AXT(AXTI) - 2024 Q3 - Quarterly Report

Revenue and Sales Performance - AXT's substrate product group generated 63% of consolidated revenue in 2023, while the raw materials product group accounted for 37%[157]. - AXT's consolidated revenue percentages for substrate and raw materials were 79% and 21% in 2022, and 75% and 25% in 2021, respectively[157]. - Revenue increased by $6.3 million, or 36.2%, to$ 23.6 million for the three months ended September 30, 2024, compared to $17.4 million for the same period in 2023[212]. - Revenue increased by$ 18.9 million, or 34.1%, to $74.3 million for the nine months ended September 30, 2024, compared to$ 55.4 million for the same period in 2023[213]. - Substrate revenue for the nine months ended September 30, 2024, increased by $16.8 million, or 48.0%, to$ 51.7 million from $34.9 million in the same period in 2023[214]. - Revenue in China increased by$ 13.6 million, or 47.3%, for the nine months ended September 30, 2024, primarily due to higher demand for GaAs, InP, and Ge wafer substrates[218]. - Revenue in Taiwan increased by $3.8 million, or 59.2%, for the nine months ended September 30, 2024, driven by higher demand for GaAs and InP wafer substrates[219]. - Revenue in North America increased by$ 1.8 million, or 260.8%, for the three months ended September 30, 2024, primarily due to higher demand for InP wafer substrates[217]. - Revenue in Europe increased by $2.1 million, or 23.8%, for the nine months ended September 30, 2024, primarily due to higher demand for GaAs and InP wafer substrates[220]. Product and Market Strategy - The demand for InP substrates is expected to increase due to growth in AI applications and high-speed data transfer needs in data centers[156]. - AXT's supply chain strategy includes partial ownership of raw material companies in China, providing pricing advantages and reliable supply[162]. - The company is focused on expanding its market presence and increasing sales through new product development and applications[150]. - AXT's substrates are used in various applications, including 5G infrastructure, fiber optics, and consumer electronics[156]. Manufacturing and Operations - AXT's manufacturing operations are primarily located in China, benefiting from lower costs compared to the US, Europe, or Japan[162]. - The relocation of gallium arsenide production lines was completed, with 100% of ingot production transferred to new facilities, enhancing capacity and technological sophistication[164]. - The company has invested in additional buildings and advanced equipment to support future capacity needs[164]. Financial Performance and Expenses - Gross profit for the nine months ended September 30, 2024, increased by$ 10.7 million, or 123.5%, to $19.4 million from$ 8.7 million for the same period in 2023[222]. - Gross margin as a percentage of revenue increased to 26.2% for the nine months ended September 30, 2024, compared to 15.7% for the same period in 2023[222]. - Selling, general and administrative expenses increased by $217,000, or 1.2%, to$ 17.7 million for the nine months ended September 30, 2024, compared to $17.4 million for the same period in 2023[225]. - Research and development expenses increased by$ 1.1 million, or 12.4%, to $10.4 million for the nine months ended September 30, 2024, primarily due to higher development expenses for crystal ingot processing[227]. Cash Flow and Liquidity - Cash and short-term investments decreased by$ 11.3 million in the nine months ended September 30, 2024, primarily due to net cash used in operating activities of $13.4 million[237]. - As of September 30, 2024, the principal source of liquidity was$ 38.8 million, consisting of cash of $24.9 million and restricted cash of$ 13.9 million[237]. - Net cash used in operating activities was $13.4 million for the nine months ended September 30, 2024, primarily due to a net loss before income attributable to noncontrolling interests of$ 6.1 million[239]. - The company has adequate cash and investments to meet operating needs and capital expenditures over the next 12 months[259]. Investments and Financing - The company has a total investment target of approximately $90 million in value, assets, and capital for its new manufacturing facility in Dingxing, China[262]. - The company expects to use net proceeds from a$ 60 million Shelf Registration Statement for working capital, capital expenditures, and potential acquisitions[258]. - The company secured a new line of credit amounting to $9.7 million, structured as a five-year bank loan with an interest rate of 6.5% per annum[255]. - The company recorded a foreign exchange gain of$ 0.2 million in 2023, down from $1.6 million in 2022, and a net foreign exchange loss of$ 0.4 million in 2021[266]. Regulatory and Geopolitical Risks - The company anticipates potential challenges related to geopolitical tensions and regulatory changes affecting its operations in China[150]. - Effective August 1, 2023, the PRC government requires export licenses for gallium and germanium-related materials, impacting shipment timelines[176]. - The company is subject to unique legal and operational risks associated with its corporate structure, which could materially affect operations and stock value[179]. Corporate Structure and Governance - AXT's PRC subsidiary, Tongmei, received a total investment of approximately $49 million from private equity firms, granting them a 7.28% redeemable noncontrolling interest[168]. - The company has no current intentions to distribute earnings to investors under its corporate structure[251]. - Approximately 7.28% of Tongmei was sold to private equity investors for approximately$ 49 million as part of the IPO process[252]. - Tongmei's IPO application was accepted for review by the Shanghai Stock Exchange on January 10, 2022, and approved on July 12, 2022[253].