Core Insights - The article serves as an introduction to "The Cannabis Report," which focuses on the cannabis industry and includes insights from an experienced analyst and consultant in the field [1] Industry Overview - The cannabis industry is highlighted as a growing sector with increasing interest from investors and analysts [1] - The report aims to provide technical stock analysis, option strategies, small cap strategies, and insights into emerging markets within the cannabis sector [1] Analyst Background - The analyst has a decade of experience in the cannabis industry and has contributed to notable publications such as High Times Magazine [1] - A book titled "Cannabis in the Ancient Greek and Roman World" has been published by the analyst, indicating a depth of knowledge in the historical context of cannabis [1]

Company Overview - AXT was founded in 1986 and had its IPO in 1998[4] - The company operates in three locations in China: Beijing, Kazuo, and Dingxing[4] Products and Markets - Indium Phosphide (InP) is a growth engine, with expanding applications and a long product life cycle[6] - Gallium Arsenide (GaAs) has a long product life cycle with new applications, and AXT supplied first 8-inch GaAs wafers in April 2021[14] - Germanium (Ge) is primarily used in satellite solar cells, and the satellite solar cell market is increasing[22, 25] Financial Performance - In 2023, AXT's revenue was $75.8 million[29] - In 2022, AXT's revenue was $141.1 million[29] - In 2023, the Non-GAAP Gross Margin was 18.1%[29] - In 2023, the Non-GAAP Net Profit/(Loss) was ($14.3) million[29] Tongmei STAR Market Listing - AXT currently owns approximately 85.5% of Tongmei[31] - If the IPO is approved, AXT would own approximately 77% of Tongmei, selling an additional 10%[31]

PART I. FINANCIAL INFORMATION [Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements for Q1 2025 and 2024, including balance sheets, statements of operations, comprehensive loss, cash flows, and explanatory notes Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total current assets** | $149,531 | $158,272 | | **Total assets** | $333,477 | $339,314 | | **Total current liabilities** | $75,256 | $74,176 | | **Total liabilities** | $87,305 | $84,406 | | **Total stockholders' equity** | $208,047 | $216,331 | Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Revenue | $19,356 | $22,688 | | Gross profit (loss) | $(1,241) | $6,094 | | Loss from operations | $(10,275) | $(3,347) | | Net loss | $(10,016) | $(2,048) | | Net loss attributable to AXT, Inc. | $(8,798) | $(2,083) | | Diluted net loss per share | $(0.20) | $(0.05) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,346) | $(8,806) | | Net cash used in investing activities | $(786) | $(3,912) | | Net cash provided by financing activities | $6,882 | $2,000 | | **Net increase (decrease) in cash** | **$4,373** | **$(10,514)** | [Notes To Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20To%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies and financial items, including revenue breakdown, Tongmei STAR Market IPO risks, debt, stock-based compensation, and legal proceedings Revenue by Product Type (in thousands) | Product Type | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Substrates | $11,082 | $16,903 | | Raw Materials and Other | $8,274 | $5,785 | | **Total** | **$19,356** | **$22,688** | Revenue by Geographic Region (in thousands) | Geographical region | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | China | $13,426 | $11,517 | | Taiwan | $1,221 | $4,582 | | Europe | $2,101 | $3,725 | | North America | $1,109 | $1,076 | | Other | $1,499 | $1,788 | | **Total** | **$19,356** | **$22,688** | - Tongmei's STAR Market IPO application was approved by the Shanghai Stock Exchange and is under review by the CSRC[135](index=135&type=chunk)[136](index=136&type=chunk) - Investors hold a redemption right for their **~$49 million investment** if the IPO is not successfully completed[135](index=135&type=chunk)[136](index=136&type=chunk) - As of March 31, 2025, the company had **$52.5 million in short-term loans** and **$7.9 million in long-term loans** (net of current portion)[122](index=122&type=chunk) - The company is facing a putative shareholder class action and a related derivative lawsuit, which is currently on appeal after being dismissed[100](index=100&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk) - The company believes the claims are meritless[100](index=100&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=48&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's performance, financial condition, and outlook, highlighting Q1 2025 revenue decline, gross margin compression, US-China trade tensions, and the Tongmei STAR Market IPO initiative - AXT is a materials science company producing high-performance compound semiconductor substrates (InP, GaAs, Ge) and related raw materials, with all manufacturing operations located in the PRC[148](index=148&type=chunk)[149](index=149&type=chunk)[154](index=154&type=chunk) - The business is significantly impacted by escalating US-China trade tensions, with US tariffs on its products increasing to as high as **100%** and China imposing export permit requirements on all three of its substrate product lines (GaAs, Ge, and InP)[170](index=170&type=chunk)[202](index=202&type=chunk) - The strategic initiative to list its subsidiary Tongmei on the STAR Market is a key focus[162](index=162&type=chunk) - The process is lengthy and subject to CSRC approval[162](index=162&type=chunk) - Failure could trigger a **~$49 million redemption** by investors[237](index=237&type=chunk) [Results of Operations](index=70&type=section&id=Results%20of%20Operations) Q1 2025 revenue decreased 14.7% year-over-year to $19.4 million, driven by a substrate revenue decline, while gross margin collapsed to negative 6.4% due to production issues and export restrictions Revenue Change Q1 2024 to Q1 2025 (in thousands) | Product Type | Q1 2025 | Q1 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Substrates | $11,082 | $16,903 | $(5,821) | (34.4)% | | Raw materials and other | $8,274 | $5,785 | $2,489 | 43.0% | | **Total revenue** | **$19,356** | **$22,688** | **$(3,332)** | **(14.7)%** | - Gross profit decreased by **$7.3 million (120.4%)** to a loss of **$1.2 million** in Q1 2025[209](index=209&type=chunk) - The gross margin was **-6.4%** compared to **26.9%** in Q1 2024, attributed to significant unfavorable yields in gallium arsenide production and reduced sales of higher-margin indium phosphide due to export restrictions[209](index=209&type=chunk) - SG&A expenses decreased by **5.0%** to **$5.9 million**, while R&D expenses decreased by **3.0%** to **$3.1 million** compared to the prior-year period[210](index=210&type=chunk)[211](index=211&type=chunk) [Liquidity and Capital Resources](index=75&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2025, the company held $38.2 million in cash and restricted cash. During the quarter, cash increased by $4.4 million, primarily due to $6.9 million in net proceeds from financing activities (net debt issuance), which more than offset the $3.3 million cash used in operations. Management believes current liquidity is adequate for the next 12 months, but acknowledges the significant risk of a potential ~$49 million cash outflow if the Tongmei IPO fails and investors exercise their redemption rights - Principal source of liquidity as of March 31, 2025 was **$38.2 million**, consisting of **$31.6 million in cash** and **$6.6 million in restricted cash**[221](index=221&type=chunk) Q1 2025 Cash Flow Summary (in millions) | Cash Flow Activity | Amount | | :--- | :--- | | Net cash used in operating activities | $(3.3) | | Net cash used in investing activities | $(0.8) | | Net cash provided by financing activities | $6.9 | | **Net increase in cash** | **$4.4** | - A key risk to liquidity is the potential redemption of Tongmei shares by investors for approximately **$49 million** if the STAR Market IPO is not successfully completed[237](index=237&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=83&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are identified as foreign currency fluctuations, interest rate changes, and credit risk. Significant business is conducted in Chinese Renminbi and Japanese Yen, creating exposure to currency volatility, which is partially managed by a hedging program for the Yen. Interest rate risk is considered minimal. Credit risk is concentrated, with one customer accounting for over 10% of accounts receivable - The company has significant foreign currency risk exposure from operations in China (Renminbi) and sales to Japan (Yen)[250](index=250&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk) - A hedging program is in place to mitigate risk from the Japanese Yen[250](index=250&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk) - Interest rate risk is low; a **10% change in rates** would have an immaterial impact on interest income[254](index=254&type=chunk) - One customer accounted for more than **10% of the accounts receivable balance** as of March 31, 2025[255](index=255&type=chunk) [Controls and Procedures](index=85&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on an evaluation as of the end of the quarter, the CEO and CFO concluded that the company's disclosure controls and procedures were effective. No material changes to internal control over financial reporting were identified during the quarter - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2025[257](index=257&type=chunk) - There were no changes in internal control over financial reporting during Q1 2025 that have materially affected, or are reasonably likely to materially affect, internal controls[259](index=259&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=86&type=section&id=Item%201.%20Legal%20Proceedings) The company is currently defending against a putative shareholder class action lawsuit and a related derivative action. The class action, filed in May 2024, alleges violations of federal securities laws. The derivative suit was dismissed in March 2025, but the plaintiff has filed a notice of appeal. AXT believes the claims in both cases are meritless - A putative shareholder class action was filed on **May 6, 2024**, against the company, its CEO, and CFO, alleging violations of the Securities Exchange Act[263](index=263&type=chunk) - The case is pending[263](index=263&type=chunk) - A related derivative lawsuit was dismissed by the court on **March 17, 2025**, but the plaintiff filed a notice of appeal on **May 13, 2025**[264](index=264&type=chunk) [Risk Factors](index=86&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks that could adversely affect the company's business. Major risks include the severe impact of escalating US-China trade tariffs and export restrictions; operational and regulatory risks tied to its manufacturing base in China, such as potential government intervention and mandatory shutdowns; high volatility in financial results and gross margins; the potential failure of the Tongmei STAR Market IPO, which carries a ~$49 million redemption obligation; and intense competition and pricing pressure in the semiconductor materials market - Escalating and volatile trade tariffs from the U.S. and export restrictions from China on key materials (gallium, germanium, indium phosphide) pose a material threat to the business[338](index=338&type=chunk)[340](index=340&type=chunk) - The PRC central government may intervene in or influence PRC operations at any time, and regulations can change quickly[346](index=346&type=chunk)[348](index=348&type=chunk)[350](index=350&type=chunk) - This includes risks of mandatory factory shutdowns due to environmental policies[346](index=346&type=chunk)[348](index=348&type=chunk)[350](index=350&type=chunk) - The proposed IPO of subsidiary Tongmei on the STAR Market could fail, triggering a right for investors to redeem their shares for approximately **$49 million**[386](index=386&type=chunk) - Gross margins are highly volatile and can be negatively impacted by product mix, manufacturing yields, capacity utilization, and pricing pressure[276](index=276&type=chunk) - The gross margin was **negative (-6.4%)** in Q1 2025[276](index=276&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=138&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds from such sales during the reporting period - None [Defaults upon Senior Securities](index=138&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) The company reported no defaults upon its senior securities during the period - None [Mine Safety Disclosures](index=138&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable [Other Information](index=140&type=section&id=Item%205.%20Other%20Information) The company disclosed that no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the last fiscal quarter - No director or officer, as defined in Rule 16a-1(f), adopted or terminated a Rule 10b5-1 trading arrangement during the last fiscal quarter[418](index=418&type=chunk) [Exhibits](index=140&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed concurrently with the Form 10-Q, which include the CEO and CFO certifications required under the Sarbanes-Oxley Act of 2002 (Sections 302 and 906) and the Inline XBRL data files for financial reporting - The filed exhibits include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL files (101 series)[420](index=420&type=chunk)

Company Performance - AXT reported a quarterly loss of $0.19 per share, which was worse than the Zacks Consensus Estimate of a loss of $0.13, and compared to a loss of $0.03 per share a year ago, indicating an earnings surprise of -46.15% [1] - The company posted revenues of $19.36 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 1.50%, but down from $22.69 million in the same quarter last year [2] - AXT has surpassed consensus EPS estimates two times over the last four quarters and topped consensus revenue estimates three times during the same period [2] Stock Outlook - AXT shares have declined approximately 35.5% since the beginning of the year, while the S&P 500 has only declined by -5.3% [3] - The current consensus EPS estimate for the upcoming quarter is -$0.08 on revenues of $24.15 million, and for the current fiscal year, it is -$0.26 on revenues of $102.01 million [7] - The estimate revisions trend for AXT is currently unfavorable, resulting in a Zacks Rank 4 (Sell), indicating expected underperformance in the near future [6] Industry Context - The Electronics - Semiconductors industry, to which AXT belongs, is currently in the top 30% of over 250 Zacks industries, suggesting a favorable industry outlook [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact AXT's stock performance [5]

AXT (AXTI) Q1 2025 Earnings Call May 01, 2025 04:30 PM ET Company Participants Leslie Green - Investor RelationsGary Fischer - CFO, VP & Corporate SecretaryMorris Young - Co-Founder, CEO & ChairmanRoss Cole - Equity Research AssociateTim Bettles - VP Business Development, Strategic Sales and MarketingMatthew Bryson - MD - Equity Research Conference Call Participants Richard Shannon - Senior Research AnalystDave Kang - Senior Analyst Operator Good afternoon, everyone, and welcome to AXT's First Quarter twent ...

Financial Data and Key Metrics Changes - Revenue for Q1 2025 was $19.4 million, down from $25.1 million in Q4 2024 and $20.2 million in Q1 2024 [5][6] - Non-GAAP gross margin was negative 6.1% in Q1 2025, compared to 17.9% in Q4 2024 and 27.3% in Q1 2024 [6][9] - Non-GAAP net loss for Q1 2025 was $8.2 million or $0.19 per share, compared to a loss of $4.3 million or $0.10 per share in Q4 2024 [9][10] Business Line Data and Key Metrics Changes - Revenue from indium phosphide was $3.8 million, gallium arsenide was $6.7 million, and germanium substrates were $600,000 in Q1 2025 [5] - Revenue from consolidated raw material joint ventures was $8.3 million, indicating healthy demand [5] Market Data and Key Metrics Changes - Revenue distribution: Asia Pacific region accounted for 83%, Europe 11%, and North America 6% in Q1 2025 [5] - The Chinese data center optical interconnect market is estimated to be one-third of the global market, with increasing sales of indium phosphide within China [16] Company Strategy and Development Direction - The company is focusing on optimizing growth opportunities in China, particularly in high-speed data center connectivity and sensors for autonomous driving [25] - Plans to improve gross margins through a more measured approach to production and addressing yield issues [21][27] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by geopolitical factors and trade restrictions but expressed optimism about future growth opportunities in the Chinese market [15][25] - Expected healthy double-digit growth for revenue from data center applications in China in Q2 2025 [17] Other Important Information - The company is preparing for an IPO of its subsidiary in China, Tongmei, on the STAR Market [11] - Cash and cash equivalents increased to $38.2 million as of March 31, 2025, from $33.8 million at the end of 2024 [10] Q&A Session Summary Question: Yield issues for semi-insulating gallium arsenide - Management acknowledged yield problems due to aggressive market penetration but believes solutions are in place for recovery [30][32] Question: Timeline for resolving yield issues - Management indicated that while the product is established, changes in customer specifications require careful recalibration, which may take time [36][38] Question: Indium phosphide permitting process - Management expressed confidence in obtaining permits by mid-June, allowing for backlog shipments [41][46] Question: Risk of losing customers due to shipping delays - Management believes they hold a significant market share and that customers are willing to wait for shipments [55][60] Question: Impact of tariffs on gross margin - Management noted that tariffs are a concern but not a significant factor affecting gross margins at this time [72][78]

Financial Performance - Revenue for Q1 2025 was $19.4 million, down 22.8% from $25.1 million in Q4 2024 and down 14.8% from $22.7 million in Q1 2024[4] - GAAP gross margin for Q1 2025 was (6.4)%, a significant decline from 17.6% in Q4 2024 and 26.9% in Q1 2024[4] - Non-GAAP gross margin for Q1 2025 was (6.1)%, compared to 17.9% in Q4 2024 and 27.3% in Q1 2024[5] - GAAP net loss for Q1 2025 was $8.8 million, or $0.20 per share, compared to a net loss of $5.1 million, or $0.12 per share, in Q4 2024[7] - Non-GAAP net loss for Q1 2025 was $8.2 million, or $0.19 per share, compared to a net loss of $4.3 million, or $0.10 per share, in Q4 2024[7] - GAAP net loss for Q1 2025 was $8.798 million, compared to a net loss of $2.083 million in Q1 2024, representing a significant increase in losses[16] - Non-GAAP net loss for Q1 2025 was $8.152 million, compared to a net loss of $1.274 million in Q1 2024, indicating a worsening financial performance year-over-year[16] - GAAP loss from operations for Q1 2025 was $10.275 million, up from a loss of $3.347 million in Q1 2024, reflecting increased operational challenges[16] - Non-GAAP loss from operations for Q1 2025 was $9.629 million, compared to a loss of $2.538 million in Q1 2024, highlighting a decline in operational efficiency[16] - GAAP gross profit for Q1 2025 was $(1.241) million, a decrease from a gross profit of $6.094 million in Q1 2024, indicating a significant drop in profitability[16] - Non-GAAP gross profit for Q1 2025 was $(1.178) million, down from $6.199 million in Q1 2024, further emphasizing the decline in revenue generation[16] - GAAP net loss per diluted share for Q1 2025 was $(0.20), compared to $(0.05) in Q1 2024, reflecting a deterioration in per-share performance[16] - Non-GAAP net loss per diluted share for Q1 2025 was $(0.19), compared to $(0.03) in Q1 2024, indicating a negative trend in earnings per share[16] - Total shares used to compute diluted net income per share increased to 43,554 thousand in Q1 2025 from 42,987 thousand in Q1 2024[16] - Stock-based compensation expense for Q1 2025 was $646 thousand, compared to $809 thousand in Q1 2024, showing a reduction in compensation costs[16] Operational Challenges - The decline in gross margin was primarily due to a 58% reduction in indium phosphide sales, yield reduction on gallium arsenide wafers, and under-absorbed factory overhead[5] - AXT is taking a more measured approach to market share expansion to improve execution and production levels[3] Strategic Focus - The company is focusing on growth opportunities in China, particularly in high-speed data center connectivity and LIDAR for autonomous driving[2] - The STAR Market IPO application for Tongmei is under review, with hopes to complete the process in the coming months[6] Asset Management - AXT's total assets as of March 31, 2025, were $333.5 million, a decrease from $339.3 million as of December 31, 2024[15]

Financial Performance - Total revenue increased by $23.6 million, or 31.1%, in 2024 to $99.4 million from $75.8 million in 2023, driven by higher demand for InP and GaAs wafer substrates [288]. - Gross profit increased by $10.5 million in 2024, resulting in a gross margin of 24.0% compared to 17.6% in 2023 [297]. - Revenue from customers in China increased by 41.1% in 2024, primarily due to higher demand for GaAs, InP, and Ge wafer substrates [293]. - Revenue from customers in Taiwan surged by 63.0% in 2024, primarily due to increased demand for GaAs and InP wafer substrates [293]. - Revenue from North America increased by 14.9% in 2024, primarily due to higher demand for InP wafer substrates [293]. Expenses and Costs - Research and development expenses rose by $2.5 million, or 20.4%, to $14.5 million in 2024, mainly due to higher development costs for GaAs and InP wafer substrates [301]. - Selling, general and administrative expenses increased by $1.3 million, or 5.7%, to $24.1 million in 2024, attributed to higher legal and professional service expenses [299]. - Interest expense, net decreased by $187,000, or 12.2%, to $1.34 million in 2024 compared to $1.53 million in 2023, while it increased by $456,000, or 42.6%, from $1.07 million in 2022 [303]. Assets and Liabilities - The company recorded accounts receivable net balance of $25.6 million as of December 31, 2024, compared to $19.3 million in 2023, reflecting an increase of approximately 32.1% [266]. - The allowance for credit losses decreased by $432,000 during 2024, while it increased by $272,000 in 2023, indicating a shift in credit risk assessment [266]. - As of December 31, 2024, the company had an inventory reserve of $24.1 million for excess and obsolete inventory, up from $21.9 million in 2023, representing a 10.1% increase [268]. - The accrued product warranties decreased to $451,000 in 2024 from $703,000 in 2023, a reduction of approximately 35.8% due to fewer quality claims [267]. - The company has no impairment of long-lived assets as of December 31, 2024, and 2023, indicating stable asset valuations [276]. Tax and Deferred Assets - The company’s deferred tax assets have been reduced to zero by a valuation allowance, reflecting uncertainties in realizing these assets [281]. - The company recorded a valuation allowance against net deferred tax assets of $20.7 million and $17.5 million for the years 2024 and 2023, respectively [309]. - Provision for income taxes increased by $974,000, or 608.8%, to $1.1 million in 2024 from $0.2 million in 2023, while it decreased by $2.0 million, or 92.7%, from $2.2 million in 2022 [308]. Cash Flow and Financing - Net cash used in operating activities was $12.1 million in 2024, primarily due to a net loss of $11.8 million and a net change in operating assets and liabilities of $11.7 million [315]. - Total cash, restricted cash, and cash equivalents decreased by $16.3 million in 2024, ending the year at $33.8 million [313]. - Net cash used in investing activities was $4.4 million in 2024, primarily for property, plant, and equipment [318]. - The company has no current intentions to distribute earnings to investors under its corporate structure, maintaining cash management policies for funding between subsidiaries [330]. - The company reported net cash provided by financing activities of $38.0 million for 2022, with $53.1 million from short-term loans in China and $2.2 million from capital increases in subsidiary shares [323]. Investments and Equity - The company sold approximately 7.28% of Tongmei to private equity investors for about $49 million as part of its IPO process on the STAR Market [331]. - The IPO application for Tongmei was accepted for review by the Shanghai Stock Exchange on January 10, 2022, and approved on July 12, 2022 [332]. - Dividends received from PRC subsidiaries were approximately $2.4 million, $4.3 million, and $2.9 million for the years ended December 31, 2024, 2023, and 2022, respectively [329]. - Minority investments under the fair value method totaled $0.6 million as of December 31, 2024, unchanged from 2023, while investments under the equity method increased from $12.5 million in 2023 to $14.1 million in 2024 [354]. Regulatory and Economic Environment - The company faced significant economic challenges due to escalating trade tensions, with U.S. tariffs on imports from China increasing to 70% [286]. - The company anticipates potential delays in export permit processing for indium phosphide substrates due to new regulations, impacting future operations [286]. - Approximately 92% of the company's revenue in 2024 came from customers located outside of North America [292]. Miscellaneous - The company has no off-balance sheet financing arrangements or special purpose entities established [341]. - The company has committed to a total investment of approximately $90 million in Dingxing, China, including cash for land and buildings, equipment, and local employment [344]. - The company has instituted a foreign currency hedging program to mitigate foreign exchange exposure related to Japanese yen, which may also be applied to the Chinese renminbi in the future [351]. - A registration statement was filed with the SEC to offer up to $60 million in various securities for working capital and potential acquisitions [335].

Group 1 - AXT, Inc. reported a 23% year-over-year increase in revenues for Q4 2024, driven by high demand for indium phosphide wafers [1] - The growth in AI computing and data centers is significantly contributing to the increased demand for the company's products [1]

Financial Data and Key Metrics Changes - Revenue for Q4 2024 was $25.1 million, up from $23.6 million in Q3 2024 and $20.4 million in Q4 2023, reflecting a strong year-over-year growth [6][16] - Non-GAAP gross margin in Q4 was 17.9%, down from 24.3% in Q3 2024 and 23.2% in Q4 2023, primarily due to lower benefits from recycling and under-absorption of manufacturing overhead [9][10] - Non-GAAP net loss for Q4 was $4.3 million or $0.10 per share, compared to a loss of $2.1 million or $0.05 per share in Q3 2024 and a loss of $2.8 million or $0.07 per share in Q4 2023 [12][17] Business Line Data and Key Metrics Changes - Revenue breakdown for Q4 2024: Indium phosphide at $9.1 million, gallium arsenide at $5.4 million, germanium substrates at $1.6 million, and revenue from joint ventures at $9.0 million [7][8] - The company reported a non-GAAP operating loss of $5.4 million in Q4 2024, compared to a loss of $2.6 million in Q3 2024 and a loss of $2.7 million in Q4 2023 [11] Market Data and Key Metrics Changes - Revenue from Asia Pacific accounted for 79%, Europe for 11%, and North America for 10% in Q4 2024 [8] - The top five customers contributed approximately 36% of total revenue, with one customer exceeding the 10% threshold [8] Company Strategy and Development Direction - The company plans to list its subsidiary Tongmei on the STAR Market in Shanghai, viewing it as a good IPO candidate [18] - AXT is focusing on expanding its portfolio of raw material companies to create a valuable supply chain and explore new markets [22][36] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges due to new trade restrictions on indium phosphide exports but expressed confidence in navigating the permit process [23][24] - The company anticipates a revenue impact of approximately $4 million to $5 million in Q1 2025 due to these restrictions but expects to recover once permits are secured [25][41] Other Important Information - The company reported a total revenue of $99.4 million for fiscal year 2024, a 31% increase from $75.8 million in fiscal year 2023 [16][17] - Cash, cash equivalents, and investments decreased by $5.0 million to $33.8 million as of December 31, 2024 [13] Q&A Session Summary Question: Concerns about gross margins and operating expenses - Management expects gross margins to remain low in Q1 due to reduced indium phosphide sales but anticipates recovery to mid-20s in subsequent quarters [49] - R&D investments in indium phosphide are ongoing, with expected benefits from improved yields and performance [50][51] Question: Opportunities in datacenters and photodetectors - Growth is expected in both photodetector and laser segments, particularly with the transition to silicon photonics and EML applications [56][58] Question: Impact of export controls on revenue - Management believes that the permitting process for indium phosphide will be manageable, similar to gallium arsenide, and expects to secure permits for non-military applications [70] Question: Revenue recovery in Q2 - If permits are obtained, management is optimistic about recovering lost sales in Q2 and potentially achieving strong revenue levels [77] Question: Market share in the wireless sector - The HBT market is estimated at $80 million to $100 million annually, with a target to grow market share from 10% to approximately 13% to 14% this year [80][81] Question: Growth outlook for indium phosphide - Expected growth for indium phosphide in 2025 is around 20%, driven by demand in AI and silicon photonics [91][92]