AXT, Inc. Announces Third Quarter 2014 Financial Results

FREMONT, CA--(Marketwired - Oct 30, 2014) - AXT, Inc. (NASDAQ: AXTI), a leading manufacturer of compound semiconductor substrates, today reported financial results for the third quarter ended Sept. 30, 2014.

Third Quarter 2014 Results
Revenue for the third quarter of 2014 was $23.1 million compared with $21.4 million in the second quarter of 2014.

Gross margin was 23.0 percent of revenue for the third quarter of 2014, compared with 19.4 percent of revenue in the second quarter of 2014.

Operating expenses were $4.7 million in the third quarter of 2014, unchanged from $4.7 million in the second quarter of 2014. 

Profit from operations for the third quarter of 2014 was $653,000 compared with a loss from operations of $515,000 in the second quarter of 2014. 

Net interest and other income for the third quarter of 2014 was $260,000. This was primarily attributable to $390,000 from equity earnings of the company's unconsolidated joint ventures, $302,000 from the sale of IntelliEpi stock, $556,000 from a loss on foreign exchange and $106,000 from interest income. By comparison, net interest and other income for the second quarter of 2014 was $1.2 million. This was primarily attributable to $625,000 from equity earnings of the company's unconsolidated joint ventures, $324,000 from the sale of IntelliEpi stock, $158,000 from a gain on foreign exchange and $127,000 from interest income.

Net income in the third quarter of 2014 was $644,000 or $0.02 per diluted share compared with a net income of $319,000 or $0.01 per diluted share in the second quarter of 2014. 

Management Qualitative Comments
"The third quarter was a positive quarter for AXT," said Morris Young, chief executive officer. "Revenue came in ahead of our expectations, and we achieved another quarter of profitability through improved gross margins and tight expense control. Further, we are diversifying our customer base throughout our product portfolio and are pleased to be gaining traction in several areas that have been a strong focus of our sales efforts. The changes in the gallium arsenide landscape over the past two years have had an adverse impact on our business. However, these changes are finally beginning to settle and new applications for our products are emerging across our substrate portfolio. I am very pleased to have a strong team in place with the expertise to maximize our potential as we evolve our business to meet new opportunities."

Conference Call
The company will host a conference call to discuss these results on Oct. 30, 2014 at 1:30 p.m. PT. The conference call can be accessed at (719) 457-2645 (passcode 2872393). The call will also be simulcast on the Internet at www.axt.com. Replays will be available at (719) 457-0820 (passcode 2872393) until Nov. 6, 2014. Financial and statistical information to be discussed in the call will be available on the company's website immediately prior to commencement of the call. Additional investor information can be accessed at http://www.axt.com or by calling the company's Investor Relations Department at (510) 683-5900.

About AXT, Inc.
AXT designs, develops, manufactures and distributes high-performance compound and single element semiconductor substrates comprising gallium arsenide (GaAs), indium phosphide (InP) and germanium (Ge) through its manufacturing facilities in Beijing, China. In addition, AXT maintains its sales, administration and customer service functions at its headquarters in Fremont, California. The company's substrate products are used primarily in lighting display applications, wireless communications, fiber optic communications and solar cell. Its vertical gradient freeze (VGF) technique for manufacturing semiconductor substrates provides significant benefits over other methods and enabled AXT to become a leading manufacturer of such substrates. AXT has manufacturing facilities in China and invests in joint ventures in China producing raw materials. 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 statements regarding the market demand for our products, our market opportunity, our business planning and management approach and our expectations with respect to our business prospects. These forward-looking statements are based upon specific assumptions that are subject to uncertainties and factors relating to the company's operations and business environment, which could cause actual results of the company 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: overall conditions in the markets in which the company competes; global financial conditions and uncertainties; market acceptance and demand for the company's products; the impact of factory closures or other events causing delays by our customers on the timing of sales of our products; and other factors as set forth in the company's annual report on Form 10-K 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.

AXT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
				Three Months Ended								Nine Months Ended
				September 30,								September 30,
				2014				2013				2014				2013
Revenue				$	23,138			$	20,521			$	63,932			$	66,732
Cost of revenue					17,820				18,075				51,736				57,717
Gross profit					5,318				2,446				12,196				9,015
Operating expenses:
	Selling, general and administrative				3,505				4,303				10,629				12,435
	Research and development				1,160				766				2,922				2,627
	Restructuring charge												907
		Total operating expenses			4,665				5,069				14,458				15,062
Income (loss) from operations					653				(2,623	)			(2,262	)			(6,047	)
Interest income, net					106				55				360				136
Equity in earnings of unconsolidated joint ventures					390				346				1,502				1,099
Other income (expense), net					(236	)			(47	)			250				(491	)
Income (loss) before provision for income taxes					913				(2,269	)			(150	)			(5,303	)
Provision for (benefit from) income taxes					43				(204	)			254				322
Net income (loss)					870				(2,065	)			(404	)			(5,625	)
Less: Net income (loss) attributable to noncontrolling interest					(226	)			(230	)			(673	)			(1,105	)
Net income (loss) attributable to AXT, Inc.				$	644			$	(2,295	)		$	(1,077	)		$	(6,730	)
Net income (loss) attributable to AXT, Inc. per common share:
	Basic			$	0.02			$	(0.07	)		$	(0.04	)		$	(0.21	)
	Diluted			$	0.02			$	(0.07	)		$	(0.04	)		$	(0.21	)
Weighted average number of common shares outstanding:
	Basic				32,504				32,366				32,416				32,407
	Diluted				32,738				32,366				32,416				32,407

AXT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
				September 30,				December 31,
				2014				2013
Assets:
Current assets
	Cash and cash equivalents			$	25,793			$	24,961
	Short-term investments				15,366				12,499
	Accounts receivable, net				21,079				14,943
	Inventories				36,648				39,127
	Related party notes receivable - current				0				0
	Prepaid expenses and other current assets				5,914				8,010
		Total current assets			104,800				99,540
Long-term investments					7,332				10,145
Property, plant and equipment, net					34,663				37,621
Related party notes receivable - long-term					1,874				1,715
Other assets					15,216				14,801
		Total assets		$	163,885			$	163,822
Liabilities and stockholders' equity:
Current liabilities
	Accounts payable			$	9,480			$	8,140
	Accrued liabilities				6,790				7,286
		Total current liabilities			16,270				15,426
Long-term portion of royalty payments					1,925				2,525
Other long-term liabilities					323				325
		Total liabilities			18,518				18,276
Stockholders' equity:
	Preferred stock				3,532				3,532
	Common stock				32				32
	Additional paid-in capital				195,151				194,156
	Accumulated deficit				(68,082	)			(67,005	)
	Accumulated other comprehensive income				8,333				8,953
		Total AXT, Inc. stockholders' equity			138,966				139,668
	Noncontrolling interest				6,401				5,878
		Total stockholders' equity			145,367				145,546
		Total liabilities and stockholders' equity		$	163,885			$	163,822