AXT, Inc. Q2 FY2025 earnings call

• Revenue from substrate increased in Q2 but less than expected due to longer gallium arsenide export permits and sluggish China demand. • Made progress in gross margin recovery through focus on manufacturing process and efficiency. • Saw growth in AI-related indium phosphide demand in China; obtained first export license for indium phosphide in June. • Tongmei's IPO application for listing on STAR Market in Shanghai remains in process. • Germanium revenue grew in Q2 due to satellite solar cell applications in China but expected to decline in Q3. • Consolidated revenue from raw material joint ventures declined in Q2.

Revenue for the second quarter of 2025 was $18.0 million. By product category: Indium phosphide was $3.6 million, Gallium arsenide was $6.2 million, Germanium substrates were $1.5 million, and consolidated raw material joint venture companies were $6.7 million. Revenue contribution by region: Asia Pacific was 90%, Europe 9%, and North America 1%. Non-GAAP gross margin was 8.2%, GAAP gross margin was 8.0%.

• Q3 revenue expected to be in the range of $19.0 million to $21.0 million, including modest contribution from indium phosphide and gallium arsenide outside China. • Germanium revenue expected to be down and raw material business approximately flat in Q3. • Non-GAAP net loss expected to be in the range of $0.11 to $0.13, GAAP net loss in the range of $0.13 to $0.15. • Gross margin expected to be in the low mid- to mid-teens.

• Geopolitical issues and export restrictions affecting permit processes. • Financial performance of partially owned supply chain companies. • Increased environmental regulations in China. • COVID-19 or other contagious disease outbreaks.

Q: Given delay in indium phosphide permitting, concerned about potential share loss to customers?

A: Tim Bettles responded that customers are working to get material on time, they continue to receive permits, and the market is growing too fast to be adequately serviced by few players long term.

Q: About $10 million backlog for indium phosphide and gallium arsenide, with half shortfall from gallium arsenide export, can you ship all backlog quickly?

A: Morris S. Young said more than 50% of backlog is indium phosphide, they can turn orders around in 4-6 weeks, and anticipate upside to Q3 guidance if more permits are received.

Q: Why did gallium arsenide export licenses slow down and is it the same agency as indium phosphide?

A: Tim Bettles said it's industry-wide delays, Morris S. Young added China's rare earth policy may be a factor, and they expect permit process to regularize moving forward