AXT, Inc. Announces Fourth Quarter and Fiscal Year 2019 Financial Results

FREMONT, Calif., Feb. 19, 2020 (GLOBE NEWSWIRE) -- AXT, Inc. (NasdaqGS: AXTI), a leading manufacturer of compound semiconductor substrates, today reported financial results for the fourth quarter and fiscal year, ended December 31, 2019.

Fourth Quarter 2019 Results

Revenue for the fourth quarter of 2019 was $18.4 million, compared with $19.8 million in the third quarter of 2019 and $22.2 million for the fourth quarter of 2018. 

Gross margin was 21.0 percent of revenue for the fourth quarter of 2019, compared with 29.0 percent of revenue in the third quarter of 2019 and 26.3 percent for the fourth quarter of 2018. The decline in gross margin was driven by a decline in manufacturing efficiencies and yields associated with two new products for AXT: six-inch indium phosphide substrates and a new six-inch germanium product configuration for a large customer. These products address new market opportunities for AXT and the company believes it will drive improvements in manufacturing yields and efficiencies in the coming quarters. Additional items that contributed to the sequential decline were lower gross margins on consolidated raw material revenue and adjustments to inventory.

Operating expenses were $6.7 million in the fourth quarter of 2019, compared with $6.2 million in the third quarter of 2019 and $6.5 million for the fourth quarter of 2018. 

Operating loss for the fourth quarter of 2019 was $2.8 million compared with operating loss of $0.5 million in the third quarter of 2019 and $0.6 million for the fourth quarter of 2018.   

Interest and other, net was a gain of $0.8 million for the fourth quarter of 2019, compared with a de minimis gain in the third quarter of 2019 and a loss of $0.4 million for the fourth quarter of 2018.  Interest and other, net for the fourth quarter of 2019 included de minimis interest earnings, a foreign exchange gain of $0.2 million, a net loss of $0.2 million from the partially owned companies in the company’s supply chain accounted for under the equity method, and other income of $0.8 million. Other income included provincial government agency awards for relocation.

Benefit from income taxes in the fourth quarter of 2019 was $0.2 million compared with a de minimis charge in the third quarter of 2019 and a benefit of $0.2 million for the fourth quarter of 2018.

Net loss in the fourth quarter of 2019 was $2.0 million, or $0.05 per share, compared with a net loss of $0.9 million or $0.02 per share in the third quarter of 2019 and $1.1 million or $0.03 per share for the fourth quarter of 2018.

Fiscal Year 2019 Results (January 1 to December 31)

Revenue for fiscal year 2019 was $83.3 million, compared with $102.4 million in fiscal year 2018. 

Gross margin for fiscal year 2019 was 29.8 percent of revenue, compared with 36.2 percent of revenue in fiscal year 2018.

Operating expenses for fiscal year 2019 were $25.1 million, compared with $24.9 million in fiscal year 2018.

Net interest and other income for fiscal year 2019 was a loss of $0.7 million, compared with a loss of $0.2 million in fiscal year 2018.

Income tax expense for fiscal 2019 was $0.6 million compared with $0.9 million in fiscal year 2018.

Net loss in fiscal year 2019 was $2.6 million, or $0.07 per share, compared with a net income of $9.7 million, or $0.24 per diluted share, in fiscal year 2018. 

Management Qualitative Comments

“Q4 capped off a challenging year in which we weathered one of the most difficult demand environments in recent memory,” said Morris Young, chief executive officer. “Overall, this had a negative impact on key applications and certain customers within AXT’s gallium arsenide and germanium businesses, making up the majority of our year-over-year revenue decline. Despite these more challenging conditions, our indium phosphide business exceeded our expectations in Q4, and finished 2019 with modest growth over the prior year.”

“As we move into 2020, AXT is poised for growth and improvement in our financial results. Our indium phosphide business is healthy, with exciting applications contributing today, and new ones on the horizon. Our gallium arsenide and germanium businesses are also well positioned to benefit from a recovery. We are pleased to report that we expect to complete the qualification of our Dingxing facility by major customers in Q1. We believe this will open the door to incremental business opportunities from new and returning customers.”

Conference Call

The company will host a conference call to discuss these results today at 1:30 p.m. PT. The conference call can be accessed at (844) 892-6598 (passcode 9179371). The call will also be simulcast on the Internet at www.axt.com. Replays will be available at (855) 859-2056 (passcode 9179371) until February 25, 2020. 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) 438-4700.

About AXT, Inc.

AXT is a material science company that develops and manufactures high-performance compound and single element semiconductor substrate wafers comprising indium phosphide (InP), gallium arsenide (GaAs) and germanium (Ge).   The company’s substrate wafers are used when a typical silicon substrate wafer cannot meet the performance requirements of a semiconductor or optoelectronic device.  End markets include 5G infrastructure, data center connectivity (silicon photonics), passive optical networks, LED lighting, lasers, sensors, power amplifiers for wireless devices and satellite solar cells.  AXT’s worldwide headquarters are in Fremont, California where the company maintains its sales, administration and customer service functions.   AXT has manufacturing facilities in China and, as part of its supply chain strategy, has partial ownership in ten companies 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, for example, statements regarding the market demand for our products, our growth prospects and opportunities for continued business expansion, our market opportunity, our relocation and our expectations with respect to our business prospects and financial results. These forward-looking statements are based upon assumptions that are subject to uncertainties and factors relating to the company’s operations and business environment, which could cause actual results 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: the timing and receipt of significant orders; the cancellation of orders and return of product; emerging applications using chips or devices fabricated on our substrates; end-user acceptance of products containing chips or devices fabricated on our substrates; our ability to bring new products to market; product announcements by our competitors; the ability to control costs and improve efficiency; the ability to utilize our manufacturing capacity; product yields and their impact on gross margins; the relocation of manufacturing lines; possible factory shutdowns as a result of air pollution in China; tariffs and other trade war issues; the financial performance of our partially owned supply chain companies; policies and regulations in China and other factors as set forth in the company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q 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  Twelve Months Ended 
  December 31, December 31, 
  2019  2018  2019  2018  
              
Revenue $ 18,410  $ 22,232  $ 83,256  $ 102,397  
Cost of revenue   14,545    16,382    58,431    65,350  
Gross profit   3,865    5,850    24,825    37,047  
Operating expenses:             
Selling, general and administrative   5,058    5,179    19,305    19,003  
Research and development   1,607    1,309    5,834    5,897  
Total operating expenses   6,665    6,488    25,139    24,900  
Income (loss) from operations   (2,800)   (638)   (314)   12,147  
Interest income, net   2    114    217    528  
Equity in loss of unconsolidated joint ventures   (226)   (1,059)   (1,876)   (1,080) 
Other income (expense), net   1,002    531    947    352  
Income (loss) before provision for (benefit from) income taxes   (2,022)   (1,052)   (1,026)   11,947  
Provision for (benefit from) income taxes   (214)   (173)   562    938  
Net income (loss)   (1,808)   (879)   (1,588)   11,009  
Less: Net income attributable to noncontrolling interests   (241)   (182)   (1,012)   (1,355) 
Net income (loss) attributable to AXT, Inc. $ (2,049) $ (1,061) $ (2,600) $ 9,654  
Net income (loss) attributable to AXT, Inc. per common share:             
Basic $ (0.05) $ (0.03) $ (0.07) $ 0.24  
Diluted $ (0.05) $ (0.03) $ (0.07) $ 0.24  
Weighted-average number of common shares outstanding:             
Basic   39,636    39,197    39,487    39,049  
Diluted   39,636    39,197    39,487    40,265  
                  


AXT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)

  December 31, December 31,  
  2019
 2018
 
        
ASSETS       
Current assets:       
Cash and cash equivalents $26,892  $16,526  
Short-term investments  9,427   22,129  
Accounts receivable, net  19,031   19,586  
Inventories  49,152   58,571  
Prepaid expenses and other current assets  8,703   11,728  
Total current assets  113,205   128,540  
Long-term investments     717  
Property, plant and equipment, net  97,403   82,280  
Operating lease right-of-use assets  2,938     
Other assets  9,803   11,987  
Total assets $223,349  $223,524  
LIABILITIES AND STOCKHOLDERS’ EQUITY       
Current liabilities:       
Accounts payable $10,098  $13,338  
Accrued liabilities  11,681   15,371  
Bank loan  5,747     
Total current liabilities  27,526   28,709  
Noncurrent operating lease liabilities  2,695     
Other long-term liabilities  366   283  
Total liabilities  30,587   28,992  
        
Stockholders’ equity:       
Preferred stock  3,532   3,532  
Common stock  41   40  
Additional paid-in capital  236,957   234,418  
Accumulated deficit  (47,783)  (45,183) 
Accumulated other comprehensive loss  (4,862)  (1,972) 
Total AXT, Inc. stockholders’ equity  187,885   190,835  
Noncontrolling interests  4,877   3,697  
Total stockholders’ equity  192,762   194,532  
Total liabilities and stockholders’ equity $223,349  $223,524  
          

Contacts:

Gary Fischer
Chief Financial Officer
(510) 438-4700

Leslie Green               
Green Communications Consulting, LLC
(650) 312-9060

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