AXT (AXTI) 17 Feb 222021 Q4 Earnings call transcript

Good afternoon, everyone and welcome to AXT’s Fourth Quarter and Fiscal Year 2021 Financial Conference Call. Leading the call today is Dr. Morris Young, Chief Executive Officer and Gary Fischer, Chief Financial Officer. My name is Justin and I will be your coordinator for today. [Operator Instructions] Please be advised that this call is being recorded. now Investor turn Relations would to call I Green, Leslie for instructions] like the to over [Operator AXT.

Thank everyone. you, afternoon Justin and good

environmental, or by of on tariffs partially the growth we companies and of trends, contagious other applications of and conference using financial products, customers that to company, materially. We like not cause fabricated the the demand global and Before which include, limited industry subject trade that supply chemical serve, questions, potential quarters, the with on we in in deal of the the markets political in orders to our and would company capacity, market statements and future increased outbreaks economic conditions and you substrates, China projections of the health to based the in your ability including regarding, I as performance our caution their regulations impact and global our are disease, current events, in timing growing during utilize to manufacturing in These for or the market emerging are financial conditions among succeeding improve risks uncertainties provide uncertainties that tariffs conditions, and our things, such make future response to financial to to on events China, are environmental well differ and and the you chips or to safety in expenses, course statements we delays and trade including conditions devices product actual management’s chain performance manufacturing acceptance efficiencies, wish mix, call, and remind this expected our results of and will including uncertainties, as but and other comments restrictions. forward-looking made COVID-XX yields to control markets costs the of begin, our sales restrictions, expectations products. and could other owned increase the risks to, overall competes, regulations company’s

shortly begin, the want release of for financial issued to we year fiscal results fourth of In XXXX. differ This and reports the the before at on maybe Exchange available that with this expectations. Securities press you periodic website we and that I Commission. contain information addition note from conference the company’s turn is market that additional be information quarter our Gary now factors factors and reporting following discussed will cause materially the online fiscal call, XXXX. February we results. filed a close to available current to Relations I our to These results could through website the actual portion call our on Fischer from and the Investor would on risk review at refer XXXX link a our Gary? Also, call to available the website of This like our over by for to are axt.com. of in fourth quarter axt.com today,

Thank everyone. Leslie afternoon, you, good and

venture are XXXX. quarter the and revenue are fourth up phosphide QX expansion of quarter million, the was quarter that gallium $XX.X up market in million the our XX.X%, $XX.X revenue XX% to material eight was X.X%. Investors financial quarter, to million, the $X.X As joint pleased category, fourth QX a indium highlights will XX% we To well Today, non-GAAP financial was from down million no two and Asia customers 'XX our providing to in of phosphide America request $XX.X and million consolidated revenue to customers Pacific to total compensation. GAAP from reminder, from XXXX was as be the and in In revenue. based approximately million. with find for and both better arsenide of can operational third results, five break growth a report generated of X% revenue million we $XX.X $XX.X on in and XXXX product exclude announcement. you substrates. reconciliation XX.X% quarter investor North indium and the align for increasing and our for Again by response QX, tables companies gallium Europe was in our earnings raw our consecutive from full revenue Non-GAAP clarity of arsenide peers, provide non-GAAP was results, reached was and our stock germanium XX% as demand of marks $X.X results. top GAAP total was

fourth our that customer XX.X% on in demonstrates compared quarter of and diversity that revenue will in sustainability QX continued of another one is to growth dependent margin in the XXXX. our has not contributing with was or XX.X% XXXX. Non-GAAP confidence growth XX.X% factor overly QX application. gross throughout Our was of and This reached point XXXX our a continue large

margin in For basis, and quarter on of a in QX those gross track results was 'XX fourth XX.X% QX in XX.X% prefer XXXX. who compared the GAAP of to to XX.X%

well Gross Like in XXXX. is offset everything increases required order costs improvements products. a materials products margin decision Our will that some gross of relating priority in manufacture we promising customers. strategic, and in to increase continue demand, a top comment some and as gross business contracts, to near AXT came to in and as seen raw to yields in slightly to prior our markets expiring in to the made from competitively ourselves within for of the margin Contributing a businesses, have from raw our quarter. shortly. advantageous offset Those position improvement constrained create costs factors most material in a wages lower factors than steady These program were lower accept recycling a new to XXXX. the Morris margin likely term will lower material margin increasing environment on

and range can we XX% pricing better yield manufacturing strong efficiencies. will to think this favourable through mix, we come year. focus Improvement back improvements get volume, a growing product on and However,

see some $X.X believe that headwind continue sequentially $X.X compares with QX incremental through XXXX million basis, in contracts some a QX. was expense and creating $X.X also work we million. total of in We improvements the at Total On This GAAP of XXXX. was margin in to a as QX in was of million. non-GAAP that operating gross began will $X.X expense QX flat operating

$X.X XXXX. R&D OpEx. increase GAAP of total comparison, operating primary in of expense drivers our in For the million was the one of QX remains

inch development operating of eight and the profit operating $X.X $X.X arsenide. major the six of inch compared indium phosphide development XXXX two QX gallium for have of the We of programs XXXX. in million with quarter are that $X.X profit QX non-GAAP of was ongoing, and million million a XXXX of Non-GAAP in fourth

GAAP The million in fourth of was a operating Non-operating of income XXXX of $X.X is loss in quarter in of QX XXXX other from million the breakdown $XXX,XXX. profit full and $X.X operating reference for and release. the $X.X an our operating a net of an XXXX of for was quarter up profit million XXXX. profit For press QX of fourth expense

or share. outstanding of was $X.XX and with September December we XXXX, share quarter or million the of in per grants equivalents XXXX. For share at $XX.X in million they $X.X million. compared of in net government the or million XX share in third $X.X of of two that had QX did fourth Keep a income ofXXXX and income average QX $X.XX XX. results XX, total inventory $X.X third local per QX in QX $X.XX $XX.X $XX.X per investments $XX.X was mind in of non-GAAP million included quarter Cash, $XX.X the or million basis, was Net which and $X.XX per $X.X in per comp were cash shares million, $X.X or third quarter Depreciation QX $X.X $X net was a net investments GAAP was million, share. million. in quarter in comparison million. XXXX $X.X million By QX. December $X.XX of totalling repeat capital million the income amortization were at was not share $X.X weighted and By stock Non-GAAP $X.XX million. were diluted or million was The On net XXXX. as income per comparison, XXXX

discussion Okay. of results. financial our the quarterly This concludes

of Now part because let things happened. a me briefly lot highlight good of is my the total fun presentation of XXXX, year which a

XXX% Star income for income net our that of at improvement XXXX in XXXX in fiscal more a This coming organic this GAAP Shanghai. was across Net share applications new million year I'll our momentum diluted on on are share profitability increases. In For growth in up major per and strategic $X.XX in was we the brief $XX.X diluted the significant note the revenue all XX.X% year to fiscal net margin XXXX. year business trends fiscal per was and $XXX.X XXXX. in of the the success the market, or year basis is with margin months. market compared or fiscal XX.X% our year share of every $X.X in XXXX, than compared year $X.XX you with XXXX for revenue on with over for update market price last gains. basis seeing share with of fiscal underscores or now compared was million is gross XX% per income $XX.X market a a help give fiscal fiscal our for to Tongmei our we technology for important compared an million more customers. shift net GAAP an without $X.XX list own the with non-GAAP year fiscal revenue $X.X share XXXX, for grew category XXXX. share and million XXXX. business the expansion a year $X.XX portfolio our subsidiary in than the by represents XX.X% for Gross per underscores driven year It This XX.X% or was China, on the the XXXX to non-GAAP in for of million XX winning plan million $XX.X from fiscal XXXX.

We accepted The on submitted application have we December the are to received is offering was formal application submitted initial The formally review a Shanghai very in Exchange. letter. XX. Tongmei initial it's application our month public January our pleased Stock and now on underway was that last list review for comment of and announce shares in to

of of a second the expect complete IPO periods discussed process the going have made Tongmei half Star until the public includes XXXX. market the as of not we on review is to therefore process, and several As lengthy

turn I'd Okay. over the business view of for Young, comments Morris and call completes Dr. and That like to my our Morris? to now markets.

business. everybody. Thank and afternoon, XXXX turning significant Gary point our good a you, marked in

customers conceived a supplier for specialty not year single over To edge might this our capable of new helping we more with believe a market are meeting in we're XX% have considered that the that the applications possible coming grew areas for requirement one we years and than a adoptions. our a more mentioned, and results. innovations, to just is We which now opportunity, tier of modernized Gary inflection prepare As hitting few were material and ago. rethink XXXX advancing we working bleeding growth mainstream market revenue for what XX% to in into into in point customers. portfolio, have are Across of once exceed

We and in Over manufacturing with materials, in our both we technology consecutive three revenue class locations. arsenide seeing relocated indium facilities our Gallium is grew customer two our of systems eight or by single growth but invested successfully wide historically the customer's XX% we variety substrates years, by by germanium XXXX, largest and for quarter XX%. you The processes. our with business phosphide low upgraded one and business We four by world just In now success. business supply our XX% increasing our applications and grew a driven not our chain are quarters and grew roadmap success, critical and expanded is of our revenue result, of attrition. substrate and grew last contributor.

to increases in driver data still general investment It based increase infrastructure share to and and market In increasingly our the our infrastructure and of applications to for big indium of global comes devices flow. will in from we has a alongside come. is generation and required and is momentum said, a telecom in long important play placed term modernization. massive Gary creation a own markets our center role based exceed well phosphide the support a it. in more which is XXXX, support revenue customer wins As from optical opportunity organic. expansion expect in growth next XG and all phosphide data strategic continued gains Indium

in typically be short to can design pleased to XXXX this for level consumer this measure oxygen measure way. and win and infrared expect can begin comes In detect proximity blood only substances and its of other wave to to indium that level of in Sensors phosphide sensor. blood and also to type glucose, skiing We also rate, not proximity as a be applications very consequential able year alcohol. lipid others. They sugar were the water, sensors ramping We blood future a and may heart blood alcohol type the such surfaces.

there that portable gateway to believe devices. monitoring phosphide it horizon, from excited consumer we This manifest. several we're and this such, new the sensors, of on and applications underscores applications As enables in other represented a believe are we also the ways about and design win automotive health more to win indium to designs breadth

applications could applications will expect over grow revenue by addressable phosphide for increase by to design one the XX%. believe indium win these and and we series driven emergence tier indium success, our XX% a market We be their XXXX in will players, with phosphide it current we dramatically is time

to opening for new Recently, for also amplifier substrate needs. to Though solid a in one which as competitors profile application industrial powers is growth seen supply and new groundwork and believe headsets, that we the end gross XXXX both the and and meet AXT arsenide expect healthy the will increased gallium high of as market result We as in this we XG our margin well customer power for constraint XG significant in we LEDs, already areas drive We're other that business and in the for our model arsenide. state is volume than in also continue. believe our of healthy is the we IoT up headsets. will This us gross coming gallium business, years. relate can have seeing attractive a applications, lower in WiFi applications contribution for demand lasers is in opportunity margin

arsenide In new ranging like several of activities for sensors and next and amount in addition, industry laser very well from health could feels monitoring gallium of volume based we micro are what years, entirely. applications record to drive a enough to the more, development seeing course LEDs the reshape

our top years the continue here will are -- they're we're not we there success. creating on growth business. customer opportunities numerous results. just for are across our that are profitable They ahead, With sustainable is with As that are and requirements. coming, in looking XXXX can AXT we into applications highly focused to customer and drive and future ensuring we a priority pace current We're mind, that in keep

ability better are top Given that for advantage competitive Yet more and gross major success other We XXXX needs margin and for improvement. openly win communicating variety other quickly reason design long is date. so scale can effectively our we to AXT in for visibility is customers the a it's their us that cost providing key accordingly. me believe our environment, term add constrained capacity to

there As efficiencies. numerous lower are are to doing Gary greater cost, drive better we that mentioned, manufacturing yields, things

that recycle fair a One invented a material value, of amount is the to effort, been real not for has advanced signal Through now own process -- holds longer significant internal until a that recycling promise research phosphide. that been has new manufacturing term reusable. of crystal our This generate program indium effort in process have material. has because phosphide access but our and indium we development highly is

to to revenue creating XXXX, eight-inch our this driving forward, output, we considerable and R&D arsenide our of high on we're in supply of reclaim And the colonies are in this our both to refine focused increases gallium to will to XXXX, requirements. costs, large next and technology revenue. expand likely to reduce volume efforts, dollars of hundreds material, be work gallium of technical success program in will step able waste. of meaningful major ESG We arsenide material. and lower substrates. demonstrates Going believe number pilot innovation in In delivered continue finally to we phosphide In on our and our diameter which These our highly we'll commitment us to is a indium development enable customer meet across customers thousands applications major customer advancement. generating XXXX, customer specifications help

Now With in our XXXX look from share believe wins. we XX% closing, our can look XXXX XXX% growth gains expected with to and profitability, come is customer and This -- market continue. XXXX will our we ahead, we increase momentum XX% deliver in our our current was revenue believe a business, pivotal market and to in year growth of of substantial drivers, if for revenue results. we expansion, we the

Our and capacity, competitive of IPO and emerging scale give customers yet investment believe our advantages XXXX. is in high We have for significant of tier first one meaningful call I us China foundation Gary the our need applications. business quarter to to other in year now substrates diameter place back for R&D turn volume in a that the ability large and stage the set our now and our Gary? of guidance. for growth strong meet will

you, Thank Morris.

and range to on in profit that to net will will of count XX.X shares. non-GAAP and we be approximately the be commentary discussed, In expecting strong $XX accordance strong QX QX. year off QX be 'XX, demand with million in coming In will $X.XX fiscal $X.XX. million gross revenue environment this we're $X.XX Share our a between As GAAP Morris believe of profit net in very to the our margin, of be remains $X.XX $XX in range year. million the

Morris glad answer and Okay. Operator? to will just our your now. concludes be This I and Leslie prepared comments.

our Craig-Hallum. from [Operator question Shannon Richard first comes And from instructions]

now open is You line

A the taking questions. and on ones very me Thanks Well. here. margins numbers quick for couple on line, Leslie. the on Obviously focus gross here. Gary top but Hi very, let a on guidance my the nice Morris,

given mix the characterize Are the sequentially effects of that all and year? line degree then as the would EPS, much gross suggest at that well, going you be dynamics a bottom last half would in all. and there it that if to margins of they First, profit margins gross any here to numbers improving improving hurt aren't the in please? second in How

margin gross we'll quarter and things bottom Well, we I'll to can improve coming year. go Morris and see probably first QX this We think the is quarterly Actually follow. will improve. think this

of say all way from I would So pads, have they consumables, raw that the cost polishing like business the up running surprising to the amount. materials a labor, manufacturing, gone

think we're playing as I that. to handle catch to how So

we we it's it and the that don't better. get back Now to think turn get see light, going magically

certain to take confident I have we improved. about towards We're But link revenue will growth, that. to product to be yield So phosphide. think handle that We're can certain indium efficiencies other mix continue steps there. very

So if, gross and try move we ASPs. all help the should year, whether and raise we margin perhaps some the of take those combined a we'll percent as look to through

me material years let has happened raw my so. plus everything in it, what, not electricity, last has or and Indeed, name you one, perspective. tell is this from XX one Richard, Yeah. you up, this the gone

we We to the for ask adjustment strong it's So internally we our be us do can to cost. talking part us some ourselves. are see, of work very and and with among it's customers to think time already

one. question number So, that's

get And do to think costs. And improvement be already. We lower do that second that we substantial need I get of this because efficiency year to quite HBT the that as just definitely into of thirdly, of into we foot in there's are starting and is to lower to shortage the some door, is to there certain that to our some ourselves started a we shortage. our I among ourselves market successful know last business are the think, Gary said we'll the areas. margin

market. we business margin our to only get be but into the get margin lower a not that but in able to more should there, think formal we a improve as volume go took we also So delivery as we increase, qualified, get we to

Okay.

stuff think there. good to about Some

is of question amount, here of Morris for is XX%. medium year much outlook that of While the the I you XX% me I'd it this your this sensing or small with indium to growth, question of us ask your to phosphide let first customer that that, to to and is to and for number how on pondered I part that XX%, Is get a one customer health amount guess belief growth? year? the one the to applications, a XX% contributing reiterated like another more application than this contributing gave

win as to even think start products in was script is one quarter. think is year meaning meaningful. more customer believe revenue we in design one as sometime The this are our two and exciting to QX. ramp coming I more is it's about But talked the we it's fourth be perhaps they introduced The and I there early more

Okay.

make a you contributor indium to excuse or just a year So sure to meaningful see this of profile this growth me. meaningful the as amount,

Yes.

margin topic Okay. that helpful. up yields on the reach you growth to Maybe require That's other increases just Gary, to volumes and cost or you in reality with things side? your back pricing Do is remarks and about prepared that do XX%. hoping maybe Excellent. a can you make the something again, on here talked following

probably need we help pricing think some I too. the on

Okay.

think Gary, health gross I sensing I that that here. that application the something think you're good specifically strategic is else? also customer Is her a a see referring margins to you was, giving some pricing this Let's or mentioned bit. little

No, a HBT was it market.

market. HBT

get more guess think still this me. of We run to here? rate helpful. and a line heavy have to I make jump spent I year. normal you do What's million investments this for of other year? amounts quarter. for here last I $XX.X When the That's will Okay. last outlook CapEx, question here. we out capacity the one

red with time stay of we as good to it. or land some we hot and is to trying a really that's down, Yeah, but market view soft CapEx wind up stuff question. investment it need an so We're the the this and

normally to would equipment. million $X $X do we So in million

be it year this million and $X think $X I could between million.

millions have normal which dollars the We'll work to will But be probably some for facility that's several we view of much as million. do So as the $X stuff. the maybe move indium phosphide, looks ones and grow certainly can have that fastest horizon as bright base attention very the an the that of we investment. customer capacity. again, and we're The because got

So micro LED We is don't that's sure being know going carefully. for studied yet. where

may So if category then CapEx we it be as that's heats some that but to up, well, do determined. in

keep we'll posted. you So,

that's time. So kind of Yeah. our sense of that that for

Okay. Perfect.

for think guys. that's Thanks I jump on all me. line. I a will

Khorsand [Operator And next instructions] Hamed BWS question our from comes from Financial.

not Your line open. is

Hi.

considered I first throughout just as so you, So off, year. see clarity not usually had much as is historically year? wanted that What's you the giving the clarity this to far growth you've in for

glad instance, for question. of product, noticed a even know have but visibility we few usually and quite to me we very have what a that's good next example We from you this demand the I'm you indium for of that. let quarter, the Yeah, phosphide. don't because give increasing

are sold certainly We out.

We normally to call have six extended weeks We our now up four to to XX eight weeks. lead it's time.

we many also time for exited gallium check, from for for years some to market time can long them. coming us back the okay. for and the have now even are And, the lead reason the capacity we competitors customers is why marketing build and arsenide, our Okay. lead if that that was HBT is And and our asking us extremely longer

get that discussion We see market. to want with are into if and we them in close,

we have do visibility. So good

micro We also new in it's have because market. of good LED visibility however, terms a

it are arsenate, is already started giving So can how generate that we counting of we you up. better, revenue But us visibility to not until things as to see shape we even it's installing clearly that come in from see it better to going so that fruition. will

will our in better. XX% So year we visibility in never yes, XX%. it can fast. say, we high is years, you're we, that right. indium phosphide thought never we to the grow well, think confidence, past fact, We will have And grow The this

what taking then as or double are you And ordering actions prevent are Okay. as process your to concerned? customers far

question. good That's a

us I think maybe the is from confidence way. level this

big last some they this inventory the ordering win are don't, we or last that customer see almost not design also up we these on seeing X.X don't with see You building of let's a for jump We got quarter demand. double it worked fourth we could of we finally years. say whether We and happen, had but year, it.

indium that's phosphide capacity why fact, And lead is know from And our time competitors now even all and think as is XX to more out. what are of competitors In our longer we sold reluctant, our I up weeks. getting easy the To capacity that them. not establish I It's to build these have a building process build very is capacity. do believe to days advantage a and of believe in to difficult capacity quickly thing especially we indium phosphide. we for our

cash could of throughout you a think preserve that? cash? burned My When process. we this reversal You've Okay. last level growth you question was Gary, adequate continuously that could the what's see

a plan we'll think I'm directly see I And a hoping to linked have it's a don't that for XXXX, CapEx CapEx. but down. Well, I slope

last would jump year. our say a cash during that I So, comfortable but position. up big inventory took I'm with

a don't at looking on looking I more. It's some accepted, lot to So, which Tongmei borrowing go up surprisingly interest IPO for bank application interesting was lot an happens. We're And debt. until again that, IPO having January we're still to banks from note there's in was more a secure China. the XX, once see our the

China institutions that ripple it's of about different the having even but excited excited and a base also, effect are organizations are comment Tongmei Morris of can maybe IPO. kind there's about So

think and, watch know So but yeah, in I I it we don't carefully think cash. QX, the but but I I'm it over okay. not went losing cash, do sleep down we're

So…

wants are good all investor We I know we would account Well, but not some probably a see think you flow, growth we to a equipment the going it, add requires facilities I think generating I cash a did cash think, expert, if XX% but handle I I flow takes financial down. lot to Gary. forward, but can think cash slow receivable. flow and of analysis. that we would, more And, I'm this, cash. look, inventory on

goal cash when we, a I we're this XX that quarter our or foundation, year, cash. unthinkable We my Since growing. I when means quarter. million means business. a year think just That over we're break think two strongly, need can have better our flow is to And that's grow otherwise to a better means, building. a cash that And all we which sometime we going close very ago. to $XX business is all organization, million get

Great. Thank you.

Hamed Thanks, .

questions turn would am further closing remarks. showing for the Dr. back now over you. no call And I to young like thank I And Morris to

participating call. Thank our for you in conference

to free contact directly. Fisher Gary feel always or me Leslie As Green

like -- speak would with future. I call, would you in you a set to If like near will I forward looking forward up to the to

everybody. Thanks

This Thank for participating. today's you conference concludes call.

You may now disconnect.