AXT Inc

Good afternoon everyone and welcome to AXP's first quarter 2023 financial conference call. Leading the call today is Dr. Morris Young, Chief Executive Officer and Gary Fisher, 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. After the speaker's remarks, there will be a question and answer session If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one on your telephone keypad. Thank you. I would now like to turn the call over to Leslie Green, Investor Relations for AXC.

Thank you, Abby, 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, increased environmental regulations in China, 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 expectations. This conference call will be available on our website at axt.com through April 27, 2024. 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 2023. This information is available on the investor relations portion of our website at axc.com. I would now like to turn the call over to Gary Fisher for a review of our first quarter 2023 results. Gary?

Thank you, Leslie, and good afternoon to everyone. Revenue for the first quarter of 2023 was $19.4 million. down from 26.8 million in the fourth quarter of 2022, and down from 39.7 million in the first quarter of 2022. To break down our Q1 revenue for you by product category, indium phosphide came in at 7.1 million, reflecting market strengthening, particularly in data center, consumer, and telecommunications infrastructure. Gallium arsenide was 5.0 million, reflecting the overall slowdown across a number of applications, particularly in China. Germanium substrates were 1.4 million. Our germanium substrate revenue was up slightly from Q4, and we have resolved the payment issue we described in the past quarters. Finally, revenue from our two consolidated raw material joint venture companies in Q1 was $5.9 million. In the first quarter of 2023, revenue from Asia Pacific was 68%, Europe was 18%, North America was 14%. The top five customers generated approximately 28% of total revenue, and no customer was over 10%. Non-GAAP gross margin in the first quarter was 26.9% compared with 32.5% in Q4 and 33.8% in Q1 of 2022. For those who prefer to track results on a GAAP basis, gross margin in the first quarter was 26.3% compared with 32.1% in Q4 and 33.6% in Q1 of 2022. Total non-GAAP operating expense in Q1 was $8.7 million. This compares with $9.0 million in Q4 and with 8.6 million in Q1 of 2022. On a GAAP basis, total operating expense in Q1 was 9.5 million, down slightly from 9.6 million in Q4 of 2022. For comparison, total GAAP operating expense was 9.6 million in Q1 of 2022. Our non-GAAP operating line for the first quarter of 2023 was a loss of 3.5 million compared to the non-GAAP operating loss in Q4 of $256,000. And the non-GAAP operating profit of $4.8 million in Q1 of 2022. For reference, our GAAP operating line for the first quarter of 2023 was a loss of $4.4 million compared with an operating loss of $1.0 million in Q4 of 2022 and an operating profit of $3.7 million in Q1 of 2022. Non-operating other income and expense and other items below the operating line for the first quarter was a net gain of $1.1 million. The details can be seen in the P&L included in our press release today. For Q1 of 2023, we had a non-GAAP net loss of 2.4 million or 6 cents per share compared with the non-GAAP net income of 2.1 million or 5 cents per share in the fourth quarter of 2022. Non-GAAP net income in Q1 of 2022 was 4.3 million or 10 cents per share. On a GAAP basis, net loss in Q1 was 3.3 million or 8 cents per share. By comparison, net income was 1.3 million or 3 cents per share in the fourth quarter of 2022 and 3.2 million or 7 cents per share profit in Q1 of 2022. The weighted basic, the average basic shares outstanding in Q1 was 42.5 million. Cash, cash equivalents and investments were 53.6 million as of March 31st. By comparison at December 31st, it was 52.8 million. Depreciation and amortization in the first quarter was 2.1 million and CapEx was 2.7. Most of this is facilities and any phosphide equipment related. Total stock comp was $0.9 million for the quarter. Net inventory at March 31st was $91.7 million. 45% of the inventory is raw materials, and WIP is 51%. Finished goods makes up approximately 3% of inventory. We had a very successful quarter in our recycling efforts, which benefited our margins and our ESG efforts. But when we grow new ingots with recycled Indian phosphite, it adds to the inventory. Almost half of the increase in inventory is from recycling. Inventory reduction remains a key focus for us this year, and we expect to bring it down as the demand environment improves. This concludes the discussion of our quarterly financial results. Turning to our plan to list our subsidiary, Tongmei in China, on the star market in Shanghai. Since the Chinese New Year, we have had active dialogue again with the China Securities Regulatory Commission, or the CSRC. Their process is detailed and thorough, and they have asked us to respond to a couple of additional items. We're in the process of doing so now and remain optimistic that we'll get CSRC approval in the coming months. We posted a brief summary of the plan and the process on our website. With that, I'll now turn the call over to Dr. Morris Young for a review of our business and markets. Morris?