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AXT, Inc. Announces Third Quarter 2014 Financial Results

FREMONT, CA -- (Marketwired) -- 10/30/14 -- AXT, Inc. (NASDAQ: AXTI), a leading manufacturer of compound semiconductor substrates, today reported financial results for the third quarter ended Sept. 30, 2014.

Third Quarter 2014 Results
Revenue for the third quarter of 2014 was $23.1 million compared with $21.4 million in the second quarter of 2014.

Gross margin was 23.0 percent of revenue for the third quarter of 2014, compared with 19.4 percent of revenue in the second quarter of 2014.

Operating expenses were $4.7 million in the third quarter of 2014, unchanged from $4.7 million in the second quarter of 2014.

Profit from operations for the third quarter of 2014 was $653,000 compared with a loss from operations of $515,000 in the second quarter of 2014.

Net interest and other income for the third quarter of 2014 was $260,000. This was primarily attributable to $390,000 from equity earnings of the company's unconsolidated joint ventures, $302,000 from the sale of IntelliEpi stock, $556,000 from a loss on foreign exchange and $106,000 from interest income. By comparison, net interest and other income for the second quarter of 2014 was $1.2 million. This was primarily attributable to $625,000 from equity earnings of the company's unconsolidated joint ventures, $324,000 from the sale of IntelliEpi stock, $158,000 from a gain on foreign exchange and $127,000 from interest income.

Net income in the third quarter of 2014 was $644,000 or $0.02 per diluted share compared with a net income of $319,000 or $0.01 per diluted share in the second quarter of 2014.

Management Qualitative Comments
"The third quarter was a positive quarter for AXT," said Morris Young, chief executive officer. "Revenue came in ahead of our expectations, and we achieved another quarter of profitability through improved gross margins and tight expense control. Further, we are diversifying our customer base throughout our product portfolio and are pleased to be gaining traction in several areas that have been a strong focus of our sales efforts. The changes in the gallium arsenide landscape over the past two years have had an adverse impact on our business. However, these changes are finally beginning to settle and new applications for our products are emerging across our substrate portfolio. I am very pleased to have a strong team in place with the expertise to maximize our potential as we evolve our business to meet new opportunities."

Conference Call
The company will host a conference call to discuss these results on Oct. 30, 2014 at 1:30 p.m. PT. The conference call can be accessed at (719) 457-2645 (passcode 2872393). The call will also be simulcast on the Internet at www.axt.com. Replays will be available at (719) 457-0820 (passcode 2872393) until Nov. 6, 2014. 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) through its manufacturing facilities in Beijing, China. In addition, AXT maintains its sales, administration and customer service functions at its headquarters in Fremont, California. The company's substrate products are used primarily in lighting display applications, wireless communications, fiber optic communications and solar cell. Its vertical gradient freeze (VGF) technique for manufacturing semiconductor substrates provides significant benefits over other methods and enabled AXT to become a leading manufacturer of such substrates. AXT has manufacturing facilities in China and invests in joint ventures 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 statements regarding the market demand for our products, our market opportunity, our business planning and management approach and our expectations with respect to our business prospects. 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: overall conditions in the markets in which the company competes; global financial conditions and uncertainties; market acceptance and demand for the company's products; the impact of factory closures or other events causing delays by our customers on the timing of sales of our 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 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 Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Revenue $ 23,138 $ 20,521 $ 63,932 $ 66,732
Cost of revenue 17,820 18,075 51,736 57,717
Gross profit 5,318 2,446 12,196 9,015
Operating expenses:
Selling, general and administrative 3,505 4,303 10,629 12,435
Research and development 1,160 766 2,922 2,627
Restructuring charge 907
Total operating expenses 4,665 5,069 14,458 15,062
Income (loss) from operations 653 (2,623 ) (2,262 ) (6,047 )
Interest income, net 106 55 360 136
Equity in earnings of unconsolidated joint ventures 390 346 1,502 1,099
Other income (expense), net (236 ) (47 ) 250 (491 )
Income (loss) before provision for income taxes 913 (2,269 ) (150 ) (5,303 )
Provision for (benefit from) income taxes 43 (204 ) 254 322
Net income (loss) 870 (2,065 ) (404 ) (5,625 )
Less: Net income (loss) attributable to noncontrolling interest (226 ) (230 ) (673 ) (1,105 )
Net income (loss) attributable to AXT, Inc. $ 644 $ (2,295 ) $ (1,077 ) $ (6,730 )
Net income (loss) attributable to AXT, Inc. per common share:
Basic $ 0.02 $ (0.07 ) $ (0.04 ) $ (0.21 )
Diluted $ 0.02 $ (0.07 ) $ (0.04 ) $ (0.21 )
Weighted average number of common shares outstanding:
Basic 32,504 32,366 32,416 32,407
Diluted 32,738 32,366 32,416 32,407
AXT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
September 30, December 31,
2014 2013
Assets:
Current assets
Cash and cash equivalents $ 25,793 $ 24,961
Short-term investments 15,366 12,499
Accounts receivable, net 21,079 14,943
Inventories 36,648 39,127
Related party notes receivable - current 0 0
Prepaid expenses and other current assets 5,914 8,010
Total current assets 104,800 99,540
Long-term investments 7,332 10,145
Property, plant and equipment, net 34,663 37,621
Related party notes receivable - long-term 1,874 1,715
Other assets 15,216 14,801
Total assets $ 163,885 $ 163,822
Liabilities and stockholders' equity:
Current liabilities
Accounts payable $ 9,480 $ 8,140
Accrued liabilities 6,790 7,286
Total current liabilities 16,270 15,426
Long-term portion of royalty payments 1,925 2,525
Other long-term liabilities 323 325
Total liabilities 18,518 18,276
Stockholders' equity:
Preferred stock 3,532 3,532
Common stock 32 32
Additional paid-in capital 195,151 194,156
Accumulated deficit (68,082 ) (67,005 )
Accumulated other comprehensive income 8,333 8,953
Total AXT, Inc. stockholders' equity 138,966 139,668
Noncontrolling interest 6,401 5,878
Total stockholders' equity 145,367 145,546
Total liabilities and stockholders' equity $ 163,885 $ 163,822

Contacts:
Gary Fischer
Chief Financial Officer
(510) 683-5900

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

Source: AXT, Inc.