AXT Inc

Good afternoon everyone and welcome to AXT's fourth quarter and fiscal year 2023 financial conference call. Leading the call today is Dr. Morris Young, Chief Executive Officer, and Gary Fisher, Chief Financial Officer. My name is Eric and I will be your coordinator today. 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, press star 1 again. I would now like to turn the call over to Leslie Greene, Investor Relations for AXT.

Thank you, Eric, 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 in 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 22, 2025. 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 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 fourth quarter 2023 results. Gary?

Thank you, Leslie, and good afternoon to everyone. Revenue for the fourth quarter of 2023 was $20.4 million, up from $17.4 million in the third quarter of 2023, and down from $26.8 million in the fourth quarter of 2022. To break down our Q4 23 revenue for you by product category, indium phosphide increased sequentially to $5.4 million, reflecting a stabilizing market with continued improvement in artificial intelligence, ponds and data center applications. Gallium arsenide also grew to 6.0 million with excess inventory largely worked down and certain applications showing improvement. Germanium substrates were 1.1 million, down slightly from the prior quarter. Finally, revenue from our consolidated raw material joint venture companies in Q4 was 7.9 million. In the fourth quarter of 2023, revenue from Asia Pacific was 77%. Europe was 16%, and North America was 7%. The top five customers generated approximately 28% of total revenue, and no customer was over the 10% level. Non-GAAP gross margin in the fourth quarter was 23.2%, compared with 11.3% in Q3 of 2023, and 32.5% in Q4 of 2022. For those who prefer to track results on a GAAP basis, gross margin in the fourth quarter was 22.6%, compared with 10.7% in Q3 of 2023 and 32.1% in Q4 of 2022. The primary drivers of the sequential improvement in our corporate gross margin in Q4 were higher additional volume, product mix, and improved gross margins at both Jin Mei and Boy U. 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 operating expenses, 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 Q4 was $7.5 million, down from $7.8 million in Q3 of 2023, and down from $8.9 million in Q4 of 2022. On a GAAP basis, total operating expense in Q4 of 2023 was $8.2 million down from $8.6 million in Q3 and down from $9.6 million in Q4 of 2022. Our non-GAAP operating income for the fourth quarter of 2023 was a loss of $2.7 million compared with a non-GAAP operating loss in Q3 of 2023 of $5.8 million and a non-GAAP operating loss of $256,000 in Q4 of 2022. For reference, our GAAP operating line for the fourth quarter of 2023 was a loss of $3.6 million compared with an operating loss of $6.7 million in Q3 of 2023 and an operating loss of $1.0 million in Q4 of 2022. Non-operating other income and expense and other items below the operating line for the fourth quarter of 2023 was a net loss of $62,000. The details can be seen in the P&L included in our press release today. For Q4 of 2023, we had a non-GAAP net loss of $2.8 million or 7 cents per share compared with the non-GAAP net loss of 4.9 million or 12 cents per share in the third quarter of 2023. Non-GAAP net income in Q4 2022 was 2.0 million or 5 cents per share. On a GAAP basis, net loss in Q4 was 3.6 million or 9 cents per share. By comparison, net loss was 5.8 million or 14 cents per share in the third quarter of 2023. GAAP net income in Q4 of 2022 was 1.3 million or 3 cents per share. The weighted average basic shares outstanding in Q4 of 2023 was 42.9 million. Cash, cash equivalents and investments were 52.3 million as of December 31st. By comparison, at September 30th, it was 43.6 million. Appreciation and amortization in the fourth quarter was 2.2 million and capital investments was about 4 million. Total stock comp was about 800K. Net inventory was flat quarter to quarter. 38% of the inventory is raw materials, and WIP is 58%. Finished goods makes up approximately 4%. This concludes the discussion of our quarterly financial results. Turning to our plan to list our subsidiary, Tongmei and China, on the star market in Shanghai. In regards to the Tang Mei IPO, we need to resolve one open item. Although it is moving slower than we expected, we are making progress and are confident that Tang Mei remains an excellent candidate for listing. With that, I'll now turn the call over to Dr. Morris Young for a review of our business and markets. Morris?