AXT Inc

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 substrates, our product mix, global economic and political conditions, including trade tariffs and import and export restrictions, ability to obtain China export permits, the timing of receipt of export permits, 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 and increased environmental regulations in China. In addition to the factors just mentioned or that may be mentioned 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 October 30, 2026. 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 2025. 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 2025 results. Gary?

Thank you, Leslie, and good afternoon to everyone. Revenue for the third quarter of 2025 was $28.0 million, compared with $18.0 million in the second quarter of 2025 and $23.6 million in the third quarter of 2024. To break down our Q3-25 revenue for you by product category, indium phosphide was $13.1 million, primarily from data center and pond applications. Gallium arsenide was $7.5 million. Germanium substrates were $640K, and revenue from our consolidated raw material joint venture companies in Q3 was $6.7 million. In the third quarter of 2025, revenue from Asia Pacific was 87%, Europe was 12%, and North America was 1%. The top five customers generated approximately 45.2% of total revenue, and two customers were over the 10% level. Non-GAAP gross margin in the third quarter improved substantially to 22.4%, reflecting improved product mix and higher volume to absorb overhead. For comparison, we reported 8.2% gross margin in Q2 of 2025 and a 24.3% gross margin in Q3 of 2024 last year. For those who prefer to track results on a GAAP basis, gross margin in the third quarter was 22.3% compared with 8.0% in Q2 of 2025 and 24.0% in Q3 of last year. We continue to be highly focused on driving continued improvement, including further recovery in Q4. Moving to operating expenses, given the difficult climate, we've been working hard to hold down OpEx. In addition, we had some favorable adjustments in R&D in Q3 that brought our OpEx down to a lower than normal level. These will not carry over into Q4. Therefore, our total non-GAAP operating expense in Q3 was $6.7 million compared with $7.6 million in Q2 and $8.3 in Q3 of 2024. On a GAAP basis, Total OpEx in Q3 was 7.3 compared with 8.2 million in Q2 and 9.1 million in Q3 of 2024. Our non-GAAP operating loss for the third quarter of 2025 improved substantially to $384,000 compared with the non-GAAP operating loss in Q2 of 2025 of 6.1 million and the non-GAAP operating loss of 2.6 million in Q3 of 2024. For reference, our GAAP operating line for the third quarter of 2025 was a loss of $1.1 million compared with an operating loss of $6.7 million in Q2 and an operating loss of $3.4 million last year in Q3. Non-operating other income and expense and other items below the operating line for the third quarter of 2025 was a net loss of $46,000. The details can be seen in the P&L included in our press release today. For Q3 2025, we had a non-GAAP net loss of $1.2 million or $0.03 per share compared to the non-GAAP net loss of $6.4 million or $0.15 per share in the second quarter of 2025. Non-GAAP net loss in Q3 of 2024 was $2.1 million or $0.05 per share. On a GAAP basis, net loss in Q3 was $1.9 million or $0.04 per share by comparison Net loss was 7.0 million, or 16 cents per share, in the second quarter of 2025. Gap net loss in Q3 of 2024 was 2.9 million, or 7 cents per share. The weighted average basic shares outstanding for Q3 2025 was 43.8 million shares. Cash and cash equivalents and investments decreased by 3.9 million to 31.2 million as of September 30th. By comparison, at June 30th, it was 35.1 million. Accounts receivable increased by 11 million, so the delta in cash is explained in working capital. Appreciation and amortization in the third quarter was 2.3 million. Total stock comp was 0.7 million. Net inventory was down by approximately 2.4 million in the third quarter to 77.7 million. This continues to be a focus, and we expect to bring it down further in quarters to come. This concludes the discussion of our quarterly financial results. Turning to our plan to list our subsidiary Tang Mei in China on the star market in Shanghai. We've continued to keep our IPO application current. Tang Mei remains in process as a part of a much more selective and smaller group of prospective listings than a few years ago. Although the current geopolitical environment is dynamic, Tang Mei is considered a Chinese company and continues to be regarded in China as a good IPO candidate. We will keep you informed of any updates. With that, I'll now turn it over to Dr. Morris Young for review of our business and markets. Morris.

Thank you, Gary. This has been a very eventful quarter for AXC, as we are seeing a strong uptick in any phosphide demand from data center applications globally. And as our industry and our customers adapt a new normal, rapidly changing environment, In Q3, our revenue grew 56% sequentially and 18% year over year. Within this, our indium phosphide revenue grew to our highest level since 2022, as we were successful in obtaining export permits for a number of significant indium phosphide orders throughout the quarter. I'm very proud of the diligence our team and grateful for the partnership of our customers in working through the export control permitting process. Our current experience is that our Indian phosphide permits are taking approximately 60 business days or approximately three months to be processed by China's Ministry of Commerce. This is a bit longer than our initial expectations, but customers are adapting to the requirements and are adjusting their ordering patterns to give us more visibility and longer lead times. I should also note that the Golden Week holiday at the beginning of October in China will likely increase the average permit processing time by a week or so in Q4. The tremendous growth in demand for Indian phosphide-based lasers and detectors for high-speed optical connectivity, coupled with our successful obtaining export permits on behalf of our customers, are driving a strong increase in our Indian phosphide order backlog, which, as of today, is more than $49 million and growing. Our established customers are planning for longer lead times, by placing longer term orders and giving us more visibility into the expected demand. We're also seeing active engagement with several new tier one customers to qualify our material into their supply chains for the first time in many years. This includes leading optical transceiver module makers, both in China and around the globe. As many of you know, The supply chain for optical transceiver is quite complex and highly globalized. We believe this geographic interdependence is providing both opportunities and incentives for the ecosystem to work together in new ways to solve global supply chain shortages. For a geographic demand perspective, the massive AI infrastructure built out and the planned CapEx spending by cloud services and AI platform providers in the United States is the primary driver for EML and silicon photonics-based optical transceivers. We believe that today our materials are being used in multiple US hyperscalers, and we expect that end customers use will continue to broaden. In China, The data center build-out is early in its ramp, but there is a strong desire for domestic suppliers at every level of the supply chain, and we believe over the next 12 to 18 months, we will see healthy growth in the China data center market. Data center expansion in China is quickly overtaking PANG as the leading application in China for our Indian phosphide substrates. Given the strong demand environment, it is important to know that AXC is well positioned to handle increased demand. We have ample manufacturing capacity in place today, and we can also significantly increase our output by current level, and we can also add capacity quickly as needed. We also have a demonstrated ability to supply very low EPD wafers in volume that meet the vigorous requirements of next-generation EML and silicon photonics-based devices. Now turning to gallium arsenide. Our revenue grew more than 20% from the prior quarter. The biggest driver was some insulating wafers for wireless RF devices, which remains a focused application for us. Industrial laser applications were about flat from Q2, and we saw an uptick in semiconducting wafers for data center laser applications. However, VIXO lasers don't typically require a lot of gallium oxide material, so they don't move the needle much as a growth driver. But they do require high quality material, which were well positioned to supply. In germanium substrates, Our sales declined by about $1 million in Q3. The remaining substrate market was very poor gross margin potential today. And while our material performed well in the solar cell applications as we supplied, gross margin constraint disincentivizes us to pursue many opportunities. In addition, Certain customers prefer to source substrates outside of China. As such, we do not expect growth in Germanium substrates in Q4. Finally, our raw material business in Q3 was consistent with the prior quarter, and it was solidly profitable within a stable pricing market. We expect the same for Q4 globally, There continues to be a greater awareness of the importance of earth materials, and we are ahead of the curve in developing this unique integrated supply chain. In closing, this is a highly active time for our business. The receipt of any phosphide and gallium arsenide export permits remains the single most significant gating factor for our growth. As such, we're highly focused on ensuring that we are proactive, organized, and disciplined about managing the process on behalf of our customers. We also know that we must be laser-focused on running our business with the greatest efficiency. This includes our continued effort to drive growth margin improvement, outback discipline, and inventory reduction. We saw ongoing market trends fueling the data center upgrade cycles, we believe we have tremendous opportunity in 2026 to drive meaningful growth in our business and a return to profitability. We look forward to reporting to you our growth progress. With that, I will turn the call back to Gary for our fourth quarter guidance. Gary? Thank you.