revenue	$	17,366			$	35,183			$	55,366			$	114,323
Cost of revenue		15,500				20,401				46,675				70,798
Gross profit		1,866				14,782				8,691				43,525
Operating expenses:
Selling, general and administrative		5,667				6,576				17,439				19,719
Research and development		2,926				3,639				9,261				10,251
Total operating expenses		8,593				10,215				26,700				29,970
Income (loss) from operations		(6,727	)			4,567				(18,009	)			13,555
Interest expense, net		(381	)			(299	)			(1,143	)			(670	)
Equity in income of unconsolidated joint ventures		369				2,006				2,344				5,308
Other income, net		223				957				1,282				1,242
Income (loss) before provision (benefit) for income taxes		(6,516	)			7,231				(15,526	)			19,435
Provision (benefit) for income taxes		(101	)			501				(92	)			2,188
Net income (loss)		(6,415	)			6,730				(15,434	)			17,247
Less: Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests		592				(971	)			1,174				(2,777	)
Net income (loss) attributable to AXT, Inc.	$	(5,823	)		$	5,759			$	(14,260	)		$	14,470
Net income (loss) attributable to AXT, Inc. per common share:
Basic	$	(0.14	)		$	0.14			$	(0.34	)		$	0.34
Diluted	$	(0.14	)		$	0.13			$	(0.34	)		$	0.34
Weighted-average number of common shares outstanding:
Basic		42,638				42,163				42,574				42,011
Diluted		42,638				42,982				42,574				42,718

AXT, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited, in thousands)
	September 30,				December 31,
		2023				2022
ASSETS
Current assets:
Cash and cash equivalents	$	28,522			$	34,948
Restricted cash		10,778				6,400
Short-term investments		4,270				9,339
Accounts receivable, net		18,883				29,252
Inventories		86,383				89,629
Prepaid expenses and other current assets		11,474				13,977
Total current assets		160,310				183,545
Long-term investments		—				2,118
Property, plant and equipment, net		158,773				161,017
Operating lease right-of-use assets		2,878				1,761
Other assets		20,229				21,631
Total assets	$	342,190			$	370,072
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6,369			$	10,084
Accrued liabilities		15,520				18,164
Bank loans		45,776				47,078
Total current liabilities		67,665				75,326
Noncurrent operating lease liabilities		2,437				1,322
Other long-term liabilities		4,007				3,678
Total liabilities		74,109				80,326
Redeemable noncontrolling interests		40,634				44,846
Stockholders’ equity:
Preferred stock		3,532				3,532
Common stock		44				44
Additional paid-in capital		237,653				235,308
Accumulated deficit		(28,419	)			(14,159	)
Accumulated other comprehensive loss		(8,581	)			(3,118	)
Total AXT, Inc. stockholders’ equity		204,229				221,607
Noncontrolling interests		23,218				23,293
Total stockholders’ equity		227,447				244,900
Total liabilities, redeemable noncontrolling interests and stockholders’ equity	$	342,190			$	370,072

AXT, INC.Reconciliation of Statements of Operations Under GAAP and Non-GAAP(Unaudited, in thousands)
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
		2023				2022				2023				2022
GAAP gross profit	$	1,866			$	14,782			$	8,691			$	43,525
Stock-based compensation expense		102				51				310				277
Non-GAAP gross profit	$	1,968			$	14,833			$	9,001			$	43,802
GAAP operating expenses	$	8,593			$	10,215			$	26,700			$	29,970
Stock-based compensation expense		789				985				2,408				2,981
Non-GAAP operating expenses	$	7,804			$	9,230			$	24,292			$	26,989
GAAP income (loss) from operations	$	(6,727	)		$	4,567			$	(18,009	)		$	13,555
Stock-based compensation expense		891				1,036				2,718				3,258
Non-GAAP income (loss) from operations	$	(5,836	)		$	5,603			$	(15,291	)		$	16,813
GAAP net income (loss)	$	(5,823	)		$	5,759			$	(14,260	)		$	14,470
Stock-based compensation expense		891				1,036				2,718				3,258
Non-GAAP net income (loss)	$	(4,932	)		$	6,795			$	(11,542	)		$	17,728
GAAP net income (loss) per diluted share	$	(0.14	)		$	0.13			$	(0.34	)		$	0.34
Stock-based compensation expense per diluted share	$	0.02			$	0.02			$	0.06			$	0.08
Non-GAAP net income (loss) per diluted share	$	(0.12	)		$	0.16			$	(0.27	)		$	0.41
Shares used to compute diluted net income per share		42,638				42,982				42,574				42,718

Contacts:
	Gary Fischer
	Chief Financial Officer
	(510) 438-4700
	Leslie Green
	Green Communications Consulting, LLC
	(650) 312-9060