AXT Inc

And welcome to AXT's fourth quarter and fiscal year 2021 financial conference call. Leading the call today is Dr. Morris Young, Chief Executive Officer, and Gary Fisher, Chief Financial Officer. My name is Justin, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1 on your telephone. Please be advised that this call is being recorded. If you require any further assistance, please press star 0. I would now like to turn the call over to Leslie Greene, Investor Relations for AXT.

Thank you, Justin, 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 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, increasing 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 February 2023. 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 fourth quarter and fiscal year of 2021. 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 Fisher for a review of our fourth quarter and fiscal 2021 results. Gary.

Thank you, Leslie. And good afternoon, everyone. As a reminder, in response to investor requests and to align with our peers, as well as to provide better clarity on our operational financial results, we will be providing both GAAP and non-GAAP financial results. Non-GAAP results exclude stock-based compensation. Investors can find a GAAP to non-GAAP reconciliation tables in our earnings announcement. Today, we are pleased to report that total revenue for the fourth quarter of 2021 was $37.7 million. up 9% from 34.6 million in the third quarter of 2021, and up 40% from 27.0 million in the fourth quarter of 2020. Q4 marks our eighth consecutive quarter of growth and highlights the market expansion and increasing demand for our indium phosphide and gallium arsenide substrates. To break down our Q4 21 revenue for you by product category, indium phosphide was 13.1 million, gallium arsenide was 11.3, Germanium was 4.2, and revenue from our two consolidated raw material joint venture companies was 9.1. In the fourth quarter, revenue from Asia Pacific was 74.9 percent, Europe was 16.7, and North America was 8.4. Again, in Q4, no customers reached 10 percent of revenue, and the top five customers generated approximately 29 percent of total revenue. Our continued revenue diversity demonstrates that our growth is not overly dependent on one large customer or application. This is another factor contributing to our confidence that our growth has reached a point of sustainability and will continue throughout 2022. Non-GAAP growth margin in the fourth quarter was 32.4% compared with 33.8% in Q3 of 2021 and 34.0% in Q4 of 2020. For those who prefer to track results on a GAAP basis, gross margin in the fourth quarter was 32.2% compared to 33.3% in Q3 of 21 and 33.9% in Q4 of 2020. Our gross margin came in slightly lower than the prior quarter. Contributing factors were increasing raw material costs within a constrained environment of demand, lower yields in some of our products, and the decision to accept strategic lower margin business in order to position ourselves competitively in advantageous markets and customers. These factors offset the improvements made to gross margin at Gen May from expiring contracts, as well as a new and promising raw material recycling program that Morris will comment on shortly. Gross margin improvement is a top priority for AXT in 2022. Like most businesses, we have seen a steady increase in costs relating to everything from wages to the materials required to manufacture our products. Those increases will likely continue to create some near-term offset in 2022. However, we think we can get back to 35% range this year. Improvement will come through growing volume, favorable product mix, better pricing, and a strong focus on yield improvements and manufacturing efficiencies. We also believe that we will see some incremental gross margin improvements as GMA continues to work through some of the contracts that began creating a headwind in Q3. Total non-GAAP operating expense in Q4 was $8.1 million. This compares with $7.7 million in Q3 of 2021 and with $6.6 in Q4 of 2020. On a GAAP basis, total operating expense was sequentially flat at $9.1 million. For comparison, total GAAP operating expense was $7.2 in Q4 of 2020. R&D remains one of the primary drivers of the increase in our OpEx. We have two major programs that are ongoing, the development of 6-inch indium phosphide and the development of 8-inch gallium arsenide. Non-GAAP operating profit for the fourth quarter of 2021 was $4.1 million compared with the non-GAAP operating profit of Q3 in 2021 of $4.0 million and $2.6 million in Q4 of 2020. For reference, GAAP operating profit for the fourth quarter of 2021 was 3.0 million, up from an operating profit of 2.4 million in Q3 of 2021 and an operating profit of 1.9 million in Q4 of 2020. Non-operating other income and expense for the fourth quarter of 2021 was a net loss of $100,000. The full breakdown is in our press release. For Q4 of 2021, we had a non-GAAP net income of 4.1 million, or 9 cents per share, compared with 5.4 million, or 13 cents per share in the third quarter of 2021. Keep in mind that the third quarter results included two local government grants totaling $1 million, which did not repeat in Q4. Non-GAAP net income in Q4 of 2020 was 2.8 million, or 6 cents per share. On a GAAP basis, net income in Q4 was 3.0 million, or 7 cents per share. By comparison, net income was 3.8 million, or 9 cents per share in the third quarter of 2021, and $2.1 million, or $0.05 per share, in Q4 of 2020. The weighted average diluted shares outstanding in Q4 of 2021 was $42.8 million. Cash equivalents and investments were $51.8 million as of December 31st. By comparison, at September 30th, they were $56.0 million. Depreciation and amortization in the fourth quarter was $2.0 million, and capital investments were $10.5 million. Total stock comp was $1.1 million. Net inventory at December 31st was $65.9 million. Okay, this concludes the discussion of the quarterly financial results. Now, let me briefly highlight the total year of 2021, which is a fun part of my presentation because a lot of good things happen. For the fiscal year of 2021, revenue was $137.4 million, up more than 44% from $95.4 million in fiscal year 2020. It is important to note that this growth is all organic, driven by market expansion and market share gains. In 2021, we grew in every revenue category across our portfolio without the help of price increases. This underscores the momentum we are seeing in our business with new applications coming to the market, major technology trends, and our own success in winning share at strategic customers. Gross margin for the fiscal year 2021 on a non-GAAP basis was 34.8%. compared with a 31.9% for fiscal year 2020. GAAP gross margin for 2021 was 34.5%, compared with 31.7% of revenue for fiscal year 2020. Net income for the fiscal year 2021 on a non-GAAP basis was $19.1 million, or $0.44 per diluted share, compared with an net income of $5.9 million, or $0.14 per share for fiscal year 2020. This represents a more than 350% improvement in profitability and underscores the significant shift in our business over the last 12 months. GAAP net income for fiscal year 2021 was $14.6 million, or $0.34 per diluted share, compared with a net income of $3.2 million, or $0.07 per share, for fiscal year 2020. I'll now give you a brief update on our plan to list our subsidiary, Tong Mei, in China on the Star Market in Shanghai. We were very pleased to announce last month that Tongmei submitted a formal application to listed shares and initial public offering on the Shanghai Stock Exchange. The application was submitted in December and was formally accepted for review on January 10th. The review of our application is now underway and we have received our initial comment letter. As we have discussed, the process of going public on the Star Market includes several periods of review and therefore is a lengthy process. Tongmei does not expect to complete the IPO until the second half of 2022. Okay, that completes my comments, and I'd like to turn the call over now to Dr. Morris Young for a review of our business and markets. Morris?