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spk01: Good afternoon, everyone, and welcome to AXT's first quarter 2022 financial conference call. Leading the call today is Dr. Morris Young, Chief Executive Officer, and Gary Fisher, Chief Financial Officer. My name is Kevin, and I'll be your coordinator 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. If you ask a question during the session, please press star 1 on your telephone. If you need any further assistance, please press star 0. I would now like to turn the call over to Leslie Green, Investor Relations for AXT.
spk02: Thank you, Kevin, 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 result materially. These uncertainties and risks include but are not limited to overall conditions in the market 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 relations 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 report 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 April 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 first quarter of 2022. 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 first quarter 2022 results. Gary?
spk07: Okay. Thank you, Leslie, and good afternoon to everyone. I'm hearing a little bit of background noise, so Morris and Leslie, it might be good during this portion of the meeting that we go on mute if we're not speaking, so... By the way, to our group, we're in different locations today. Morris is at the middle of the night in China, so he's in China, and I'm in the Fremont office for AXT. And Leslie's here also in the Bay Area. Okay. Today we are pleased to report that total revenue for the first quarter of 2022 was $39.7 million. That's up 5% from $37.7 million in the fourth quarter of 2021 and up 26%. from 31.4 million in the first quarter of 2020. Q1 marks our ninth consecutive quarter of growth and highlights the market expansion and increasing demand for indium phosphide and gallium arsenide substrates. To break down our Q1-22 revenue for you by product category, indium phosphide was 15.5 million, gallium arsenide was 12.0 million, germanium substrates were 4.2 million, and revenue from our two consolidated raw material joint venture companies was $7.9 million. In the first quarter of 2022, revenue from Asia Pacific was 73%, Europe was 16%, North America was 11%. The top five customers generated approximately 29% of total revenue, one of which just inched over the 10% level. 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 we have reached a point of sustainability and can outpace market growth in 2022. Non-GAAP gross margin in the first quarter was 33.8%, compared with 32.4% in Q4 of 2021 and 36.9% in Q1 of 2021. For those who prefer to track results on a GAAP basis, gross margin in the first quarter was 33.6%, compared with 32.2% in Q4 of 2021 and 36.8% in Q1 of 2021. Improvement in gross margin came through growing volume, favorable product mix, and a strong focus on yield improvements and manufacturing efficiencies. We continue to believe that we can get back to the 35% range later this year. Total non-GAAP operating expense in Q1 was $8.6 million. This compares with $8.1 million in Q4 of 2021, and was $7.2 million in Q1 of 2021. On a GAAP basis, total operating expense in Q1 2022 was $9.6 million, compared with $9.1 million in Q4. For comparison, total GAAP operating expense was $8.0 million in Q1 of 2021. Non-GAAP operating profit for the first quarter of 2022 was $4.8 million, compared with non-GAAP operating profit in Q4 of 2021 of $4.1 million. and $4.4 million in Q1 of 2021. For reference, GAAP operating profit for the first quarter of 2022 was $3.7 million, up from an operating profit of $3.0 million in Q4 of 2021 and an operating profit of $3.6 million in Q1 of 2021. Non-operating other income and expense for the first quarter of 2022 was a net gain of $0.3 million. This includes a gain of $1.1 million from the unconsolidated raw material companies. The full breakdown is in our press release. For Q1 2022, we had a non-GAAP net income of $4.3 million or $0.10 per share, compared with $4.1 million or $0.09 per share in the fourth quarter of 2021. Non-GAAP net income in Q1 of 2021 was $4.2 million or $0.10 per share. On a GAAP basis, net income in Q1 was $3.2 million or $0.07 per share. By comparison, net income was $3.0 million or $0.07 per share in the fourth quarter of 2021 and $3.4 million or $0.08 per share in Q1 of 2021. The weighted average diluted shares outstanding in Q1 was 42.7 million. Cash, cash equivalents, and investments were 44.3 million as of March 31st. By comparison, at December 31st, that was 51.8 million. Depreciation and amortization in the first quarter was 2.0 million, and capital investments were 6.3 million. Total stock comp was 1.1 million. Net inventory at March 31st was 60.8 68.8 million. Okay, this concludes the review of our quarterly financial results. Turning to our plan to list our subsidiary, Tong Mei, in China on the star market in Shanghai, let me give you a quick update. So the review of our application is now underway and is proceeding according to our expectations. Tong Mei received a list of questions from the Shanghai Stock Exchange Review Board. This is similar to what we call a comment letter from the U.S. SEC. Our China advisors think the list was fair and reasonable, and we have provided a lengthy and detailed response. Our advisors tell us to expect another set of questions, as it is normal to have more than one round of comments. And indeed, we did earlier this week get the second set of questions. So that's positive. It was a very fast turnaround, and we're pleased with that. So 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 this year. Before I turn the call over to Morris, I want to take a moment to address the COVID restrictions in China, which have been in the news, of course. To date, we have not had any shutdowns of our operations in Beijing, Vingxing, or Kaozhou. We have experienced some supply chain disruption as a result of shipment delays and supplier shutdowns relating to products we use in our manufacturing process. However, so far we've been able to mitigate the impact with inventory on hand. We've also seen some pockets of softness where customers are on lockdown, but the demand for our products, coupled with the diversity of customers and applications that need them, have allowed us to shift our allocations to other customers or applications that remain in high demand. Like most companies, we're monitoring the situation closely, and with Morris and China, are managing through these issues with high-level attention. We remain in close contact with our customers to understand any changes in their demand expectations should those changes arise. Okay, with that, I'm going to turn the call over now to Dr. Morris Young for review of our business and markets. Morris?
spk03: Thank you, Gary. Q1 was another strong quarter for AXT. As our growth demonstrates, we have reached an inflection point in our business, where our investment in our technology, business operations, and customer relations are bearing fruit. Market share gains and expansion into new applications and tier one opportunities enables us to post a 26% revenue increase in Q1 from the prior year. This growth is coming from a diverse set of applications and customers across telecom infrastructure, data center, industrial, consumer, healthcare, automotive, and more. This gives them strong confidence in the sustainability of our business success throughout 2022 and beyond. In IndyFoxify, We achieved record revenue in Q1 of $15.5 million. This represents an increase of more than 45% from Q1 of 2021 and puts us well on track to achieve Indian Phosphorite revenue growth of 30% or more this year. We believe our key markets have entered a new cycle of innovation and application development that is driving opportunity expansions and diversify our revenue base. This is supported by the strong order pattern we're currently experiencing. Demand from several of our tier one customers is robust and we're working hard to scale our production accordingly. In particular, our new customer application is ramping well. As we mentioned to you in February, we designed into a short wavelength infrared sensor for consumer applications. Our success as a supplier for this initial application has allowed us to begin ramping a second application for mobile devices that we believe will incrementally be larger in volume. We're excited about this design wing, and we believe it will present a gateway to additional high-value designs and applications in portable consumer devices. Importantly, we're pleased to know that our customer product roadmap is lining up well with our capabilities to meet the new innovations they are developing. Data center applications were also strong in Q1. Increasing from a solid and steady level that we've seen over the past year or so, we believe we are gaining shares in this market. And our customer discussions indicate that we should see growing demand throughout 2022. The silicon photonics market is expanding rapidly and is creating exciting opportunities in telecom, datacom, LIDAR, healthcare, high performance computing, AI, and optical computing applications. Several major players are making significant investments in the advancement and adoption of silicon photonics technology. Telecom infrastructure is a category performed well in this quarter as well, including 5G-related applications. We believe that infrastructure upgrade cycle driven by 5G in the United States, Europe, and other parts of the world is creating a beneficial demand environment for indium phosphide, and that should continue to do so for several years to come. Turning to gallium arsenide, The LED market remains strong across all of our traditional end market, such as automotive display and high-end lighting. In fact, we achieved our highest revenue quarter since Q3 of 2012, contributing to our growth in Q1 with continued strength in high-power industrial laser applications with our very low EPD wafers we have gained significant market share, particularly in China. This has allowed us to drive strong revenue growth in these applications over the last six years. High-power industrial lasers are commonly used today in tools used to cut metal sheets, welding equipment, various testing equipment, robot applications, medical devices, and others. Revenue from our two consolidated raw material companies was down this quarter. After very strong growth throughout 2021, with prices remaining volatile, these consolidated raw material companies are being selective in the business they support in order to drive improved gross margin performance in our business. We were pleased to see the increase in contribution to profit from the unconsolidated raw material companies, which represent additional positive leverage in our model. This is the strong benefit of our vertical integration strategy. While high raw material prices have a negative impact on our cost of goods sold for AXC and its competitors, AXC is able to offset some of the impact of the higher prices through the revenue generated by our joint ventures. We also have the benefit of supply guarantees and insight into the pricing trend. We believe these have proven highly valuable to our business over the last two decades. In conclusion, we have reached a true turning point in our business. Across our portfolio, we're working with tier one customers for new innovations, helping to redefine what is possible with technology and advancing specialty materials into areas that the market might not have conceived of just a few years ago. Today, we're seeing significant growth from major trend in 5G telecomputation in data center expansions, in consumer devices, and in industrial applications. Visible on the horizon are emerging applications in micro LEDs, advanced health monitoring, and the metaphase that we believe will represent an other transformative wave for our business. Through the scaling of our operations Investing in our product roadmaps and strengthening of our capital structure, we are executing on a strategy that positions us well for the healthy growth and profitability throughout 2022 and beyond. I'm now turning the call back to Gary for our second quarter of guidance. Gary?
spk07: Thank you, Morris. As Morse discussed, there are a number of company-specific growth drivers contributing to our performance. We're currently expecting Q2 revenue to be between $38 million and $41 million. We believe that our non-GAAP net profit will be in the range of $0.08 to $0.10, and GAAP net profit will be in the range of $0.06 to $0.08. Share count will be approximately 42.66 million shares. So this concludes our prepared comments. Morris and I would be glad to answer your questions. Kevin, operator?
spk01: Ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touch-tone telephone. If your question has been answered or you wish to move yourself from the queue, please press the pound key. Our first question comes from Richard Shannon with Craig Hallam.
spk06: Well, great. Thanks, Morris and Gary, for taking my questions. Let's start looking backwards into the first quarter here and on gross margins. Coming off, I guess, probably a disappointing end of last year, you were directionally upwards, and I think it's based on your qualitative commentary a bit better than I think you would have expected. In your comments, you mentioned volume mix and some yields. Can you maybe describe the mix? And then maybe if you want to discuss more looking forward here, how much, How close are you to more of your ideal level of yield across your whole substrate portfolio?
spk03: Gary, you want to take that first?
spk07: Okay, sure. The reason we point out Indian Phosphide, as we said, it's a new record for the quarter, 15.5 million. That kind of mix is beneficial for us in the aggregate gross margin percent. That's why we underline it or underscore it, for example. One of the reasons that we think we can continue to trend in the right direction, meaning upward and to the right, is we think indium phosphide is going to continue to expand. We'll get the benefit of that tailwind. We have been going through, I think, a settling in process at the new sites. And we've also done modifications at the Beijing site to increase capacity and things and upgrade it. And so I think there's still some progress to be made in that arena. We're not at our all time ever best yet. So I think we can get back to that. And we are also doing some development program in the R&D category on recycling certain materials that, because the price of materials has increased so much, we've crossed a tipping point where it's economically preferable for us to do more recycling. It's also better for the environment and things like that and efficiencies. So those are the things that I think... helping us, and I guess it gives the background as to why we think that we can continue to trend in the right direction for gross margin. Morris, you want to add anything else?
spk03: Yeah, absolutely. I do want to emphasize, I think, you know, Richard, I think you're seeing us growing so fast, especially on some of the categories. When you grow, you can hit that yield point precisely. And that's, I think, remarkable. I think we have done a good job. But nevertheless, I think when you settle in, you should have incremental gain. I think, you know, the design wing of the Indian phosphide, I believe when we start to ramp into volume, that should give us yet another opportunity to not only increase yield, but also be favorable in product category as well as volume, okay? I think that should give us increasing volume. And on top of it, I think, you know, our new factory, I mean, it's not new anymore, but still, you know, crystal rose is, they call it art and science of crystal rose. So... I think we have more to gain in terms of yield and, you know, success rate, and so reduce our costs in cursive growth as well.
spk06: Okay. And to follow up on that topic, Gary, built into your guidance for the quarter, I didn't have much time to try to run this through, but given similar volumes here, would you expect a similar gross margins within a certain range in the second quarter as well?
spk07: Yeah. You know, our group here that drills down, they have it ticking up a little bit, but it's – so I would expect that's going to be the case.
spk06: Okay.
spk07: Yeah.
spk06: Just want to make sure we're reading that right so that's helpful. Next topic here, on the last call you talked about the expectation of hitting top-line sales at 15% and 20%. Your first quarter is up 26%. And the guide here looks like it's implying a number, you know, probably around 18% or so. I think also in the last call, Morris, you alluded to the potential of maybe even hitting a $50 million quarter this year. So I'm wondering if you could talk about, you know, trends the rest of the year supporting that 15% to 20%, or do you see a possibility of that 50 million number popping up this year, in which case you'd clearly blow that away? especially since I think you talked about some positive dynamics in health sensing, which may be a contributor to that. Can you talk to those points for us, please?
spk03: Sure, Richard. I mean, of course, that $50 million, I'm not trying to take it back, but, you know, you need a lot of good things last quarter to happen. Last quarter, we were talking about, you know, any phosphate continue to grow in the first design when we have. We also talked about the possible ramping up of the second and third product. And we're starting to see the second product start to ramp, so we're very pleased. And hopefully, we're going to see the start of the third product to ramp. And data center, obviously, is very strong. And in fact, I think our EMF is sort of capacity constrained at this point. although we are growing very fast, but still the customer demand is really strong. So hopefully by later this quarter, we should be able to catch up to the capacity for our customer demand. You know, in Galleon Arsenal, one particular area was the power amplifier, HPT market. And we are still in talk with our customers on several issues such as commercial terms and what's the sustainability of this strong market going forward because we need to do investment to address that market. And that market is more difficult than Indian Phosphor. Indian Phosphor is a newly developed market. HVT market is more mature, but I think we do see the demand being high, but that's not resolved. So if that were to come to fruition, that obviously is going to be a very big volume. So, you know, if you count all these coming to fruition, then sure, it's possible to reach $50 million. However, you know, everybody hates, however, when the CEO talks, we have to count, you know, we didn't know that the Ukrainian war is happening. I think a possible recession, everybody's looking at. And, you know, the technology stock is slowing down and COVID is affecting China, specifically very strongly. So I think our business specifics are not being affected, I don't believe. Some of these new product introduction, I don't think it would be affected by recession or COVID. But our supply may be affected, and eventually our customer may be affected. So I think we're looking at a lot of changing things
spk06: and so hopefully that you know axd stock price at six dollars a share uh taking everything into account okay i appreciate that person i'm sorry uh gary what was that uh i'll keep going here uh oh okay i thought i heard something uh just one more question for me i'll jump back into the queue here um gary you mentioned there was a 10 customer Just above, can you tell us whether that was a customer who's been one in the past? And then of the top five customers you have, how many of these are kind of these new tier ones that you've been talking about investing in or investing in behalf of for the last couple of years?
spk07: Yeah, this is a customer that is a recurring winner in the 10% category. And it's a heavy user of Indian Phosphite. So it kind of lines up that way for them. the answer to your other question is that the top five are not none of the brand new applications in the consumer market is yet in the top five it's getting close it's going to flip over but it hasn't yet so the ones that are the top five are customers that we've mentioned before over time so okay
spk06: That's great perspective.
spk01: I will jump out of line, guys. Thank you.
spk07: Thanks, Richard.
spk01: Again, ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touchtone telephone. Our next question comes from Hamid Khorasan with BWS Financial.
spk05: Hi. So the first question I had was just given the market backdrop, are you getting this feedback from – the end users or is the customers placing more orders, giving you this clarity as to how indium phosphide is being used and gallium arsenide?
spk07: I think that gives some color, but I think the answer is both. We're getting it from the companies that we sell to in the food chain, but we're also being supervised and communicating with the end customers. Go ahead, Morris.
spk03: yeah however i would comment on is that obviously we cannot disclose our customers are because we are at their very heavy nda um but some of the because the nature of our business we usually send our subsidies to um uh uh epic house who use our substrate and put an epilator on, and they subsequently send it to device fabrication house and then finally assemble into a particular device. So although we do have visibility who that end customer is, but we very often miss or we don't know what their specific applications are. We can guess. We know it is a, mostly it's a laser, it's a LED, or a detector. So I think the most often words we hear about today for indium phosphide applications is detectors and lasers. So they're using the indium phosphide as a laser, as a sensor, and the detector pair to switch off something, to detect something, or to help the electronic device to perform better. For instance, the most frequently heard of application is LIDAR, which has applications for autonomous vehicle applications, which is still not in the mainstream, but you do hear LIDAR being talked in the industry for some time. smartphone applications.
spk05: Okay, and then could you just comment on this customer application that you're ramping with the second one and mobile devices? Is it all with the same customer? Or is it just different consumer applications with different customers?
spk03: It's a different application. But I think the customer is similar.
spk05: Okay. And then my final question was, given the, you know, the risk of shutdown in China with your operations, what kind of procedures do you have in place to minimize any impact if it does happen?
spk03: Well, let me answer it this way. I think we have a lot of procedures to protect ourselves, okay? And China uses big data to monitor people very carefully. So we have clear instruction to our employees, especially our delivery drivers. So they have to take COVID tests very often. They have to be very much aware where they have been. If they have crossed certain points, which has... you know, strong COVID infection rate, then we ask them, we set up a room for them to rest and not mingle with the rest of the employees. So we also have given our employees free testing kits. So if they feel uncomfortable, we ask them to take a COVID test, you know, those quick tests. and before they come to work. If they don't feel comfortable, if they feel sick, just stay home, okay? So we have a lot of protocols to help ourselves. I mean, our factory also, you know, we're manufacturing all high-purity material, so just about everybody wears a mask in the production floor, and our density of employees are not very highly populated. So we have taken a lot of precautions, and we have gone through a lot of prior pandemics, such as even SARS. Knock on wood, we're safe. But it's not to say that we can continue that tradition. I mean, we're just being diligent. As far as if it will happen, what do we do? that we have not thought about because I think mostly then will be government will be interfering. You know, I think what we worry the most, I think is the government. And you know, so far Beijing has yesterday, I think 46 cases compared to the rest of the world is peanuts. It's very low affection rate. Uh, but in China it's very serious. Uh, so, I hope they can stamp it down. And Beijing is fairly effective. And so, you know, we should watch this development very closely. If they start to reach a peak, start to trend down, then we're probably okay.
spk05: All right. Great. Thank you. Thanks, Hamid.
spk01: Our next question comes from Richard Shannon with Craig Hallam.
spk06: All right, well, I'm back. Thanks for the follow-on here. I'm going to follow up on the topic of micro-LEDs. Morris, can you give us an update on the engagement here with customer or customers? What kind of state of either material development or negotiation understanding of market development are we at? And can you tell us about the kind of status of the 8-inch Scali-Marcinite wafers that are there to support that?
spk03: Sure. Yeah, we have been saying that we are spending a lot of money on research and development these days on both 8-inch gallium oxide as well as 6-inch in phosphide. On both fronts, I think we have incremental success. I mean, we have not made a big announcement. We did say that we are the 8-inch, we're sending sample with a quantities of wafer to our customers already in the roughly 200 or 300 wafer per month. And the feedback so far are okay. So we're still working with our customers to retune our process or retune their process and see what specifically they need. Yes, we are in sort of a more advanced negotiation with our customers in terms of what kind of specification they need, in terms of what kind of pricing they can commit, and what's the volume that we need to commit ourselves to support their manufacturing. But so far it's still in serious and heavy negotiation. We have not reached any conclusion yet. And we do have two customers, by the way, engagement. So I think from the looks of it, most customers are extremely committed, confident. It's a goal. In fact, one of the customers announced that they have invested, they're investing $1 billion to build a micro LED factory. So that's all good news for micro LEDs. Richard?
spk06: Sorry, I put it on mute. Not sure why I did that. Thanks for that, Morris. Gary, a quick follow-up on CapEx here. I wonder if you'd give us a thought process on what your expectations are for this year. I think in past calls you've heard about, you know, when is that point where we get to kind of more closer to maintenance levels, obviously spending in a pretty hefty rate here for a couple years or so. How should we think about that the rest of the year?
spk07: Well, it's a constant topic for Morris and myself and the other team members. We're committed to investing for the future because there's some just beautiful opportunities. For me and Morris, we're Let's just say we've been around the block a few times, and only every once in a while in my career has so many bright lights been on the horizon. So we are doing some broader development work, which I alluded to earlier today, for recycling. There are several programs like that, and we're trying to balance the need to be prudent on investment versus – falling asleep and not taking advantage of the opportunity that it's there. So we're definitely going to be in double-digit dollars for CapEx again this year. It's a bit fluid still so far, but we'll be investing. We need to do a little facility work as well, and we're doing more automation work with equipment. And We haven't really announced any details, but we did disclose in our document within our filings that we formed another joint venture for raw materials. We're not going to get to the maintenance level this year. I think maybe six months ago I thought we might, but then when we started seeing what's happening in the marketplace and talking to our senior executives and compiling lists and choices and things, then I can see that we're not going to be in, let's just say, $6 million to $10 million. But we're comfortable with where we're at with cash, and we're still optimistic about succeeding in the IPO process in China. So anyway, that kind of gives you perspective. We watch it carefully, and it's a tradeoff between being prudent versus – taking advantage of key opportunities.
spk03: Okay, that's... Yeah, Richard, I... Sorry, go ahead, Mark. Yeah, Richard, yeah, I do want to emphasize the looking at opportunities. You know, I think the demand, you know, we just have to invest so that we don't have this situation of in the classified, our customer wants wafers and we are out of capacity. And so, you know, we are good at, you know, increasing capacity, but we need to not only build the capacity, but also be more automated. And so I think all these investments should bear fruit later for AXC shareholders, you know, in the next year or so, yeah, in the future.
spk06: Okay. That's helpful. One last question for me. I'll jump out of line again. Again, just talking on the topic of your 15% to 20% sales growth number for the year, at the midpoint of your second quarter, if you were flat the rest of the year, I think you'd still be a little bit above the low end of that number, which would certainly be well below your seasonally normal, but I'm not sure seasonally normal can be thought of in this environment. Is there any thought process about which you would be only at the low end of that number versus what I hear about some really good programs, and others that could drive some sequential growth through the rest of the year and easily get to midpoint or well above?
spk03: Absolutely. I think our eternal goal, obviously, is higher than that, but we don't want to give other updated growth targets for the year. And given the potential design we have, just to name a few, and on top of it could be the HPT when that goes, and that should kick us into a second year. And then it's the micro-LED. Micro-LED is probably a little bit further away I mean, all depends upon how fast the customer are pushing. I mean, although it's nice to know that they're building a $1 billion investment in micro LED, but on the other hand, they just announced it. So you would expect that they will not need wafer until at least a year from now. So in the meantime, you know, the high power laser marketing in China is very strong. So, you know, we are seeing strong across the board. You know, I tend to think, you know, the opportunity for Indian Phosphorite, we're really excited is because, you know, in the past we only talk about pounds market. And then later on data center a little bit. Now we're talking about multiple fronts. We're talking about, you know, the pounds is still there. Fiber to home is still there. Data center keep on growing. On top of it is 5G, and then on top of it is this electronic device. I think we're starting to see it start to emerge. As you asked the question, is there any of those customers in our top five? There are not. That indicates when they start to run, there's going to be a few of them. Potentially, it's going to be in the top five. you can see it's significant. So I am very excited about it. Um, and you know, we're investing, we, we, we, we showing up in our SG&A, uh, R&D, uh, how SG&A R&D are, uh, you know, two years ago was $5 million. It's now almost $9.5 million. And I said, how nice it is if we can drop that all down to profits. I mean, shareholders are all going to celebrate. Instead of $0.09 a share, we're going to be delivering $0.20 a share. But we choose to spend to build a better company in terms of infrastructure for bigger operation and IPO in China, as well as spending money in R&D. And think about it. If we have two new growth funds in terms of micro-LED, which is going to be maybe a year, year and a half from now, and that's a huge market, I believe, and the 16-gene phosphide. And people are pounding on doors demanding 16-gene phosphide. We're working hard on it, and hopefully that we can deliver that. And that is not obviously in the forecast. So I think, you know, we actually have a lot of great futures, and our visibilities are better. But let's, in terms of forecasting, We want to be conservative and deliver what we really can deliver. And, you know, hey, 15% to 20% growth is not bad after 44% growth last year, right?
spk06: No doubt about that, Morris. That's certainly excellent growth and I appreciate the perspective. That's all for me.
spk07: Thank you.
spk01: Thanks, Richard. Our next question comes from Jeff Scott with Scott Asset Management.
spk04: Good afternoon. I'd like to follow up on the CapEx question. I think you said your CapEx for the first quarter was $6.4 million. Has that been directed toward the Indian phosphide or the gallium business?
spk07: It includes both. Especially for Indian phosphide, we're adding furnaces. As Morris alluded to, we've reached a point where we can't quite meet the demand from one of our good customers. So they're a bit nervous about us right now. And we have a solution. We're going to add more furnaces. It's going to be okay. But, yeah, so there's some equipment for indiophosphide. There's also some way for processing equipment in the gallium arsenide line and the germanium line. So it's mixed.
spk04: Okay. Maybe a little more information on the increase in market share. Is that driven by new customers or higher share of wallet from existing customers?
spk03: Let me try that. I think, you know, customers are usually, they don't tell us. I mean, usually they will threaten us, hey, you know, if you don't give us a lower price, I'm going to give it to the competitor. So we are only guessing what kind of market share we get, okay? But on the other hand, you can tell some of these telltale signs. For instance, we cannot deliver substantially on some of the custom demand. And we said, well, we're sorry. You're telling us this increased demand too late. And why don't you get it from your second supplier? And the answer back is no. you know, silence. So I think either two things, we are the majority shareholder or supplier, or alternatively, we think it's more true is our competitor, the lead time is even longer. We're coding somewhere around eight weeks for lead time on some of the Indian Phosphide products. And our competitor, we hear, Our customer totals, some of the customer totals are as far out as six months. Go ahead.
spk04: You're increasing your capacity for the Indian phosphide. Are the other two major global suppliers also increasing their capacity?
spk03: No. That's a good question. The true answer is I don't think I know, but I can give you some historical perspectives. In 2014 and 2015, we were growing 60% year over year, two years in a row. Those two years, the market didn't grow. We see some market research. They were growing top at maybe 20%. So we think we're taking market share. And also, if you look at AXC's revenue on EMEA Classified, I believe we zoomed up very quickly. We believe we're firmly in number one place now. So I think we are not only good in terms of the product quality we deliver, but we are also very good in terms of answering our customers' commercial demand very responsibly. So we're gaining market share, I believe.
spk04: Okay. Last question. On the last call, you talked about efforts to recycle scrap raw material. How far along are you in getting success in that? And If it is successful, it seems like that should make a material difference in gross profit margin. Is that correct?
spk03: Yes, we're getting along very well on that. We're probably launching that this quarter and increasing in volume next quarter. So the good thing is there's a significant part of it. a volume of it left because we have saved all these recyclable material that we have a way to go. As far as saving in terms of helping us in gross margin is concerned, I think it's significant, but I don't know how do you qualify as significant, you know? As far as zinni phosphide is concerned, any phosphide raw material is a good portion of our cost of result. Let me put it that way. And if we can recycle it, yeah, it will help us in gross margins.
spk04: I mean, I'm thinking that if it is successful, it would be at least a couple of percentage points of gross margin improvement. It wouldn't be tens of a percent. It would be multiple percent.
spk03: That could be, but that it's limited to emine phosphide only. So emine phosphide is only about 30% or 40% of our revenue base. Yeah. So it's not going to be.
spk04: Okay. Thanks very much. I appreciate it.
spk01: Sure. And I'm not showing any further questions at this time. I'll turn the call back over to Morris Young for any closing remarks. Okay.
spk03: Thank you, everybody, for participating in our conference call. And this quarter we will be presenting at the 19th Annual Craig Allen International Institutional Investor Conference. We do look forward to seeing many of you there. As always, please feel free to contact me, Gary Fisher, or Leslie Green directly if you would like to set up a call with AXC. I look forward to speaking with you in the near future.
spk01: Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.
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