Earnings call transcript Q1 2023

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Operator

Good afternoon, everyone and welcome to AXT's First 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 Abby, and I will be your coordinator today. All lines have been placed on mute to prevent any background noise. there a remarks, session. speakers’ the will question-and-answer be After turn now over for [Operator would to AXT. the Relations Instructions] I Investor like call Green, to Leslie

Leslie Green

Thank everyone. you, good Abby, and afternoon,

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

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

to the our quarter Gary like now results. Gary? to XXXX a turn call over first would Fischer for I review of

Gary Fischer

the X.X product by in was at particularly China, market million. in quarter of applications, center, Thank XXXX everyone. number telecommunications for infrastructure. and data of you, break in in Indium category, from revenue the substrates you Leslie, quarter QX for million, particularly Gallium softening, XXXX. phosphide and million quarter million $X.X our XXXX To from in million, down $X.X $XX.X first first reflecting consumer fourth reflecting the $XX.X germanium and $XX.X good was to of a Revenue slowdown of down were million the down came arsenide across afternoon overall

issue resolved from in the past Our germanium quarters. and we payment QX, revenue have was subject we up described the slightly

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

For gross QX in in was XXXX. XXXX. million with QX and quarter QX first to QX expense basis, $X.X a XX.X% in compares $X.X of and million. margin with who in results was non-GAAP compared XX.X% GAAP on the prefer those of in with XX.X% track operating This QX $X.X Total million in

of On XXXX. in down QX was million, in million a $X.X basis, $X.X total from operating expense GAAP slightly QX

million QX was non-GAAP $XXX,XXX our of $X.X For of $X.X operating of $X.X expense QX in in a non-GAAP XXXX. The a XXXX. to million loss and XXXX comparison, line was non-GAAP million in loss the the operating quarter of total GAAP -- of operating compared for of operating first QX profit

the an For of XXXX quarter reference, in million XXXX. in loss GAAP of line of operating was QX for profit $X.X XXXX and operating operating our compared with million $X.X $X.X an of first QX a of loss million

items and our release was operating line quarter $X.X seen in other expense for net press of the first other can gain The a details the million. and the included Nonoperating P&L below today. be income in

share outstanding basic $X.X was $X.XX share the or of was or fourth was $XX.X The and quarter income $X.XX XXXX of a XXXX, million in million of a XXXX or net Non-GAAP in QX $X.XX per or was loss $X.XX per of the compared profit in $X.X net share QX or per loss net For basic million with GAAP $X.X XXXX. share. XXXX. million. QX had QX By shares net per per in we On non-GAAP -- $X.X share in share. non-GAAP QX of in basis, $X.XX income million $X.XX average of net million or income the the of fourth per million of weighted $X.X $X.X quarter comparison,

$XX.X was approximately This it had Cash, million, of cash inventory of equivalents We reduction quarter ESG indium million new our the was very inventory a But environment in recycled it at the still in our remains CapEx to benefited the Most the recycling. the increase this comp Total us $X.X key Depreciation we which as and ingots demand X% materials quarter equipment this Inventory for million. raw in of is goods makes efforts. stock expect is is year, related. was Finished XX%. million the and at margins with our adds XX inventory our financial $XX.X and facilities the to Net XX. successful and down we quarterly and investments for December was Almost XX% is phosphide, $XX.X WIP improves. focus up discussion March quarter. grow million as efforts, million. of indium first of when in recycling and half inventory. results. March comparison was phosphide concludes a were bring inventory. XX, it of $X.X By amortization $X.X

Turning our Tongmei we dialogue have China China couple us had the to they Securities with to have thorough, respond a Year, Their to subsidiary, active star our to list the in market Commission in New and CSRC. Chinese asked and or detailed on items. again Shanghai. is the Regulatory of the plan Since process additional

in get approval are now coming process CSRC and months. will optimistic that we remain We so the in the doing of

a brief on process the summary We website. have the our posted plan and of

business markets. over to With our turn Dr. of Morris a Morris? the now call that, and Young review for I'll

Morris Young

and Well, in you, Thank good everybody afternoon, good here morning China. Gary,

in As inventory we as accelerated gallium market began applications. to the in see at correction relationships. that expected, in we revenue Despite strong took in position confident as last a step lower QX our and feel summer, phosphide late back revenue, customer

margin our our have gross efforts, success increasing focus performance in on in manufacturing continued which recycling We to benefit efficiencies, QX. having

signs that As sense we show amplifiers This look these and remains last while forward, first are makes that revenue seeing our year. to such is among stabilizing current as the certain were within demand aside applications as environment power some of September applications beginning the experience dynamic, in gallium weakness beginning to improvements. positive are we

improvement phosphide it catalyst QX. upgrade in stabilizing. in if Indium stimulus an likely they Now, appear in We're moves improvement been a a then most particularly showed though turning to applications China January would February national with applications. And notably China data or forward decline through some consumer QX, for the and in firm meaningful cycle expecting center experienced has as our and applications, infrastructure. be held telecommunication discussed, these not the March, fairly provide an to individual in China and in in markets. Hong

modestly; As improving I gallium be signs power power mentioned, and lasers of appeared showed some amplifier to demand arsenate in QX. recovery

be this We feel into opportunity. modest by We our meet until our qualification be flagship XXXX, about large the sometime revenue, technical also ability already of increased well industry our customers specification program wafers required. continue gallium delivering will won't second own half generating while for to as our business to formal as we in X-inch customer it. in for occur in progress that visibility with the as likely the have and to We're microLED, preparing good the progress

X-inch In very is line we by facility, Galati and excited our in are growth Cadu addition, our driving and progress up efficiency running our crystal for there. improved at

Turning substrates. germanium to

we sequential payment market growth germanium affected will towards of resolution softness, substrate working growth while a we issue by of one in macro be the revenue, with Following the quarters. customers, incremental our coming the in saw been has the also

material our ventures. raw Finally, joint to

levels quarter material we revenue and flat with are fourth prices and we Our of where raw seeing in XXXX. quarter stable Gallium proactively saw in from area approximately the flat the quarter another up represent was this low QX the vision. fourth remain

very In near have expansion revenue macro remains trend closing, of to will though much and that impact continue term. growth driven a intact. our The the environment we customer softening

and growth. continue efficiency, are work for improving our our to excel on ready profitability. return we likely capabilities, hard on business to continue that texting are support in applications future drive We to we we to and focusing to are our our accelerating Further, our new

call quarter will turn I for the Gary guidance. our back to now Gary? second

Gary Fischer

Morris. you, Thank

arsenide correction, to we in QX $XX revenue Given between is to substrates expect inventory mix likely the growth include million. gallium and continued weakness continuing million indium Product $XX in phosphide. and be

in in approximately net loss $X.XX. $X.XX, XX.X Share We our GAAP to the and million loss shares. the of be range net $X.XX will be our non-GAAP expect $X.XX of to be range count will will

concludes now. to will This be comments. answer I Morris our glad questions and [ph]? Aby prepared your

Operator

of [Operator from comes Needham. line from the Instructions] Your Charles first question

Charles Shi

environment, can Does try think see understand you progression of kind guiding the flattish to into how QX want sense quarter we the first the the my of question in question. to this find the like than be this year, sense to That's try this about a year going is It downturn historically, that shape the of I bit part a year. normal slightly any tends but continue you is, of along precedent the Or out. bottom. think a to of QX year. quarter bump make maybe if to think this you? half But half to QX. historical TononiX. how be maybe a I of downturn... looks year? to revenue the better case higher peak little year, get second Maybe to different be given It's tends of you'll Just severity to through going you're of second of the Would it kind be it's revenue second the the to that

Gary Fischer

Morris. ahead, Go

that. take me Let

Morris Young

Okay.

I think you, agree Charles. certainly, I with

just think correction that's or because consumer the ago. indium see think X months inventory we for the ago I the months X But pattern. data got and center it's product normal I for that certainly phosphide into

laser But So in activity, power continue. to we some see we do and expect on especially China, especially. it HPT

and for stabilized say saw consumer a how And seeing an hard and and although worry, modestly there the go next about last were quarter? of the they're is the be how to U.S. for will the that I other bit. continue I center going And it going economy they we bit, sign. strong be slip recovery. to may a the so inventory recovery into -- indium economy leg that although words, although but is how this inventory down expecting up but on But long demand perhaps encouraging think consumed, could how will will And another inventory strong to the be quarter, to recession, the digestion to be phosphide everybody a prolong I if In revenue inventory data guess, because are is be.

Gary Fischer

so declining with fact, I to agree the Charles, And up say tick see now, QX. it Yes. are I Morris. the QX start unusual think revenue And And because circumstances don't QX. below It that I in in would be necessarily internally, don't QX. might right in economy We that mean we doesn't know. will in would

So...

Charles Shi

Got it.

again us for is ask on want you was QX? what And remind Can to target us side. the you I year the what's CapEx question you in other cost full can your The remind concise? for CapEx also

Gary Fischer

think whole $X.X below $X year, And QX it for I was in million. be million. CapEx will the

lid some Morris to So But Gary no into was and Dr. we'd things. the a no, over for. Dr. There crossed in on going really sort that of and put stuff in works have QX. already general, we're that do not become

Charles Shi

Got it. of year, capital sounds in already for like the put quarters of half than budget the you're further more spending you for It a to X almost given spent year. next on you break QX, going the that have the

Gary Fischer

Yes, that's goal. the

Charles Shi

it. Got

Gary Fischer

things we in stay But re-existing. general, we're and regulations. to with in do that to the some building are have There compliance codes

Charles Shi

premium maybe to having handsets. may you about really you part Yes, about about program, I new Definitely, like what a to -- proximity And the points got reverting was we feels have for the about sounds company, third solutions, how under like it think I the be believe as the program any they want the arsenide-based thinking potential may be today? continue the it. about recently signs was consumer. happening? for Maybe whether data display last consumer that? It of hear second any but to we sensor the second talking ask with they seen did of rumors electronics back consumer guarding I some question. should that's

Morris Young

but back gallium still customers, up an specific immediate detector indium the gallium going VCSEL We the sensor. hear switched use about be you're same probably On the a detector. thing. the phosphide air it's to in whether The talking to Yes. or detector will is proximity asset

use phone. all. have this at thus maintaining really detector we smaller smaller understand can much visibility it, at a we As the indium But is phosphide on sensitive, more the or area, pie-shaped you large so no point, window

Taiwan, few although waiting wafers. are have in driving. I or phosphide of do collision customer for are run the think in looking for mean, So not -- We they detector -- I they other one nervously on using decision are -- months. what the we in kind fairly will a and secretive to something believe next for we is they should avoidance the autonomous decide semi-insulating We

we're far quality I mean, we again, it wafer early. that But and also what pilot the the quotation they But -- looking them at purchased provided guessing still so production is. application. for the have it's

looking So step the for. into consumer X think Micro are taking probably that obviously, And we're those it's product I further one reality.

of we it them. going for will I nevertheless, believe think although to it whole the it we will the making be launching progress I -- -- lot we're it we in are not of but we good it, that as come. very believe, line in script preparing but spend terms is late, And a built money, for already becomes said although

in XX, And so, we're for up them ready production sometime late to ramp 'XXs.

customer facility are tour was pleased So they the this major very for very last are a week and by meeting. And major had good us our giving in delivered way, samplings the so, to or other we customers. very, already a

Charles Shi

you, Thank it. Morris. Got you, Gary. Thank

Gary Fischer

Charles. welcome, You're

Operator

Your Wedbush next Bryson from question the Matt comes from of line Securities.

Matt Bryson

guiding where you're Or But expense for is up? or is for is for loss going one flat to what you're higher increase -- obviously, to First looking else -- mix? the a that that bit, is else revenues.

Gary Fischer

flat. below a may expenses keep the primarily. We be to And It's bit little less hope contributed mix -- there line.

So not sure yet.

So...

Matt Bryson

in because guess worked inventory but is from inventory of struggling chain versus softer, how everyone is customer end the the that lighter idea think And process? on I not any demand weighing much now. your getting then is out have right revenues customers just rationalization you end because you of And the Do inventory is perspective, supply in a terms do demand are where system. also

Morris Young

even the more although there year, it of still at -- visit Well, least but I take last QX a And peak, but Galil's wafers or customers XX% is us gallium starting order HPT, we lasers, as pattern. compared think to are thousand early tens say, was Like when QX giving was we QX, consistent thousands just -- of of we HPT wafer speak, is no only on of it's order. to order. in our in or for

So And will second talking it's into better you reasonably we first than the the half script, feel comfortable coming. are XX% be conference they're read if peak of although they XX%, year about running half, of their still level.

month. sustainable we power used to months It's per or As lasers got far is. as -- of thousands But it in wait got hundreds. how to now starting. the other It's wafer just we've to it's see XXX. so We the deliver concerned,

but tell no inventory everybody more because -- orders. in think and to trying to everybody there's us that supplier more out. squeeze difficult inventory wants every I cash can this And it's is So, see to because they if fear controls environment, drive for probably is the eager get

there well. it, with with that along So price are as pressure

So should term it's maybe but for why I I the believe I'm driver. be X at X -- don't quarter -- looking [indiscernible] industrial MicroLED a any for laser or I horizon, mean, think power long reason because manufacturing. And there's

aside I more in a people. think I But the think believe, industrial translate industrial I and into because manufacturing, consumer uses the coming is think I production, I see which power streets more back, it will lasers. lot when are traffic of China gallium market

our to AI the they running. our AI have just digest also, center, much I think more way, with the center, going But from an inventory. glut, I happy mean, And bought customers by are But data telling with they they are perspective, so much last I is think the but the computing me it's data say. way too inventory application hard performance, although logic power there us for although my year. to because to I that that use very just it's think about

there the bloom, data So energy the prediction in saying is of if whole a so next XX% almost the of is it few probably years, intensive. in total full it's consume will because AI society

that you need a data need to do So, because need sound should in more or to it the access quarter for information sustainable silicon growth data but long-term consume center usage, allowing phosphide indium then it's that's center, photonics and opportunity faster for -- the to for you help But going and substrates. if a it's more us for drive to long-term for energy more work us you not the next good -- that and probably two. opportunity

Matt Bryson

summarize, still to non-phosphide see signs starting Just seeing what you've is much start quarters the in markets, much got is out in -- [indiscernible] or because guess, demand a is -- more, has to couple to within you is least I been down going you worked so that inventory you're at of system. you're and figure there just the there's inventory take demand that before where exactly so fair? Is

Morris Young

Yes. X but us. said big market is look far we for In I'm saying when can phosphide a for be ways at the existing as should as are opportunity one indium a mean they the concerned, that's way, because is I demand. again, drive there I what as that recover,

another applications. that I one new there's think the is

monthly [indiscernible] know a what runs and are from vehicle, getting is. They that have I just for wait Taiwanese we exactly making see said, so don't of are making But substantial where we're autonomous on it's the As order. inquiries application we is guessing -- have but quite customer. it to the in but it, of we looks we volume terms piloting and

the orders down the traditional are such usual as We're data and balked -- seeing center, inventory. data the yet. products old but they in So yes, center, consumer customers, not

Operator

Richard question Shannon the Craig-Hallum. from from next Your of comes line

Richard Shannon

in And good to Morris morning China.

China for China describe results Gary; of did your quick questions your tactical not me quarter for here. probably -- second couple what what a Let you your the or only? here, and the ask Asia just first quarter outlook on Pacific both Can but quantify revenues

Gary Fischer

I in it I'm have share me. it, but don't happy front to of

you and maybe tell don't it up I So look can I really.

Richard Shannon

to you the here. as question look center. Morris, going to topic it of of data want up If more a

something that? answers movements planning on that talked quarter. in about here a here, You and some sounds fair of amount it of continued forward Are your inventory admitted sense road customers of in about and going business map internally previous of a one Because I've your potential stuff last there. like you to reorganizations heard the like getting or

make want business expect you continuing I sure be inventory that to So that like after an to a what burn. just looks

Morris Young

future think Richard, well, they I the are product. about very enthusiastic

We are on futuristic almost them with. are to as them. material working -- trying a well engaging work very good their solve methodical with with customer requirement very we're as They and weekly next-generation requirement to

I reduced dissolving see And with so don't them at we activity we they're going development. to all. think be soon. don't do see Actually, new any anytime product

higher higher it's power difficult very is speed. but that level, for materials products. the think they're to But tell, new I and for it's from saying

Richard Shannon

And hear. within maybe do touch Thought guess, you here? you process; And on to you're getting can you Morris, orders if kind progress that's when what coming as late bit I larger more of what to think to I what seeing going good little referred and of potential 'XX? micro are in detail a production high-volume to add the LED. stages expect of more

Morris Young

say are In the how for qualifications other us. and in a words, I specifications ingots the they we're qualification are needed, how Yes, months. skewed customer for done X would and we to next just site the visit X many I need out did many wafers to all think get ironing they

happy. this they're interesting, like European I And parties you manufacturing the facility. both comments was the think saying, guys and although in but order are impressed practice looks the mean, think, our much doing China. manufacturing plant, all mean, "Wow, especially semiconductor you are I so So I -- XS very SBC mean, in and controls. of customers one are with fairly I are I the

I it took a compliment. as So

sometime -- as going think we late we told happy. as far the were I all XXXX. So But are volume always yes, ramp ramp to it's in we concerned, is

Richard Shannon

this hold maybe set of context up you're in said for hearing when micro true already. would customer have tranche support arsenide LED, what the greenlight gallium a second or you them you a volumes? you've And customers the X-inch to you're you're to forecast to currently, large from of line the for equipment If got pilot large forecast getting seeing from higher Okay.

Morris Young

I we I Well, think fortunately unfortunately. -- we mean or it already. call you I spent think of maybe can it's the most money --

I think we're I think volume ready probably planning our Xx because original -- was the before.

-- infrastructure cannot and also, So build. incremental you of build, smaller sort do

money we concerned, done. further So more as feel without first on That's we their But late building. for already tranche production spent any far purchasing fairly equipment. in as is 'XX the equipment fulfill to starting new comfortable

Richard Shannon

Okay, fair questions out and line ask and of of enough. I'll here. jump a Gary couple

able all, of did you China. in numbers find are First Gary, to those

Gary Fischer

China QX. $X.X Yes. QX, million in was

Richard Shannon

than in be Okay. quarter? the is And worse expected no flat then this to second

Gary Fischer

little I up bit the in it think will second a be quarter.

Richard Shannon

messages little to trying last question you about think good your balance of of working portrayed for Last is kind is cash inventory Okay, and hear. repeated here. you, the And a some one up Obviously, capital. went of to bit. quarter I just sheet Gary, squeeze here out thinking about

here. about You dynamic that the explained recycling

year? whatever the As think is about you How how where of you debt independent year do cap directionally? up level where and this you a well. do things directionally have and cash this as down, goes look Is CapEx throughout the this obviously that goes plan we year that with working see here, other

Gary Fischer

model, can flat. down But a of up the up. bit. or be when move when expect could for rely cycle, would little a It it we I on think typically, next with we we down to in we're inventory, things couple tighten quarters, our I relatively business

when not when cash When so in be flow the that much is we're a can so grow lot, we negative quickly, grow that's we cash And high. process. because investing burn the cash growth

my So yes, that -- on so comment would that. be

Richard Shannon

that's I from all enough. you need That's That's the hear. to guys. fair all Okay, questions

Morris Young

Richard. right. All Thanks,

Operator

Dr. this to Young, Chief There further call are back the turn no questions you. Morris time. Executive I Officer, at over

Morris Young

call. Thank in you conference our for participating

Annual Institutional Minneapolis. at crack Halle presenting will This Investors XXth be in quarter, we Conference the

you As me, like up contact with always, look set if speaking call less us, titer please feel to Green with Gary or near Bye. the would free future. to we you directly to forward the in

Operator

today's conference concludes call. This

now You may disconnect.

AXT (AXTI) 27 Apr 232023 Q1 Earnings call transcript