AXT Inc

Good afternoon, everyone, and welcome to AXT's second quarter 2020 financial conference call. Leading the call today is Dr. Morris Young, Chief Executive Officer, and Gary Fischer, Chief Financial Officer. My name is Liz, and I will be your coordinator today. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star, then 1 on your telephone keypads. Thank you, Liz, and good afternoon, everyone.

Before we begin, I would like to remind you that during the course of this conference call, including comments made in response to your questions, we will provide projections or make other forward-looking statements regarding, among other things, the future financial performance of the company and the future of the company. Thank you. Thank you. Thank you. as well as global economic and political conditions including trade tariffs and restrictions. We wish to caution you that such statements deal with future events, are based on management's current expectations, and are subject to risks and uncertainties that could cause actual events or results to differ materially. These uncertainties and risks include, but are not limited to, overall conditions in the markets in which the company competes, Global Financial Conditions and Uncertainties, COVID-19 or Other Outbreaks of Contagious Disease, Potential Tariffs and Trade Restrictions, Increased Environmental Regulations in China, Market Acceptance and Demand for the Company's Products, the Financial Performance of our Partially Owned Supply Chain Companies, and the Impact of Delays by our Customers on the Timing of Sales of Their Products. In addition to the factors that may be discussed in this call, we refer you to the company's periodic reports, filed with the Securities and Exchange Commission. These are available online by link from our website and contain additional information on risk factors that could cause actual results to differ materially from our current expectations. This conference call will be available on our website at AXT.com through July 22, 2021. Also before we begin, I want to note that shortly following the close of Market Today, we issued a press release reporting financial results for the second quarter of 2020. This information is available on the investor relations portion of our website at axt.com. I would now like to turn the call over to Gary Fischer for a review of our second quarter results. Gary?

Thank you, Leslie, and good afternoon to everybody. Okay, total revenue for the second quarter of 2020 was 22.1 million. By comparison, revenue in the first quarter was 20.7, and revenue in the second quarter of 2019 was 24.8 million. Of our total revenue, substrate sales were 16.9 million in Q2, compared with 16.9 million in the first quarter, and 20.6 million in Q2 of 2019. Revenue from our raw material joint ventures was 5.3 million in Q2, up from 3.8 million in Q1, and 4.2 million in Q2 of 2019. In the second quarter of 2020, revenue from all of Asia Pacific was 70%, Europe was 19% and North America was 11%. In the second quarter, one customer reached 10% of revenue and the top five customers generated approximately 30% of revenue. Gross margin in the second quarter was 30.6% up from 26.6% in the prior quarter. The improvement in gross margin was due to a combination of higher revenue, some improvements in manufacturing, as well as strong performance from one of the two consolidated raw material companies. By comparison, gross margin was 34% in Q2 of 2019. Total operating expenses in Q2 were 6.3 million, up slightly from 6.2 million in the prior quarter. Total stock compensation expense for the second quarter of 2020 was $640,000. Operating profit for the second quarter of 2020 was $478,000 compared with an operating loss of $634,000 in the previous quarter. That is a swing of $1.1 million, which is a good shift. Operating profit in Q2 of 2019 was $2.3 million. Other income net for the second quarter of 2020 is a gain of $1.4 million. This includes a net loss of $168K from the partially owned companies in AXC's supply chain, accounted for under the equity method, a foreign exchange gain of $52K, a net loss of $39K in net interest income and expense, and a gain of $1.6 million from a provincial government agency grant as an award for relocating to their province.