AXT(AXTI) - 2024 Q4 - Annual Report

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].