AXTI AXT Inc

AXT, Inc. (NasdaqGS: AXTI), a leading manufacturer of compound semiconductor wafer substrates, today reported financial results for the second quarter, ended June 30, 2022.

Management Qualitative Comments

“This is an exciting time in our business,” said Morris Young, chief executive officer. “Our strong execution on a number of fronts has set the stage for great opportunities in the coming quarters. We continue to achieve strong growth in highly strategic applications, and are currently ramping several Tier-1 customers. We are also achieving notable success in the development of larger diameter substrates that we believe will enable the next generation of technology innovation across a number of end-markets. This strong execution has driven first half revenue growth of 22% over the previous year and continues to enable us to outperform our market, with emerging opportunities that will layer on over the coming quarters.”

Second Quarter 2022 Results  

• Revenue for the second quarter of 2022 was $39.5 million, compared with $39.7 million for the first quarter of 2022 and $33.7 million for the second quarter of 2021.
• GAAP gross margin was 39.1 percent of revenue for the second quarter of 2022, compared with 33.6 percent of revenue for the first quarter of 2022 and 36.3 percent for the second quarter of 2021.
• Non-GAAP gross margin was 39.4 percent of revenue for the second quarter of 2022, compared with 33.8 percent of revenue for the first quarter of 2022 and 36.4 percent for the second quarter of 2021.
• GAAP operating expenses were $10.1 million for the second quarter of 2022, compared with $9.6 million for the first quarter of 2022 and $8.3 million for the second quarter of 2021.
• Non-GAAP operating expenses were $9.1 million for the second quarter of 2022, compared with $8.6 million for the first quarter of 2022 and $7.4 million for the second quarter of 2021.
• GAAP operating profit for the second quarter of 2022 was $5.3 million, compared with $3.7 million for the first quarter of 2022 and $3.9 million for the second quarter of 2021.
• Non-GAAP operating profit for the second quarter of 2022 was $6.4 million, compared with $4.8 million for the first quarter of 2022 and $4.9 million for the second quarter of 2021.
• Non-operating income and expense, taxes and minority interest for the second quarter of 2022 was an income of $0.3 million, compared with an expense of $0.5 million in the first quarter of 2022 and an income of $0.5 million for the second quarter of 2021.
• GAAP net income, after minority interests, for the second quarter of 2022 was $5.5 million, or $0.13 per share, compared with net income of $3.2 million or $0.07 per share for the first quarter of 2022 and net income of $4.4 million or $0.10 per share for the second quarter of 2021.
• Non-GAAP net income for the second quarter of 2022 was $6.7 million, or $0.16 per share, compared with net income of $4.3 million or $0.10 per share for the first quarter of 2022 and net income of $5.4 million or $0.12 per share for the second quarter of 2021.

STAR Market Listing Update

On January 10, 2022, AXT announced that Beijing Tongmei Xtal Technology Co., Ltd. (“Tongmei”), its subsidiary in Beijing, China, submitted to the Shanghai Stock Exchange (the “SSE”) its application to list its shares in an initial public offering (the “IPO”) on the SSE’s Sci-Tech innovAtion boaRd (the “STAR Market”) and the application was accepted for review. Subsequently, Tongmei responded to several rounds of questions received from the SSE. On July 12, 2022, the SSE approved the listing of Tongmei’s shares in an IPO on the STAR Market. The STAR Market IPO remains subject to review and approval by the China Securities Regulatory Commission (“CSRC”) and other authorities. The process of going public on the STAR Market includes several periods of review and, therefore, is a lengthy process. Subject to review and approval by the CSRC and other authorities, Tongmei expects to accomplish this goal in the second half of 2022, probably in Q4 2022. AXT has posted a brief summary of the plan and the process on its website at http://www.axt.com.

Conference Call

The company will host a conference call to discuss these results on July 28, 2022 at 1:30 p.m. PT. To access the call by phone, please go to this link to register and you will be provided with dial in details: https://register.vevent.com/register/BI845e5e766e5542c4807cba2ad13e21f8. A webcast link for the call will also be available on the investor relations page at www.axt.com. Additional investor information can be accessed at http://www.axt.com or by calling the company’s Investor Relations Department at (510) 438-4700.

About AXT, Inc.

AXT is a material science company that develops and manufactures high-performance compound and single element semiconductor substrate wafers comprising indium phosphide (InP), gallium arsenide (GaAs) and germanium (Ge). The company’s substrate wafers are used when a typical silicon substrate wafer cannot meet the performance requirements of a semiconductor or optoelectronic device. End markets include 5G infrastructure, data center connectivity (silicon photonics), passive optical networks, LED lighting, lasers, sensors, power amplifiers for wireless devices and satellite solar cells. AXT’s worldwide headquarters are in Fremont, California and includes sales, administration and customer service functions. AXT has its Asia headquarters in Beijing, China and manufacturing facilities in three separate locations in China. In addition, as part of its supply chain strategy, the Company has partial ownership in ten companies in China producing raw materials for its manufacturing process. For more information, see AXT’s website at http://www.axt.com.

Forward-Looking Statements

The foregoing paragraphs contain forward-looking statements within the meaning of the Federal securities laws, including, for example, statements regarding the timing and completion of the proposed listing of shares of Tongmei on the STAR Market. Additional examples of forward-looking statements include statements regarding the market demand for our products, our growth prospects and opportunities for continued business expansion, including technology trends, new applications and the ramping of Tier-1 customers, our market opportunity, our ability to lead our industry, our relocation, our expectations with respect to our business prospects and financial results and our development of larger diameter substrates that we believe will enable the next generation of technology innovation across a number of end-markets. These forward-looking statements are based upon assumptions that are subject to uncertainties and factors relating to the company’s operations and business environment, which could cause actual results to differ materially from those expressed or implied in the forward-looking statements contained in the foregoing discussion. These uncertainties and factors include but are not limited to: the requests for redemptions by private equity funds in China of investments in Tongmei, the administrative challenges in satisfying the requirements of various government agencies in China in connection with the listing of shares of Tongmei on the STAR Market, continued open access to companies to list shares on the STAR Market, investor enthusiasm for new listings of shares on the STAR Market and geopolitical tensions between China and the United States. Additional uncertainties and factors include, but are not limited to: the timing and receipt of significant orders; the cancellation of orders and return of product; emerging applications using chips or devices fabricated on our substrates; end-user acceptance of products containing chips or devices fabricated on our substrates; our ability to bring new products to market; product announcements by our competitors; the ability to control costs and improve efficiency; the ability to utilize our manufacturing capacity; product yields and their impact on gross margins; the relocation of manufacturing lines and ramping of production; possible factory shutdowns as a result of air pollution in China or COVID-19; COVID-19 or other outbreaks of a contagious disease; tariffs and other trade war issues; the financial performance of our partially owned supply chain companies; policies and regulations in China; and other factors as set forth in the company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q and other filings made with the Securities and Exchange Commission. Each of these factors is difficult to predict and many are beyond the company’s control. The company does not undertake any obligation to update any forward-looking statement, as a result of new information, future events or otherwise.

Contacts:Gary FischerChief Financial Officer(510) 438-4700

Leslie GreenGreen Communications Consulting, LLC(650) 312-9060

FINANCIAL TABLES TO FOLLOW

AXT, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited, in thousands, except per share data)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2022				2021				2022				2021
Revenue		$	39,487			$	33,735			$	79,140			$	65,085
Cost of revenue			24,052				21,497				50,397				41,311
Gross profit			15,435				12,238				28,743				23,774
Operating expenses:
Selling, general and administrative			6,693				5,795				13,143				11,365
Research and development			3,453				2,537				6,612				4,942
Total operating expenses			10,146				8,332				19,755				16,307
Income from operations			5,289				3,906				8,988				7,467
Interest income (expense), net			(188	)			39				(371	)			(11	)
Equity in income of unconsolidated joint ventures			2,177				1,502				3,302				2,613
Other income (expense), net			294				61				285				(50	)
Income before provision for income taxes			7,572				5,508				12,204				10,019
Provision for income taxes			1,027				893				1,687				1,639
Net income			6,545				4,615				10,517				8,380
Less: Net income attributable to noncontrolling interests and redeemable noncontrolling interests			(999	)			(230	)			(1,806	)			(570	)
Net income attributable to AXT, Inc.		$	5,546			$	4,385			$	8,711			$	7,810
Net income attributable to AXT, Inc. per common share:
Basic		$	0.13			$	0.11			$	0.21			$	0.19
Diluted		$	0.13			$	0.10			$	0.20			$	0.18
Weighted-average number of common shares outstanding:
Basic			42,001				41,248				41,935				41,124
Diluted			42,511				42,727				42,586				42,725

AXT, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited, in thousands)

		June 30,				December 31,
		2022				2021
ASSETS
Current assets:
Cash and cash equivalents		$	41,043			$	36,763
Restricted cash			3,900				—
Short-term investments			4,471				5,419
Accounts receivable, net			38,751				34,839
Inventories			77,280				65,912
Prepaid expenses and other current assets			11,935				17,252
Total current assets			177,380				160,185
Long-term investments			7,760				9,576
Property, plant and equipment, net			152,882				142,415
Operating lease right-of-use assets			2,021				2,324
Other assets			21,222				17,941
Total assets		$	361,265			$	332,441
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	23,317			$	16,649
Accrued liabilities			14,581				17,057
Short-term loan, related party			—				1,887
Bank loan			32,973				12,229
Total current liabilities			70,871				47,822
Noncurrent operating lease liabilities			1,596				1,935
Other long-term liabilities			2,069				2,453
Total liabilities			74,536				52,210
Redeemable noncontrolling interests			48,265				50,385
Stockholders’ equity:
Preferred stock			3,532				3,532
Common stock			43				43
Additional paid-in capital			233,364				231,622
Accumulated deficit			(21,259	)			(29,970	)
Accumulated other comprehensive income			637				6,302
Total AXT, Inc. stockholders’ equity			216,317				211,529
Noncontrolling interests			22,147				18,317
Total stockholders’ equity			238,464				229,846
Total liabilities, redeemable noncontrolling interests and stockholders’ equity		$	361,265			$	332,441

AXT, INC.Reconciliation of Statements of Operations Under GAAP and Non-GAAP(Unaudited, in thousands)

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2022			2021			2022			2021
GAAP gross profit		$	15,435		$	12,238		$	28,743		$	23,774
Stock compensation expense			113			36			226			75
Non-GAAP gross profit		$	15,548		$	12,274		$	28,969		$	23,849
GAAP operating expenses		$	10,146		$	8,332		$	19,755		$	16,307
Stock compensation expense			1,021			939			1,996			1,716
Non-GAAP operating expenses		$	9,125		$	7,393		$	17,759		$	14,591
GAAP income from operations		$	5,289		$	3,906		$	8,988		$	7,467
Stock compensation expense			1,134			975			2,222			1,791
Non-GAAP income from operations		$	6,423		$	4,881		$	11,210		$	9,258
GAAP net income		$	5,546		$	4,385		$	8,711		$	7,810
Stock compensation expense			1,134			975			2,222			1,791
Non-GAAP net income		$	6,680		$	5,360		$	10,933		$	9,601
GAAP net income per diluted share		$	0.13		$	0.10		$	0.20		$	0.18
Stock compensation expense per diluted share		$	0.03		$	0.02		$	0.05		$	0.04
Non-GAAP net income per diluted share		$	0.16		$	0.12		$	0.25		$	0.22
Shares used to compute diluted net income per share			42,511			42,727			42,586			42,725