AXT INC Q4 FY2024 earnings call

Key Points:

• Fiscal 2024 revenue was $99.4 million, a 31% increase from fiscal 2023, with growth in all revenue categories.
• Q4 2024 non-GAAP gross margin was 17.9% vs. 24.3% in Q3 2024 and 23.2% in Q4 2023; decline due to lower recycling benefits and under-absorption of manufacturing overhead.
• Total non-GAAP operating expense in Q4 2024 was $9.9 million vs. $9.0 million in Q3 2024 and $7.5 million in Q4 2023; increase due to legal and R&D expenses.
• 2024 achievements: Advancements in material technology for data center and wireless applications, expansion of raw material joint ventures (consolidated joint venture revenue $32 million in 2024, up 12% from prior year).
• 2025 challenges: China trade restrictions on indium phosphide export, requiring export permit process.
• 2025 opportunities: Growth in cloud/datacenter connectivity (AI and optical interconnects), gallium arsenide in wireless market (targeting market share growth), recovery of global demand for applications like passive optical networks and LEDs, and continued expansion of raw material joint ventures.

For the fourth quarter of 2024, revenue was $25.1 million. By product category: Indium phosphide was $9.1 million (approximately 36.26% of total revenue), gallium arsenide was $5.4 million (approximately 21.51% of total revenue), germanium substrates were $1.6 million (approximately 6.37% of total revenue), and consolidated raw material joint venture companies generated $9.0 million (approximately 35.86% of total revenue). Regional revenue breakdown: Asia Pacific 79%, Europe 11%, North America 10%.

Gary Fischer stated that Q1 2025 revenue is expected to be in the range of $18.0 million to $20.0 million. Non-GAAP net loss is expected to be in the range of $0.13 to $0.15 per share, and GAAP net loss is expected to be in the range of $0.15 to $0.17 per share. Gross margins are expected to be low in Q1 2025 due to indium phosphide export restrictions but to improve to mid-20s in subsequent quarters.

• China trade restrictions on indium phosphide export, which could delay sales in Q1 2025.
• Increased environmental regulations in China.
• COVID-19 and other outbreaks of contagious disease.
• Financial performance of partially owned supply chain companies.

Q: Richard Shannon asks about gross margins and the duration of R&D investments.

A: Gary Fischer says gross margins will be low again in Q1 2025 due to indium phosphide export restrictions but should improve to mid-20s later; Morris Young mentions R&D efforts for 6-inch indium phosphide are nearing completion with benefits expected.

Q: Charles Shi inquires about the impact of indium phosphide export restrictions on Q1 revenue and wireless market growth.

A: Morris Young and Tim Bettles state there will be a $4 million to $5 million impact in Q1 due to permits, but they expect recovery; on wireless market, HBT market is ~$80M-$100M annually, with current 10% market share aiming to grow 30% in 2025.

Q: Tim Savageaux asks about recovery from indium phosphide export restrictions similar to gallium arsenide.

A: Morris Young believes indium phosphide recovery could be better than gallium arsenide due to indium phosphide being less replaceable and strong customer relationships, expecting recovery in Q2 or Q3.