Executive Summary

AXT delivered a sharp top-line reacceleration on a mix shift to Indium Phosphide (InP): revenue was $28.0M (+56% q/q, +18% y/y per management) with GAAP gross margin expanding to 22.3% from 8.0% in Q2 as export permits enabled substantial InP shipments .
Results materially beat Wall Street consensus: revenue $27.96M vs $20.30M* and EPS ($0.03) vs ($0.118)*; non‑GAAP net loss narrowed to $1.2M ($0.03/share) from $6.4M in Q2 .
Management highlighted a record Indium Phosphide backlog “more than $49M,” with demand tied to AI-driven data center optics; export permits (~60 business days) remain the key gating factor .
Q4 guide: revenue $27–$30M; GAAP net loss ($0.03)–($0.05); non‑GAAP net loss ($0.01)–($0.03); OpEx ~ $9M, with further gross margin recovery dependent on mix, volume and efficiency .
Strategic catalyst: accelerating AI/data center optical buildouts (U.S. hyperscalers, emerging CPO) plus tightening supply favor AXT’s low‑EPD InP; approval cadence of export permits is the near-term swing factor for revenue conversion .

What Went Well and What Went Wrong

What Went Well

Indium Phosphide surge: InP revenues grew “more than 250% sequentially” to a three‑year high as export permits enabled significant orders; InP reached $13.1M of Q3 revenue and backlog exceeded $49M .
Margin recovery and loss reduction: GAAP gross margin improved to 22.3% (vs 8.0% in Q2), and non‑GAAP net loss narrowed to $1.2M (from $6.4M in Q2), aided by mix shift and higher volume absorption .
Customer/market validation: Management cited direct engagement with new Tier‑1 customers and end‑customers (GPU/CPU makers), with customers highlighting superior yields from AXT’s low‑EPD wafers and signaling multi‑year demand strength (“tsunami”) .

What Went Wrong

Profitability still negative: Despite progress, AXT remained in a GAAP net loss ($1.9M, $0.04/sh) and non‑GAAP net loss ($1.2M, $0.03/sh); GAAP gross margin is still slightly below prior-year Q3 (24.0%) .
Export permits are the bottleneck: Management emphasized permits (~60 business days) as the “single most significant gating factor” for growth; Q4 revenue realization depends on permits for incremental $7–$10M InP backlog .
Germanium headwinds: Germanium revenue declined by ~$1M q/q in Q3; the market remains highly price-sensitive with weak gross margin potential, limiting pursuit of opportunities and constraining mix .

Financial Results

Headline Metrics vs Prior Periods and Prior Year

Metric	Q3 2024	Q2 2025	Q3 2025
Revenue ($USD Millions)	$23.645	$17.974	$27.955
GAAP Diluted EPS ($)	($0.07)	($0.16)	($0.04)
Non‑GAAP EPS ($)	($0.05)	($0.15)	($0.03)
GAAP Gross Margin (%)	24.0%	8.0%	22.3%
Non‑GAAP Gross Margin (%)	24.3%	8.2%	22.4%

Notes: Non‑GAAP excludes stock-based compensation; see reconciliation in the release .

Product/Business Mix

Product / Business ($USD Millions)	Q2 2025	Q3 2025
Indium Phosphide (InP)	$3.6	$13.1
Gallium Arsenide (GaAs)	$6.2	$7.5
Germanium (Ge)	$1.5	$0.64
Consolidated Raw Material JVs	$6.7	$6.7

KPIs and Balance Items

KPI	Q2 2025	Q3 2025
InP Backlog ($)	N/A	>$49M
Export Permit Processing Time	~45–60 business days (context)	~60 business days; Golden Week adds ~1 week
Regional Mix (APAC/Europe/NA)	90% / 9% / 1%	87% / 12% / 1%
Top 5 Customer Concentration	30.9%	45.2% (two >10% customers)
Cash & Cash Equivalents + Investments ($)	$35.1M	$31.2M
Accounts Receivable ($)	$22.8M	$33.8M (↑ $11M)
Inventories ($)	$80.1M	$77.7M
Non‑GAAP OpEx ($)	$7.6M	$6.7M (benefit from R&D adjustments that won’t recur)

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($)	Q4 2025	N/A	$27M–$30M	Introduced
GAAP Net Loss (per share)	Q4 2025	N/A	($0.03) – ($0.05)	Introduced
Non‑GAAP Net Loss (per share)	Q4 2025	N/A	($0.01) – ($0.03)	Introduced
OpEx (GAAP)	Q4 2025	N/A	≈ $9M (normalized; year‑end adjustments)	Introduced
Gross Margin	Q4 2025	N/A	Further improvement dependent on mix/volume/efficiency	Commentary
Revenue ($)	Q3 2025	$19M–$21M (given on 7/31)	Actual $28.0M	Beat guidance

Management added that ~$20M of Q4 revenue has either permits in hand or does not require permits (in‑China); an incremental $7–$10M depends on new InP permits .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 & Q1 2025)	Current Period (Q3 2025)	Trend
AI/Data Center optics demand (InP)	Early export permits in late Q2; China AI demand rising; predicted 30%+ InP growth in Q3	InP revenue $13.1M; backlog >$49M; demand from U.S. hyperscalers and early CPO discussions	Strongly accelerating
Export permits	Q2 permit delays (GaAs), first InP permits in June; process ~45 business days	~60 business days now; Golden Week adds ~1 week; permits are primary “gating factor”	Still the key constraint
Gross margin recovery	Q1 hit from lower InP, GaAs yield, under‑absorption; refocus on efficiency	GM up to 22.3% (GAAP); further improvement targeted in Q4	Improving with volume/mix
Product performance (low EPD)	Emphasized competitive edge; low EPD key for high‑speed devices	Customers citing higher die yields on AXT wafers; pricing firm on high‑end InP	Validation increasing
Germanium	Q2 growth to satellites but margin‑constrained; caution ahead	Sales declined ~$1M; limited growth expected in Q4 due to poor margins	Weak/Selective
Raw materials JVs	Q2 down; pricing stable	Q3 stable and profitable; expecting similar in Q4	Stable
STAR Market listing (Tongmei)	Kept application current; selective environment	Still in process; regarded as a good candidate in China	No near‑term change

Management Commentary

“In Q3, our indium phosphide revenues grew more than 250 percent sequentially and reached a three‑year high… We remain highly focused on… gross margin recovery… With strong, ongoing market trends fueling the data center upgrade cycle, we believe we have tremendous opportunity in 2026 to drive meaningful growth… and a return to profitability.” — Morris Young, CEO .
“Non‑GAAP gross margin in the third quarter improved substantially to 22.4%... We continue to be highly focused on driving continued improvement, including further recovery in Q4.” — Gary Fischer, CFO .
“Our current experience is that our Indium Phosphide permits are taking approximately 60 business days… The tremendous growth in demand… are driving a strong increase in our Indium Phosphide order backlog… more than $49 million and growing.” — Management on permit timing and backlog .
“The most significant gating factor in our growth in Q4 and beyond is the success and timing of getting export permits… we have the capability to achieve revenue in the range of $27 to $30 million in Q4.” — CFO on outlook .
“We could double our [InP] capacity in about nine months… ~$10 to $15 million [capex]… current capacity is around $20 million a quarter for Indium Phosphide.” — Management on capacity and capex .

Q&A Highlights

Backlog dynamics and permits: Permits last six months and can cover up to 12 line items; customers are placing longer‑term orders to accommodate permit lead times; manufacturing lead time post‑permit is short .
Profitability pathway: Margin upside driven by mix and line efficiencies; pricing on high‑end low‑EPD InP is firm; management targets >30% GM with improved utilization and efficiency over time .
Capacity and investment: Current InP capacity ~ $20M/quarter; +25% within ~3 months by adding furnaces; doubling capacity in ~9 months with $10–$15M capex (greenfield ready) .
Demand visibility: End‑customers (including GPU/CPU makers) are engaging directly; management described multi‑year AI optics demand as a potential “tsunami,” with CPO seen as a larger future step‑function .
Germanium and other lines: Germanium remains margin‑constrained with limited growth; raw materials business stable and profitable .

Estimates Context

Q3 2025: Actual revenue $27.96M vs consensus $20.30M*; actual EPS ($0.03) vs consensus ($0.118)* — a significant beat on both revenue and EPS.
Q4 2025: Consensus revenue $28.77M*; consensus EPS ($0.022)*. Management guided revenue $27–$30M and non‑GAAP net loss ($0.01)–($0.03), implying results broadly in line with current revenue consensus and EPS near breakeven on a non‑GAAP basis if permit cadence cooperates .

Values with asterisks retrieved from S&P Global.

Metric	Q3 2025 Actual	Q3 2025 Consensus*	Delta	Q4 2025 Consensus*
Revenue ($USD)	$27,955,000	$20,304,600*	+$7,650,400	$28,765,400*
EPS (Primary) ($)	($0.03)	($0.118)*	+$0.088	($0.022)*

Key Takeaways for Investors

The quarter marked a clear inflection driven by InP: mix shift plus volume lifted gross margins back above 22%, with further upside contingent on throughput and permits .
Results materially outpaced consensus; the magnitude of the revenue beat reflects pent‑up InP demand and permit releases, suggesting estimates may need to move higher if permit cadence sustains [GetEstimates].
Near‑term swing factor is export permit timing; management sized ~$20M of Q4 revenue as already permitted/in‑China, with $7–$10M hinging on new InP permits — a primary driver of Q4 range .
Structural demand drivers (U.S. hyperscaler CapEx, pluggables scaling, and future CPO adoption) support multi‑year growth for low‑EPD InP substrates; AXT cites share, quality, and capacity advantages .
Germanium remains a margin drag; management is prioritizing higher‑return InP while keeping raw materials stable and profitable, improving blended margins .
Capital optionality exists: AXT can add ~25% InP capacity in ~3 months and double capacity in ~9 months with $10–$15M capex, aligning with demand signals from customers .
Tactical: watch for 8‑K/press updates on large permit approvals; any acceleration could drive upside vs Q4 guidance, while delays could skew the quarter toward the low end of the range .

Additional Detail (for reference and cross‑checks):

GAAP to non‑GAAP adjustments exclude stock‑based compensation; reconciliation tables provided in the earnings materials .
Management emphasized that Q3 OpEx benefited from R&D adjustments and will normalize to ~ $9M in Q4, impacting operating leverage in the near term .
Regional exposure in Q3: APAC 87%, Europe 12%, North America 1% .

AXT INC (AXTI)·Q3 2025 Earnings Summary