AXT (AXTI) 2 Nov 232023 Q3 Earnings call transcript

Good afternoon, everyone, and welcome to AXT's Third Quarter 2023 Financial Conference Call. Leading the call today is Dr. Morris Young, Chief Executive Officer; and Gary Fischer, Chief Financial Officer. My name is Christina, and I will be your coordinator today. [Operator Instructions]I would now like to turn the call over to Leslie Green, Investor Relations for AXT.

and in good our you we are of performance on and the or that efficiency; using call, comments and like I this in make Christina, questions, mix; regulations markets and as market are including succeeding to uncertainties remind we or product your regarding, future our chemical tariffs well the utilize differ management's China; current in to and during made economic emerging wish the other you, as deal forward-looking trade applications restrictions.We materially. afternoon, move results provide conditions begin, and everyone.Before would health and manufacturing with to capacity; including our growth caution you conference and increase statements expenses; actual and based we control among statements Thank will political events on to could such other safety cause subject projections response to that risks the of expected the things, trends, events, yields conditions, or and in costs fabricated to industry devices manufacturing chips substrates; future quarters to global expectations financial to ability company; including environmental, to the our that serve; course and growing orders in the regulations of financial and COVID-XX risks tariffs and the uncertainties, China, contagious increased markets in uncertainties refer to include, and competes, of timing These products.In of sales which of restrictions, of reports Securities our our environmental on we may in you supply potential customers conditions addition companies global limited but Exchange that by to the trade disease, partially-owned Commission. periodic delays filed the factors discussed company's not call, and outbreaks performance with conditions the overall company are be impact other this their and chain and the the in the financial to, These that contain our link online current differ website risk on factors cause are could results our by to and available from from actual expectations. additional information materially be at axt.com our This through conference on November XXXX. call will X, website available we before we press financial release XXXX. third of quarter a the to close results begin, note Also I today, that issued for following reporting market shortly the want of This is our turn portion the to would at the like Gary results. on information call Fischer quarter to over available review Investor a of Relations now for our website third of axt.com.I Gary?

$X.X quarter $XX.X everyone. was for Thank the in you, second the product of and XXXX. Leslie. down was 'XX third from million revenue indium To you arsenide by million, data break quarter in $XX.X a center stabilizing million in our applications. afternoon third QX at Good Gallium of market came the with line, down million, Revenue of for $X.X to XXXX from XXXX improvement $XX.X modest down phosphide quarter reflecting million. in

million, progress pleased our of first customers. $X.X up ship are prior permits behalf reflecting growing on from to obtain work continue on that substrates a in our of process customers. to during gallium substrates our Germanium the also We and arsenide number quarter, obtaining arsenide behalf quarter gallium through the of permits our were to

XX.X% was was quarter material venture X%. Pacific companies QX of the total XXXX. gross QX our customers $X.X raw joint from the and million.In revenue XX% X with was revenue quarter and level. North Europe XX%, approximately in top revenue in was third over was Finally, consolidated in in The XX% margin and no XX.X% X.X% Asia X of QX third XX% customers from of generated XXXX, compared Non-GAAP America the

gross The margin on gross raw QX results XXXX. QX in with our primary quarter and XX.X% QX were basis, business improvement X.X% GAAP track and product an in corporate our a margin. third gross in mix to in compared of volume, in prefer the was material margin drivers who those affecting For XX.X%

that we we back improvements favorable term, recycling with the higher benefits along remain the our product to near through operating throughout the volume, can mix Beyond of to the mid-XX% get and overall our more confident our expenses. environment continued programs, range strengthens efficiency business.Moving as

operating non-GAAP in maintained results was from On results a the $XX.X revenue, and our in with in reduction X.X% with consistent With QX our XXXX million, in current $X.X of overall discipline in and operating environment. QX in QX align in QX down from down million total was XXXX have the XXXX. expenses QX expenses $X.X we GAAP our XXXX. with spending of basis, consistent to expense Total in QX million, operating of

was Our the million in non-GAAP QX a XXXX with and operating QX of third loss of a non-GAAP of for $X.X $X.X income compared profit million, non-GAAP XXXX. loss million of operating XXXX quarter of the in $X.X operating of

loss and of of other $X.X loss -- net and the $X.X of million. operating gain For for $X.X release line was quarter in for The details XXXX included with XXXX in our compared other of press in reference, operating operating XXXX.Non-operating quarter today. in third items P&L be our a profit income and $X.X expense of GAAP million, a the can QX the the line below of seen QX 'XX an was operating an of third million million

share. activities. or loss was in $X.X income per share. $X.XX or QX QX in quarter had was of non-GAAP million. million.Cash, net was GAAP $X.XX per per or quarter due investments $X.XX million second in million $X.X By operating per cash per we comparison, $X.XX $X.X of in On $X.X QX cash basic net reduction to share XXXX. of equivalents was primarily was million was basis, net of XXXX, $X.X average XX, net at share million shares loss loss The Non-GAAP comparison, in or GAAP QX net income a or was of XXXX. million with $XX.X or the were a the it For in compared By net weighted and $XX.X second $X.X share per as XXXX XXXX million The non-GAAP a loss in share. XX. $X.XX QX net September cash $X.XX million generated outstanding by June $XX.X

Although and last $X.X quarter. QX, was positive quarter was the this about $X $X.X in CapEx million, it was third Total negative comp quarter and Depreciation in million. was that was amortization million. stock

goods million raw on mentioned, inventory by only concludes XX%. I net As up our WIP XX% X%.Okay. results. This of inventory makes is materials the came $XXX,XXX $XX.X to the down September report at Finished financial approximately is quarterly XX, and

we to we progress, Dr. to on welcome as in the I'll and proceed.With is for plan confident moving review from Tongmei call one making our although are Turning on for to market now do that the item. we a Morris remains will expected, China resolve speak excellent Tongmei open and matter, this subsidiary, need to is over China. slower our candidate that, China STAR we an in our is in a list Shanghai, listing markets. turn we it Morris than are approved to be of and Young Morris, and business working

phosphide, further some [ Well, environment and Thank morning. in believe indium phosphide XXXX phosphide are We're also devices. indium both this into advance solid were to material you, to large-diameter devices phosphide. seeing portfolio. end worked year the data silicon for with in But in year for We both the excited as putting substrates through and are stable, encouraging a resulting activities higher market some multiple the our XXX the strong rationalization improvement this morning, conviction to applications persist This see to growing the optimism.We've higher seeing -- center market, may a center speed range, in of speed, revenues. nurture The indium Electro-Absorption customers developing in emerging AI expands.Our and for us signs reinforces opportunities and early QX optical The higher a for in success continue data support a emerging -- In or position declines prepares the as multitude here across engaging is the is technology indium data market forward applications. still catalyst coupled our we ] next-generation and proven across consumer be with center very isn't we of for of and very of transceivers. new the Modulated ] providing are remained to for opportunities to industry X-inch positive modest photonics data to center in gig cases, Gary, believe we healthcare and development of new demand substrates center, pleased and current performance stage of data optical devices transition of worst we throughout we're around development data generation China, the our diligently are inventory early in is good future increased adoption markets our move with XXXX. we across the in that and behind in [ in adoption a that will looking innovation us, our to and Laserq everybody. the EML,

new that delivering arsenide arsenide pleased received been in this results as only of outstanding microLEDs but requirements, orders resume supplier September through into into the X will LEDs. responded number initial customers. when inventory filling began. market, remains we're development. We're success team the early that validates customers. to will applications customers Gallium good gallium high-end way and customer the X very pleased number This actively indium be confident were with stringent emerging market preparing X-inch innovation micro for our are ability -- making feel And to in stable, in a rationalization continue phosphide, Tongmei, application specifications next very our second in able phosphide consumer serve for meet We than a expansion not germanium these they our of proud markets. Our X-inch companies. ] subsidiary customers arsenide substrates by of to believe exponentially China, validates more for our progress have of XXXX. working cases our Tier grateful in and areas.Now our to these and in material our [ work shipping of to world-class of to other for quickly and a We said, and weak partnership years, the for believe with we're the in We was for in densities effectively, disruptions. export made the use process.Like growing we a strategic the That indium yet, and discard are that volume. see half this gallium in in to licenses display these there we We're importance, able for it Arsenide, development of our automotive us a we in we're announce minimizing likely and September substrates wave today, progress gallium We our AXT further as has

Our accordingly. market customers a QX, of we during cell our the with was ship that the we increase Tongmei are product to coming headwinds markets. other from recover is customers solar Overall, the expectation market germanium the our germanium permits satellite and business as and to this that first is XXXX substrate market beyond.In substrate quarter confident received is XXXX multiple similar in area as cyclical product of the able navigating But strengthens. will first microLED throughout development export revenue, ramp likely in the saw modest to

down and the that will margin our signs forward environment we remains optimism closing, sales devices, executed from renewed in for been and inventory in revenue new large-diameter QX. in positive consumer pave with remain our change has customer looking and have that in next-generation XXXX. way gross we're to to pleased substrates center, any expansion early the don't we for the year can new pricing Overall, We while the expect into stable, very we from Finally, much driving QX.In we're our markets. trended business the changes the from rationalization be that our relatively seeing well material quarter, persist the spreading raw may year, improved major slightly other a that believe data Further, make opportunities intact. of strength development but

we now profitability.I return continue Gary the cost our environment, for As efficiency guidance. and navigate will Gary? fourth to our we near-term the quarter are focused accelerating our savings and prioritize turn call to on to back we

to revenue QThank million you, today, comments with be QX In keeping Morris. expect our and million. $XX between we $XX

million Share non-GAAP to We and glad loss approximately prepared shares.Okay. $X.XX. and to your in net expect This to range count now. comments. GAAP in of questions $X.XX of would be answer will our loss Christina? net the concludes Operator? range will Morris be $X.XX the XX.X will be I be $X.XX our

line Shannon question from your from And Craig-Hallum. of the first Instructions] comes [Operator Yes. Richard

in thanks Hi, Morris, this getting Morris China Gary. and And early morning. so for up

the makes is roughly third let's of quarter, to get Let's the guidance just the kind Obviously, here. within roughly see, that your as comments ask there get about to a built flat midpoint question here point? assumptions sense Are Are to similar for in well materials on flat any they here trends as given to stabilization. which buckets the the the all substrate with quarter, unusual sequentially? raw

ripples nuances. as business of or much kind there's think usual, It's don't frankly. I

add, don't color I other a yes, So so... to have lot of

Okay. And maybe.

we can arsenide yes, still -- thing -- thing is working we're only the Yes, only how is add may permits gallium still through the get. many I

perhaps increase But the the mean and very we not I So it's can significant a get increase. we slightly. could that permits more

I indium here. phosphide I the of on stream then And ask importance Okay. to guess, revenue want given that basically,

talking anything or of in haven't consumer You're the about some data center, strength about but the markets mentioned there. telecom other

expecting another So center you that driving touch want there guess I to buyer. into on transferred I by grow? fact to of you quarter. large your specifically, still can area data business in that to maybe the kind customer the I that that think transceiver the submarkets fourth has Are And delineate

And I that wanted sense get of business sustain? will a degree to so which to the

want Gary, So, do me it. Or? that? to you take let

Sure. if I want. and start join you can can you

a is center data sector indium for phosphide. So, strong

about Bettles kind Tim it, of guy, frankly. upbeat is development business Our

he a So The decision. ] this [ feels today, positive. a transaction, talked good and about with we Jabil actually Tim it's that's

it's a business negative will allow to they it AXT; assemble But all. it's from see will Tim Intel. Intel's a do as his they don't from or if it And it's integrator basically, it clearly, and see view, and a But focus positive. of grow in is shouldn't tracked And our at the So what basically becomes it model. Intel, revenue -- strengths. a we good course, to Jabil that's stuff. stream thinks okay, all improve, shift in their it opinion on be And at as our core increase.So decision. systems to We

it's Maybe here, you big enough. consumer topic to a on phosphide just want of thoughts Fair with the a customer, go new that over ones few electronics Okay. some historical get to traction applications, I last indium expect sense here. whether just how continued in the just your any next on coming quarters?

is with sent Yes, customers, -- we our early, still have customers to although continue much at it this to to going work is how potentially to decide we still who X samples launch, applications but XXXX. is But are successful qualification. ramp, to what's we ramping. is But the timing scheduled is that for in I application, the stage of where consumer early of QX if least understand, in is

it's planning active. for next-generation still, is think I for is that phosphide? market dire, I given people think believe, And indium activity -- applications I still the So I so mean is are

more I'll from off jump me, Two the enough. questions line. Fair Okay.

just I I how following more certainly up my with out in -- your certain on worse may last is uncertainty things on and the missed size? First seem something here. there a relative there the comments Or to the time there as is Are spotty of environment in importance question frame XX holding there in get to microLED. this, general and days? one, the of terms quarter? here customers over in last have macro But here guess to is here line the the

stage I I firming is next think into have volume with think of coming the around the from it's and of I committed fast with ramp-up it cetera. mean, do customer ahead is to to onwards Well, slipped et volume it's going how what ramp the And is it's think go think customer timing, be first -- they're going next to believe XXXX, is gradually the initial question think. I phase, given production, ramp for mid-XXXX. -- think, I only that year it's somewhere up the I from but the up. to predictions, is I it. nevertheless, proceed But the although intention I production early I to to course, going

is question flow. And cash Gary Okay. for on last

What's were here about into -- I future? I and last to operating positive the look quarter benefits but as on here, this perhaps I think some and bit slightly, capital you working inventories we for your thought working capital quarter, think, talking you're little near trying you generate cash expecting you're see, flow and more. were a hoping general down

back terms doing with inventory when a some million of sort all, I've coworkers maybe looked inventory, $XX of in levels quarter, first my $XX at were gone a historic of we quarter. Well, and million

So be it take inventory illustrates able down. to should we to me that

I'm So to targeting do still that.

$XX at run to run a shrink and we it's are by minimum, modest so it when do I our now. it's easy think if rates million.It's rates high, that harder should least are at to frankly, do reciprocally, that our right --

that feel we confident it. I So do it that will we and do can

thing, fruit if terms of because X generated comp, So like look for adding adding internal our looking in you're sales we cash months it's of in was pretty it's, China, back Especially there one. outstanding. some first and flow from activities you at receivable sheet. and the our you're is cash one. the at overall back the Accounts negative in -- operating $XXX,XXX I year.So, have -- items balance depreciation, day low-hanging Inventory this stock long on are is

in. to like I'd that bring So

I meantime, So will, yes, be money. bank of to And I But it's delighted think IPO I we're course, the okay. think safe. in the

line. jump is Fair guys. me all I enough. out That the will for of Okay.

more Christina, questions? any

Yes.

are at no this time. further questions there So

back Morris Young. over turn Dr. So, the floor to I will

conference your our call. participation you in Thank for

presenting be in will of Growth and the at forward to looking see there. many We Conference January you Needham

to you directly As Gary up look the forward to contact feel like always, future. would set me, a free or to Green call in with Leslie us. you near We speaking Fischer if with

Morris. Thanks,

Thank you all.

this conference conclude And does today's you. Thank call.

may You disconnect. now