AXT Inc

Good afternoon, everyone, and welcome to AXT's third 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 Christina, and I'll be your coordinator today. At this time, all participants are in a listen-only mode. Later, we will conduct 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, please press star one. Thank you. I would now like to turn the call over to Leslie Green, Investor Relations for AXT.

Thank you, Christina, 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 move manufacturing yields and efficiency, and 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 and their products. In addition to the factors that may be discussed on 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 November 2nd, 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 third quarter of 2023. 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 third quarter results. Gary.

Thank you, Leslie. Good afternoon to everyone. Revenue for the third quarter of 2023 was $17.4 million, down from $18.6 million in the second quarter of 2023, and down from $35.2 million in the third quarter of 2022. To break down our Q3-23 revenue for you by product line, Indian Phosphate came in at $4.9 million, reflecting a stabilizing market with modest improvement in data center applications. The LAMR side was $4.2 million. We're pleased to obtain our first permits to ship gallium arsenide substrates during the quarter and continue to work through that process on behalf of a growing number of our gallium arsenide customers. Germanium substrates for 1.2 million, up from the prior quarter, also reflecting our progress in obtaining permits on behalf of our customers. Finally, revenue from our two consolidated raw material joint venture companies in Q3 was 7.0 million. In the third quarter of 2023, Revenue from Asia Pacific was 82%, Europe was 14%, and North America was 4%. The top five customers generated approximately 31% of total revenue and no customers over the 10% level. Non-GAAP gross margin in the third quarter was 11.3% compared with 9.8% in Q2 and 42.2% in Q3 of 2022. For those who prefer to track results on a gap basis, gross margin in the third quarter was 10.7% compared with 9.2% in Q2 and 42.0% in Q3 of 2022. The primary drivers affecting our corporate gross margin in Q3 were volume, product mix, and an improvement in our raw material business gross margin. Beyond the near term, we remain confident that we can get back to the mid-30% range as the environment strengthens through higher overall volume, more favorable product mix, and the benefits of our recycling programs, along with continued efficiency improvements throughout our business. Moving to our operating expenses, with the reduction in overall revenue, we have maintained spending discipline in our operating expenses to align with the current environment. Total non-GAAP operating expense in Q3 was $7.8 million, consistent with our results in Q2 2023, and down from $9.2 in Q3 of 2022. On a GAAP basis, total operating expenses in Q3 was $8.6 million, consistent with our results in Q2 of 2023, and down from $10.2 million in Q3 of 2022. Our non-GAAP operating income for the third quarter of 2023 was a loss of $5.8 million, compared with the non-GAAP operating loss in Q2 of 2023 of $5.9 million and the non-GAAP operating profit of $5.6 million in Q3 of 2022. For reference, our GAAP operating line for the third quarter of 2023 was a loss of $6.7 million compared with an operating loss of $6.8 million in Q2 and an operating profit of $4.6 million in Q3 of 2022. non-operating other income and expense and other items below the operating line for the third quarter of 23 2023 was a net gain of 0.9 million the details can be seen in the p l included in our press release today for q3 2023 we had a non-gap net loss of 4.9 million or 12 cents per share compared with the non-gap net loss of 4.2 million or 10 cents per share in the second quarter of 2023 non-gap Net income in Q3 2022 was $6.8 million or $0.16 per share. On a GAAP basis, net loss in Q3 was $5.8 million or $0.14 per share. By comparison, net loss was $5.1 million or $0.12 per share in the second quarter of 2023. GAAP net income in Q3 2022 was $5.8 million or $0.13 per share. The weighted average basic shares outstanding in Q3 was $42.6 million. Cash, cash equivalents and investments were $43.6 million as of September 30th. By comparison, at June 30, it was $49.6 million. The reduction in cash was primarily due to net cash generated by operating activities. Although last quarter that was positive in Q3, it was negative this quarter. Depreciation and amortization in the third quarter was $2.2 million, and CapEx was about $4 million. Total stock comp was $0.9 million. As I mentioned, net inventory came down by $700K to $86.4 million at September 30th. 41% of the inventory is raw materials, and WIP is 55%. Finished goods makes up only approximately 4%. Okay, this concludes the report on our quarterly financial results. Turning to our plan to list our subsidiary, Tong Mei in China, on the star market in Shanghai, we do need to resolve one open item. Morris is in China as we speak and is working on this matter. Although it is moving slower than we expected, we are making progress and we're confident that Tang Mei remains an excellent candidate for enlisting and will be approved to proceed. With that, I'll now turn the call over to Dr. Morris Young for a review of our business and markets. Morris, welcome from China.