AXT Inc. Financial Performance Q3 2024

AXT Inc. (ticker: NASDAQ:AXTI), a leading developer of compound semiconductor substrates, reported a mixed financial performance for the third quarter of 2024. CEO Dr. Morris Young and CFO Gary Fischer announced a revenue decline from the previous quarter but an increase from the same quarter last year. The company also provided insights into its strategic initiatives, including a potential IPO for its subsidiary and a focus on profitable sectors amid a recovering Chinese economy.

Key Takeaways

• AXT reported Q3 2024 revenue of $23.6 million, down from Q2 2024 but up from Q3 2023.
• Revenue sources included:
  • $6.8 million from indium phosphide
  • $6.6 million from gallium arsenide
  • $1.6 million from germanium substrates
  • $8.6 million from raw material joint ventures.
• Non-GAAP gross margin for Q3 was 24.3%, a decrease from Q2 2024 but an increase from Q3 2023.
• The company's non-GAAP operating loss improved to $2.6 million from $5.8 million in Q3 2023.
• Q4 revenue is projected to be between $23.0 million and $25.0 million, with a decline expected in germanium revenue.
• AXT is preparing for the IPO of its subsidiary, Tongmei, on the STAR Market in Shanghai.
• AXT sees promise in the indium phosphide and gallium arsenide sectors for 2025.

Company Outlook

• Q4 revenue is estimated to range from $23.0 million to $25.0 million, primarily driven by data center applications.
• The forecast for 2025 is optimistic, focusing on returning to profitability, particularly in indium phosphide and gallium arsenide sectors.

Bearish Highlights

• Revenue and gross margin in Q3 were negatively impacted by rising germanium raw material prices.
• A decline in germanium revenue is projected for Q4.

Bullish Highlights

• Indium phosphide and gallium arsenide sectors show growth potential, especially for data center applications.
• Recovery of the Chinese economy is expected to increase demand for lasers and LEDs.
• Raw material joint ventures and recycling initiatives contributed positively to Q3 results.
• Potential market expansion in high-power transistors and silicon photonics driven by AI and data center demand.

Misses

• The non-GAAP net loss for Q4 is forecasted to be between $0.03 and $0.05, with a GAAP net loss of $0.05 to $0.07.

Q&A Highlights

• Morris Young discussed stability and potential growth in the telecom market, currently at 30% of peak conditions.
• Cautious optimism about the STAR Market IPO for its subsidiary exists despite stringent regulatory conditions in China.
• AXT has resolved significant concerns from the Shanghai Stock Exchange, seeing revenue recovery aided by a recent stimulus package.
• The company will participate in the Needham Growth Conference and encourages further investor communication.

AXT's third-quarter earnings call reflected a company in transition, managing short-term challenges while setting the stage for long-term growth. With strategic initiatives such as the potential IPO of its subsidiary Tongmei and a focus on profitable sectors, AXT aims to capitalize on the recovering Chinese economy and expanding demand in key markets. Despite the decline in germanium revenue, the company's optimism for the indium phosphide and gallium arsenide sectors suggests a pathway back to profitability.

InvestingPro Insights

AXT Inc.'s (AXTI) recent financial performance and strategic outlook can be contextualized with real-time data from InvestingPro. AXT's market capitalization stands at $94.54 million.

• AXT's Price to Book ratio of 0.54 indicates potential undervaluation relative to its book value, which could interest value investors.
• Analysts anticipate sales growth in the current year, aligning with AXT's projections for Q4 revenue and an optimistic outlook for 2025, particularly in data center applications.
• AXT faced challenges with a revenue drop of -11.57% over the last twelve months as of Q2 2024.
• The stock's price performance shows a 33.42% increase over one year, but a -21.73% decline over three months, indicating sensitivity to market conditions and company-specific news.

InvestingPro offers additional metrics for AXT, providing further insights into its financial health and market position.

Full transcript – AXT Inc (AXTI) Q3 2024:

Operator

Good afternoon, everyone. Welcome to AXT's Third Quarter 2024 Financial Conference Call. Leading the call today is Dr. Morris Young, Chief Executive Officer, and Gary Fischer, Chief Financial Officer, alongside Tim Bettles, AXT’s Vice President of Business Development for the Q&A portion. I would now like to turn the call over to Leslie Green, Investor Relations for AXT.

Leslie Green

Thank you, Christina, and good afternoon. Before we begin, I want to remind you that during this call, we may provide projections or other forward-looking statements regarding future financial performance, market conditions, and more, based on management's current expectations and subject to risks and uncertainties. For additional information on risk factors, please refer to the company's periodic reports filed with the Securities and Exchange Commission, available online.

I would now like to turn the call over to Gary Fischer for a review of our third quarter 2024 results.

Gary Fischer

Thanks, Leslie, and good afternoon everyone. Revenue for the third quarter of 2024 was $23.6 million, compared to $27.9 million in Q2 2024, and $17.4 million in Q3 2023. Revenue by product category included:
– Indium phosphide: $6.8 million
– Gallium arsenide: $6.6 million
– Germanium substrates: $1.6 million
– Raw material joint ventures: $8.6 million.

In Q3 2024, revenue by region was: Asia Pacific 77%, Europe 12%, North America 11%. The top five customers generated 29.4% of total revenue, with none over 10%.

Non-GAAP gross margin was 24.3%, down from 27.6% in Q2 2024, and 11.3% in Q3 2023. Total non-GAAP operating expense was $9.0 million. Our non-GAAP operating loss for Q3 was $2.6 million, an improvement from $5.8 million in Q3 2023.

Non-GAAP net loss was $2.1 million, or $0.05 per share, compared with a net loss of $800,000, or $0.02 per share in Q2 2024.

Morris Young

Q3 met our expectations, with solid demand for indium phosphide substrates, particularly from data centers and AI applications. We're also pursuing growth in gallium arsenide and preparing for the Tongmei IPO in the STAR Market.

In conclusion, we're optimistic about future growth and our focus on strategic opportunities as we aim for profitability. We look forward to providing updates in the near future.

Operator

Thank you. This concludes today's conference call. You may now disconnect. Have a great day.

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