AXT, Inc. Announces Third Quarter 2012 Financial Results

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

• Q3 FY 2012 Net Revenues: $20.8 million
  
  
• Q3 FY 2012 GAAP Net Income: $0.93 million; $0.03 per share (diluted)
  
  

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

Third Quarter 2012 Results
Revenue for the third quarter of 2012 was $20.8 million, compared to $25.2 million in the second quarter of 2012.

Total gallium arsenide (GaAs) substrate revenue was $12.9 million for the third quarter of 2012, compared with $14.9 million in the second quarter of 2012. Indium phosphide (InP) substrate revenue was $1.6 million for the third quarter of 2012, compared with $1.3 million in the second quarter of 2012. Germanium (Ge) substrate revenue was $2.0 million for the third quarter of 2012 compared with $2.4 million in the second quarter of 2012. Raw materials sales were $4.3 million for the third quarter of 2012, compared with $6.5 million in the second quarter of 2012.

Gross margin was 26.3 percent of revenue for the third quarter of 2012. By comparison, gross margin in the second quarter of 2012 was 29.8 percent of revenue. The drop in gross margin in the third quarter of 2012 was largely the result of lower selling prices of raw gallium, as well as lower tonnage sold, and lower volumes of sales in gallium arsenide substrates in both the wireless market and the LED market.

Operating expenses were $4.8 million in the third quarter of 2012, compared with $4.9 million in the second quarter of 2012.

Income from operations for the third quarter of 2012 was $0.7 million, compared with income from operations of $2.6 million in the second quarter of 2012.

Net interest and other income for the third quarter of 2012 was $544,000, which included a foreign exchange gain of $114,000. This compares with net interest and other income of $219,000 in the second quarter of 2012, which included a foreign exchange gain of $106,000. 

Net income in the third quarter of 2012 was $0.9 million or $0.03 per diluted share, compared with net income of $1.3 million or $0.04 per diluted share in the second quarter of 2012. 

Management Qualitative Comments
"Business conditions in the third quarter were in keeping with the expectations that we outlined when we announced our results last quarter," said Morris Young, president and CEO. "The compound semiconductor substrate market is currently experiencing a correction, largely driven by weaker demand and a moderate amount of excess inventory in the channel. However, our solid execution over the last many quarters is allowing us to weather the current down cycle and we are using this time to support significant qualifications that are still ongoing and to focus our resources on strategic geographies and applications that are likely to benefit AXT in the future. We view improving market conditions, new customer qualifications and a bottoming of raw material pricing as key catalysts for our growth in the coming year and beyond."

Conference Call
The company will host a conference call to discuss these results on Nov. 1, 2012 at 1:30 p.m. PT. The conference call can be accessed at (913) 312-0406 (passcode 6664216). The call will also be simulcast on the Internet at www.axt.com. Replays will be available at (719) 457-0820 (passcode 6664216) until November 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 focus on strategic geographies and applications that are likely to benefit AXT in the future and on our view on the key catalysts for our growth in the coming year and beyond. 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								Nine Months Ended
				September 30,								September 30,
				2012				2011				2012				2011
Revenue				$	20,808			$	28,305			$	69,447			$	82,902
Cost of revenue					15,342				16,068				48,279				45,979
Gross profit					5,466				12,237				21,168				36,923
Operating expenses:
	Selling, general and administrative				3,950				3,555				11,709				10,959
	Research and development				844				612				2,593				1,816
		Total operating expenses			4,794				4,167				14,302				12,775
Income from operations					672				8,070				6,866				24,148
Interest income, net					52				103				202				259
Other income, net					492				356				314				443
Income before provision for (benefit from) income taxes					1,216				8,529				7,382				24,850
Provision for (benefit from) income taxes					(228	)			667				559				2,633
Net income					1,444				7,862				6,823				22,217
Less: Net income attributable to noncontrolling interest					(512	)			(1,378	)			(2,957	)			(4,463	)
Net income attributable to AXT, Inc.				$	932			$	6,484			$	3,866			$	17,754
Net income attributable to AXT, Inc. per common share:
	Basic			$	0.03			$	0.20			$	0.12			$	0.55
	Diluted			$	0.03			$	0.19			$	0.11			$	0.53
Weighted average number of common shares outstanding:
	Basic				32,183				31,944				32,118				31,832
	Diluted				32,769				33,126				32,911				33,140

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AXT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
				September 30,				December 31,
				2012				2011
Assets:
Current assets
	Cash and cash equivalents			$	35,503			$	26,156
	Short-term investments				10,577				5,505
	Accounts receivable, net				16,888				17,966
	Inventories				39,932				46,012
	Related party notes receivable - current				414				412
	Prepaid expenses and other current assets				5,125				7,052
		Total current assets			108,439				103,103
Long-term investments					5,367				8,981
Property, plant and equipment, net					36,201				34,282
Related party notes receivable - long-term					2,031				2,021
Other assets					14,183				14,101
		Total assets		$	166,221			$	162,488
Liabilities and stockholders' equity:
Current liabilities
	Accounts payable			$	4,570			$	3,286
	Accrued liabilities				6,800				7,597
		Total current liabilities			11,370				10,883
Long-term portion of royalty payments					3,525				4,125
Other long-term liabilities					157				431
		Total liabilities			15,052				15,439
Stockholders' equity:
	Preferred stock				3,532				3,532
	Common stock				32				32
	Additional paid-in capital				192,703				191,554
	Accumulated deficit				(58,291	)			(62,157	)
	Accumulated other comprehensive income				6,006				5,818
		Total AXT, Inc. stockholders' equity			143,982				138,779
	Noncontrolling interest				7,187				8,270
		Total stockholders' equity			151,169				147,049
Total liabilities and stockholders' equity				$	166,221			$	162,488