AXT INC (AXTI)·Q2 2025 Earnings Summary

Executive Summary

• Q2 2025 revenue was $18.0M, down 7% QoQ and 36% YoY, while gross margin recovered to 8.0% GAAP (8.2% non-GAAP) from -6.4% in Q1; non-GAAP EPS was -$0.15 and GAAP EPS was -$0.16 .
• Against S&P Global consensus, revenue was roughly in line ($18.0M vs $17.94M*) and EPS missed (Primary EPS -$0.15 vs -$0.134*); EBITDA was weaker than consensus (-$4.49M vs -$4.06M*) *.
• Management highlighted export-permit delays (GaAs) and China demand softness as primary headwinds; initial Indium Phosphide (InP) permits enabled first non-China shipments and AI-linked InP demand in China rose .
• Q3 2025 guidance: revenue $19–$21M, gross margin low-mid to mid-teens, non-GAAP net loss of $0.11–$0.13, GAAP net loss $0.13–$0.15; permits currently constrain ex-China shipments but cadence improved in July .
• Near-term stock catalysts: permitting cadence normalization, sequential margin recovery, and expanding InP demand for AI/data-center connectivity; any STAR Market (Tongmei) IPO progress would be additive .

What Went Well and What Went Wrong

What Went Well

• Margin recovery: GAAP GM improved to 8.0% (non-GAAP 8.2%) from -6.4% in Q1, reflecting better yields and efficiency, especially in GaAs .
• AI-linked InP demand growth in China; first InP export permits allowed ~$0.7M shipments outside China; mgmt expects ≥30% QoQ InP revenue growth in Q3 .
• Strategic positioning: “Our competitive positioning continues to be enhanced by superior product performance in key specifications such as low etch pit density, or EPD” .

What Went Wrong

• Export-permit delays: slower GaAs export approvals cut ex-China shipments; mgmt says about half of the Q2 shortfall was permitting-related .
• China softness: demand sluggishness pressured GaAs and consolidated raw-material JV revenue (-$1.6M QoQ), limiting top line .
• Germanium (Ge) challenges: price sensitivity and permit difficulty for ex-China sales; mgmt expects Ge revenue to decline in Q3 and remain lower through 2H25 .

Financial Results

Actual vs Wall Street consensus (S&P Global):

Values with asterisk (*) retrieved from S&P Global.

Product and mix KPIs (Q2 2025):

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Our substrate revenue increased in Q2 from the prior quarter… longer processing times for gallium arsenide export permits, coupled with some sluggishness in the demand environment in China…” .
• “We also saw healthy growth in AI-related demand for indium phosphide in China and… were able to ship initial orders of indium phosphide substrates to customers outside of China” .
• “About half our revenue shortfall in Q2 was [due to GaAs export permit delays]… the pace of permits in the month of July has improved meaningfully… we do expect gallium arsenide revenue to grow sequentially” .
• “We expect to grow our total indium phosphide revenue by 30% or more in Q3” .
• “With a strong focus on gross margin improvement… we delivered meaningful recovery in Q2 and expect to continue our progress in the second half of the year” .

Q&A Highlights

• Share loss risk amid permit delays: Management believes market growth and AXTI’s quality/low EPD advantage limit share loss; backlog is “ready to ship” as permits arrive .
• Backlog and capacity: Backlog >$10M, >50% InP; typical 4–6 week turns with WIP built to accelerate shipments once permits clear; potential upside to Q3 guidance if permits accelerate .
• GaAs yield/customer update: Yield issues for a wireless HBT customer have improved; AXTI is cautiously expanding share while prioritizing margin recovery .
• Permit cadence: Company sees industry-wide GaAs delays, but July approvals increased; expects normalization; indium phosphide permits also improving .
• Inventory orders: Customers may build inventory once initial large orders ship; backlog multiples of initial InP shipments (~$0.7M shipped vs 6–10x backlog) .

Estimates Context

• Q2 2025: Revenue slightly above consensus ($18.0M vs $17.94M*), while EPS missed (Primary EPS -$0.15 vs -$0.134*); EBITDA was below consensus (-$4.49M vs -$4.06M*) *.
• Q3 2025: Company guides $19–$21M revenue vs consensus of ~$20.30M*, implying guidance broadly in line; margins guided to low-mid to mid-teens, suggesting further EPS improvement contingent on permit cadence .
  Values with asterisk () retrieved from S&P Global.

Key Takeaways for Investors

• Sequential margin recovery is underway, with Q3 gross margins guided to low-mid to mid-teens; operational execution in GaAs and efficiency gains are core drivers .
• Export-permit cadence is a critical swing factor; July improvement is a positive read-through for ex-China shipments in GaAs and InP and potential upside to guidance if sustained .
• InP demand linked to AI/data-center connectivity is scaling in China, and AXTI expects ≥30% InP revenue growth in Q3; first non-China InP shipments de-risk ex-China backlog .
• Product mix is pivoting toward strategic applications (InP PON/data center; GaAs wireless); Germanium remains constrained by pricing and permits, limiting contribution .
• Liquidity and inventories: Cash of $27.0M and inventory of $80.1M provide capacity to fulfill backlog once permits clear; inventory reduction remains a focus .
• Near-term trading setup: Watch for permit updates, margin trajectory, and order flow; beats/misses are likely driven by export approvals and China demand elasticity .
• Medium-term thesis: AXTI’s low-EPD substrate leadership and integrated supply chain position it well for AI-driven InP growth; STAR Market listing (Tongmei) could unlock strategic flexibility if approved .

Notes on non-GAAP

Non-GAAP metrics exclude stock-based compensation; reconciliation is provided in company materials .