AXT, Inc. Announces Second Quarter 2012 Financial Results

FREMONT, CA--(Marketwire - Aug 1, 2012) - AXT, Inc. (NASDAQ: AXTI)

• Q2 FY 2012 Net Revenues: $25.2 million
  
  
• Q2 FY 2012 GAAP Net Income: $1.3 million; $0.04 per share (diluted)
  

AXT, Inc. (NASDAQ: AXTI), a leading manufacturer of compound semiconductor substrates, today reported financial results for the second quarter ended June 30, 2012.

Second Quarter 2012 Results
Revenue for the second quarter of 2012 was $25.2 million, up 7 percent from $23.5 million in the first quarter of 2012.

Total gallium arsenide (GaAs) substrate revenue was $14.9 million for the second quarter of 2012, compared with $12.2 million in the first quarter of 2012. Indium phosphide (InP) substrate revenue was $1.3 million for the second quarter of 2012, compared with $1.5 million in the first quarter of 2012. Germanium (Ge) substrate revenue was $2.4 million for the second quarter of 2012 compared with $2.6 million in the first quarter of 2012. Raw materials sales were $6.5 million for the second quarter of 2012, compared with $7.2 million in the first quarter of 2012.

Gross margin was 29.8 percent of revenue for the second quarter of 2012. By comparison, gross margin in the first quarter of 2012 was 34.9 percent of revenue. The drop in gross margin in the second quarter of 2012 was largely the result of a new People's Republic of China VAT levied on foreign enterprises that import materials which do not form part of the final product. AXT recently received notice of the retroactive VAT which applies for the period July 1, 2011 to June 30, 2012 and amounted to $1.27 million expense in the quarter ended June 30, 2012, which resulted in a 505 basis point impact to gross margins. Excluding the effect of this VAT tax, gross margins in the quarter would have been 34.9 percent. Going forward, the company expects that this new VAT will negatively impact gross margins by approximately 150 basis points per quarter.

Operating expenses were $4.9 million in the second quarter of 2012, compared with $4.6 million in the first quarter of 2012. Income from operations for the second quarter of 2012 was $2.6 million, compared with income from operations of $3.6 million in the first quarter of 2012. Net interest and other income for the second quarter of 2012 was $219,000, which included a foreign exchange gain of $106,000. This compares with net interest and other expense of $247,000 in the first quarter of 2012, which included a foreign exchange loss of $165,000. 

Net income in the second quarter of 2012 was $1.3 million or $0.04 per diluted share, compared with net income of $1.6 million or $0.05 per diluted share in the first quarter of 2012. 

Management Qualitative Comments
"The second quarter was a positive quarter for our gallium arsenide business, which grew more than 20 percent sequentially," said Morris Young, chief executive officer. "Further, we continued to make good progress with new customer qualifications, and are hopeful that we will begin to layer on additional revenues from new qualifications later this year and into 2013. As we move into Q3, the demand environment appears to be more challenging, particularly in certain geographies. We are continuing to approach the current business environment with measured conservatism based on mixed industry data points and expect to see weaker than normal seasonal performance as a result. However, we have worked diligently to improve our operating structure and efficiency and are well-positioned with key customers in each of our markets. We view improving market conditions, new customer qualifications and a bottoming of raw material pricing as key catalysts for our growth later this year and beyond."

Conference Call
The company will host a conference call to discuss these results on August 1, 2012 at 1:30 p.m. PDT. The conference call can be accessed at (719) 325-2418 (passcode 1714909). The call will also be simulcast on the Internet at www.axt.com. Replays will be available at (719) 457-0820 (passcode 1714909) until August 7, 2012. 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 our outlook for the third quarter of 2012, the current and long-term growth and trends in the demand for our products, our progress in our strategic plans, and the positioning of the company. 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.

FINANCIAL TABLES TO FOLLOW

AXT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
				Three Months Ended								Six Months Ended
				June 30,								June 30,
				2012				2011				2012				2011
Revenue				$	25,153			$	30,031			$	48,639			$	54,597
Cost of revenue					17,645				16,005				32,937				29,911
Gross profit					7,508				14,026				15,702				24,686
Operating expenses:
	Selling, general and administrative				3,974				3,714				7,759				7,404
	Research and development				914				699				1,749				1,204
		Total operating expenses			4,888				4,413				9,508				8,608
Income from operations					2,620				9,613				6,194				16,078
Interest income, net					62				69				150				156
Other income (expense), net					157				450				(178	)			87
Income before provision for income taxes					2,839				10,132				6,166				16,321
Provision for income taxes					412				1,064				787				1,966
Net income					2,427				9,068				5,379				14,355
Less: Net income attributable to noncontrolling interest					(1,128	)			(2,006	)			(2,445	)			(3,085	)
Net income attributable to AXT, Inc.				$	1,299			$	7,062			$	2,934			$	11,270
Net income attributable to AXT, Inc. per common share:
	Basic			$	0.04			$	0.22			$	0.09			$	0.35
	Diluted			$	0.04			$	0.21			$	0.09			$	0.34
Weighted average number of common shares outstanding:
	Basic				32,138				31,831				32,086				31,775
	Diluted				32,944				33,093				32,981				33,146

AXT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
				June 30,				December 31,
				2012				2011
Assets:
Current assets
	Cash and cash equivalents			$	31,281			$	26,156
	Short-term investments				11,465				5,505
	Accounts receivable, net				22,367				17,966
	Inventories				40,869				46,012
	Related party notes receivable - current				415				412
	Prepaid expenses and other current assets				5,685				7,052
		Total current assets			112,082				103,103
Long-term investments					4,322				8,981
Property, plant and equipment, net					35,316				34,282
Related party notes receivable - long-term					2,036				2,021
Other assets					13,918				14,101
		Total assets		$	167,674			$	162,488
Liabilities and stockholders' equity:
Current liabilities
	Accounts payable			$	5,860			$	3,286
	Accrued liabilities				8,360				7,597
		Total current liabilities			14,220				10,883
Long-term portion of royalty payments					3,725				4,125
Other long-term liabilities					131				431
		Total liabilities			18,076				15,439
Stockholders' equity:
	Preferred stock				3,532				3,532
	Common stock				32				32
	Additional paid-in capital				192,346				191,554
	Accumulated deficit				(59,223	)			(62,157	)
	Accumulated other comprehensive income				6,163				5,818
		Total AXT, Inc. stockholders' equity			142,850				138,779
	Noncontrolling interest				6,748				8,270
		Total stockholders' equity			149,598				147,049
		Total liabilities and stockholders' equity		$	167,674			$	162,488