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AXT INC (AXTI)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $25.1M, up sequentially from $23.6M and up year-over-year from $20.4M; GAAP gross margin compressed to 17.6% (vs. 24.0% in Q3), driving a wider non-GAAP net loss of $4.3M ($0.10/share) .
  • Management guided Q1 2025 revenue to $18.0–$20.0M with a non-GAAP net loss of $0.13–$0.15/share, citing $4–$5M of indium phosphide sales delayed by new China export permitting; gross margins expected to remain low in Q1 and improve thereafter .
  • Strategic positives: increased orders tied to AI data center optical interconnects and emerging silicon photonics/EML lasers; continued share gains in wireless HBT GaAs; consolidated raw-material JVs contributed ~$32M revenue in FY24 .
  • Key near-term swing factor: timing/approval of indium phosphide export permits; medium-term catalysts include AI optical transition (400/800G and 1.6T) and HBT market share growth .

What Went Well and What Went Wrong

What Went Well

  • Revenue growth: Q4 2024 revenue rose to $25.1M, with product contributions from InP ($9.1M), GaAs ($5.4M), Ge ($1.6M), and raw-material JVs ($9.0M); management highlighted traction in AI-driven optical interconnects and silicon photonics .
  • R&D/technology: Breakthroughs in extremely low EPD indium phosphide substrates for next-gen EML lasers (800G/1.6T), with qualifications underway and positive customer feedback (“I believe AXT leads the industry in low EPD ion diode material”) .
  • Supply chain leverage: Consolidated raw-material JVs generated almost $32M in FY24 revenue, supporting cost efficiency and contributing to gross margin via recycling efforts .

What Went Wrong

  • Margin compression: GAAP gross margin fell to 17.6% (from 24.0% in Q3) due to lower recycling benefits and under-absorption from reduced ingot starts/crystal growth; non-GAAP gross margin dropped to 17.9% (from 24.3%) .
  • Higher OpEx: Q4 non-GAAP OpEx rose to $9.9M (GAAP $10.6M), driven by increased legal expenses and R&D investments (low-EPD GaAs for wireless; 6-inch InP development) .
  • Regulatory headwind: New China export controls on indium phosphide will delay ~$4–$5M of Q1 sales; management expects permitting within ~40–45 business days but anticipates a temporary revenue/margin hit in Q1 .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Millions)$20.4 $23.6 $25.1
GAAP Gross Margin (%)22.6% 24.0% 17.6%
Non-GAAP Gross Margin (%)23.2% 24.3% 17.9%
GAAP Net Loss ($USD Millions)$(3.6) $(2.9) $(5.1)
GAAP Diluted EPS ($)$(0.09) $(0.07) $(0.12)
Non-GAAP Net Loss ($USD Millions)$(2.8) $(2.1) $(4.3)
Non-GAAP Diluted EPS ($)$(0.07) $(0.05) $(0.10)
Total OpEx (GAAP, $USD Millions)$8.2 $9.1 $10.6

Segment/Product Breakdown

Category Revenue ($USD Millions)Q2 2024Q3 2024Q4 2024
Indium Phosphide (InP)$7.7 $6.8 $9.1
Gallium Arsenide (GaAs)$9.1 $6.6 $5.4
Germanium (Ge)$2.9 $1.6 $1.6
Raw-material JVs (consolidated)$8.2 $8.6 $9.0

KPIs

KPIQ2 2024Q3 2024Q4 2024
Regional Mix (APAC/Europe/NA)78% / 17% / 5% 77% / 12% / 11% 79% / 11% / 10%
Top 5 Customers Revenue Share31.8% 29.4% 36%
Weighted Avg Basic Shares (M)43.1 43.2 43.4
Cash, Cash Equiv. & Investments ($M)$43.3 (as of 6/30) $38.8 (as of 9/30) $33.8 (as of 12/31)
Net Inventory ($M)$85.8 (as of 6/30) $86.1 (as of 9/30) $85.1 (as of 12/31)

Notes:

  • Non-GAAP reconciliations provided in the release (stock-based comp excluded) .
  • Balance sheet details for Q4 2024: cash and equivalents $22.8M; inventories $85.1M; short-term loans $47.3M .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)Q4 2024$23–$25 N/AN/A
Non-GAAP Net Loss ($/share)Q4 2024$(0.03)–$(0.05) N/AN/A
GAAP Net Loss ($/share)Q4 2024$(0.05)–$(0.07) N/AN/A
Revenue ($M)Q1 2025N/A$18–$20 New (Lower seq.)
Non-GAAP Net Loss ($/share)Q1 2025N/A$(0.13)–$(0.15) New (Wider loss)
GAAP Net Loss ($/share)Q1 2025N/A$(0.15)–$(0.17) New (Wider loss)
Share Count (M)Q1 2025N/A~43.5 New
Gross Margin (qualitative)Q1 2025N/A“Low again in Q1” due to InP permit delays New

Drivers:

  • ~$4–$5M of InP shipments delayed by new export controls; permitting expected in ~40–45 business days, with potential recovery beginning Q2/Q3 if permits obtained .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
AI/Optical Interconnects (InP)Early AI orders; focus on silicon photonics/EML; greenfield photodetector demand for 100G/lane VCSEL; growing customer engagements Stronger AI-related demand; low-EPD InP breakthroughs; 800G/1.6T roadmap; 60/40 laser vs detector mix; major supplier qualification for 2026 Positive momentum (medium-term)
Supply chain & recyclingGA recycling boosting margins via JinMei; raw-material JV revenue up >40% QoQ in Q2 JV revenue ~$32M in FY24; recycling benefits smaller in Q4, contributing to margin compression Mixed (structural positive; quarterly variability)
Tariffs/export controlsGaAs export licensing in prior periods; macro sensitivity in China New InP export controls in China; expecting permits; Q1 delay of $4–$5M Near-term headwind; likely transient
Wireless HBT (GaAs)Underpenetrated historically; began share gains; 8-inch learnings applied to 6-inch; customers diversifying supply ~10% share; target +30% relative share to ~13–14%; HBT market ~$80–$100M Positive share momentum
GermaniumRecovery in Q2; Q3/Q4 softened due to high raw-material prices; selective participation Ge revenue steady at $1.6M in Q4; cautious stance until pricing normalizes Controlled exposure
Regional mix & customer concentrationAPAC-heavy; top 5 ~30% in Q2/Q3; no >10% customer APAC 79%; top 5 ~36%; one >10% customer Slightly higher concentration

Management Commentary

  • “2024 marked a very meaningful year of revenue growth into the cloud and data center infrastructure market, as well as our successful penetration of the cell phone market… close to a $100M addressable market” .
  • “I believe AXT leads the industry in low EPD ion diode material… qualification path of a major supplier for deployment in 2026” .
  • “We do expect gross margins to be low again in Q1 because we’re not going to have as much indium phosphide sales because of the export restrictions. Following Q1, then we think they’ll get back into the mid-20s” .
  • “In 2024, our consolidated joint venture generated almost $32 million in revenue… we’re working to expand this opportunity in 2025” .

Q&A Highlights

  • Margin trajectory: Lower Q4 margins driven by reduced recycling benefit and under-absorption; management expects margins to recover to mid-20s after Q1 as permits are obtained and volumes normalize .
  • InP export controls: ~$4–$5M revenue delay in Q1; permitting targeted in early March; initial responses in ~40–45 business days; management confident most customers are non-military, improving permit prospects .
  • AI optical outlook: Healthy growth expected in both lasers and detectors through 2025; 20% YoY growth in InP is a working assumption with upside potential as silicon photonics/EML adoption accelerates .
  • Wireless HBT strategy: Current ~10% share with goal to increase by ~30% (to ~13–14%); leveraging 8-inch GaAs process learnings to improve 6-inch yields/costs .
  • Capacity/readiness: Past InP revenue capacity peaked at ~$17.7M/quarter; yields have improved; facility and equipment upgrades in Beijing support scale; ability to add equipment quickly if needed .

Estimates Context

  • S&P Global consensus (Revenue, EPS) for Q4 2024 and prior quarters was requested but unavailable due to SPGI daily limit errors at time of retrieval. As a result, beat/miss vs. Wall Street cannot be assessed here [GetEstimates error].
  • Implication: Use company-reported Q4 results and prior-quarter guidance for near-term positioning. If you need consensus benchmarks, we can re-run S&P Global queries when the data limit resets.

Key Takeaways for Investors

  • Q4 showed healthy top-line growth but weaker margins; near-term Q1 outlook is impacted by InP export controls, with recovery expected post-permit approvals—watch for permit timing updates and Q2 backlog catch-up .
  • Medium-term thesis strengthened by AI optical transitions (400/800G and 1.6T), AXT’s low-EPD InP leadership, and rising silicon photonics/EML engagements; monitor customer qualifications and 2026 deployment milestones .
  • Wireless HBT is an incremental growth vector; targeted share increase to ~13–14% could offset volatility in other segments—track China handset cycle and AI-smartphone refresh dynamics .
  • Structural supply-chain advantages (raw-material JVs, recycling) support margin resilience over time despite quarterly variability; FY24 JV revenue of ~$32M underpins this strategy .
  • Cash/investments declined to ~$33.8M as loans were reduced; inventory edged down to ~$85.1M—balance sheet actions suggest focus on deleveraging and working capital optimization .
  • Tongmei STAR listing remains “in process”; improvements in China market conditions could catalyze progress, but timing remains uncertain—treat as a call option rather than core thesis .
  • Trading setup: Near-term headline risk from Q1 guide/permit news; potential inflection if permits are granted and AI optical orders ramp by Q2/Q3. Consider position sizing around regulatory milestones and customer qualification updates .