AXTI - Earnings call transcript Q3 2021

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Operator

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

Leslie Green

Thank you, Catherine and good afternoon everyone.

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

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

Gary Fischer

and to to will that begin exclude QX stock-based on requests option better peers GAAP financial compensation, Non-GAAP to providing provide with and response I align beginning letting by afternoon be to Good results with non you Leslie. we to results, as stock know you, compensation. results Thank our operational our in well financial everyone. as investor our want clarity reporting.

America QX approximately compared total to substrate in arsenide XXXX in earnings in the from $XX.X revenue quarter material results million QX, quarter million seventh report QX demand our raw for $X.X million substrates. that of of Again XX%, million indium tables for your third XXXX. I the in non-GAAP million XX% QX from and revenue. joint of find the two in customers revenue, customers of was announcement. ventures $XX.X $XX.X and QX, and Investors pleased QX commentary, consolidated QX third Following will phosphide increasing quarter our GAAP were from in in was GAAP with total XXXX. sales the of the the the revenue and Today, $XX.X XX%, in $X.X in for of second and from second was our Revenue was of to top quarter marks In we Europe total X from highlights up are no XX% $XX.X reconciliation growth up XXXX. of of million XX% up XXXX, third reference. from $X.X quarter gallium million million XXXX consecutive XXXX XXXX of reached million, Asia-Pacific and revenue generated Of can quarter XX%. down also North include our the was in $XX.X

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

QX, contracts are of substrate pricing XXX pressure QX preset on gallium to QX consolidated gross For gross those gross expect decline sales. long-term at as has in JinMei, at to contracts was margin in expired a on in QX of selling goods driven on to consolidated some continued rise gross results gross those conclusion. ventures. XXXX. the on joint cost those in one but result GAAP the a rise several additional third been The to the of pricing basis, of quarter in contracts. one margin The impact The with of JinMei by eroded was sequential At side The low sales and primarily we in that XX.X% compared in sold also margin of coming recent customers margin was price overall material XXXX who business. impacts track approximately least a QX materials our basis points. of raw XX.X% margin in the in XX.X% margins our prefer under

companies that partially our unique owned contribution chain our supply However, aspect this is supply strategy. of our important offset to has chain provide. and been by It profitability a the

basis, compares look stock of of our that through we comp, non-GAAP allow manufacturing is with efficiency product quarters. $X.X to with $X.X Total in continued ‘XX. believe This and in increasing be million $X.X million in FY as in of we primary improvement million. GAAP will the QX improving This million. operating gross volume, us ahead, progress expense over drive $XXX,XXX mix continued QX in a QX us As XXXX improvement we operating coming will focus for non-recurring. This was expense which a $X.X $X.X XXXX. total included On and million was margin

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

ongoing, have indium that are the of programs and X-inch major development of phosphide We the development two arsenide. X-inch gallium

in addition of operating make to last the was enable China, profit significantly of to in quarter will of in year. In investments IPO XXXX with $X.X continue XXXX $X.X non-GAAP which of million for and Non-GAAP be third believe million necessary we QX R&D, compared operating beneficial we our our and AXT profit $X.X to million QX shareholders. to

companies also partially of method. XXXX compared owned of third under tax net million It GAAP credit of a QX $X.X was with approximately a XXXX. profit net income for other gain million an in in $X.X expense operating million. third a profit of for quarter $X.X million in an For from included $X.X and operating QX reference, of chain supply in the of Non-operating the profit gain in equity $X.X operating totaling the $XXX,XXX of accounted China for This XXXX and included XXXX million AXT of was QX. the quarter

continue local beneficial have relationships we addition, the be we for In investment well to our in government, the our region. QX, $X.X very In been Kazuo received regarded local government, two operations. in from the which to facilities million with grants positive totaling and has

to ahead the we or look QX, expect either credit to results do grants. we not tax benefit As from our

come from QX our in QX. expect EPS As such, to we down

Our from in included of as charged a wafers on XX% importing tariffs results QX China. result into tariff States United approximately $XXX,XXX the the

we quarterly of shares The about of than Depreciation net million million a of net XX. third continue lower share. increased diluted net $X.XX million. by cash raw million. $X.X XXXX. of gross result XX% $X.XX of with million. with the $XX.X share million from million had were XXXX inventory concludes in September quarter work X% QX $X.X weighted margin XXXX $X.X discussion feel million We $XX and consisted $X.X million. By at a $X.XX Cash, This in per or share progress, financial per as quarter of By quarter second or million investments and equivalents we in XXXX, comparison, of our share $X.X income at contribution in $XX.X was non-GAAP of GAAP average or per $XX.X compared do outstanding in and was forecasted XX the comparison finished share bit was $X.XX This per and $X.XX XXXX, XX, ended and or of quarter the at of last million XXXX investments materials, results. income income $X.X as capital basis, for September $X.X or $X.X our year. inventory share approximately in or was and it June Net to the QX cash the quarter good million in JinMei. per in was XX% amortization million in were quarter third and QX Ending For in balance. the $X.X goods. in the third is $X.XX of per On lower a second the a

Let me in plan our on list give company China STAR about Market you in and update to our comments Shanghai. a the brief

also involved many our our China working company and IPO banker this as investment law helping some in in process. are have experience with this the transaction. are are closely listed NASDAQ We handling now. they They details firm There another China

hope an the application credible That easily greater. is in of the accomplished. a IPO on to QX. NASDAQ, submit no compared our but details means number goal, it’s is As small We by to

have been good teams Our make progress. continue on and hard responsive all working to we topics and

will to we now quarters markets. I for and continued So review since will a over consecutive the million business for three had of horizon. on remain have Young now call revenue been level our has we and Dr. X turn Morris in China see over to there in $XX Morris months. the opportunity July of and conclusion, X

both can So I middle tell for China you year, call. of in and hard up were to it’s this in the he get And night. last I the

his the who today, call and at was at been so has X office it awaken, Morris So, take the for am waiting Morris over.

Morris Young

everybody. afternoon good and Gary you, Thank

Year-to-date, by new XX% Tier increased display. period the new capture in to technical quarter underscore as that revenue help to third a now to in our years meeting and and of of increasing in arsenide we business. were market opportunities Trends enable. share increase substrates from proliferation such With XX% demand our monitoring, our requirements and year-to-date of in of Internet customers. our and XG facilities, including while the increase stringent LED results indium we gathering and Our revenue mega After X sustainable, the a continue preparation, data lighting the over expanded momentum XXXX, manufacturing gallium able upgrade, Things telecommunications, center health XX% the same are and trends substrates. seeing technology phosphide

pivotal As such, is for our XXXX a be to business. unfolding year

with We expect growth double-digit when between in ones believe drivers later the to looking XXXX approximately all to current of the new of ahead being XX% gains we and this And in growth that profitability. multiple year, we achieve substantial demand. revenue XX% XX% again can with on existing to growth post

for able top Now, now open revenue demand it highest customer we are several expand strong and forecasting in are marked datacenter driven increasing modernization quarters applications. demand respond. existing XG board hasn’t any was or obligations the beginning handle photonics as healthcare believe peers, to efficiently phosphide, worked history many potential and and to capacity with are the to were and telecommunication the closely again, that built related in our returning silicon us substrate telecom that of as QX growth be utilizes believe by Market positive a sequential in contributing boasts to up front-haul material. Of QX, for From business, capacity continued infrastructure XG opportunities growth ability once for and the multiple tight. indium to demand We out phosphide in as that’s store our PONs, new its In now in in demand across are Customer position best of capability avenues move the backhaul is industry applications the infrastructure well our well business and it. to whether we healthy indium and indium necessity meet customers as perspective, our phosphide AXT’s it our quarterly was connectivity. datacenter. or infrastructure datacenter is is these to as within that who

part be continued phosphide that we will will require a be fluctuations, telecommunication which nation tipping this have to there quarter-to-quarter of of point the we believe become that have in While essential reached indium business. application

scale in in indium to monitoring, phosphide new meet rising these healthcare are automotive volume In there applications, to and Among competitive to our the more. advantage addition is horizon now applications for significant manufacturing ability and efficiently major on we sensors demand. quickly believe indium phosphide visible AXT’s

by VGF the which raw have uniformity well our performance provide we industry addition, level, high specifications. that as In for customers requirements X been consistently applications lowest are EPD essentially multiple and material Tier as told

Now, years. for semiconductor In high-end turning we gallium and our LED arsenide, quarterly see in posted gallium highest QX, strong continued have automotive than applications, revenue to to lighting including more demand in display. and X we arsenide,

We China. in in seeing rapid particularly power high are also lasers, growth

be the to On side, IoT strong. wireless continues

– X-inch renewed are with gallium in demand and we tightening customers In or many XX competitive than in capacity arsenide be And addition, from see the years. application once This our capacity. our demand expand interest beginning facilities to our for for give to up devices industry, our not HPT us to customer from a us more been strong ability opportunity more. has

be the of AR/VR applications, of microLED gallium As our arsenide devices evolution red LED are MicroLED in we should and brilliant produce behind of green for not including power, confused in to with red, we arsenide industry. and development televisions, gallium manufacturers and for others. miniLEDs almost provide uses look sharper applications, and blue, can color. high-tech are that variety device ahead the holds MircroLEDs, customer portable the which the lighting technology to Major to particular expected provide for great make believe headsets, modules colors. promises less devices consume a contrast any

entire could and today. Regardless specific seeing reports could new are and and market consumer for beyond. larger is than that current arsenide for potential market this We the the wearables be microLED add gallium the phones numbers, smaller devices space value significantly substrate LED an like XXXX exciting of to market in

the arsenide very effectively, Now, turning on benefits to high development R&D, customers, the Among help us to we of required our applications. to will X-inch for and gallium which enable arsenide gallium to wafers. will scale cost X-inch continue many progress volume to is

in it, the delivered quantities major to diameter the customers with working them emerging may a you successfully technical of and As of meet sample requirement projects. every know, to up we producing size are challenges step we increase have interested their comes with in but

prior from Moving substrates, the germanium revenue QX in out quarter. the modestly decreased to

healthy satellite remains and track year. be for the on are industry solar well However, to we growth a XXXX market

X may continues Now, diversified currently to BoYu, we material and pBN-based for which manufactures joint temperature JinMei, to strong. raw OLED ventures recall, moving and materials, pBN joint high-purity be a Demand our you is high venture, as other supplier. tools industrial which consolidate crucibles

recovery area to with expand over response campuses year. relocated this of market company gallium of has in materials Kazuo, prior coupled in their roles In this in the pricing XXXX, as growth a in to year. most significant achieve to raw to contributed demand. track them our on capacity are raw We our This enabling such business to

has benefit raw gross chain material supply. provide our XX price our supply As of our our negatively impacted while as terms mentioned, the enormous margin, in profitability well in Gary companies increase overall as

new AXT. efficiency gross In focused are in We us and manufacturing believe in growth margin time exceed XXXX. our allow our highly return will transformative our facilities an on is or We exciting revenue, improvement this prior to product for in driving closing, expanded and continued in that in our improvement to favorable performance. renewed mix

experiencing positive the with the demand for that and growth sentiment of us, around while Gary year. coming have even market market Our across we Customers a expansion set our technologies. forecasting for highlights been we I for are and of product key strong applications. rising diverse are a a in emerging categories and this is a convergence sense and golden

For substrates, China. diameter our making this and expansion, reason, are investment in IPO our larger business, including in we important capacity

While to significant customers these high we believe have our of volume XXXX. us scale X need the strong We laid and to for in level in our they transformation gave bring and competitive a foundation Tier applications. operating business ability opportunity higher investments meet advantages and business a emerging expenses, us

in for As back such, I for guidance. the turn call are will our the stage Gary? now quarter meaningful growth we other year, setting Gary XXXX. to fourth

Gary Fischer

Thank you, Morris.

This GAAP Morris environment $XX profit and China-based for in in we see revenue $XX QX PON grants, taking As in will expected million. our is count net on be look at demand certain our in of strong and shares. and QX than net credits between more results non-GAAP range expected $X.XX. including fiscal the gallium strength the discussed, total XX.X in of gross cultivating $X.XX let’s reflects approximately relationships, growth of with million applications. QX and into In some in seasonality be our of the devices phosphide for year in an like XXXX, our technology Reflecting likely Share be guidance, the to $X.XX accordance this are we continued that margin will with applications believe perspective, to indium absence several of convergence wireless to years QX the $X.XX in put revenue the million expect our XX% to compared To or profit to is growth of as range growth years than of operations, increase customer that a arsenide annual this, tax commentary XXX% and for our expected will consideration investment to more and remains result XXXX. come. profitability drive to in our trends of

Morris to our questions. be I answer would concludes your this glad prepared Okay, comments. Operator? and

Operator

[Operator from Shannon. you. we And Richard question have Instructions] Thank a

open. line is Your

Richard Shannon

Thanks guys. touch guidance a on elements taking questions here. Maybe Excellent, I’ll the for couple of of my here.

I that line help spotty. get that implicit is here my question all, here the on your am I some so guess missed $XX normally revenue a million of is little you guidance the First width that I have double, have wider in revenues, here million drivers guidance. of the of was guidance. that might the to you traveling, $XX in your revenue range double revenue a to million And

So, if us thinking of and what’s there up wondering I a drivers can you am give are what down? sense the your and

Gary Fischer

Go Morris. ahead,

Morris Young

that. Yes, let me try

going is arsenide, material raw approximately gallium go to go flat. be up project indium slightly, and project slightly. down slightly, phosphide, is germanium to think up I we On to we it

widening a first is far the to the quarter down all, QX of usually range remind everybody, revenue, as want of As I substrate for us.

Given seasons. China the of we of well that Christmas days holiday in as holiday the the as first XX have national back-end

went the we bit in flat actually give So, potential sort guiding we are range quarter, the for us to a of cushions. just but

but that deliver to just As make customers. do sure want customer demand that the our that although there, you and potential capacity to shortages we in to we all we out see with the China, have power know

Richard Shannon

related here, guidance here OpEx on few and or to to sense think that the bottom had is bit than those magnitude and quantify can margins I the second anyway to understand changes of guide helpful. and both drivers the in numbers the fourth certainly, time guess help margins. here I line us gross you in been here – of a is and want want moving So, Okay, through quarter higher or get lower least at the EPS make your then contracts and OpEX how last into as what I what and And there? get a and which to but on us to to that help has that obviously My run would over you degree material – the the number is question typically points modestly raw consensus? pricing the the But the had gross we gallium great bake so they was be things quarters don’t other I for well?

Gary Fischer

will I go so first. Okay,

deliveries the buy, raw to consolidate. the one in that the of with a we trajectory. But they went long change of That’s as up. result, a cost the have temporary of which gallium, QX is situation companies they for some made One drags problem. for JinMei, And have have that commitments

there. this OpEx about compensation. So, factor when we quarter was $X.X $XXX,XXX stock the down that’s That related million. to one-time QX, a the key to OpEx GAAP line, And go in of bottom charges included

So $X of going it QX hope, come are few the on out think some we back we what changes guided And take And the so. QX, dollars. right, that to but for in that will ago, so… QX then it’s we you OpEX to we a – think sure, million come based minutes we about below in see from does gross profit

Richard Shannon

Maybe on the I go ahead, Okay. Morris. follow-up am sorry, – to

Morris Young

No, want your go thought? ahead. what’s hear to I

Richard Shannon

XXX third the gross guess quarter, basis higher is here follow-up similar I quarter? in it impact, the your points think about the or or quantified remarks question I in the lower in you Gary margin fourth prepared a is impact

Gary Fischer

It’s but slightly similar, lower.

Richard Shannon

okay. Okay, quarter those then things abate fourth after see do And the we too?

Gary Fischer

Go say? ahead, to Morris. What you are going

Morris Young

back Yes, so drop – the to the of I obviously, QX – our think sort in go QX. than me guidance think lower EPS let for I is

other repeat in if contract, that the with China, to that they has now QX, So, that part EPS, expect government as is repeat award we to received it is but this it And JinMei in margin gross for what other of in little and is bit, I of look us one continue, drag QX the we we the which the the at down QX. it will we think, itself establish reversal going yet QX’s with new tax not going new is lower you will recover. is have which customers, don’t signed a which to in customers a benefit contracts particular

up say, has overall, big in spending as of the that because X-inch of spending a IPO for our IPO part increase business to you – quite infrastructure in future. increased give know, so China we fund is we’re build dilute great X-inch gallium in things as much SG&A in the proposed the we money other that grow can smaller in I will mainly get China. arsenide. indium necessary in proposed our us the very valuation several the proportion And are phosphide as So for bit And to us R&D well in

to So IPO that’s necessary of But AXT. burdening the structure. our meantime, for which attaching some these pricing is beneficial is costs, process in the

However, year-over-year. that have I XX% we also grown now would remind you

our will next for expect growth, stronger that larger think will line. We and foundation take and well we’re down give I much the the grow a to which again some profitability to profits building future of revenue care bottom better more year which we year, hopefully of next drop added as expense us incurred, as

Gary Fischer

think of do investment. there’s one – thought, from We his I faster same our then we that. but view can are leadership view as to Morris which resulting the in that and just and And is would markets. we’re in I clear the – we’re we the out, in It’s flatten completed team, our driving OpEx a expenses the as me an competitors, think happening Yes. and underline move we having these uniquely advantage want on than the to positioned, something IPO. We company, same important investing things. for and view it note, take we of some we relocation

also they’re So investment. an

going think a year. get on next to our return So we – starting and investment, we’re

Richard Shannon

X comments question growth, XX% here comments year. your some recently few different new a you even XX% Per Okay. Tier they’re growth profile on much within how to my can customers, want Morris’ I particularly to segments overall about what I these have some adding next if degree also, then substrates. been to in characterize by the did are wonder customers the year. growth ways have that to next to of revenue qualified, And last

Gary Fischer

Morris. Go ahead,

Morris Young

revenue projection we they to in do new actually than to more customers our expect I think do and it to will next have our phosphide, very see we’re exciting indium grow XX% and phosphide – grow we Yes, indium multiple year. phosphide, applications We projection. expect continue talking do for in indium

So for very we’ll us of for all, also interest growth China, Gallium gallium expectation we we percentage first see higher year. giving a have laser is arsenide, – growth well, year. next the seeing in arsenide, us a already in especially are high-power renewed is what high for next

already with we’re for that engaged telling And high-power us. next in us volume a expected customers. demand. they are We’re ramp very also But for interest seeing laser the market year, exciting new in HBT

and PON years cell that strength of for providing because substrate many for phone our market. flat the sort many, in know, HBT you been As has

are HBT to XX% between on the next XX% years the market seeing telling is for So next we the market X actually absent been time. a of tight. you have X to that But us kind now in industry almost expert market that are demand know they long grow HBT as capacity long, in the this years,

us, we’re near they the So about are that to talking to market future. and excited returning in

the growth big driver. And that’s so two

LED our demand strong. well larger In crucibles material, and PPM, because as the grow for market. very to is allow I believe two have grow, expensive a for well both we as poised mainly to joint terms us will that are much manufacturing ventures think of as that providing facility in to new we as raw moved crucibles

grow. because been demand. are they although but to which they JinMei, healthy overall they business poised that increasing have material the is is of very And a there’s caused our this margin, And the And high-purity so low business. business, quarter company, flat

and right the have technology customers. serve capacity We our to

as grow a by well. to for sort of Germanium that expect the it’s we way, So projection flat year. next

Richard Shannon

Okay. Great, me questions. Thank you. and for details all that’s great

Operator

Thank you.

comes Gus from Richard with Northland. question next Our

open. Your line is

Gus Richard

I Gary, or to question. I I for just coming you get right. the at Was for taking $X Thanks housekeeping get million. going think that quarter to GAAP want Yes. to try around sure make my mentioned you’re OpEx my non-GAAP?

Gary Fischer

That’s GAAP.

will predict currently – of think be will I little million, it so… a $X bit, be south it we

Gus Richard

And then SG&A million it. listing? the spend How up for Got STAR on this listing, of the year. $X STAR it is rose, your about that much modeling

Gary Fischer

have been of into things. of lot a equity that permit we slip and us help There the project. issues we balance Well, driving hired section. people on kinds also the can’t are administrative that to has into these – Things of number sheet a the

if can answer. give know I don’t haven’t I I carved that enough. you So, out solid a

have We but to know so. phenomenon, I specifically question, observed don’t how the answer the

Morris Young

Yes.

So, me maybe a help little out bit. let

look, the – think second okay. going are company market, STAR go I public we – NASDAQ-listed probably this to trying

the new was But new say the sort for pay in. our requirement The in it to in employee it to to to required to So, China. sort we call of we they elevated I nice, doesn’t certain, expert compensation tell follow firsthand, level. is because can But public one section example. requires we Street employees. lot a of public for a and give compensation you of our sure. a go China, to And there lot you And are a experience. to lump we because China conformity of have Wall perhaps to have of our is propose whole – going In some employees be requirement minimum, that that of need housing in have we allowances

so And expense. expanded an that’s

we I just not of listed small there a a But And China propose company, up. required is the is mean company. to as IPO side be we could is proposed we lot as once piling equation company of these public, that going conformity things valuation but get. large, than need Although of follow that the this go new we in to other they higher that public China much go the are valuation in nest, to know, ever it’s you

capture. result, less fund lower of expansion much answer business we get And dilution so for to will able as some new we ourselves opportunity capacity be a the growth of we that are going costs, much the to to need

it. sides that’s So, of two the

Gus Richard

I understand it.

is ballpark, – you a $X a for So, whatsoever? have million do any it year, of ballpark Gary couple just a is looking it

Gary Fischer

I should that, No, I I’m turn on sorry. don’t. yes.

Gus Richard

some margin, your quarter, slowed And in through on. some was phosphide, arsenide, you to the X-inch the X-inch gallium there that in past have raw the and guys company, of it move X-inch that in in gross terms was activity? from pressure let’s And R&D just indium up R&D, materials Yes. had started the then the pressure ramp efforts from of incremental X-inch, or when

Gary Fischer

knowledgeable are this. You about

it’s a there is just sold. is There many steps in good. technology. Its process manufacture that’s way it’s of that think I our – and some cost in process because we goods

in capture So, based. D of everything development cost is lot in that’s not it’s research to sold, but there difficult R terms There is development. of goods a of versus

the gross And so contributes and probably there some margin. yes, it there to shortfall is of some the

Gus Richard

But the impacting major the factor of and the was raw rising R&D... just the so not price much gallium raw was materials the that

Gary Fischer

didn’t. be normally percent margin Yes. the The we we getting would and most that notable is X.X% standout, driver JinMei from and gross

So, And I the in. say, biggest then that’s element. still is there would settling some single

do an at standpoint I from have well. I background as it and operating a As look business

it’s new people. facilities, So, new it’s it’s new and equipment,

bringing happen. up XX%. we achievable think that about are are goal. bit might is it’s There in confident as need we you So, in gross margin, there we of We to that call low-hanging to is now on efficiencies it for miracle a as to of and And going well greater exactly equipment will what’s see lots sure let’s we be our goal have well, I those. areas marketplace. what’s business QX where manufacturing. know in think gross the to speak those than help some I is the we something This And mature in to going for in – just disappointed call that, and are I people that – a say the situations listeners not know of that number facilities, one an we But there, fruit on We to QX, but margin. XX%. manufacturing some, very would back what little

I good better have but at time X.X AXT. would customers, years the than visibility from right now We in our have pretty any been I say

And comparison think – view just I will very be and would significant. look shareholders year-on-year. not So, at is year-on-year, to next that our I which positive but encourage we quarter-to-quarter, will year the another

Gus Richard

depending expect Gary to long-term purified is get would those back I you I or the XX%, think it’s what ramp contracts on your gross – going QX through stair-step will like? on gallium look be margins, it guidance. go? how get steady to like to mean on on it looks to from Just based bottom there more Is a

Gary Fischer

Yes.

of dribble still with there a there. may We And in that’s QX, weeds And out to QX. already have is happening lot the it yet. get we more But are sure of not some happening in JinMei.

won’t about just be don’t a up yet QX with to possible. to it’s I not visibility think there not pass until team. haven’t it’s our to QX intuitively, it’s previously so. I business, based we But of QX, XXXX, get it’s in So, think be is to next that, get year. I the but the the definitely achievable stay – to and but And go on going like, go then maybe very I on done said XX% understanding think I ground very and there things going and

Gus Richard

you. Thank Alright. it. Got

Morris Young

in little. try comments. me I and a in me let what Well, think Gus, prepared Hi lean let repeat our for

gross us. year, are to we faster to as we pain. of mix First mentioned, kind help phosphide And going to sort growing that our is XX% going Gary going grow growth top that of the going are of to product again. going some through this we year. That to also thirdly, all, and a put a we margin. is believe – And our us than of help some we think actually revenue our indium grow next grow – is going On

you are good Although sold, part to very the germanium have. we more to the with I most we then And or offering I of our price attractive every added okay. the think market rising, are and – overweight. component we are business, And drag, pain with the also are margin And I provider and goods is competitor And is go going manufacturing gross having cost it’s so, want that much, it also prices every gallium and okay. of capacity seeing would more in up with do But expect our mean, product going they our not rising, the of is squeeze. think, demand – hopefully we I substrate is margin up, I of the important. remind market gross this

aiming we raw our raw other However, have with joint making that and gallium us. in making the ventures strategy, supply material for the

So, is improve will margin such there power better line, In offering the are know, up. but top, hit that difficult a laser, below new the is margins us that gross better for hit. our we ways are partially price opportunity give mitigating you we – the tighter, joint be as which us us our our go venture knows the there can yes, require different and but the and prices, in return. product to who providing do, it to But as you it’s words, brand that margin And the inflation such be our high margin better the low other way. also are we a there on if as capacity the got pressure raise to EPD improve get the know to that industry, market into And becomes to could going point coming. a is maybe may as

Gus Richard

Thank so Got helpful. Very much. it. you

Gary Fischer

Gus. Thanks,

Operator

Thank you.

Khorsand Our with next Hamed question from BWS Financial. comes

open. is line Your

Hamed Khorsand

– just cash you a you declining because I well? are there also of as your capital issue, to chain customer build year this to burn cash needs want your to build the the since continue you has beginning requiring particular kind been and inventory of a as working understand that inventory. or customers here Hi, Is supply is are also

Gary Fischer

There AR. to on that But a that’s comment that one growing period inventory for the are including customers that maybe And contributor. remains working so but their build consigned another is make so site, this and sheet. require capital is about to insightful time happens, September can that balance want us customers inventory, when month. I in is our that the particular, And months like up $X.X AP means maybe that quarter, cash it in which September tends $X million went went was million, it up the million AR our – float revenue $X three think. I in was QX, of don’t largest out. And the down I the because was to

lot capital revenue. cash don’t inventory So – think – the okay. helpful. moved keep our from in to I September – general, a managing working And working yes, moved were have we so I think with are I but to need capital, comfortable hope I position, it we we know XXth I okay. around to growing it’s quite but June that’s XXth, it

Hamed Khorsand

Okay, that Thank you. was it for me.

Gary Fischer

to afternoon Thanks, Hamed. Good you.

Operator

Thank you.

sorry, Our from Gilbert am with comes question John-Michael just Octavian next Capital. removed. I he

with from We Richard Shannon Craig-Hallum. have a question

Richard Shannon

Well, great. Thanks for me for taking a couple questions of more guys.

guess love would AXT covered I here. this? drivers I think decade. about your much opening the this. I I a on or competitors are see up, the for over to with the opportunity haven’t opportunity issue there And HBTs, on behalf I talk you for Is this understand underlying capacity reasons have of you this. Let’s heard Morris, and a other that’s basically this for

Morris Young

the it’s I former. think

what see But I think very to from hear our demand be seems HBT customers, to forecast we very market is strong. the mature. from

to and between I bit us XX% that And buying market the prior think when over, reactors. first go We are still is, MOCVD XX%. these, are they is market this going told this it mature, our engaging customers. we seeing a to And a grow lot. to customers is the really they whole market who are line But doesn’t a our and there demand from of quite number one are

the Of XX demand And years is course, market. into like large but very this almost very cautiously, actually which But it’s give because although opportunity pressure because a ago. get we there, looking to us there. this is are did something the does price at the we

Richard Shannon

Okay.

baking what we shouldn’t any telling revenue stream? are anything, Is you next that be into actually year’s say, me? contributions So,

Morris Young

In our projection we do.

in We our But we were – putting me projection. are putting are cautiously but see we something. let

putting are worth. we million think $X I about

is opportunity think to the of here, But starting we large. be yes. So, definitely, things is overall scheme

Richard Shannon

you I here? Do that’s that this? when of middle situations ecosystem. determine on when to I you of starting a some question you – building of you think sure then, in do big And like been helpful. big may a last have ‘XX, about start way. capacity calendar pay second to lot got a and now customers And you a obviously, do My talking revenue is, in last would you microLED. has question don’t asked of and this anticipate What Because having kind have Okay, between to that build clearly take big is strand CapEx and when happen am kind sort I of ask version opportunities, be want ramp, building a for any to customer, or start of you is have this quarter.

how then So, your now and business? should in timeframes between about think the microLED we

Morris Young

And Sure. very I demand good That’s mean are Yes, Richard. question, cautiously optimistic. opportunity. we the is a very is we – a great there. are this

to customers the big in production But order is sampling the pilot assurances come multiple there, actually been now. the customers, in demand We are although talking we to saying demand is But starting our XXXX. is and want that, have that And actually. we is there. the going

we a with our I going very XXX the we would what’s say, customers take but like, it contemplating take something our XXXX and are kind customer. to pay going that now, sign they on on. year. you next to wafers deliver, And contract – the yes, work what is them need. be. we expansion don’t to a our spec And they far feeling of we concerned, to far where year, projected pay, – as hand, forecast gave going other between giving are as we and as are we we take to with are us of wafers is will to And And But see as as and need are of signed that good a speak will to – capacity have We they have have if we. or engaging we

requirements for is a But mutual this are great opportunity. there other. So, each

that the think we capture can development costs this ensure are front road. necessary I the to spending we down end opportunity

Richard Shannon

that a good for that’s characterization. Thanks detail Okay, Morris.

Operator

the in call to you. no the any remarks. I Thank Morris back would turn to And I like further showing queue. Young for closing Dr. am questions

Morris Young

the you, in Conference. And we Select our everybody Craig-Hallum Alpha participating call. November, be in for will Alright. conference participating thank In

we hope I to of see think you there. many

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

Operator

you conference Thank This for calls. concludes today’s participating.

may You now disconnect.

AXT (AXTI) 28 Oct 212021 Q3 Earnings call transcript