AXT(AXTI) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q3 2019 was $19.8 million, down from$24.8 million in Q2 2019 and $28.6 million in Q3 2018 [5][6] - Gross margin decreased to 29.0$898,000, or a loss of $0.02 per share, compared to a net income of$1.5 million in Q2 2019 and $3.9 million in Q3 2018 [8][7] - Cash, cash equivalents, and investments increased to$38.5 million as of September 30, 2019, up from $37.5 million at June 30, 2019 [8] Business Line Data and Key Metrics Changes - Substrate sales were$16.0 million in Q3, down from $20.6 million in Q2 2019 [6] - Revenue from raw material joint ventures was$3.9 million in Q3, compared to $4.2 million in Q2 and$5.8 million in Q3 2018 [6] - Indium phosphide substrate revenue remained steady sequentially in Q3, but could not compensate for the absence of a large telecommunication order from Q2 [13] Market Data and Key Metrics Changes - Revenue distribution in Q3 2019: North America 9%, Asia Pacific 66%, Europe 25% [6] - The U.S. market for compound semiconductor substrates faced significant challenges, particularly due to geopolitical tensions [10] Company Strategy and Development Direction - The company is focused on executing its relocation in China, having completed necessary permitting for both Beijing and Chaozhou locations [10][11] - New facilities are designed to meet environmental standards and are optimized for manufacturing processes, allowing for capacity expansion [11] - The company aims to ramp up production in the new facilities to support expected customer volume increases in the coming quarters [12] Management's Comments on Operating Environment and Future Outlook - The management expressed that Q3 was a challenging quarter with a weakened demand environment and poor visibility [9][10] - Despite near-term challenges, the company remains optimistic about long-term technology trends driving demand for its products, particularly in datacenter upgrades and 5G infrastructure [14][15] - The management noted that the gallium arsenide market holds significant opportunities, with expectations for recovery in 2020 [15] Other Important Information - The company expects Q4 revenue to be between $19.5 million to$20.5 million, with a projected loss per share of $0.06 to$0.08 [18] - The company has a $10 million line of credit with Wells Fargo Bank, which has not been utilized [8] Q&A Session Summary Question: Can you walk us through the different businesses within the guidance and comment on lower gross margins? - Management indicated that lower gross margins were due to lower volume and changes in product mix, particularly following a strong Q2 in the Indium phosphide business [20][21] Question: Do you see any key market or product group recovering faster than others? - Management expects LED and gallium arsenide to be slightly stronger in Q4, while Indium phosphide is anticipated to decline further [23][24] Question: Can you elaborate on the milestone of the permit mentioned? - Management confirmed that all necessary permits for volume production have been obtained, which is crucial for ramping up production [28][29] Question: How certain are you that you haven't lost any customers or orders? - Management expressed confidence in retaining customers, particularly in the Indium phosphide segment, and noted that some customers are transitioning products [38][39] Question: What are the intermediate to longer-term plans for the Beijing facility? - Management indicated that the new facility in Chaozhou is ramping up rapidly, while Dingxing is processing a smaller portion of customer demand [49][50]