AXT Inc

Good afternoon, everyone, and welcome to AXT's third quarter 2024 financial conference call. Leading the call today from China is Dr. Morris Young, Chief Executive Officer, and Gary Fisher, Chief Financial Officer. In addition, Tim Bettles, AXT's Vice President of Business Development, will be participating in the Q&A portion of the call. My name is Christina, and I will be your conference 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, you can press star one again. And I'd now like to turn the call over to Leslie Greene, 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, emerging applications using chips or devices fabricated on our substrate, our product mix, global economic and political conditions, including trade tariffs and import and export restrictions, our ability to increase orders in succeeding quarters, to control costs and expenses, to improve manufacturing yields and efficiencies, or to utilize our manufacturing capacity. 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. In addition to the matters just listed, these uncertainties and risks include but are not limited to the financial performance of our partially owned supply chain companies, increased environmental regulations in China, and COVID or other outbreaks of a contagious disease. In addition to the factors just mentioned or 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 expectations. The conference call will be available on our website at AXT.com through October 31st, 2025. I also want to note that shortly following the close of market today, we issued a press release reporting financial results for the third quarter of 2024. 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 2024 results. Gary?

Thanks, Leslie, and good afternoon to everyone. Revenue for the third quarter of 2024 was $23.6 million. compared with $27.9 million in the second quarter of 2024 and $17.4 million in the third quarter of 2023. To break down our Q3-24 revenue for you by product category, India Phosphide was $6.8 million, reflecting continued demand and data center applications, including AI, as well as passive optical networks. Gallium Arsenide was $6.6 million, in line with the pullback we expected after the strong growth in Q2. Germanium substrates for $1.6 million, down from the prior quarter based on our decision to walk away from certain low-margin business opportunities. Finally, revenue from our consolidated raw material joint venture companies at Q3 was $8.6 million, based on continued healthy demand. In the third quarter of 2024, revenue from Asia-Pacific was 77%, Europe 12%, and North America 11%. The top five customers generated approximately 29.4% of total revenue, and no customer was over the 10% level. Non-GAAP gross margin in the third quarter was 24.3%, compared with 27.6% in Q2 24, and 11.3% in Q3 of 2023. For those who prefer to track results on a GAAP basis, gross margin in the third quarter was 24.0%, compared with 27.4% in Q2 2024. and 10.7% in Q3 of 2023. On to operating expenses. Total non-GAAP operating expense in Q3 was $9.0 million, compared with $8.9 million in Q2 of 2024 and $7.8 million in Q3 of 2023. On a GAAP basis, total operating expense in Q3 of 2024 was $9.1 million, compared with $9.5 in Q2 and $8.6 million in Q3 of last year. We expect OpEx to be holding at approximately this level throughout the balance of 2024. Our non-GAAP operating loss for the third quarter of 2024 was 2.6 million, compared with a non-GAAP operating loss in Q2 of 1.2 million, and a non-GAAP operating loss of 5.8 million in Q3 of 2023. For reference, our GAAP operating line for the third quarter of 2024 was a loss of 3.4 million, compared with an operating loss of 1.9 million in Q2 of 2024 and an operating loss of 6.7 million in Q3 of 2023. Non-operating other income and expense and other items below the operating line for the third quarter of 2024 was a net gain of $469,000. The details can be seen in the P&L included in our press release today. For Q3 2024, we had a non-GAAP net loss of 2.1 million, or 5 cents per share, compared to the non-GAAP net loss of $800,000, or $0.02 per share, in the second quarter of 2024. The non-GAAP net loss of Q3 2023 was $4.9 million, or $0.12 per share. On a GAAP basis, net loss in Q3 was $2.9 million, or $0.07 per share. In comparison, net loss was $1.5 million, or $0.04 per share, in the second quarter of 2024. GAAP net loss in Q3 of 2023 was $5.8 million, or 14 cents per share. The weighted average basic shares outstanding in Q3 of 2024 was 43.2 million. Cash, cash equivalents, and investments decreased by 4.5 million to 38.8 million as of September 30th. By comparison, at June 30th, it was 43.3 million. Depreciation and amortization in the second quarter was 2.3 million. Total stock comp was 0.8 million. Net inventory was up slightly in the second quarter to 86.1 million. This includes inventory added through our recycling program. 36% of the inventory is raw materials, and WIP is 61%. Finished goods makes up approximately 3%. Okay, 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, let me give you a brief update on the IPO status. We have continued to keep our application current. Last year and part of this year, the total value of the Shanghai Stock Exchange struggled as the China economy slowed and the real estate sector moved down significantly. This trend resulted in much fewer IPOs. It also led to weaker IPO applicants being removed from the in-process category. We are encouraged that Tongmei was not one of those companies. We are still part of the in-process group. and it is a much more selective and smaller group than a few years ago. More recently, the substantive stimulus package in China has helped the economy and boosted the total value of the Shanghai Stock Exchange, and we believe these movements may be generating positive momentum for IPOs and for Tongmei. We have continued to lead the team with a diligent energy as we think that Tongmei is a good IPO candidate. We will keep you informed and hope to have good news to deliver to you. With that, I'll turn it over to Dr. Morris Young for a review of our business and markets. Morris.