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AXT, Inc. Announces Profitability for the Fourth Quarter and Fiscal 2006

Gross Margin Improves to 38.2 Percent in Q4 2006
FREMONT, Calif., Feb 28, 2007 /PRNewswire-FirstCall via COMTEX News Network/ -- AXT, Inc. (Nasdaq: AXTI), a leading manufacturer of compound semiconductor substrates, today reported financial results for the fourth quarter and fiscal year ended December 31, 2006. The company's financial statements have been presented to reflect the opto-electronics division as a discontinued operation for all periods presented.

Fourth Quarter 2006 Results

Revenue for the fourth quarter of 2006 was $13.1 million, up 4.2 percent from $12.5 million in the third quarter of 2006. Total GaAs substrate revenue was $11.1 million for the fourth quarter of 2006, up 4.7 percent from $10.6 million for the third quarter of 2006. Revenue in the fourth quarter from indium phosphide substrate sales was $456,000, compared with $340,000 in the third quarter; germanium substrate sales were $318,000, compared with $387,000 in the third quarter, and raw materials sales were $1.2 million, compared with $1.3 million in the third quarter.

Gross margin was 38.2 percent of revenue for the fourth quarter of 2006. This included a benefit from the sale of approximately $730,000 in fully reserved wafers, which positively affected the quarterly gross margin by 5.6 percentage points. AXT also benefited from overall yield improvements in the fourth quarter as a result of longer ingot growth, shorter cycle times, and more efficient slicing, which contributed to significant improvement in gross margins. By comparison, gross margin in the third quarter of 2006 was 27.7 percent. This included a benefit from the sales of approximately $802,000 in fully reserved wafers, which positively affected third quarter gross margin by 6.4 percentage points.

Operating expenses were $3.8 million in the fourth quarter of 2006 compared with $4.5 million in the third quarter of 2006. This decrease was primarily due to the absence of a $1.4 million impairment charge to write down the company's U.S. property incurred in the prior quarter, partially offset by a $424,000 increase in the fourth quarter in accrued severance in research and development for the retirement of the company's chief technology officer. Stock compensation expense for the fourth quarter of 2006 was $173,000, compared with $207,000 in the third quarter of 2006.

Income from operations for the fourth quarter of 2006 was $1.2 million compared with a loss from operations of $971,000 for the third quarter.

Net interest and other income for the fourth quarter of 2006 was $1.1 million compared with net interest and other income of $744,000 for the third quarter. Other income in the fourth quarter included a gain of $1.3 million on the sale of 474,000 shares of Finisar Corporation common stock, compared with a gain of $650,000 million on the sale of 300,000 shares of Finisar Corporation common stock in the third quarter. As of December 31, 2006 the company had disposed all of its Finisar shares.

The company recognized a net income tax benefit of $1.0 million for the fourth quarter of 2006, compared with a net income tax benefit of $862,000 in the third quarter.

Net income in the fourth quarter of 2006 was $3.4 million or $0.13 per diluted share, compared with a net income of $639,000 or $0.02 per diluted share in the third quarter. This $0.13 per diluted share includes approximately $0.05 from the sales of Finisar stock and $0.04 from our net income tax benefit, both of which are not expected to repeat in 2007.

Fiscal 2006 Results

Revenue for fiscal 2006 was $44.4 million, up 67.5 percent from $26.5 million in fiscal 2005. Gross margin was 28.7 percent for fiscal 2006 compared with 8.3 percent in the prior year. Net income for fiscal 2006 was $944,000 or $0.03 per diluted share, compared with a net loss of $12.2 million or $(0.54) per diluted share in the prior year.

Management Qualitative Comments

"2006 was a great year for AXT," said Phil Yin, chief executive officer. "With strong market conditions, positive customer reception for our products and solid company-wide execution of our plans, revenues in 2006 increased by 67.5 percent and net income increased by 57 cents per diluted share over the prior year. During the fourth quarter, we were able to achieve tremendous yield improvements and cost reductions in nearly all areas of our manufacturing process, including longer ingot growth and shorter cycle times in crystal growing, and less material losses during slicing. These yield improvements and cost reduction programs helped to drive our gross margins to 38.2 percent in the fourth quarter and allowed us to achieve profitability sooner than we had expected. The last time the company achieved profitability was in the year 2000. As we enter 2007, we are energized by our achievements in product quality, yield improvements and sales penetration and we are optimistic about our prospects with increasing demand in the markets that we serve."

Outlook for First Quarter, Ending March 31, 2007

AXT estimates that its revenue for the first quarter will increase to between $13.1 million and $13.6 million. Also, the company estimates that its net income per diluted share will be between $0.00 and $0.03 based on approximately 31.5 million weighted average diluted shares outstanding. This takes into account stock compensation expense of approximately $200,000.

Conference Call

The company will also host a conference call today to discuss these results at 1:30 p.m. PST. The conference call can be accessed at (973) 935-2100 (PIN 8309549). The call will also be simulcast on the Internet at http://www.axt.com. Replays will be available at (973) 341-3080 until March 7, 2007. 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) 683-5900.

About AXT, Inc.

AXT designs, develops, manufactures and distributes high-performance compound and single element semiconductor substrates comprising gallium arsenide (GaAs), indium phosphide (InP) and germanium (Ge). The company's substrate products are used primarily in lighting display applications, wireless communications, and fiber optic communications.

Safe Harbor Statement

The foregoing paragraphs contain forward-looking statements within the meaning of the Federal Securities laws, including statements related to the future financial performance of the company and our ability to maintain profitability, control costs and improve efficiency, improvements in our manufacturing costs, improvements in our competitive position and our technology development. These forward-looking statements are based upon specific assumptions that are subject to uncertainties and factors relating to the company's operations and business environment, which could cause actual results of the company 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 impact of customer qualification of our products, new opportunities for our China joint ventures, improvements in our production processes, product quality and yields, cost and supply of raw materials, the impact of technology developments providing new markets for GaAs and Ge substrates, overall conditions in the markets in which the company competes as well as market conditions and trends; market acceptance and demand for the company's products; and other factors as set forth in the company's annual report on Form 10-K 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 publicly any forward-looking statement, as a result of new information, future events or otherwise.



                                  AXT, INC.
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (Unaudited, in thousands, except per share data)

                                       Three Months Ended  Twelve Months Ended
                                           December 31,      December 31,
                                          2006     2005     2006      2005

    Revenue                             $13,072   $7,717   $44,445   $26,536
    Cost of revenue                       8,084    7,069    31,709    24,337
    Gross profit                          4,988      648    12,736     2,199

    Operating expenses:
     Selling, general and administrative  2,926    3,089    12,650    12,955
     Research and development               854      466     2,351     1,723
     Impairment charge                       --       --     1,417        --
     Restructuring charge (benefit)          --      460        (2)      836
       Total operating expenses           3,780    4,015    16,416    15,514
    Income (loss) from continuing
     operations                           1,208   (3,367)   (3,680)  (13,315)
    Interest income, net                    101      130       443       516
    Other income (expense), net           1,016     (416)    2,709      (910)
    Income (loss) from continuing
     operations before benefit for
     income taxes                         2,325   (3,653)     (528)  (13,709)
    Benefit for income taxes             (1,048)  (1,048)   (1,454)     (950)
    Income (loss) from continuing
     operations                           3,373   (2,605)      926   (12,759)
    Discontinued operations:
     Gain (loss) from discontinued
      operations, net of tax                11     (126)       18       544
    Net income (loss)                    $3,384  $(2,731)     $944  $(12,215)

    Basic income (loss) per share:
     Income (loss) from continuing
      operations                          $0.14   $(0.11)    $0.03    $(0.56)
     Gain (loss) from discontinued
      operations, net of tax               0.00    (0.01)     0.00      0.02
    Net income (loss) per share - basic   $0.14   $(0.12)    $0.03    $(0.54)
     Shares used in computing basic
      income (loss) per share            24,009   22,975    23,303    23,047

    Diluted income (loss) per share:
     Income (loss) from continuing
      operations                          $0.13   $(0.12)    $0.03    $(0.56)
     Gain (loss) from discontinued
      operations, net of tax               0.00    (0.01)     0.00      0.02
    Net income (loss) per share - diluted $0.13   $(0.12)    $0.03    $(0.54)
     Shares used in computing diluted
      income (loss) per share            25,543   22,975    24,600    23,047



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

                                                December 31,      December 31,
                                                    2006              2005
    Assets:
    Current assets
     Cash and cash equivalents                    $16,116           $17,472
     Short-term investments                        19,428             5,555
     Accounts receivable, net                       9,658             5,226
     Inventories, net                              20,263            16,156
     Prepaid expenses and other current assets      3,985             1,801
     Assets held for sale                           4,659                --
            Total current assets                   74,109            46,210

    Property, plant and equipment, net             12,775            17,306
    Other assets                                    4,298             3,832
    Restricted deposits                             7,150             7,450

            Total assets                          $98,332           $74,798

    Liabilities and stockholders' equity:
    Current liabilities
     Accounts payable                              $3,764            $3,070
     Accrued liabilities                            3,536             6,028
     Accrued restructuring                             --               465
     Current portion of long-term debt                450               300
           Total current liabilities                7,750             9,863

    Long-term debt, net of current
     portion                                        6,839             7,420
    Other long-term liabilities                     2,543             1,897
           Total liabilities                       17,132            19,180

    Stockholders' equity:
     Preferred stock                                3,532             3,532
     Common stock                                 180,965           155,464
     Accumulated deficit                         (103,832)         (104,776)
     Other comprehensive income                       535             1,398
           Total stockholders' equity              81,200            55,618

           Total liabilities and
            stockholders' equity                  $98,332           $74,798


SOURCE AXT, Inc.

Wilson W. Cheung, Chief Financial Officer of AXT, Inc., +1-510-683-5900; or Leslie
Green of Green Communications Consulting, LLC, +1-650-312-9060, for AXT, Inc.
http://www.axt.com/