AXT Inc

Good afternoon, everyone, and welcome to AXT's second quarter 2021 financial conference call. Leading the call today is Dr. Morris Yang, Chief Executive Officer, and Barry Fisher, Chief Financial Officer. My name is Leah, and I will be your coordinator today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero on your touchstone telephone. As a reminder, this conference call is being recorded. I would now like to turn the call over to Leslie Green, Investor Relations of AXP. Please go ahead, ma'am.

Thank you, Leah, 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, market conditions and trends, including expected growth in the markets we serve, emerging applications using chips or devices fabricated on our substrates, our product mix, our ability to increase orders in succeeding quarters, to control costs and expenses, to improve manufacturing yields and efficiencies, to utilize our manufacturing capacity the schedule and timeliness regarding our relocation, the growing environmental health and safety and chemical industry regulations in China, 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 and 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 2022. Also, before we begin, I want to note that shortly following the close of the market today, we issued a press release reporting financial results for the second quarter of 2021. This information is available on the investor relations portion of our website at AXT.com. I will now like to turn the call over to Gary Fisher for a review of our second quarter results. Gary?

Thank you, Leslie, and good afternoon, everyone. We are pleased to report that total revenue for the second quarter of 2021 was $33.7 million, up from $31.4 million in the first quarter of 2021, and up 52% from the $22.1 million in the second quarter of 2020. Our revenue results were well ahead of our guidance, driven by continued growth in indium phosphide, gallium arsenide for LED applications, and raw materials. Of our total revenue, substrate sales were 24.9 million in Q2, compared with 23.4 million in the first quarter of 2021, and 16.9 million in Q2 of 2020. Revenue from our two consolidated raw material joint venture companies was 8.8 million in Q2, up from 8.0 million in Q1 of 2021, and up from 5.3 million in Q2 of 2020. In the second quarter of 2021, Revenue from Asia Pacific was 73%, Europe was 19%, and North America was 8%. In the second quarter, no customers reached 10% of revenue, and the top five customers generated approximately 31% of total revenue. This is now the second consecutive quarter where we had no 10% customer. This means that revenue growth breaking through the $30 million level is not overly dependent on one large customer, and this diversity is a good thing. Gross margin in the second quarter was 36.3 percent compared to 36.8 percent in Q1 and up from 30.6 percent in Q2 of last year. The increase was primarily driven by product mix and increasing revenue volume. Total operating expenses in Q2 were $8.3 million, up from $8.0 million in the prior quarter and $6.3 million in Q2 of 2021. R&D is one of the drivers creating the increase and as a result of two major R&D programs that are going on. We also have additional expenses associated with going public in China, as well as increased employee stock compensation expense and bonuses. Total stock compensation expense for the second quarter of 2021 was $975,000. Operating profit for the second quarter of 2021 was $3.9 million. compared with an operating profit of $3.6 million in Q1 of 2021 and an operating profit of $478K in Q2 of last year. Other income and below-the-line items, including tax provision and minority interest for the second quarter of 2021, was a net gain of $500,000. Especially noteworthy in Q2 is a net profit of $1.5 million from the partially-owned companies in AXC's supply chain that are accounted for under the equity method. The market for raw materials has tightened up, and raw material pricing has increased. The tax provision was 900K. Our Q2 results included approximately 280,000 in tariffs as a result of the 25 percent tariff charge on importing wafers into the United States from China. For Q2 2021, we had a net profit of 4.4 million, or a profit of 10 cents per diluted share. By comparison, we had a net profit of 3.4 million, or a profit of $0.08 per diluted share in the first quarter of 2021 and a net profit of $361,000 or a profit of $0.01 per share in Q2 of last year. The share count in Q2 was 42.727 million shares. Cash, cash equivalents and investments were 58.5 million as of June 30th. By comparison, at March 31st, it was 66.9 million. The decrease included the one-time payment of approximately 3.7 million for shares in Tongmei that we purchased, which were previously held by minority interests. In addition, inventory increased 4.2 million, accounts receivable increased 5.1 million, and AP only increased 2.7 million. Depreciation and amortization in the second quarter was 1.7 million, and capital investments were 7.4 million. Okay, this concludes the discussion of our quarterly financial results. Let me give you a brief update and comments about our plan to list our company in China on the star market in Shanghai. We are working closely with our China investment banker and our China law firm handling the IPO transaction for us. They have some experience in this as they are also helping another NASDAQ listed company. The star market authorities and the China SEC have raised the bar for companies wanting to go public. Their focus includes semiconductor companies and material companies, and we qualify in both of those categories. We believe we are a world leader in our fields. We, of course, have healthy revenue and growth. We also have a strong customer list and have partial ownership of 10 raw material companies located in China. And we have over 1,000 employees in China that are citizens and pay income taxes there. We are advised that our company going public on the star market should be an attractive offering. The bankers have informed us that we are on track and that our teams are responsive and professional. The process is time-consuming, but our teams are taking it in stride and doing a good job. We hope to be ready to file late this quarter or in the fourth quarter. In conclusion, it has been a busy but very good quarter with solid customer traction and new opportunities unfolding. I'll now turn the call over to Dr. Morris Young for a review of our business and markets. Morris?