AXT, Inc. Announces Third Quarter 2013 Financial Results

FREMONT, CA--(Marketwired - Oct 30, 2013) - AXT, Inc. (NASDAQ: AXTI), a leading manufacturer of compound semiconductor substrates, today reported financial results for the third quarter ended Sept. 30, 2013.

Third Quarter 2013 Results
Revenue for the third quarter of 2013 was $20.5 million compared with $23.8 million in the second quarter of 2013. Total gallium arsenide (GaAs) substrate revenue was $9.0 million for the third quarter of 2013, compared with $10.7 million in the second quarter of 2013. Indium phosphide (InP) substrate revenue was $1.4 million for the third quarter of 2013, compared with $2.0 million in the second quarter of 2013. Germanium (Ge) substrate revenue was $5.5 million for the third quarter of 2013, compared with $5.3 million in the second quarter of 2013. Raw materials sales were $4.6 million for the third quarter of 2013, compared with $5.8 million in the second quarter of 2013.

Gross margin was 11.9 percent of revenue for the third quarter of 2013, compared with 12.9 percent of revenue in the second quarter of 2013.

Operating expenses were $5.1 million in the third quarter of 2013, compared with $5.2 million in the second quarter of 2013.

Loss from operations for the third quarter of 2013 was $2.6 million compared with loss from operations of $2.2 million in the second quarter of 2013. 

Net interest and other income for the third quarter was $354,000, which was mainly attributable to $346,000 from equity earnings of the company's unconsolidated joint ventures, partially offset by $67,000 foreign exchange losses. This compares with net interest and other income of $902,000 in the second quarter, which was mainly attributable to an $811,000 gain on the sale of a minority investment in a privately-held company, $471,000 equity earnings of the company's unconsolidated joint ventures, $105,000 from other joint venture income and dividend income, partially offset by $304,000 foreign exchange losses and $229,000 withholding tax in China on dividends declared by AXT's consolidated joint ventures.

Net loss in the third quarter of 2013 was $2.3 million or $0.07 per diluted share compared with net loss of $2.0 million or $0.06 per diluted share in the second quarter of 2013. 

Management Qualitative Comments
"This has been a challenging year," said Morris Young, chief executive officer. "The market for wireless devices has undergone significant transition with consolidation and new technologies, but as we near the end of the year, we are getting more clarity on the landscape and opportunity and are executing on a strategy for growth. The semiconducting gallium arsenide market is poised for a turnaround. In addition, we are seeing exciting opportunities in both the indium phosphide and germanium substrate markets. We continue to take a conservative approach to the planning and management of our business, working diligently to control expenses and maximize our cash. But we remain cautiously optimistic about our prospects for the coming year and believe that we are doing the right things to take advantage of business opportunities in our key markets." 

Conference Call
The company will also host a conference call to discuss these results on Oct. 30, 2013 at 1:30 p.m. PDT. The conference call can be accessed at (719) 457-1035 (passcode 1570385). The call will also be simulcast on the Internet at www.axt.com. Replays will be available at (719) 457-0820 (passcode 1570385) until Nov 6, 2013. 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.

AXT will provide highlights of its third quarter results on today's conference call, but investors can find the full financial summary on the investor relations portion of the company's website at www.axt.com. 

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,
				2013				2012				2013				2012
Revenue				$	20,521			$	20,808			$	66,732			$	69,447
Cost of revenue					18,075				15,342				57,717				48,279
Gross profit					2,446				5,466				9,015				21,168
Operating expenses:
	Selling, general and administrative				4,303				3,950				12,435				11,709
	Research and development				766				844				2,627				2,593
		Total operating expenses			5,069				4,794				15,062				14,302
Income (loss) from operations					(2,623	)			672				(6,047	)			6,866
Interest income, net					55				52				136				202
Equity in earnings of unconsolidated joint ventures					346				348				1,099				786
Other income (expense), net					(47	)			144				(491	)			(472	)
Income (loss) before provision for income taxes					(2,269	)			1,216				(5,303	)			7,382
Provision for (benefit from) income taxes					(204	)			(228	)			322				559
Net income (loss)					(2,065	)			1,444				(5,625	)			6,823
Less: Net income (loss) attributable to noncontrolling interest					(230	)			(512	)			(1,105	)			(2,957	)
Net income (loss) attributable to AXT, Inc.				$	(2,295	)		$	932			$	(6,730	)		$	3,866
Net income (loss) attributable to AXT, Inc. per common share:
	Basic			$	(0.07	)		$	0.03			$	(0.21	)		$	0.12
	Diluted			$	(0.07	)		$	0.03			$	(0.21	)		$	0.11
Weighted average number of common shares outstanding:
	Basic				32,366				32,183				32,407				32,118
	Diluted				32,366				32,769				32,407				32,911

AXT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
				September 30,				December 31,
				2013				2012
Assets:
Current assets
	Cash and cash equivalents			$	27,723			$	30,634
	Short-term investments				8,412				10,270
	Accounts receivable, net				16,266				17,912
	Inventories				38,376				40,352
	Related party notes receivable - current				2,517				2,036
	Prepaid expenses and other current assets				7,412				5,268
		Total current assets			100,706				106,472
Long-term investments					12,287				9,191
Property, plant and equipment, net					37,450				37,235
Related party notes receivable - long-term					-				416
Other assets					14,830				14,275
		Total assets		$	165,273			$	167,589
Liabilities and stockholders' equity:
Current liabilities
	Accounts payable			$	8,596			$	5,894
	Accrued liabilities				9,208				7,202
		Total current liabilities			17,804				13,096
Long-term portion of royalty payments					2,725				3,325
Other long-term liabilities					155				254
		Total liabilities			20,684				16,675
Stockholders' equity:
	Preferred stock				3,532				3,532
	Common stock				32				32
	Additional paid-in capital				194,058				193,063
	Accumulated deficit				(65,777	)			(59,047	)
	Accumulated other comprehensive income				6,988				6,033
		Total AXT, Inc. stockholders' equity			138,833				143,613
	Noncontrolling interest				5,756				7,301
		Total stockholders' equity			144,589				150,914
		Total liabilities and stockholders' equity		$	165,273			$	167,589