AXT, Inc. Announces Fourth Quarter and Fiscal Year 2023 Financial Results
- Sequential revenue growth of 18% in Q4 2023.
- GAAP gross margin at 22.6% for Q4 2023.
- Operating loss of ($3.6) million in Q4 2023.
- Fiscal year 2023 revenue at $75.8 million.
- Net loss of ($17.9) million for fiscal year 2023.
- Approval received for Tongmei's STAR Market IPO.
- Significant revenue decline in fiscal year 2023 compared to 2022.
- High operating expenses in fiscal year 2023.
- Net loss reported in both Q4 2023 and fiscal year 2023.
Revenue and Earnings Analysis: AXT, Inc.'s reported sequential growth in revenue and non-GAAP net income for Q4 2023 is a positive indicator, especially considering the prior soft demand environment. The 18 percent sequential revenue growth and 43 percent improvement in non-GAAP net income suggest that the company's cost-saving measures and efficiency improvements may be yielding results. However, a year-over-year comparison shows a decline in revenue from $26.8 million in Q4 2022 to $20.4 million in Q4 2023, indicating that while the company is recovering, it has not yet reached its previous year's performance levels.
Margin Analysis: The significant increase in GAAP and non-GAAP gross margins from Q3 to Q4 2023 indicates a better control over production costs or a favorable change in product mix. Despite this improvement, there is a notable decrease when compared to Q4 2022, which could be a concern for long-term profitability if not addressed.
Operational Efficiency: The decrease in operating expenses both on a GAAP and non-GAAP basis year-over-year and sequentially reflects the company's focus on cost efficiency. However, the company still operates at a loss, which raises questions about its ability to sustain operations without additional financing or further cost reductions.
Market Demand and Opportunities: The increased orders for indium phosphide for AI and fiber optic applications present a significant growth opportunity for AXT, Inc. Given the expanding AI market and the need for high-speed data transfer, the demand for compound semiconductor substrates like indium phosphide is expected to grow. The recovery of the gallium arsenide market, as indicated by the CEO, suggests that AXT's product demand is stabilizing, which could lead to better sales performance in 2024.
Industry Trends: The emphasis on AI as a new catalyst for the semiconductor industry aligns with broader market trends. As AI applications proliferate, the need for components that enable high-speed data transfer will likely increase, positioning AXT to capitalize on this trend. However, the company must navigate intense competition and potential technological shifts within the semiconductor industry.
Economic Context: AXT's performance must be contextualized within the broader economic environment, which has been characterized by supply chain disruptions and fluctuating demand for semiconductors. The company's recovery trajectory in 2023, despite a soft demand environment, suggests resilience but also underscores the importance of monitoring macroeconomic indicators that could influence the semiconductor market, such as trade policies, global economic growth and investment in technology infrastructure.
Long-term Outlook: The long-term outlook for AXT depends on the sustained demand for compound semiconductors in emerging technologies. While current trends are favorable, economic downturns or shifts in technology could impact the company's performance. AXT's ability to adapt to changing market conditions while managing costs will be critical for its long-term success.
FREMONT, Calif., Feb. 22, 2024 (GLOBE NEWSWIRE) -- AXT, Inc. (NasdaqGS: AXTI), a leading manufacturer of compound semiconductor substrates, today reported financial results for the fourth quarter and fiscal year, ended December 31, 2023.
Management Qualitative Comments
“We believe we are now beginning to see a recovery in our markets,” said Morris Young, chief executive officer. “In Q4, we achieved 18 percent sequential growth in our revenues and a 43 percent sequential improvement in our non-GAAP net income. While the overall demand environment remains somewhat soft, we are seeing increased orders for indium phosphide for both artificial intelligence (AI) and fiber optic applications. Further, the gallium arsenide market, which was the first of our markets to go into a correction, appears to have largely worked through excess inventory and is now reflecting truer demand. In total, we are looking forward to 2024 with optimism. We believe that the trends that have driven our revenue and customer expansion remain very much intact, with new catalysts such as AI providing strong incremental opportunity. AI will drive up the need for massive data transfer requirements with increased bandwidth, low attenuation and low distortion. We believe this will result in increased demand for indium phosphide as the best platform for rapid data transfer. We will continue to prioritize cost savings and efficiency, and are focused on accelerating our return to profitability.”
Fourth Quarter 2023 Results
In order to provide better clarity on its operational and financial results, AXT reports its financial results on both a GAAP and non-GAAP basis. Non-GAAP results exclude stock-based compensation expense. Investors can find GAAP to non-GAAP reconciliation tables in the financial statements in this earnings release.
- Revenue for the fourth quarter of 2023 was
$20.4 million , compared with$17.4 million in the third quarter of 2023 and$26.8 million for the fourth quarter of 2022. - GAAP gross margin was 22.6 percent of revenue for the fourth quarter of 2023, compared with 10.7 percent of revenue in the third quarter of 2023 and 32.1 percent for the fourth quarter of 2022.
- Non-GAAP gross margin, after excluding charges for stock-based compensation, was 23.2 percent of revenue for the fourth quarter of 2023, compared with 11.3 percent of revenue in the third quarter of 2023 and 32.5 percent for the fourth quarter of 2022.
- GAAP operating expenses were
$8.2 million in the fourth quarter of 2023. This compares with$8.6 million in the third quarter of 2023 and$9.6 million for the fourth quarter of 2022. - Non-GAAP operating expenses were
$7.5 million in the fourth quarter of 2023. This compares with$7.8 million in the third quarter of 2023 and$9.0 million for the fourth quarter of 2022. - GAAP operating loss for the fourth quarter of 2023 was an operating loss of (
$3.6) million , compared with an operating loss of ($6.7) million in the third quarter of 2023 and an operating loss of ($1.0) million for the fourth quarter of 2022. - Non-GAAP operating loss for the fourth quarter of 2023 was an operating loss of (
$2.7) million , compared with an operating loss of ($5.8) million in the third quarter of 2023 and an operating loss of ($0.3) million for the fourth quarter of 2022. - Non-operating income and expense, taxes and minority interest for the fourth quarter of 2023 was a net loss of (
$0.1) million , compared with a net gain of$0.9 million in the third quarter of 2023 and a net gain of$2.3 million for the fourth quarter of 2022. - GAAP net income/(loss), after minority interests, for the fourth quarter of 2023 was a net loss of (
$3.6) million , or ($0.09) per share, compared with a net loss of ($5.8) million or ($0.14) per share in the third quarter of 2023, and net income of$1.3 million or$0.03 per share for the fourth quarter of 2022. - Non-GAAP net income/(loss) for the fourth quarter of 2023 was a net loss of (
$2.8) million , or ($0.07) per share, compared with a net loss of ($4.9) million or ($0.12) per share in the third quarter of 2023, and net income of$2.1 million or$0.05 per share for the fourth quarter of 2022.
Fiscal Year 2023 Results (January 1 to December 31, 2023)
- Revenue for fiscal year 2023 was
$75.8 million , compared with$141.1 million in fiscal year 2022. - GAAP gross margin for fiscal year 2023 was 17.6 percent of revenue, compared with 36.9 percent of revenue in fiscal year 2022.
- Non-GAAP gross margin for fiscal year 2023 was 18.1 percent of revenue, compared with 37.2 percent of revenue in fiscal year 2022.
- GAAP operating expenses for fiscal year 2023 were
$34.9 million , compared with$39.6 million in fiscal year 2022. - Non-GAAP operating expenses for fiscal year 2023 were
$31.8 million , compared with$35.9 million in fiscal year 2022. - GAAP operating profit/(loss) for fiscal year 2023 was an operating loss of (
$21.6) million compared with an operating profit of$12.6 million in fiscal 2022. - Non-GAAP operating profit/(loss) for fiscal year 2023 was (
$18.0) million compared with$16.6 million in fiscal 2022. - GAAP net income/(loss) for fiscal 2023 was a net loss of (
$17.9) million , or ($0.42) per share, compared with net income of$15.8 million , or$0.37 per share for fiscal 2022. - Non-GAAP net income/(loss) for fiscal 2023 was a net loss of (
$14.3) million , or ($0.34) per share, compared with net income of$19.8 million , or$0.46 per share for fiscal 2022.
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. On August 1, 2022, the China Securities Regulatory Commission (the “CSRC”) accepted for review Tongmei’s IPO application. The STAR Market IPO remains subject to review and approval by the 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 hopes to accomplish this goal in the coming months. 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 today at 1:30 p.m. PT. The conference call can be accessed at (800) 715-9871 (passcode 4378083). The call will also be simulcast at www.axt.com. Replays will be available at (800) 770-2030 (passcode 4378083) until March 7, 2024. 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 where the company maintains 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.
Safe Harbor Statement
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 product mix, 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, including our gross margin performance, 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.
FINANCIAL TABLES TO FOLLOW
| AXT, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except per share data) | ||||||||||||||||
| Three Months Ended | Year Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ | 20,429 | $ | 26,795 | $ | 75,795 | $ | 141,118 | ||||||||
| Cost of revenue | 15,802 | 18,199 | 62,477 | 88,997 | ||||||||||||
| Gross profit | 4,627 | 8,596 | 13,318 | 52,121 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | 5,367 | 5,935 | 22,806 | 25,654 | ||||||||||||
| Research and development | 2,820 | 3,662 | 12,081 | 13,913 | ||||||||||||
| Total operating expenses | 8,187 | 9,597 | 34,887 | 39,567 | ||||||||||||
| Income (loss) from operations | (3,560 | ) | (1,001 | ) | (21,569 | ) | 12,554 | |||||||||
| Interest expense, net | (384 | ) | (401 | ) | (1,527 | ) | (1,071 | ) | ||||||||
| Equity in income (loss) of unconsolidated joint ventures | (460 | ) | 649 | 1,884 | 5,957 | |||||||||||
| Other income, net | 897 | 2,245 | 2,179 | 3,487 | ||||||||||||
| Income (loss) before provision (benefit) for income taxes | (3,507 | ) | 1,492 | (19,033 | ) | 20,927 | ||||||||||
| Provision (benefit) for income taxes | 252 | (3 | ) | 160 | 2,185 | |||||||||||
| Net income (loss) | (3,759 | ) | 1,495 | (19,193 | ) | 18,742 | ||||||||||
| Less: Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests | 138 | (154 | ) | 1,312 | (2,931 | ) | ||||||||||
| Net income (loss) attributable to AXT, Inc. | $ | (3,621 | ) | $ | 1,341 | $ | (17,881 | ) | $ | 15,811 | ||||||
| Net income (loss) attributable to AXT, Inc. per common share: | ||||||||||||||||
| Basic | $ | (0.09 | ) | $ | 0.03 | $ | (0.42 | ) | $ | 0.37 | ||||||
| Diluted | $ | (0.09 | ) | $ | 0.03 | $ | (0.42 | ) | $ | 0.37 | ||||||
| Weighted-average number of common shares outstanding: | ||||||||||||||||
| Basic | 42,851 | 42,383 | 42,643 | 42,104 | ||||||||||||
| Diluted | 42,851 | 42,705 | 42,643 | 42,715 | ||||||||||||
| AXT, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands) | ||||||||
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 37,752 | $ | 34,948 | ||||
| Restricted cash | 12,362 | 6,400 | ||||||
| Short-term investments | 2,140 | 9,339 | ||||||
| Accounts receivable, net | 19,256 | 29,252 | ||||||
| Inventories | 86,503 | 89,629 | ||||||
| Prepaid expenses and other current assets | 12,643 | 13,977 | ||||||
| Total current assets | 170,656 | 183,545 | ||||||
| Long-term investments | — | 2,118 | ||||||
| Property, plant and equipment, net | 166,348 | 161,017 | ||||||
| Operating lease right-of-use assets | 2,799 | 1,761 | ||||||
| Other assets | 18,898 | 21,631 | ||||||
| Total assets | $ | 358,701 | $ | 370,072 | ||||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 9,617 | $ | 10,084 | ||||
| Accrued liabilities | 19,019 | 18,164 | ||||||
| Bank loans | 52,921 | 47,078 | ||||||
| Total current liabilities | 81,557 | 75,326 | ||||||
| Noncurrent operating lease liabilities | 2,351 | 1,322 | ||||||
| Other long-term liabilities | 5,647 | 3,678 | ||||||
| Total liabilities | 89,555 | 80,326 | ||||||
| Redeemable noncontrolling interests | 41,663 | 44,846 | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock | 3,532 | 3,532 | ||||||
| Common stock | 44 | 44 | ||||||
| Additional paid-in capital | 238,452 | 235,308 | ||||||
| Accumulated deficit | (32,040 | ) | (14,159 | ) | ||||
| Accumulated other comprehensive loss | (5,999 | ) | (3,118 | ) | ||||
| Total AXT, Inc. stockholders’ equity | 203,989 | 221,607 | ||||||
| Noncontrolling interests | 23,494 | 23,293 | ||||||
| Total stockholders’ equity | 227,483 | 244,900 | ||||||
| Total liabilities, redeemable noncontrolling interests and stockholders’ equity | $ | 358,701 | $ | 370,072 | ||||
| AXT, INC. Reconciliation of Statements of Operations Under GAAP and Non-GAAP (Unaudited, in thousands) | |||||||||||||||
| Three Months Ended | Year Ended | ||||||||||||||
| December 31, | December 31, | ||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||
| GAAP gross profit | $ | 4,627 | $ | 8,596 | $ | 13,318 | $ | 52,121 | |||||||
| Stock-based compensation expense | 103 | 102 | 414 | 379 | |||||||||||
| Non-GAAP gross profit | $ | 4,730 | $ | 8,698 | $ | 13,732 | $ | 52,500 | |||||||
| GAAP operating expenses | $ | 8,187 | $ | 9,597 | $ | 34,887 | $ | 39,567 | |||||||
| Stock-based compensation expense | 719 | 643 | 3,126 | 3,627 | |||||||||||
| Non-GAAP operating expenses | $ | 7,468 | $ | 8,954 | $ | 31,761 | $ | 35,940 | |||||||
| GAAP income (loss) from operations | $ | (3,560 | ) | $ | (1,001 | ) | $ | (21,569 | ) | $ | 12,554 | ||||
| Stock-based compensation expense | 822 | 745 | 3,540 | 4,006 | |||||||||||
| Non-GAAP income (loss) from operations | $ | (2,738 | ) | $ | (256 | ) | $ | (18,029 | ) | $ | 16,560 | ||||
| GAAP net income (loss) | $ | (3,621 | ) | $ | 1,341 | $ | (17,881 | ) | $ | 15,811 | |||||
| Stock-based compensation expense | 822 | 745 | 3,540 | 4,006 | |||||||||||
| Non-GAAP net income (loss) | $ | (2,799 | ) | $ | 2,086 | $ | (14,341 | ) | $ | 19,817 | |||||
| GAAP net income (loss) per diluted share | $ | (0.09 | ) | $ | 0.03 | $ | (0.42 | ) | $ | 0.37 | |||||
| Stock-based compensation expense per diluted share | $ | 0.02 | $ | 0.02 | $ | 0.08 | $ | 0.09 | |||||||
| Non-GAAP net income (loss) per diluted share | $ | (0.07 | ) | $ | 0.05 | $ | (0.34 | ) | $ | 0.46 | |||||
| Shares used to compute diluted net income per share | 42,851 | 42,705 | 42,643 | 42,715 | |||||||||||
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