AXTI earnings call analysis

NASDAQ:AXTI Q1 2026 Earnings Call Transcript Generated on 6/6/2026 Tracy | Conference Coordinator: Good afternoon, everyone, and welcome to AXT's first quarter 2026 earnings conference call. Leading the call today is Dr. Morris Young, Chief Executive Officer, and Gary Fisher, Chief Financial Officer. In addition, Tim Bettles, VP of Business Development, will be participating in the Q&A portion of the call. My name is Tracy, and I will be your coordinator today. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. I would now like to turn the call over to Leslie Green, Investor Relations for AXT. Leslie, go ahead.

Leslie Green | Investor Relations, AXT

Thank you, Tracy, and good afternoon, everyone. Before we begin, I would like to remind you that during the course of this conference call, including comments made in response to your questions, we will provide projections or make other forward-looking statements, regarding, among other things, the future financial performance of the company, market conditions and trends, emerging applications using chips or devices fabricated on our substrates, our product mix, global economic and political conditions, including trade tariffs and import and export restrictions, ability to obtain China export permits, timing of receipt of export permits, our plan to list our subsidiary, Tang Mei, in China, our ability to increase orders in succeeding quarters, to control costs and expenses, to improve manufacturing yields and efficiencies, or to utilize our manufacturing capacity. We wish to caution you that such statements deal with future events, are based on management's current expectations, and are subject to risks and uncertainties that could cause actual events or results to differ materially. In addition to the matters just listed, these uncertainties and risks include but are not limited to the financial performance of our partially owned supply chain companies and increased environmental regulations in China. In addition to the factors just mentioned or that may be discussed in this call, we refer you to the company's periodic report filed with the Securities and Exchange Commission. These are available online by link from our website and contain additional information on risk factors that could cause actual results to differ materially from our current expectations. This conference call will be available on our website at AXT.com through April 30, 2027. Also, I want to note that shortly following the close of market today, we issued a press release reporting financial results for the first quarter of 2026. This information is available on our website at AXT.com. I would now like to turn the call over to Gary Fisher for a review of our first quarter results. Gary?

Gary Fisher | Chief Financial Officer, AXT

Thank you, Leslie, and good afternoon to everyone. Revenue for the first quarter of 2026 was $26.9 million, compared with $23.0 million in the fourth quarter of 2025 and $19.4 million in the first quarter of 2025 last year. To break down our Q126 revenue for you by product category, Indian Phosphide was $13.6 million, primarily from data center applications. Gallium arsenide was 5.4 million. Germanium substrates were 200,000. Finally, revenue from our consolidated raw material joint venture companies in Q1 was 7.6 million. In the first quarter of 2026, revenue from Asia Pacific was 78%, Europe was 21%, and North America was 1%. The top five customers generated approximately 32% of total revenue, and no customers were over the 10% level. Gross margin showed a substantial improvement in the first quarter. Non-GAAP gross margin was 29.9% compared with 21.5% gross margin in Q4 of 2025 and a negative 6.1% gross margin in Q1 of 2025 last year. For those who preferred to track results on a GAAP basis, gross margin in the first quarter was 29.6% compared with 20.9% in Q4 and a negative 6.4% in Q1 of 2025. Moving to operating expenses, total non-GAAP operating expense in Q1 was $8.6 million compared with $7.5 million in Q4 and $8.5 million in Q1 of 2025. On a GAAP basis, total operating expenses in Q1 was $9.6 million compared with $8.7 million in Q4 of 2025 and $9.0 million in Q1 of 2025. Our non-GAAP operating loss for the first quarter of 2026 was $550,000. compared to the non-GAAP operating loss in Q4 of 2025 of $2.6 million and a non-GAAP operating loss of $9.6 million in Q1 of 2025. For reference, our GAAP operating line for the first quarter of 2026 was a net loss of $1.6 million compared with an operating loss of $3.8 million in Q4 of 2025 and an operating loss of $10.3 million in Q1 of 2025. Non-operating other income and expense and other items below the operating line for the first quarter of 2026 was a net loss of $35,000. The details can be seen in the P&L included in our press release today. In Q1 of 2026, we made substantial progress towards profitability. We had a non-GAAP net loss of $585,000 or $0.01 per share compared to the non-GAAP net loss of $2.3 million or $0.05 per share in the fourth quarter. and non-GAAP net loss in Q1 of 2025 of $8.2 million or $0.19 per share. On a GAAP basis, the net loss in Q1 was $1.6 million or $0.03 per share compared to a net loss of $3.6 million or $0.08 a share in the fourth quarter and $8.8 million or $0.20 per share last year in Q1 of 2025. The weighted average basic shares outstanding in Q1 of 2026 was 53.3 million. Cash, cash equivalents and investments decreased by 5.1 million to 123 million as of March 31st. By comparison, at December 31st, it was 128.4 million. Accounts receivable increased by 5.2 million, almost exactly the same as the change in cash. Depreciation and amortization in the first quarter was 2.4 million. Total stock comp was 1.0 million. Net inventory was up approximately 8.5 million for the first quarter to 90.2. This concludes the discussion of our quarterly financial results. Turning to our plan to list our subsidiary, Tongmei, in China on the star market in Shanghai, we remain very interested in completing the IPO, particularly in light of the rapidly evolving AI infrastructure build-out in China and China's development of its semiconductor supply chain, which is fueling increased China-based demand for Indian phosphide substrates. We have continued to keep our IPO application current, and Tang Mei remains in process as a part of a much more selective and smaller group of prospective listings than a few years ago. Though the current geopolitical environment is dynamic, Tang Mei is considered a Chinese company and continues to be regarded in China as a good IPO candidate. We will keep you informed of any updates. With that, I'll now turn the call over to Dr. Morris Young for a review of our business and markets. Morris?

Dr. Morris Young | Chief Executive Officer, AXT

Thank you, Gary. This is an incredibly exciting time for AXT. As many of you are aware, last week we completed a capital raise for $632.5 million in support of Tomei's indium phosphide capacity expansion, as well as R&D investment in new products like 6-inch indium phosphide and other working capital needs. With our backlog of orders and customer forecasts achieving record levels, we are laser-focused on adding capacity to support customer requirements. I'm pleased to report that we are running ahead of our plan to double our unit phosphate capacity this year from Q4 of 2025 levels. Our capability to scale up quickly is unique among our peers. Unlike our competitors, AXC designs and builds our own crystal gold furnaces, has our own supply of critical raw materials, and has the manufacturing space in place to achieve our expansion goal this year. As you can imagine, longer-term capacity planning is one of the most important discussions we're having today with customers and major supply chain players in our space. The message we are having for them is this, AXT is stepping up. Beyond our 2026 capacity expansion, we're planning to double our Indian phosphate capacity again in 2027, with a new facility near our current one that we will be dedicated to ending phosphide wafer production. Our 2028 planning is also underway, and we expect to expand again meaningfully. This is an industry in which skill matters. The barrier to entry are high, even for most skilled manufacturers. As the market continues to grow, capacity has become a critical enabler. What we are hearing from the industry sources and echo from our customers is the expectation that the market for optical components will increase significantly in the coming years, driving a four to six times increase in substrate market overall in the next three to five years. driven by both scale-out and scale-up applications. Beyond plug-and-go transceivers, we're seeing a very large developing market for CPO co-packaged optics. We are actively engaging in discussions with customers about their technical and timing requirements and believe this could represent an other inflection point in our business beginning in late 2027 and beyond. With this massive growth cycle ahead of us, we are actively working with a multitude of players from our direct customers to the end customers with whom we have not historically had direct relationships. We are there to understand their longer-term requirements and to align our growth and innovation plans accordingly. This will be a thoughtful and measured process, but we believe we are in a best position competitively to support and enable our industry in meeting its current and future needs. Over the last few quarters, the expansion of our Indian Phosphate customer base has been gratifying. We're now supporting nearly all leading customers in the optical space. This includes tier one laser manufacturers and optical transceiver module makers, both around the globe and in China. In alignment with our customers' technical requirements and roadmaps, we're making important progress on our six-inch phosphide product for both iron-doped and self-adopted specifications. A significant part of our capacity expansion will be focused on six-inch crystal growth technology to support a planned roadmap of six-inch capability by our customers. We're excited to be able to demonstrate the technological advantage of our low EPD wafers as the market moves to optical devices with higher speeds and greater sophistication for both scale-up and scale-out applications. Now turning to Q1. Export permits in our first quarter came in slightly better than our guidance and are off to a solid start in Q2. Gary will take you through our full guidance in a few minutes. but we're expecting to achieve sequential revenue growth in Q2, driven primarily by growth in indium phosphide. In fact, Q2 will be expected to be our largest quarter for indium phosphide in AXC's history. This derives from an indium phosphide backlog that has now reached a new high of over $100 million. As we mentioned last quarter, customers are giving us more visibility into their expected demand and working closely with them in this supply-constrained environment to meet their need as we continue to expand our capacity. From a geographic demand perspective, the massive AI infrastructure build-out And planned cat-back spending by cloud services and AI platform providers in the U.S. is the primary driver for EML and silicon photonics-based optical transceivers, as well as high-speed photo detectors. We believe that today our material is being used in multiple U.S. hyperscalers. We expect that end customers use will continue to broaden. We're also seeing significant growth in China as China moves to accelerate its capability throughout the AI supply chain. Our revenue related to any phosphate-based laser market in China more than doubled in Q1 from the prior quarter, and we expect them to double again in Q2. This highlights China's increasing involved investment in AI infrastructure supply chain for the global market. This is a great opportunity for AXT, as there is no permit required to ship our product within China. Turn into gallium arsenide. In Q1, demand for semiconducting wafers for industry robotics and data center lasers applications all held steady. from the prior quarter. We continue to see demand for semi-insulating wafers for wireless RF devices and believe that we have a strong opportunity for market share expansion. However, this is gated primarily by our ability to obtain X4 licenses, which came in light in Q1. Finally, our raw material business continues to be a crown jewel in our growth strategy. We're pleased to report that our subsidiary, Jing Mei, has begun to refine high purity Indian, which gives us direct control of a guaranteed supply of other critical material for Indian phosphide substrates. We're also investing to help Jing Mei expand its capability So that our AXC's demand grows, Jingmei will continue to provide a meaningful portion of our raw material requirements. Globally, there continues to be a greater awareness of the importance of earth's materials, and we are decades ahead of the curve in developing our unique integrated supply chain. We continue to invest in our portfolio as we believe is a major competitive differentiator. In summary, we believe AXT is entering one of the most consequential chapters in our company's history. The investment we are making today in capacity, in technology, and in our unique integrated supply chain positions us to meet extraordinary demand we see building across the optical, and AI infrastructure markets. Our customer engagement is deepening, our visibility is improving, and our competitive differentiation is strong. While we remain disciplined and thoughtful in our execution, we're confident that the groundwork are laying out now will enable us for meaningful growth in the years to come. With that, I turn the call back to Gary for our second quarter guidance. Gary?

Gary Fisher | Chief Financial Officer, AXT

Thank you, Morse. To reiterate a couple of key points from Morse's commentary, we are seeing a strong increase in our Indian phosphide wafer demand related to AI and the ongoing data center upgrade cycle. Given the geopolitical complexities surrounding this market trend, our customer base is diversifying and expanding. and customers are placing longer-term orders and providing greater visibility into their needs. With all of these positive market and AXT-specific growth drivers, the most significant single factor to our growth in Q2 and beyond is the success and timing of getting export permits. Therefore, guiding for future revenue is somewhat tricky for us right now as we cannot predict future timing of permits or our success in obtaining them for any customer or individual order. But drawing on what we know and what we've experienced thus far in the export permitting process, we can offer the following insight into our expectations for Q2. As of today, we have approximately $34 million in revenue that can be realized in Q2 across our substrate product lines and raw materials for which we either already have a permit to ship or for which an export permit is not required. We have a high degree of confidence in recognizing this revenue in Q2. We could see upside, even significant upside, to this number in Q2 should we receive permits for additional orders for which we have the inventory to support. But we do want to stress that the timing for permit issuance is not predictable, nor in our control, and doesn't align with our quarterly reporting. We continue to focus on gross margin improvement. Further improvement depends on a number of factors, including total revenue as it relates to revenue mixed by product, absorption of fixed costs, and our ability to continue to drive better manufacturing efficiency. With regards to OPEX, we expect that it will be approximately $9.3 million in Q2 on a non-GAAP basis and approximately $10 million on a GAAP basis. With these factors in mind, we expect to achieve profitability on both a GAAP and non-GAAP basis in Q2. We believe our non-GAAP net income will be in the range of $0.06 to $0.08, and our GAAP net income will be in the range of $0.05 to $0.07. We estimate share count for Q2 will be approximately 63.5 million shares. Okay, this concludes our prepared comments. We'll be glad to answer your questions now. Tracy?

Tracy | Conference Coordinator

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 now to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Finally, please limit yourself to one question and one follow-up. Please stand by now while we compile the Q&A roster. Your first question comes from the line of Tim Savageau with Northland Securities. Your line is open, please go ahead.

Tim Savageau | Analyst, Northland Securities

Hey, good afternoon and congrats on the step up in backlog and the strong guidance for next quarter and indium phosphide. I guess my first question, you know, you mentioned backlog and customer forecasts at record levels, and we certainly saw that with $100 million in backlog. With regards to long-term capacity planning with customers, you know, are you at the point of, you know, coming to any sort of long-term supply agreements with various customers and And if so, you know, what's the kind of, what sort of timing might you expect on that? Thanks. Tim?

I'll follow up. Tim Bettles | VP of Business Development, AXT

Yeah. Yeah. Thanks, Tim. Yes, we are talking to a number of customers right now on long-term supply agreements as we build our capacity out and try and understand where their demand is going. Nearly all of the larger customers in this space are talking about long-term supply agreements with us. And we expect to come to resolution with some of those in the very near future.

Tim Savageau | Analyst, Northland Securities

Great. And just following up on that, sorry, go ahead.

Dr. Morris Young | Chief Executive Officer, AXT

Oh, no. I was just saying it's your turn, Tim.

Tim Savageau | Analyst, Northland Securities

Tim S. Okay. Roger that. Just an update. You'd mentioned last quarter that you were developing some relationships with Tier 1 customers or Tier 1 suppliers who hadn't necessarily been close relationships or customers over time. I wonder if we can get an update on that, and I have one more follow-up after that.

Tim Bettles | VP of Business Development, AXT

Yeah, thanks. That's going really well, actually. We've got qualification wafers in with a lot of customers, and we're finding paths and avenues to get wafers into a lot of these Tier 1 customers. You know, as we see this market grow, there's a lot of opportunity for us, And we've said in the past that we've really been focused on these next-generation technology products that require high-quality material that, frankly, only AXT can build and can supply. And of course, with emerging supply chain constraints with indium phosphide, we are in the strongest position to grow capacity. So we're qualifying and we're supplying wafers to a lot of new tier one customers in this field. So it's exciting times for us.

Dr. Morris Young | Chief Executive Officer, AXT

Yeah, I want to add one point because I think, you know, Tim, you are the French soldier. You're talking to them. But from my perspective, I started to hear, let's say, three months ago was some of the tier one customers. But now I'm starting to hear even add on to it, is the end hyperscalers we're hearing. In other words, the customer's customer, the end users, are also interested in seeing how we develop the supply chain guarantee for their growth plan.

Tim Bettles | VP of Business Development, AXT

Yeah, that's correct, Morris. That's a good point. So there's been a lot of press releases out about long-term supply agreements into our customers. from the hyperscalers and from the hardware companies. And there's been a lot of encouragement from those hyperscalers and hardware companies for their suppliers to enter into long-term supply agreements with AXT. So that is actually driving a lot of the discussions, I think, that we're having on long-term supply agreements. And of course, it's given us a what the market demands are at the hyperscaler side of things and how that trickles down to demands for AXT. It also gives us a lot of visibility into technical demands as we move forward into high-end lasers and detectors in these new products.

Tim Savageau | Analyst, Northland Securities

Great. And that makes sense and maybe somewhat related. to those discussions. I'd be interested in an update on what you're seeing in terms of pricing for Indian phosphide substrates.

Tim Bettles | VP of Business Development, AXT

Yeah, that's a good question. Again, thanks, Tim. So what we are doing is we are raising some of our prices. We're seeing some recent pricing increase in raw materials, and specifically with India. So we're having conversations with our customers to align our costs and maintain gross margins, maintain or grow gross margins. We're also starting to globalize, or we've been globalizing our pricing. Obviously, certain geographical regions have been more aggressive in the past on price targets, especially when we're looking at the lower-end markets, such as GPON. So we're starting to globalize our markets so that it is more standardized across those geographical regions.

Dr. Morris Young | Chief Executive Officer, AXT

Well, let me add on to that. I think nevertheless, I think the pricing opportunity for us, I believe, is also the fact we're migrating more towards larger size. As you know, some of the smaller size, they are more traditional. They are more price sensitive, and they are more competitive who can fill that shoes. But when you get to 4-inch and 6-inch, and then as well as higher specification requirement, then we can really demand that's where our product shines.

Tim Savageau | Analyst, Northland Securities

Thanks very much. Appreciate it. Thanks, Tim.

Tracy | Conference Coordinator

Your next question comes from the line of Matt Bryson with Wedbush Securities. Your line is open.

Please go ahead. Matt Bryson | Analyst, Wedbush Securities

Hey, thanks for taking my question and great results. I just wanted to hone in across margins a bit. Obviously, you saw a pretty big uptick in Q1. I'm not quite getting to the peak you had in Q2. In Q2, I'm not quite getting the peak back in Q3. the COVID timeframe, but I'm getting pretty close. I guess, could you talk a little bit about how much of that is higher utilization levels versus how much of it is increased pricing and whether my math is roughly accurate?

Gary Fisher | Chief Financial Officer, AXT

Well, for Q1, there is some that's the result of increased pricing, but the primary drivers are the traditional two drivers that we highlight. One is volume is up, and the other is the mix is rich towards Indian Phosphide. As a matter of fact, if you look at it percentage-wise, Indian Phosphide was just a tad north over 50% of total revenue. So it's really helped in that. The pricing effects are being put in place, but we'll see the impact from your viewpoint, Matt, for your eyes. Your eyes will see that later this year.

Matt Bryson | Analyst, Wedbush Securities

Gary, just a Q2, Gary. If I said that the gross margins are coming in roughly around 40%, is that in the ballpark? And again, can you just talk to how much that's mixed versus utilization versus...

Gary Fisher | Chief Financial Officer, AXT

Yeah, I don't have your forecast in front of me, but I think that's too aggressive. And, you know, you know us. We like to be a little bit more conservative. So, you know, we're definitely going to be crossing the 30% threshold, which we've said for several years, if we can get to $30 million in revenue and have a good mix, then we could be above 30% in gross margin. But I think it's up to you, but I'd encourage you to maybe knock that down a bit. We can talk about it maybe later. But having said that, we're both on the right direction. Gross margins should go up, and we feel very confident that they will. how fast and what we calculate is to be determined. But all the indicators are exactly what I've been saying for many years now. And the mix is rich for indium phosphide, and the volume is up. And so it's a unique sort of transition for us. Inside the company, we're very pleased, very pleased.

Dr. Morris Young | Chief Executive Officer, AXT

Yeah, I do want to add another point about this. I mean, obviously, Gary, you own the gross margin calculation, but I would argue the supply chain strategy will start to shine. You know, I always say the AXC is like a choo-choo train with a locomotive. We're chugging along when we are accelerating all the box behind us, such as our Jing Mei, for you, which makes our crucibles, high purity materials, et cetera, they're also going to check along with us. When we slow down, of course, they will crash against us. But right now is a good time. We're checking along very strongly. So you're going to see their contribution to our ability to make profit will grow too.

Matt Bryson | Analyst, Wedbush Securities

Got it. And then just my one follow-up is, Um, I noticed going back to the last filing that you've gotten export licenses, I think forever geography, except for the U S um, just any, any more thoughts on, on getting licenses for shipping the U S and how important is that in terms of being able to fully utilize that additional capacity you're bringing on?

Dr. Morris Young | Chief Executive Officer, AXT

Wait, wait, I don't think we're giving up United States. No, it's still pending.

Tim Bettles | VP of Business Development, AXT

Right. We're still, you know, Matt, we're still being encouraged to apply for export permits for U.S. customers, both in the U.S. and in other global regions. So, you know, at the moment, obviously, we are getting permits pretty readily for U.S. customers based in other global regions. But that, as Maurice said, that doesn't mean that we are completely stopping any work on trying to obtain permits for the US. We've been commented or we've been contacted by the Ministry of Commerce in China on a number of US applications right now to submit more data that gives us an encouraging sign that they're still looking at U.S.-based permits, and there's still a possibility to get a permit for the U.S. in the near future, as I say. So we are definitely looking at that avenue. And in the meantime, we are supplying wafers globally to other regions as well. So this is a very global supply chain, and it's a very global market. And I think we're taking advantage of all the avenues that we can.

Matt Bryson | Analyst, Wedbush Securities

Yeah, thanks. And I didn't mean to intimate that you weren't going to get a U.S. permit or weren't still working on it. I just wanted an update, and that was an awesome update. Thanks again, guys.

No problem. Tracy | Conference Coordinator

Just a reminder that if you would like to ask a question or a follow-up, please press star 1 to raise your hand now. Your next question comes from the line of Charles Shi with Needham. Your line is open.

Please go ahead. Charles Shi | Analyst, Needham Securities

Hi. Thanks for taking my question. I want to ask you more about the capacity and the capacity-built plans here. I think your last COVID high for Indian phosphide quarterly record was 17.7 million. That was achieved in second quarter 2022. You are basically implying you're going to be at or above that level in this coming Q2, but I recall back in 2022, you probably also built above that 17.7 because back then you thought you would have Indian phosphide demand from the premium electronics company for smartphone applications. So I want to ask you this. What's the max factory output for your existing factory today? How utilized is the existing factory? And what's the expected capacity factory output once you add the next two factories? I mean, I think that's something you talked about after the following offering, and if they can provide any color on the numbers, that would be great.

Dr. Morris Young | Chief Executive Officer, AXT

Yeah, I usually take the large digit out. We usually say our highest in the phosphate revenue per quarter was $17 million. You have a very good memory, okay? And we did say in Q4, we said we have increased our capacity about 25% in Q4 of 2025. And in 2026, we're going to double that. So in my calculation, our own capacity planning, we think we're going to get about $35 million per quarter capability by the end of 2026. Don't forget, that's the end of 2026. In other words, the capacity are increasing every month, every time, as we talk about. Look, I mean, in the next quarter, any phosphate revenue is going to be up and beyond the $17 million per quarter. It will be a new record. Yeah, it will be a new record in Q2, okay? The other capacity we also mentioned about is that we are acquiring other piece of land near our existing factory in Beijing right now, which is we're in the process of negotiating buying the land and doing the design. And we're probably going to start building it. But because it's a greenfield, it will probably take us about a year, maybe year and a half, to complete that expansion. However, our capacity expansion is sort of in stages. For instance, sometimes the clean room is the most critical. Because if you don't have a clean room, you don't have no space to put in your machine. So that's very digital. But some of the crystal growth capacity is more incremental. So right now, the cleaning capacity is much greater than our crystal growth capacity. So as we speak now, we're increasing our capacity sort of gradually. But I think in the next year or so, once the green field is up for construction, then I think it would be more digital to expand our clinical capacity. I mean, do you have anything to add, Tim?

Tim Bettles | VP of Business Development, AXT

Yeah, so I just want to add a little bit. Morris talked about doubling our capacity to a rate of $35 million per quarter in indium phosphide by the end of this year. Remember, that's in a brownfield site that was once a crystal growth facility used for gallium arsenide. And as we relocated gallium arsenide, we've been able to move into that. So we've been extremely fortunate that we're in a position, I think, that nobody else in the Indian Phosphide world is in, that we can double our capacity so quickly. You know, looking into the next growth, as Maurice just mentioned, we are acquiring a facility which is right next door to us. Again, extremely fortunate. Building is already there. And that allows us to double yet again. So by the time we've completed that expansion, which should be by the end of 2027, maybe early 2028, we should be at the region of somewhere in the region of $65 to $70 million of capacity per quarter. So that really takes us to the type of capacity that we're expecting to see in our existing locations. And then as Morris mentioned again in his call or in his script as we talked earlier, we're now looking at where we need to go from here. So we're looking at other opportunities and other ways to expand beyond that, probably in a Greenfield site somewhere else.

Dr. Morris Young | Chief Executive Officer, AXT

Yeah. And that's for 2028?

Tim Bettles | VP of Business Development, AXT

Correct.

Gary Fisher | Chief Financial Officer, AXT

Yeah. So let me be a bit more specific as sort of the detailed guy, but $17 million, which we've already achieved, By the end of this year, we'll be at 35 million.

Dr. Morris Young | Chief Executive Officer, AXT

Per quarter.

Gary Fisher | Chief Financial Officer, AXT

Per quarter. So that's times four. 35, 140 million.

Dr. Morris Young | Chief Executive Officer, AXT

Per quarter?

Gary Fisher | Chief Financial Officer, AXT

Per year. Yeah. So we'll have that capacity at the end of 2026 to do 140 million.

Dr. Morris Young | Chief Executive Officer, AXT

Yeah, but you cannot do that because the capacity is continually increasing. Yeah, yeah, yeah.

You can't use that. Gary Fisher | Chief Financial Officer, AXT

It's not digital. It's analog. A year later, it'll be 280 million, so. So double, double, double.

Charles Shi | Analyst, Needham Securities

Thanks. Maybe a follow-up on the capacity expansion. I think this is not like I come up with a question, but the investors do ask this question. When you think about your capacity expansion, why can't you do the China plus one type of a strategy like many companies in the global electronic supply chain? maybe you should continue to build in China to satisfy China demand, but can you build outside of China, maybe to supply to the rest of the world? And I know that this is easier said than done. There are policy reasons that may stop you from doing that, but is there anything you think from the business perspective that is preventing you from doing that and why?

Thank you. Tim Bettles | VP of Business Development, AXT

Well, there's certainly a lot of opportunity both within China and outside of China for us to consider that. And as I said just now, we're looking to build more capacity in 2028 and beyond, which is going to be meaningful capacity expansion in 2028 and beyond. And as part of that plan, we are working closely with our customer base to understand the long-term requirements and aligning the plans globally. So our recent capital raise will be fundamental to expanding as we enter this next growth plan, which could include more capacity within China, potentially also with capacity outside of China.

Dr. Morris Young | Chief Executive Officer, AXT

I do want to add one point. I know you don't want me to say this, okay? I tell you. The important thing to answer to investors is that adding capacity versus able to deliver wafers is two different things. You're going to hear a lot of people who are going to say, I'm going to add capacity. Look, in the first place, I tell you, it's not easy. And, you know, one question that a lot of investors are asking me is, you're going to double your capacity. Why don't you triple or quadruple? Our need is 10 times.

It's not easy. Tim Bettles | VP of Business Development, AXT

Morris, that's a really good point. And that's really why our focus on the next two years has been focused on Beijing and increasing the capacity on our existing Beijing Tongmei site. That is... the minimum risk that we can absolutely take to get wafers out, not just to increase capacity?

Dr. Morris Young | Chief Executive Officer, AXT

Well, not only that, it's also for the good of our customers. Their demand is so aggressive, the better way or the guaranteed way to satisfy that capacity, and we're stretching, we're working very hard to answer their demand, is to do now, okay? Do we have other plans? You bet we do. We're stepping up.

Don't forget. Charles Shi | Analyst, Needham Securities

Yeah, thanks, Maurice. Like I said, easier said than done. Just felt like that's a question so common that I have to ask. So maybe last question. You talk about six inch versus maybe four inch or below. What's the shipment or maybe shipment is a bad metric here, but what's in the backlog that you're seeing that the mix between six inch and the four inch of the low right now? And want to get some thoughts around that. And if you can also, we're kind of curious about the mix between ion doped and sulfur doped that we know one is for laser, the other is for photo detector. Want to get some thoughts on What's the expected mix within that 100 million plus backlog? Thanks. That's the last question.

OK. Dr. Morris Young | Chief Executive Officer, AXT

So iron-doped is coming up big time. We used to see about 10 to 1 in favor of sulfur-doped prior to this. Right now, I would say the mix, especially the large diameter, is almost like iron-doped is 40%, 60%. Correct, Tim?

Tim Bettles | VP of Business Development, AXT

yeah so um when we look at when we look at backlog and we look at customer demand over the next um few quarters into next year and beyond um what we can see is there's still a lot of three inch out there um specifically for the laser so sulfur doped um is is still going strong on three inch there is a transition to four inch on uh n type material for the laser whereas the high-speed detector, frankly, has pretty much all transitioned to 4-inch already. So we're seeing still a lot of 3-inch coming along, a lot of transitioning over to 4-inch. And as we look into the future, of course, 6-inch is incredibly important. And there's a lot of interest and a lot of opportunity out there for 6-inch. But I'll say at this moment in time, a lot of a lot of the production that we're seeing and a lot of our capacity that we're seeing is still focused on the three and the four-inch with a longer-term plan to transition to six-inch within the next probably year or so.

Dr. Morris Young | Chief Executive Officer, AXT

Yeah, the signal is obviously very strong. A lot of customers are telling us, can we get more four-inch? Okay, six-inch is actually a little bit more out But people are warning us, it's coming, it's coming. But 4-inch is real. And I would say the ratio for 3-inch and 6-inch right now is maybe 4 to 1 in favor of 3-inch. And I think going out in about six months to a year, it could be, I mean, as far as wafer number is concerned, it becomes probably 2 to 1. in favor of 3-inch. 3-inch is still the majority, the larger the numbers. But because 4-inch is actually at a lower number right now, so it's going to grow very rapidly in the coming quarters.

Charles Shi | Analyst, Needham Securities

Thanks. Great, Carlo. I appreciate that. Thank you. Thank you, Charles.

Tracy | Conference Coordinator

Your next question comes from the line of Richard Shannon with Craig Hallam. Your line is open.

Please go ahead. Richard Shannon | Analyst, Craig Hallum

Well, hi, guys. Thanks for letting me ask a couple questions here. I'd love to understand how do we think about the CAPEX requirements here for these capacity builds? You talked about a brownfield one this year that's doubling, and then a greenfield one I think that's going to happen in 28 or maybe in 27, maybe going into 28 here that's more greenfield. What if you give us some numbers or at least some statistics to think about what that's going to require and over what period of time?

Gary Fisher | Chief Financial Officer, AXT

Okay. Well, for this year, it's mostly adding, you know, high-tech growth equipment for crystal growth. So, furnaces, some back-end stuff for polishers, etc. But as Tim and Morris have said, we have an existing footprint. That's one reason we think we have an advantage. Our current Indian phosphide crystal growth site has room for more furnaces. And as Tim explained, we're repurposing our gallium arsenide crystal growth that was in Beijing for even more. So this year, compared to the future years, it's probably going to be $35 million in capex. Maybe 30, maybe 40, somewhere in that range. And to be honest, we'll spend as much as we can as fast as we can because we're uniquely positioned to be able to add capacity quickly. So next year, let's see. It depends on which things we're talking about. Tim, you've got it split up in your paperwork there, but...

Tim Bettles | VP of Business Development, AXT

Yeah, I think as we go into next year and we look at building out this facility next door to us, obviously buying a new facility, doubling our capacity again there, and also building some capacity through our supply chains as well, I think we're looking somewhere in the region of about $100 million or so. And then beyond that, if we were to build a greenfield site somewhere else, I think we're looking at somewhere in the region of 220 to 250 million bucks, depending on obviously what capacity we put in that greenfield site. But again, I think if we're putting a meaningful capacity there, you're looking at 200 plus million dollars.

Richard Shannon | Analyst, Craig Hallum

Okay, fair enough. Thanks for that detail here. I want to ask on uranium phosphide business here by geography. You made a couple of interesting comments here. Last call you said China was going to grow about 60% this first quarter, and then you said it actually was up 100%. If I caught you correctly, it's going to double again here in the second quarter. What kind of percentage of uranium phosphide business in the second quarter is China going to be in?

Tim Bettles | VP of Business Development, AXT

That's a great question. So I think we're seeing a lot of growth in China, and it's not just because we're seeing data center growth in China, but we're seeing China enter the global supply chain market for optical transceivers and potentially co-packaged optics as we go forward. So again, remember, this is fully globalized, and a lot of those transceiver companies that manufacture their transceivers within China are driving to a Chinese supply chain of laser diodes and photo detectors. So in Q2, we estimate that the Chinese demand is probably about 30% of the overall Indian phosphide global market demand that we're seeing. And we're seeing that increasing through certainly through Q3 and Q4 as well. So, you know, as we get into Q4, it could even be as high as something pushing up to 40% share of the total Indian phosphide market.

Richard Shannon | Analyst, Craig Hallum

Okay. That is helpful, Tim. And that's one last question to jump out of line here, and that's on the topic of gross margins. Gary, you've talked about in the past here with, you know, hoping to get to 35% with kind of an upside goal of looking at 40%. But when you're talking about the pretty strong mix shift towards the new phosphide here and even about price increases here, I would imagine you'd maybe help us think about whether that could go higher at some point in time. I'm not asking for any time soon, but are you looking for kind of a ceiling of gross margins that get us above that 40% level?

Thank you. Gary Fisher | Chief Financial Officer, AXT

Well, Internally, as a management team, we're definitely going to be targeting something that begins with a four, but it's far out. We don't know yet. And so I'd still stick with my sense that somewhere in the 35% range is very, very reasonable. But that's for the outside world. It's a safe arrival, landing point. But that doesn't mean that we're satisfied with it and we think we can you know, do better, but we need to get it farther down the road and prove that first.

Okay. Richard Shannon | Analyst, Craig Hallum

That's all I want to hear. That's all from me, Gary.

Thank you. Gary Fisher | Chief Financial Officer, AXT

You're welcome, Richard.

Good to hear from you. Tracy | Conference Coordinator

There are no further questions at this time. I will now turn the call back to Leslie Green, Investor Relations at AXT, for closing remarks.

Leslie Green | Investor Relations, AXT

Thank you, Tracy. And thank you all for participating in our conference call. We will be participating in the B. Reilly Securities 2026 Annual Investor Conference and the Craig Hallam Institutional Conference in May, as well as the Northland Virtual Conference in June. We hope to see many of you there. And as always, feel free to contact us if you'd like to set up a call. We look forward to speaking with you all in the near future.

Thanks. Tracy | Conference Coordinator

This concludes today's call. Thank you for attending. You may now disconnect. jsPDF 3.0.3 D:20260606085959-00'00'

NASDAQ:AXTI Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Audra | Conference Coordinator: Good afternoon, everyone, and welcome to AXT's fourth quarter 2025 financial conference call. Leading the call today is Dr. Morris Young, Chief Executive Officer, and Gary Fisher, Chief Financial Officer. In addition, Tim Bettles, VP of Business Development, will be participating in the Q&A portions of the call. My name is Audra, and I will be your coordinator today. I would now like to turn the call over to Leslie Green, Investor Relations for AXT.

Please go ahead. Leslie Green | Investor Relations, AXT

Thank you, Audra, and good afternoon, everyone. Before we begin, I would like to remind you that during the course of this conference call, including comments made in response to your questions, we will provide projections or make other forward-looking statements regarding, among other things, the future financial performance of the company, market conditions and trends, emerging applications using chips or devices fabricated on our substrates, our product mix, global economic and political conditions, including trade tariffs and import and export restrictions, ability to obtain China export permits, timing of receipt of export permits, our plan to list our subsidiary Tongmei in China, our ability to increase orders in succeeding quarters, to control costs and expenses, to improve manufacturing yields and efficiencies, or to utilize our manufacturing capacity. We wish to caution you that such statements deal with future events, are based on management's current expectations, and are subject to risks and uncertainties that could cause actual results or events to differ materially. In addition to the matters just listed, these uncertainties and risks include but are not limited to the financial performance of our partially owned supply chain companies and increased environmental regulations in China. In addition to the factors just mentioned or that may be discussed in this call, we refer you to the company's periodic reports filed with the Securities and Exchange Commission. These are available online by link from our website and contain additional information on risk factors that could cause actual results to differ materially from our current expectations. This conference call will be available on our website through February 19, 2027. Also, I want to note that shortly following the close of market today, we issued a press release reporting financial results for the fourth quarter of 2025. This information is available on the investor relations portion of our website. I would now like to turn the call over to Gary Fisher for a review of our fourth quarter results. Gary?

Gary Fisher | Chief Financial Officer

Thank you, Leslie, and good afternoon to everyone. Revenue for the fourth quarter of 2025 was $23.0 million, compared with $28.0 million in the third quarter of 2025. and 25.1 million in the fourth quarter of 2024. To break down our Q4-25 revenue for you by product category, indium phosphide was 8.0 million, primarily from data center applications. Gallium arsenide was 7.0 million. Germanium substrates were 231,000. Finally, revenue from our consolidated raw material joint venture companies in Q4 was 7.6 million. In the fourth quarter of 2025, revenue from Asia Pacific was 81.5%, Europe was 17.5%, and North America was 1%. The top five customers generated approximately 22.6% of total revenue, and no customers were over the 10% level. Non-GAAP gross margin in the fourth quarter was 21.5%. For comparison, we reported 22.6% gross margin in Q3 of 2025, and 18.0 gross margin in Q4 of last year. For those who prefer to track results on a gap basis, gross margin in the fourth quarter was 20, 20.9% compared with 22.3% in Q3 of 2025 and 17.6% in Q4 of 2024. We continue to be highly focused on driving continued improvement, including further recovery in Q1. Moving to operating expenses, Our total non-GAAP operating expense in Q4 was $7.8 million, compared with $6.5 million in Q3 of 2025. As a reminder, Q3 included some favorable adjustments in R&D that brought our OpEx down to a lower-than-normal level. Non-GAAP OpEx in Q4 of 2024 was $9.8 million. On a GAAP basis, total operating expense in Q4 of 2025 was $8.8 million, compared with $7.3 million in Q3. and 10.6 million in Q4 of 2024. Our non-GAAP operating loss in the fourth quarter of 2025 was 2.6 million compared with the non-GAAP operating loss in Q3 of 2025 of 384,000 and the non-GAAP operating loss of 5.4 million in Q4 of 2024. For reference, our GAAP operating line for the fourth quarter of 2025 was a loss of 3.8 million compared with an operating loss of 1.1 million in Q3 of 2025 and an operating loss of 6.2 million in Q4 of 2024. Non-operating other income and expense and other items below the operating line for the fourth quarter of 2025 was a net gain of 285,000. The details can be seen in the P&L included in our press release today. For Q4 of 2025, we had a non-GAAP net loss of 2.6 million or $0.06 per share compared with the non-GAAP net loss of $1.2 million or $0.02 per share in the third quarter of 2025. Non-GAAP net loss in Q4 of 2024 was $4.2 million or $0.10 per share. On a GAAP basis, net loss in Q4 was $3.6 million or $0.08 per share. By comparison, net loss was $1.9 million or $0.04 per share in the third quarter of 2025. GAAP net loss in Q4 of 2024 was $5.1 million or $0.12 per share. Weighted basic shares outstanding for the quarter was 44.7 million. Cash, cash equivalents and investments increased by 97.2 million to 128.4 million as of December 31st. This is primarily the result of our public offering of common stock, which closed on December 30th and generated approximately 93.9 million. By comparison, at September 30th, cash was 31.2 million, Accounts receivable decreased in the quarter by 2.6 million. Depreciation and amortization in the fourth quarter was 2.3 million. Total stock comp was 1.3 million. Net inventory was up by approximately 4 million in the fourth quarter to 81.7 million. This continues to be a focus for us, and we expect to bring it down in coming quarters. This concludes our discussion or comments about the quarterly financials. Turning to our plan to list our subsidiary Tongmei in China on the star market in Shanghai, we remain very interested in completing the IPO, particularly in light of the rapidly evolving AI infrastructure build-out in China, which is fueling increased China-based demand for Indian phosphide substrates. We've continued to keep our IPO application current, and Tongmei remains, quote, in process. as part of much of a more selective and smaller group of prospective listings than a few years ago. Though the current geopolitical environment is dynamic, Tang Mei is considered a Chinese company and continues to be regarded in China as a good IPO candidate. We will keep you informed of any updates. With that, I'll now turn the call over to Dr. Morris Young for a review of our business and markets.

Morris. Dr. Morris Young | Chief Executive Officer

Thank you, Gary.

We were disappointed Audra | Conference Coordinator

And pardon the interruption, this is the operator. We have lost our speakers. Give me one moment to reconnect.

Dr. Morris Young | Chief Executive Officer

Hello? Yes, we can hear you now.

Audra | Conference Coordinator

Am I back on?

Dr. Morris Young | Chief Executive Officer

Yes, you are. Thank you. Okay, let me start from the beginning again, just in case I missed part of it. We were disappointed that we didn't receive as many export permits in Q4 as we had hoped. based on the average processing time we had seen up to that point in October. The good news is now that we have received permits in Q1, and we are in a stronger position today than we were at the same time in the prior quarter. Gary will take you through our full quarter guidance in a few minutes, but we do expect to achieve sequential growth in revenue in Q1, driven primarily by growth in Indian Phosphine for data center build out for AI. We're also very pleased to note that we are seeing a welcome expansion of our customer base for Indian Phosphine. We're beginning to support leading customers in the optical space that we have limited exposure to prior to this time. This includes tier one laser manufacturers and optical transceiver module makers, both in China and around the world. We're excited to be able to demonstrate the technological advantage of our low EPD wafers as the market moves to optical devices with higher speed and greater sophistication for both scale up and scale out applications. In total, Our backlog for indium phosphide wafers have reached a new high of over $60 million. As we mentioned last quarter, customers are planning for longer lead time by placing longer term orders and giving us more visibility into their expected demand. As many of you know, the supply chain for optical transceiver is quite complex. and highly globalized. We believe this geographical interdependence is providing both opportunity and incentives for the ecosystem to work together in new ways to solve global supply chain shortages. Beyond pluggable receivers, we're seeing a very large developing market for co-packaged optics for both scale-up and scale-out applications. We're actively engaging in discussions with our customers about their technical and timing requirements and believe this could represent yet another inflection point in our business developing in late 2027 and beyond. From a geographic demand perspective, The massive AI infrastructure build-out and planned capex spending by cloud services and AI platform providers in the United States is the primary driver for EML and silicon photonics-based optical transceivers. We believe that today our materials are being used in multiple U.S. hyperscale, and we expect that end customers use will continue to broaden. In China, the data center build out is early in its ramp, but we are seeing rapid growth as China moves to accelerate its data center expansion and AI capabilities. Our revenue related to the data center market in China are expected to grow by more than 60% in Q1 over Q4. Highlighting both increased investment in these tier one data centers as well as the strong desire for Chinese domestic suppliers to secure local source at every level of the AI infrastructure supply chain. Given the strong demand environment, it is important to know that AXC is well positioned to handle increased demand for Indian phosphide wafers. Since we have last reported to you in October, We have already added approximately 25% more capacity, and we are on track with our current plan to double our capacity from Q4 2025 level by the end of this year. Beyond our current plan for capacity expansion, we're working closely with our customer base to understand their long-term requirement and to align our plans globally. Our recent capital raise will be a fundamental to our future expansion as we enter our next significant phase of growth. A major focus of this expansion will be an increased investment in our six-inch indium phosphide product. And we are excited to work with our customers to meet the vigorous requirements of next-generation EML and silicon photonics-based devices. Now turning to gallium arsenide, we continue to see demand for semi-insulating wafers for wireless RF devices and believe that we have strong opportunity for market share expansion, gated primarily by our ability to obtain export permits. In Q4, We saw an uptick in semiconducting wafers for both industrial laser applications and data center laser applications. VIXO lasers for data center applications typically do not require a lot of gallium oxide material. The devices are small, so they don't move the needle much as a growth driver for us. We're seeing an increased demand for VIXO for autonomous vehicles in China, Chinese automobile market, which is currently expanding rapidly. High growth expansions, in addition to our watching, we are watching with interest an emerging application in robotics for VIXOs that increase the precision and dexterity of a modern robotic hand. Counter the VIXO used in data center applications, machine vision VIXOs tend to be very large and use more gallium oxide substrates. They also require high quality material, which we are very well positioned to supply. Again, demand is more today, primarily China-based, and covers a diverse set of customers But the breadth of use case and the development is very exciting. Finally, our raw material business was up in Q4 with growth from our subsidiary BoYu, which manufactures PBN crucibles used in manufacturing of indium phosphide crucibles. In addition, we're pleased to report that our subsidiary JingMei has begun to refine high-quality indium, which gave us now direct control of a guaranteed supply of yet another critical material for our indium phosphide substrates. Globally, there continues to be a greater awareness of the importance of earth's materials, and we are ahead of the curve in developing our unique integrated supply chain. In closing, This is a very dynamic, exciting time for our company. As we enter into 2026, we're a fundamental supplier to the multi-year optical build out in the AI infrastructure market. We have a broadening customer base of tier one companies and a strong balance sheet to support our continued business expansion. And with growing backlog, The receipt of Indium Phosphide and gallium oxide export license remains the single most significant gating factor for our growth. As such, we are highly focused on ensuring that we are proactive, organized, and disciplined about managing the process on behalf of our customers. We also know that we must be laser focused on running our business with the greatest efficiency. This includes our continued effort to drive gross margin improvement, op-ex disciplines, and inventory reduction. With strong ongoing market trends fueling the data center upgrade cycle, we believe that we have tremendous opportunity in 2026 to drive meaningful growth in our business and return to profitability. I would like to personally thank our employees for their dedication and tireless effort during this singular moment in AXD history. And I would also like to express my sincere gratitude to our customers, partners, and shareholders for their ongoing support and believe that in the future, we are building together. We look forward to reporting to you on our progress. With that, I will turn the call back to Gary for our fiscal quarter guidance.

Gary Fisher | Chief Financial Officer

Thank you, Morris. To reiterate a couple of key points from Morris' commentary, we are seeing a strong increase in our Indian phosphide wafer demand related to AI and the ongoing data center upgrade cycle. Given the geopolitical complexity surrounding this market trend, our customer base is diversifying and expanding, and customers are placing longer-term orders and providing greater visibility into their needs. With all of these positive market and AXT-specific growth drivers, the most significant single factor to our growth in Q1 and beyond is the success and timing of getting export permits. Therefore, guiding for the future is somewhat tricky for us right now as we cannot predict future timing of permits or our success in obtaining them for any customer or individual order. But drawing on what we know and what we've experienced thus far in the export permitting process, we can offer the following insight to our expectations for Q1. As of today, we have approximately $26 million in revenue that can be realized in Q1 across our substrate product lines and raw materials for which we either already have a permit to ship or for which an export permit is not required. We have a high degree of confidence in recognizing this revenue in Q1. We could see significant upside to this number in Q1 should we receive more permits for additional orders between now and the end of the quarter. But we want to stress that as we experience in Q4, the timing for permit issuance is not predictable nor in our control and doesn't necessarily align with our quarterly reporting. As Morris mentioned, we continue to focus strongly on gross margin. Further improvement depends on a number of factors, including total revenue as it relates to absorption of fixed costs, revenue mixed by product, and our ability to continue to drive better manufacturing efficiency. With regards to OPEX, we expect that it will remain at approximately $9.0 million in Q1. With these factors in mind, we believe our non-GAAP net loss will be in the range of $0.02 to $0.04. and gap net loss will be in the range of four to six cents. This represents substantial year-over-year progress towards our return to profitability. We estimate share count in Q1 will be approximately 53.2 million shares. Okay, this concludes our prepared comments. We'd be glad to answer your questions now. Audra, operator?

Audra | Conference Coordinator

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to star your question, simply press star one again. We'll go first to Richard Shannon at Craig Hallam.

Richard Shannon | Analyst, Craig Hallam

Well, great. Thanks, Morris and Gary, for taking my questions here. Gary, I'm going to have to do a quick request to give me the revenue number you gave for the quarter. My line got garbled here. I heard about 26 that you believe you can get, highly likely get, Was there a number to the upside there? Apologies for needing to ask this.

Gary Fisher | Chief Financial Officer

We normally give you guys a range, but we discussed before the call today that we're very, very confident at the 26 number. We did say just a moment ago that we believe we could go higher if we get more permits, but it could even be more than just a normal range, which we usually have a $2 or $3 million range for you guys.

Dr. Morris Young | Chief Executive Officer

Well, let me try to add on to this point. That is, our manufacturing are doing the manufacturing as if we can get a permit. So there's a lot of these so-called semi-finished goods or finished goods staging in our clean room ready to be shipped if we can get an actual permit.

Gary Fisher | Chief Financial Officer

Yeah, we... We are building to forecast and to the backlog whether or not – we're not building to permits. We're not waiting until we get a permit and then say, okay, let's get going. And so it's building, and, you know, we're enthusiastic, we're excited, and, of course, yeah, we're a little bit frustrated because it would be pretty big numbers if we can get some more of these permits. And we think that we will. We can comment more in this call. We're hanging in there. We're not discouraged in giving up.

Richard Shannon | Analyst, Craig Hallam

Okay. Appreciate understanding your approach to the guidance. It certainly makes a lot of sense in this environment. Let me ask about the licensing process here. Last quarter you said it was about a 60-business day or three-month process here, and obviously that didn't turn out as we saw from your preannouncement, which is unfortunate, but we all know how governments can work from time to time here. Do you have any new insights as to how they're working here? And I guess are there – Are there any permits that are being rejected that you don't think should be? Just more insights here on this licensing process.

Tim Bettles | VP of Business Development

Yeah, I can answer that one. So this process is not transparent at all. And we're seeing quite a lot of variability. We started off in the end of Q3 by saying it was looking like we're seeing a fairly consistent 60 business day process cycle. We're now seeing a lot more variability as we go through that. And as I say, there's just no transparency to that. It's reasonable to assume that there's geopolitics playing into this as well. It's really hard to determine what and why. And it's difficult, therefore, to figure out which permits are coming in on time, which are taking longer. I'll answer the second question as well, which you asked whether there had been any permits that had been denied and why. We have actually received a couple of denials with the instruction that we can resubmit that application with more information. So this is the first time we've actually received denials on permits, and we're not utterly sure why. Again, no transparency to this. We don't see any particular reason why any of these permits should not be approved. And it's a process that we're just working through. So these permits that have been denied, we've already resubmitted with MOFCOM and we're hopeful that we continue to talk to MOFCOM and they will get reviewed quickly and could potentially turn around fairly quickly. Could even make an impact on Q1 numbers if we can get a quick turnaround on them.

Gary Fisher | Chief Financial Officer

And what does MOFCOM stand for?

Tim Bettles | VP of Business Development

Oh, that's the Ministry of Commerce in China.

Dr. Morris Young | Chief Executive Officer

Yeah. So let me add what Optimix's viewpoint, the comment about Tim just gave you. That is, although there is a denial of an application, but they come with a specific instruction how to strengthen the application, which we think is a good indication. In other words, If they really want to deny it, they can just let it sit there. I mean, the fact that they want more information about... Actually, I think it's a sizable permit application we have, and that means, hey, you know, they are taking a very serious look at it, and hopefully that, you know, will turn to be a permit.

Richard Shannon | Analyst, Craig Hallam

Yeah. Okay. That is helpful. Thanks for that insight. Second question here is... kind of the backlog here and also following up on Morris, your comments about customers looking farther out. So we went from a backlog of 49 to above 60 here. And you also commented that people or customers are boarding farther out. Could you suggest how far out they're going right now? And also how far out are you hearing forecasts from these customers as well?

Dr. Morris Young | Chief Executive Officer

Yeah, let me see how to answer that. Actually, Let me first answer my part of the question, and I will turn it over to Tim. Well, the reason why is that Tim really works with customers, hearing what their demand is. Actually, one of the interesting comments we have was that we have important meetings with our customers this week, and they're telling us, Tim, at least in two locations, people are saying, gee, you know, our demand forecast increases every week. So that's the kind of level I think, I mean, we know it is tight and we know it's going up, but I think, you know, people are upsizing their demand and they're telling us, you know, what they want to do, whether they're going to go to 4-inch, how much they want to switch from 4-inch three to four and four to six. Okay. And as far as how much inventory they're building, I think that depends upon customers. Some of the customers, we suspect that they're buying into the inventory, but they also tell us, you know, I'm going to take it all if we can cover. Whereas others, I think they are telling us the real demand in the quarter because I think you know, as of now, we cannot deliver enough of their demand. So they are giving us longer lead time to give us more incentive to, you know, build up the expansion plan and build the capacity for them. And also, I think the other thing is, Tim, you want to comment on long-term commitment that you're talking to customer about?

Tim Bettles | VP of Business Development

Yeah, I'll comment a little bit on that, and I'll also comment a little bit more on backlog and what we're seeing from this. So a lot of this backlog, remember, is scaled up based on the permit dynamics. So the permit dynamics, once we receive a permit to export material, we have a six-month window to export. So a lot of backlog is built that the moment that permit comes in, we have a six-month window maximum to deliver. And in many cases, that window, the window of which the customers are looking to receive material, is a lot shorter than six months. So really and truthfully, this is all being gated by permits, as we mentioned during the discussion. In terms of what we're seeing in build out for inventory, I think at this moment in time, people would like to keep more inventory. But as Morris mentioned, just about everybody we're talking to is telling us that the demand is growing literally on a weekly basis. So we just see the numbers expanding and expanding over and over. Turning to forecasts and what kind of visibility we have, we are definitely talking about long-term supply agreements with a number of customers right now. And we're planning our business according to those long-term supply agreements. We're seeing forecasts out beyond 2030 for many of these customers. But of course, as I've just said, those numbers are increasing on a week-by-week basis. So it's difficult to keep track of things, but people are talking about minimum demand requirements moving forward for at least the next two to three years, giving us forecasts out beyond 2030. So all in all, I think this backlog is real, it's achievable, and it's kind of being...

Richard Shannon | Analyst, Craig Hallam

limited by our permits at the moment okay makes sense last one more question jump out of line here guys um this is on capacity additions um just a few kind of uh multi-part question here i think i heard you say you're going to double your capacity uh from the end of 25 to the end of 26. you could verify that and if so can you help us understand what level of cap access again requiring And then looking beyond that, and Tim, you just mentioned forecasts going out beyond 2030, which is interesting to hear, how much more capacity beyond that could you need? Let our minds wander about what kind of scale of opportunity you're thinking about here.

Thank you. Dr. Morris Young | Chief Executive Officer

Yeah, I think we just said we have increased our capacity by 25%. now, and we do expect to double our capacity by the end of this year. And how much budget would we need? It could be about $30 million. And that is sort of on the low end, in a way, because the first phase of the expansion, which is doubling our capacity, mainly use Brownfield. In other words, in our existing tomei facility, we already have a clean room available. We have the building there already and power supply and clean water. So I think that budget is lower. Looking beyond 2026, we are looking at possibly doubling it again in 2027 and that budget is lying somewhere around $100 to $150 million, depends about how we want to build it, because then we're talking about a greenfield. We need building, we need clean, we need power, et cetera.

Richard Shannon | Analyst, Craig Hallam

OK, great. Thank you, guys. Thanks, Richard.

Audra | Conference Coordinator

We'll move next to Tim Savojo at Northland Securities.

Tim Savojo | Analyst, Northland Securities

Hey, good afternoon. Let's continue with that capacity discussion, but maybe try to put some numbers around it. You know, if I look at where you've peaked historically, and I think we're talking exclusively about indium phosphide here, that's, you know, getting up toward $20 million a quarter in substrate revenue. And I imagine your capacity is now slightly above that given the increase you talked about in Q4. I guess question one, is that reasonable? And should we expect you to exit calendar 26 with revenue capacity roughly double those levels? And would you anticipate having the demand to fulfill that at that time where you're building maybe a little bit ahead?

Dr. Morris Young | Chief Executive Officer

Let me first answer the question. I think we calculated, I think it's approximately $35 million a quarter by the end of the year rent rate. It could be a little bit more, given that the price environment is dynamic as the costs of Indian are going up. And can we use up all this capacity? I think looking at the backlog, we can certainly do, but the problem is the gating factor is the permits.

Tim Bettles | VP of Business Development

I'll add something in here as well. Irrespective of permits, we mentioned we are seeing growth in this business in China as well. And look at it quarter to quarter. Q4 was probably double revenue in China than Q1 in 2025. And we would expect we're looking at potentially doubling again through 2026. So we're definitely seeing growth there in China that warrants expansion as well as growth outside of China where we would need permits for.

Dr. Morris Young | Chief Executive Officer

Tim, I agree with you, but then I don't want to minimize the importance of outside of China. I think the AI growth, the budget we're seeing, is really fueling the demand for Indian phosphorus substrate.

Gary Fisher | Chief Financial Officer

Yeah, Tim, this is Gary. And I'm supposed to be conservative, and I am. But I'm not sure you guys are getting the point, is that every customer is worried about getting enough for their needs. there's a general concern where the meetings we've had this week, we're not meeting with the purchasing manager. We're meeting with CEOs and general managers. They all want to talk to Morris about capacity and about future growth. So there's a phenomenon going on here that all of us, it's unusual for no matter what we do for our jobs, including the analysts, this is a very unique and unusual situation. I mean, I'm, I've been around the block a few times, and Morris has, and this is very, very unusual. And it's actually intense. We're excited, but we're scrambling. We're scrambling. And I don't see any into it near term. People are telling us that their demand is going to be going up three, four, five X over the next four or five years. And, you know, there's not, how many suppliers are there? You know the answer to that. Two. And we're one of them, so.

Dr. Morris Young | Chief Executive Officer

Yeah, I think, let me add to that. I think, you know, the investor usually asks the CEO, the toughest question is, what keeps you up at night? I think what's keeping you up at night is calculating how we're going to expand that capacity, how we're going to get that product to our customers. and how to develop the technology that customer wants. I mean, it's very exciting, but it's also very straining. You know, we need to be very much aware of what the customer wants and satisfy their demand.

Gary Fisher | Chief Financial Officer

Fortunately, we have recent experience at adding capacity. What, you know, it was almost about 10 years ago when we learned that we needed to get gallium arsenide moved out of Beijing. So we had 20, 17, 18 kind of time period where we did add capacity from green grass fields. So we have some strengths here, but it's going to tax us even though we are experienced.

Dr. Morris Young | Chief Executive Officer

Yeah, I don't want to give the analyst a point to ask the question, but I think we're talking to each other. We're too excited, yeah. But I think it is a very good point. I think we, prior to this, we probably overspent because the IPO preparation, we actually expand from one facility to three facilities. But now I think we're looking at a great demand for Indian phosphide. which I think it's really meeting our challenge. And I think Gary is right. We are very well positioned to meet that demand. I think we are probably the best suited to increase capacity. And also because the variable integration we have in terms of supply chain, and we're in control of a lot of other material, which could be in short supply, you know, if Indian phosphide subsides continue to grow like what we're talking about, and we have plans for that as well.

Gary Fisher | Chief Financial Officer

A good example is subsidiary Jinmei. Jinmei makes the Indian phosphide poly for Tongmei. So, you know, we have in our supply chain is supporting this growth process. Next question, Tim.

Tim Savojo | Analyst, Northland Securities

Oh, I'm a little bit afraid now, but... You actually highlighted in the release even the increased presence with some big tier one customers. I guess in the commentary you mentioned, you know, maybe some in China, but elsewhere. You know, in terms of what's going on there, are we talking about orders with major new customers, qualification, any specific programs? And I'm not sure these two comments were related or not, but I'll ask if they were with regard to your increased investment in six-inch indium phosphide, if you can maybe cover both of those points.

Appreciate it. Thanks. Tim Bettles | VP of Business Development

Yeah, I'll take a stab at that one, Tim. So yes, we are gaining more traction with customers, as we've said on previous calls as well, that we've not been so prolific in. So we're gaining design in, we're gaining qualifications on existing products, as well as new products as we move forward. And the customers are looking to expand on their demand for indium phosphide. As Morris mentioned in the call, there's already been a big move from three-inch to four-inch. So we've spent a lot of time and effort on scaling up our four-inch business. And we're also seeing a lot of interest now. And of course, we all know one customer that's really driving six inch demand. So we're really taking six inch very, very seriously. And we're expanding as we expand capacity, both now and our doubling capacity through 26 and beyond. We're looking at adding significant six inch capacity in there during that expansion. And we're just plowing through the numbers right now to see what we need to drive six-inch and how we scale six-inch compared to three and four and more of the traditional wafer sizes.

Dr. Morris Young | Chief Executive Officer

Yeah, I think you'll... Sorry, Morris, please. Sure, Tim. I think, you know, One part of it perhaps is the cooperative effort. Usually when your customer don't go to me, they probably talk to the sales guy and give us orders. But I think now the dynamics is such that we sort of need to interact more to make sure that we're putting the right amount of attention to both in terms of development and capacity expansion to where they need it. Okay. And then, you know, virtually also to convince us this is the right investment we should have. Is that right?

Tim Bettles | VP of Business Development

That's correct. We're also getting a lot more customer buy-in with commitments, NRE, purchase orders to drive that business forward as well.

Okay. Thank you. Audra | Conference Coordinator

We'll move next to Matt Bryson at Wedbush Securities.

Matt Bryson | Analyst, Wedbush Securities

Thanks for taking the question. Can you talk a little bit about what might have been unfettered demands or shipments in Q4 or what you might be guiding to in Q1 if you weren't restricted by permits?

Gary Fisher | Chief Financial Officer

If we're not restricted by permits, then the basic question is our ability to manufacture high volume, because there's no issue about demand or backlog. So the variable that you're really focusing on is manufacturing capability.

Dr. Morris Young | Chief Executive Officer

yeah i i i don't know whether the customer are telling us more demand than we can deliver but i think we definitely have more orders than we can actually manufacture now as we as we add the capacity we're counting on who we can supply to but of course there's the other beating factor which is the permits yeah so i i mean hypothetically assuming you could be manufacturing around 20 million dollars worth of new thoughts on Matt Bryson | Analyst, Wedbush Securities: You could ship it all if you could get permanent.

Dr. Morris Young | Chief Executive Officer

Yes, correct. And we expect to increase it to about $35 million a quarter by the end of the year. And that way of making sure every point along the supply chain receives equal attention in terms of poly, in terms of crucibles, furnaces, et cetera, et cetera.

Matt Bryson | Analyst, Wedbush Securities

Understood. And then, so you're completely confident that of that 35 million in capacity, if you can bring it on and you can get permits that come to end of this year, you could possibly be shipping 30 million, 35 million in orders. I guess, are there any customer commitments or LTAs or anything else that kind of solidifies that demand?

Dr. Morris Young | Chief Executive Officer

What's that term?

Tim Bettles | VP of Business Development

We've got a lot of purchase orders in there right now, and we're going through long-term agreements. Long-term agreements, I think, in terms of locking up capacity are easy, and we're talking to customers to lock that capacity up. The gating factor, and we've reiterated this a lot today and previously, Gating factor with long-term agreements is how much can we actually ship out of the country? What can we get permits for? So we're trying to address that through LTAs. But for sure, we can definitely cover this kind of revenue volume with purchase orders and LTAs.

Matt Bryson | Analyst, Wedbush Securities

Thanks, Ken. And then, Gary, I think the last one I have is for you. If you get to those numbers in terms of shipments for indium phosphide, so 30 million plus. Can you give us some of the parameters we should be thinking about in terms of gross margins? What are the puts and takes? And, you know, hypothetically, would you be able to get back to the kind of COVID era highs that you were reporting back in 2021, 2022?

Gary Fisher | Chief Financial Officer

Yes. I mean, we always like Indian phosphide. And, you know, if you have to pick of our three substrate products that you want to see go through the ceiling in terms of volume and demand, it's the right one for us. I think getting somewhere at, you know, $40 million a quarter in agri, not just Indian phosphide, but we should be getting...

Dr. Morris Young | Chief Executive Officer

Hopefully somewhere close to 35% Gross margin so I will add other point, you know, I always describe AFC It's a fairly unique company because we I Describe our substrate business as the locomotive engine in the front Well, we have a lot of cars in the back following us such as Indian such as phosphorus, quartz, PBN crucibles, furnaces we make. So if our business is good, we're pulling these guys along. And that should help us. So what you're seeing here, I'm more optimistic. And Gary said, I think that 35% is the normal substrate business. If we can pull those guys along, that should help us even further.

Gary Fisher | Chief Financial Officer

Yeah. Our internal goal is higher, Matt. But so that we don't overstate expectations from, you know, for your community, you know, we want to be a little bit cautious. So we're very optimistic.

So it's pretty exciting. Matt Bryson | Analyst, Wedbush Securities

Just one quick follow-up. The shift to 4-inch and 6-inch, does that change the parameters at all on a gross market perspective?

Dr. Morris Young | Chief Executive Officer

I think normally, the larger the size we go, the better the margin we will get. On the other hand, I'll be more cautious about six inches. We are still a little bit in development stage. So I think initially, we're looking at lower margin, but we're looking for ways to compensate that.

Tim Bettles | VP of Business Development

Right, Tim? Right. And product mix is still very much geared towards three-inch and four-inch at the moment. And, you know, as Morris says, we're running six-inch up. It is still a bit of a development project at the moment. It will be growing through this year. But, again, remember, as we do that, three-inch and four-inch are still a big percentage of our business.

Gary Fisher | Chief Financial Officer

Thank you. Thanks, Matt.

Audra | Conference Coordinator

And that concludes our Q&A session. I will now turn the conference back over to Leslie Green for closing remarks.

Leslie Green | Investor Relations, AXT

Thank you, Audra, and thank you all for participating in our conference call. We will be participating virtually in the Loop Capital Conference in March and hope to see many of you there. As always, feel free to contact us if you would like to set up a call, and we look forward to speaking with you soon.

Thanks. Audra | Conference Coordinator

And this concludes today's conference call. Thank you for your participation. You may now disconnect. jsPDF 3.0.3 D:20260606090000-00'00'

NASDAQ:AXTI Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Leslie Greene | VP, Investor Relations: everyone. Before we begin, I would like to remind you that during the course of this conference call, including comments made in response to your questions, we will provide projections or make other forward-looking statements regarding, among other things, the future financial performance of the company, market conditions and trends, emerging applications using chips or devices fabricated on our substrates, our product mix, global economic and political conditions, including trade tariffs and import and export restrictions, ability to obtain China export permits, the timing of receipt of export permits, ability to increase orders in succeeding quarters, to control costs and expenses, to improve manufacturing yields and efficiencies, or to utilize our manufacturing capacity. We wish to caution you that such statements deal with future events are based on management's current expectations and are subject to risks and uncertainties that could cause actual events or results to differ materially. In addition to the matters just listed, these uncertainties and risks include but are not limited to the financial performance of our partially owned supply chain companies and increased environmental regulations in China. In addition to the factors just mentioned or that may be mentioned in this call, we refer you to the company's periodic reports filed with the Securities and Exchange Commission. These are available online by link from our website and contain additional information on risk factors that could cause actual results to differ materially from our current expectations. This conference call will be available on our website at AXT.com through October 30, 2026. I also want to note that shortly following the close of market today, we issued a press release reporting financial results for the third quarter of 2025. This information is available on the investor relations portion of our website at axt.com. I would now like to turn the call over to Gary Fisher for a review of our third quarter 2025 results. Gary?

Gary Fisher | Chief Financial Officer

Thank you, Leslie, and good afternoon to everyone. Revenue for the third quarter of 2025 was $28.0 million, compared with $18.0 million in the second quarter of 2025 and $23.6 million in the third quarter of 2024. To break down our Q3-25 revenue for you by product category, indium phosphide was $13.1 million, primarily from data center and pond applications. Gallium arsenide was $7.5 million. Germanium substrates were $640K, and revenue from our consolidated raw material joint venture companies in Q3 was $6.7 million. In the third quarter of 2025, revenue from Asia Pacific was 87%, Europe was 12%, and North America was 1%. The top five customers generated approximately 45.2% of total revenue, and two customers were over the 10% level. Non-GAAP gross margin in the third quarter improved substantially to 22.4%, reflecting improved product mix and higher volume to absorb overhead. For comparison, we reported 8.2% gross margin in Q2 of 2025 and a 24.3% gross margin in Q3 of 2024 last year. For those who prefer to track results on a GAAP basis, gross margin in the third quarter was 22.3% compared with 8.0% in Q2 of 2025 and 24.0% in Q3 of last year. We continue to be highly focused on driving continued improvement, including further recovery in Q4. Moving to operating expenses, given the difficult climate, we've been working hard to hold down OpEx. In addition, we had some favorable adjustments in R&D in Q3 that brought our OpEx down to a lower than normal level. These will not carry over into Q4. Therefore, our total non-GAAP operating expense in Q3 was $6.7 million compared with $7.6 million in Q2 and $8.3 in Q3 of 2024. On a GAAP basis, Total OpEx in Q3 was 7.3 compared with 8.2 million in Q2 and 9.1 million in Q3 of 2024. Our non-GAAP operating loss for the third quarter of 2025 improved substantially to $384,000 compared with the non-GAAP operating loss in Q2 of 2025 of 6.1 million and the non-GAAP operating loss of 2.6 million in Q3 of 2024. For reference, our GAAP operating line for the third quarter of 2025 was a loss of $1.1 million compared with an operating loss of $6.7 million in Q2 and an operating loss of $3.4 million last year in Q3. Non-operating other income and expense and other items below the operating line for the third quarter of 2025 was a net loss of $46,000. The details can be seen in the P&L included in our press release today. For Q3 2025, we had a non-GAAP net loss of $1.2 million or $0.03 per share compared to the non-GAAP net loss of $6.4 million or $0.15 per share in the second quarter of 2025. Non-GAAP net loss in Q3 of 2024 was $2.1 million or $0.05 per share. On a GAAP basis, net loss in Q3 was $1.9 million or $0.04 per share by comparison Net loss was 7.0 million, or 16 cents per share, in the second quarter of 2025. Gap net loss in Q3 of 2024 was 2.9 million, or 7 cents per share. The weighted average basic shares outstanding for Q3 2025 was 43.8 million shares. Cash and cash equivalents and investments decreased by 3.9 million to 31.2 million as of September 30th. By comparison, at June 30th, it was 35.1 million. Accounts receivable increased by 11 million, so the delta in cash is explained in working capital. Appreciation and amortization in the third quarter was 2.3 million. Total stock comp was 0.7 million. Net inventory was down by approximately 2.4 million in the third quarter to 77.7 million. This continues to be a focus, and we expect to bring it down further in quarters to come. This concludes the discussion of our quarterly financial results. Turning to our plan to list our subsidiary Tang Mei in China on the star market in Shanghai. We've continued to keep our IPO application current. Tang Mei remains in process as a part of a much more selective and smaller group of prospective listings than a few years ago. Although the current geopolitical environment is dynamic, Tang Mei is considered a Chinese company and continues to be regarded in China as a good IPO candidate. We will keep you informed of any updates. With that, I'll now turn it over to Dr. Morris Young for review of our business and markets.

Morris. Dr. Morris Young | President & Chief Executive Officer

Thank you, Gary. This has been a very eventful quarter for AXC, as we are seeing a strong uptick in any phosphide demand from data center applications globally. And as our industry and our customers adapt a new normal, rapidly changing environment, In Q3, our revenue grew 56% sequentially and 18% year over year. Within this, our indium phosphide revenue grew to our highest level since 2022, as we were successful in obtaining export permits for a number of significant indium phosphide orders throughout the quarter. I'm very proud of the diligence our team and grateful for the partnership of our customers in working through the export control permitting process. Our current experience is that our Indian phosphide permits are taking approximately 60 business days or approximately three months to be processed by China's Ministry of Commerce. This is a bit longer than our initial expectations, but customers are adapting to the requirements and are adjusting their ordering patterns to give us more visibility and longer lead times. I should also note that the Golden Week holiday at the beginning of October in China will likely increase the average permit processing time by a week or so in Q4. The tremendous growth in demand for Indian phosphide-based lasers and detectors for high-speed optical connectivity, coupled with our successful obtaining export permits on behalf of our customers, are driving a strong increase in our Indian phosphide order backlog, which, as of today, is more than $49 million and growing. Our established customers are planning for longer lead times, by placing longer term orders and giving us more visibility into the expected demand. We're also seeing active engagement with several new tier one customers to qualify our material into their supply chains for the first time in many years. This includes leading optical transceiver module makers, both in China and around the globe. As many of you know, The supply chain for optical transceiver is quite complex and highly globalized. We believe this geographic interdependence is providing both opportunities and incentives for the ecosystem to work together in new ways to solve global supply chain shortages. For a geographic demand perspective, the massive AI infrastructure built out and the planned CapEx spending by cloud services and AI platform providers in the United States is the primary driver for EML and silicon photonics-based optical transceivers. We believe that today our materials are being used in multiple US hyperscalers, and we expect that end customers use will continue to broaden. In China, The data center build-out is early in its ramp, but there is a strong desire for domestic suppliers at every level of the supply chain, and we believe over the next 12 to 18 months, we will see healthy growth in the China data center market. Data center expansion in China is quickly overtaking PANG as the leading application in China for our Indian phosphide substrates. Given the strong demand environment, it is important to know that AXC is well positioned to handle increased demand. We have ample manufacturing capacity in place today, and we can also significantly increase our output by current level, and we can also add capacity quickly as needed. We also have a demonstrated ability to supply very low EPD wafers in volume that meet the vigorous requirements of next-generation EML and silicon photonics-based devices. Now turning to gallium arsenide. Our revenue grew more than 20% from the prior quarter. The biggest driver was some insulating wafers for wireless RF devices, which remains a focused application for us. Industrial laser applications were about flat from Q2, and we saw an uptick in semiconducting wafers for data center laser applications. However, VIXO lasers don't typically require a lot of gallium oxide material, so they don't move the needle much as a growth driver. But they do require high quality material, which were well positioned to supply. In germanium substrates, Our sales declined by about $1 million in Q3. The remaining substrate market was very poor gross margin potential today. And while our material performed well in the solar cell applications as we supplied, gross margin constraint disincentivizes us to pursue many opportunities. In addition, Certain customers prefer to source substrates outside of China. As such, we do not expect growth in Germanium substrates in Q4. Finally, our raw material business in Q3 was consistent with the prior quarter, and it was solidly profitable within a stable pricing market. We expect the same for Q4 globally, There continues to be a greater awareness of the importance of earth materials, and we are ahead of the curve in developing this unique integrated supply chain. In closing, this is a highly active time for our business. The receipt of any phosphide and gallium arsenide export permits remains the single most significant gating factor for our growth. As such, we're highly focused on ensuring that we are proactive, organized, and disciplined about managing the process on behalf of our customers. We also know that we must be laser-focused on running our business with the greatest efficiency. This includes our continued effort to drive growth margin improvement, outback discipline, and inventory reduction. We saw ongoing market trends fueling the data center upgrade cycles, we believe we have tremendous opportunity in 2026 to drive meaningful growth in our business and a return to profitability. We look forward to reporting to you our growth progress. With that, I will turn the call back to Gary for our fourth quarter guidance. Gary?

Thank you. Gary Fisher | Chief Financial Officer

Thank you, Morris. To reiterate a couple of key points from Morse's commentary, we are seeing a strong increase in our Indian phosphide wafer demand related to AI and the ongoing data center upgrade cycle. Given the geopolitical complexities surrounding this market trend, customer behaviors in our space are changing to allow for longer substrate lead times. Our customers are placing longer-term orders and providing greater visibility into their needs. As such, our Indian Phosphide backlog has grown to $49 million and is the largest we've ever had in our history. Further, we are actively engaging with new customers today that we've not had business with an opportunity for some time. With all of these positive market and AST-specific growth drivers, the most significant gating factor in our growth in Q4 and beyond is the success and timing of getting export permits. Therefore, guiding for the future is somewhat tricky for us right now as we cannot predict future timing of permits or our success in obtaining them for any customer or individual order. But drawing on what we know and have what we've experienced this far in the export permitting process, we can offer the following insight into our expectations for Q4. As of today, We have approximately $20 million in revenue that can be realized in Q4 across our substrate product lines and raw materials for which we either already have a permit to ship or for which an export permit is not required because it ships within China. We have a high degree of confidence in recognizing this revenue in Q4. In addition, we believe there's an incremental $7 to $10 million in Indian phosphide and gallium arsenide backlog which is currently in our manufacturing process for which we believe we may be able to ship in Q4 if we are awarded permits. Of course, timing of permits is not within our control, but we believe we are in a similar or slightly better position in terms of customer order backlog and permit submissions than we were at this same point in the prior quarter. As such, with that as background, We believe we have the capability to achieve revenue in the range of $27 to $30 million in Q4, subject to the caveats I just mentioned. This takes into consideration approximately flat sequential revenue contribution from germanium substrates and raw materials, with incremental growth in Q4 likely coming from indium phosphide and gallium arsenide substrates. As Morris mentioned, we continue to focus strongly on gross margin, We made significant gains in Q3 and continue to work on our manufacturing efficiency. Further improvement in Q4 depends on a number of factors, including total revenue as it relates to the absorption of fixed costs, revenue mixed by product, and our ability to continue to drive better manufacturing efficiency. With regards to OPEX, we expect that it will increase to approximately 9 million as a result of some incremental end-of-the-year adjustments and a return to a more normalized level. With these factors in mind, we believe our non-GAAP net loss will be in the range of one to three cents, and our GAAP net loss will be in the range of three to five cents. This represents substantial year-over-year progress towards our return to profitability. We estimate the share count for Q4 will be approximately 43.8 million shares. And okay, this concludes our prepared comments. We'll be glad to answer your questions now. Operator, Kelvin?

Operator | Conference Operator

Ladies and gentlemen, we will now begin the question and answer session. I would like to remind everyone to ask a question. Please press the star button followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. One moment, please, for your first question. Your first question comes from the line of Charles Shi of Needham & Co.

Please go ahead. Charles Shi | Analyst, Needham & Co.

Hi. Morris, Gary, congrats on receiving the licenses, the permits, shipping 8 million additional revenue in a quarter, and congrats again on the 49 million backlog. That was an exciting number to hear. Really want to get back to this point, the customer behavior change, like are they placing longer-term orders, but I think if I hear you correctly, some of those customers may not necessarily have the permits at this point and still proceeded to place the orders with you, a pretty significant amount of orders with you. Can you kind of talk through what exactly is driving that behavior and what do you think the export permits, the current ones you already have, Are there time limits to that? Are there, like, volume limits to that? And what could be your best prediction going forward from here that customer behavior can continue to evolve?

Thank you. Tim | VP, Operations

Tim? Yeah, thank you, Charles. So we have, as you said, a $49 million backlog. That includes customers that have previously received permits. and customers that are still in their permit phase for the first permit as we go through. Everybody that has previously received a permit has typically received subsequent permits from there. So there's a lot of confidence in getting further permits as we move forward through this. So people are placing orders into that backlog with the understanding that the confidence levels of receiving permits are high, especially for indium phosphide. So as we look forward and as we look at that backlog, all of the orders that we've received and put into backlog have permit applications in place so far. And we manage that backlog and those permit applications, and we manage the manufacturing process so that we can combine the expected permit approval time with the finishing of the product. So our lead time to ship the product after receiving the permit is very low.

Dr. Morris Young | President & Chief Executive Officer

Yeah. So maybe I can add another point. I hear Charles is asking, is there any relationship with customer giving us a lot more order, longer order lead time, is it because we have a permit process? I think that is true. People are realizing, instead of just in time, they want to give us a long lead time to submit the permit application so that we can ship this product to them in time. Is that part of the question, Charles?

Charles Shi | Analyst, Needham & Co.

Yes. I think that may be a better way to help us understand what the permit does to the size of the orders, how much long-term the orders is going to be. Maybe you can shed some light, let's say, the order currently on average cover, is it like a one-year demand, two-year demand, three-year demand? What do you see there? Like how long does the order you have in the backlog covers what customers demand?

Tim | VP, Operations

Right, okay, understood. Thanks, Charles. So the permit, we apply for a permit, and it can be for multiple shipments, number of shipments up to 12. This is the important part. The permit only lasts six months. So everything has to be shipped within six months of receiving the permit.

Dr. Morris Young | President & Chief Executive Officer

Yeah, and the other point is this. Our customers are telling us, we'll give you this order. If you get the permit and if you can manufacture it, you can ship it tomorrow.

Gary Fisher | Chief Financial Officer

So when Tim mentions up to 12, that means 12 line items. Every PO needs a separate permit. So if you put each line item on a separate PO, then we need 12 permits.

Yeah. It's complicated. Charles Shi | Analyst, Needham & Co.

as they say in the show business. It is, it is. So maybe I ask another question on profitability. So when you were at this revenue level in the high 20s, going back a few years, you probably have a gross margin somewhere in the high 20s or even low 30s percent. and you would have a non-GAAP APS in the positive territory. But I think, Gary, if I hear you right, I think you're still expecting some GAAP, some non-GAAP loss in the coming quarter. And I wonder if there's anything, you know, cost structure that's a little bit different now versus back then. How do we get back to the similar profitability level at the similar revenue round rate back in the, let's say, only go back two or three years?

Gary Fisher | Chief Financial Officer

Yeah, I expected to be asked that question to us. And it's something that we talk about internally. So as I like to say to ourselves and to analysts and investors, in our business model, it's never one single dial. It's not like one thing we can focus on, and we have to focus on two to four things to sort of move the needle in the right direction. In this regard, one of the things we need to get improvement on is gross margin, and that's primarily a result of mix, which is going in our favor right now, and also efficiencies on the line. So I'm actually encouraged to be able to say this because It's pretty much in our control. And we've done better than we're doing right now. But it is common in manufacturing businesses to have some cycles. And so I think we can work on that and focus on it and get improvement. That's probably the biggest one. I think we could get a bit more help from our joint venture companies. Expect that to improve in the coming quarters as well. But those are the two things that come to mind.

Dr. Morris Young | President & Chief Executive Officer

So Charles, maybe I can answer part of the other question. I think that the deadliest thing in manufacturing, I think analysts should ask is, is your ASP dropping? Okay, I think we can say, except with the low end on the two inch in the fast wire, most of our ASP are holding very firm. In fact, some of the ASP for our high end low EPD in the phosphide substrate, their ASP is increasing. So I think we can surely stop that worry. I mean, we have some other efficiency issues, such as loading factors. You know, germanium is perhaps not making a whole lot of money for us, because the pricing pressure is very strong. But the main focus on any phosphide spk01: The pricing is firm and the demand is high.

Charles Shi | Analyst, Needham & Co.

Thanks. I think maybe one last question before I jump back into the queue would be the Indian phosphide demand you're seeing today, How much of that is from the overseas customers that need a permit versus domestic Chinese customers? And if I recall correctly, I remember that the indium phosphide was primarily shifted to outside of China previously. How much of the domestic development today maybe has led to a little bit more of a domestic shipment of the indium phosphide? If you can kind of, you know, paint a little bit of picture to us of how things have been evolving, that would be great.

Thank you. Dr. Morris Young | President & Chief Executive Officer

Well, you know, actually indium phosphide business is very globally connected. a lot of our substrates are shipped to, let's say, Taiwan to put an API on and shipped back to the United States to make a device and shipped back to China to make a transceiver and then shipped back to U.S. data centers. So I think, you know, but our direct customer in China is roughly, I would say, 40%. But the great advantage AI opportunity definitely is, you know, the big increase is in the AI data center in the United States.

Tim | VP, Operations

I think I can add to that as well. If you look at our financials from Q2 versus Q3, you can see that the indium phosphide in Q2 was about $3.5 million, and that's increased to about $13 million in Q3. So that kind of gives you an idea of what the incremental is, and all of that incremental has come from outside of China.

Thank you. Gary Fisher | Chief Financial Officer

Next question, please.

Operator | Conference Operator

Your next question comes from the line of Richard Shannon of Craig Hallam.

Please go ahead. Richard Shannon | Analyst, Craig-Hallum Capital

Well, hi, Morris, Gary, and Tim. Thanks for taking my questions, and I'll offer grads on a wonderful quarter. Great to see. So, grads to the entire team for making that happen here. Let's start with the first question here on the union classified backlog. I just want to understand the dynamics here. Maybe if you can help us understand a few things here. What was the backlog a quarter ago, and then how far out are customers ordering here? I would imagine, given one of the prior answers here, talking about a permit allows you to ship for six months, that they're probably going out six months here, but just want to get a sense of what this looks like and how it's changed.

Tim | VP, Operations

Yeah, so as Morris has previously said, those permits do last six months, but most of our customers are asking to ship as soon as we can. So that backlog, once we have a permit, we can ship that backlog as quickly as we can manufacture, to be perfectly honest. So in terms of our backlog last quarter, we've got more than double the backlog as we speak today than we had last quarter. So, you know, that continues to grow. And as was said in the conference call, we're seeing more and more new opportunities coming. So that backlog is growing daily as we speak.

Dr. Morris Young | President & Chief Executive Officer

Yeah. You know, maybe I can chime in a bit. You know, I think this CEO, I take care of a lot of this China development, engineering, and manufacturing, and also one of my duties is to push the IPO process in China. But recently, I got pulled in more and more to talk to customers in phosphides because they cannot get enough material. They call my sales guys and the sales guy says, well, you got to come and visit the customers to calm them down. How are we going to opening up the opportunity to supply any phosphide customers? So I got a lot of this very good, warm, receptions from our customers, and sometimes from the customer's customer, and also the end user. So in other words, the IP growers, the device makers, as well as the CPU, GPU makers. In fact, I got a message from our customers, especially globally, not especially. They all told us that we are a very important supplier of Indian phosphide. Secondly, they all told me there's a great, great opportunity to increase the demand in the near future. Obviously, they are all anxious to know what are we going to do to ease the pain of getting the permits to export material. And lastly, quite a few customers told us they start to appreciate the better EPD or the better quality of indium phosphide material we supply. In fact, one customer told me that now every dye counts, and using our substrates, they can make better dye yield on their lasers or detectors. So I think that's a very warming information for me, and also telling us that indium phosphide There's a paradigm shift because of the global increased demand for AI connectivity in optical transceivers. And what's the other word? CPOs?

Tim Savageau | Analyst, Northland Capital Markets

CPOs.

Dr. Morris Young | President & Chief Executive Officer

I start to learn that word.

Richard Shannon | Analyst, Craig-Hallum Capital

Yeah. Okay. That is helpful. I'm going to explore a couple of different angles on the dynamic here. I think one of the things that investors will be worried about or cognizant of here is customers understanding the geopolitical dynamics, as you referenced in your prepared remarks, and worried about the door shutting here at any point, you know, very well could be, you know, ordering well above what their normal rates of consumption would be in building some level of inventory. To what degree do you see that behavior anywhere here in the in the backlog build, and what are the limits to your shipping faster? Are you near, you know, full utilization, near-duty classified today?

Tim | VP, Operations

So let me start by answering the dynamic question. I think the fact of the matter is that people are building inventory levels so that they have inventory on hand. but I don't think this is a one-time build-out because they're concerned. This is a multi-year cycle. So the demand today that we're seeing is real, and you can see evidence of that all up and down the supply chain for optical transceivers. I want to really just look at some of the capex spending messaging that was given from U.S. hyperscalers on their earnings calls yesterday. So everybody is talking about CapEx moving faster and, quote, growth in dollars getting noticeably larger as we go through financial year 26. So there's definitely growth going on here at the hyperscale level, and we're seeing that come into here. We're also seeing longer-term discussions on indium phosphide for CPO. both on scale up and scale across now so the demand is there the demand is real and of course people are building backlog also people are building inventory levels but those inventory levels will continue to grow so we don't see this as a one-and-done shot yeah so let me add on to another point you know yesterday Tim and I were in the valley visiting a few Dr.

Morris Young | President & Chief Executive Officer

actually customers' customers. They're asking me what can they help in terms of financially, in terms of customer relationship to ensure that Indian phosphorus will be supplied. In other words, they are telling me there's a tsunami coming. I just don't know how big the tsunami is because the normal rate, let's say if it is a one foot wave, then tsunami is only 10 feet. It's not that big. But if the normal wave is already 5 feet, then that's going to be very significant. So we're going to get that information soon. But I think the demand from what I hear is enormous. And don't forget, Richard, we are 40% of the Indian phosphide supply chain. And we have the best quality materials.

Gary Fisher | Chief Financial Officer

By the way, tsunami was used by the customer that Morris and Tim were visiting. We're not making it up in our conference room. So I was struck to hear that word as a description of what's on the future.

Richard Shannon | Analyst, Craig-Hallum Capital

Okay. Thanks for that. Now let me ask another question here looking on the other side of this dynamic here, which is you mentioned a number of engagements with customers you've not worked with ever or for a very long time here. I think, Morris, you've been talking about the very, very good EPD specs on your D5-5 for a few years at least. And we haven't heard you talk about new customers really much, if at all. And I know I've asked on this conference call a few times in the last few years on this topic. Why is it they're all of a sudden coming to you now? It seems like It's a unique or, I guess, a coincidental timing to see a number of customers coming to you at this particular time. What's going on here and what's driving that?

Dr. Morris Young | President & Chief Executive Officer

Gee, you're so smart. I mean, you called me. But, you know, I tell you, I have a perfect answer to that. That is, first of all, I think with all these lasers getting bigger and bigger, the EPD is getting that much more efficient. Because the larger the device, the chances of you hitting an EPD is higher. In fact, yesterday, I was told by one of the customers, how come you guys can make the EPD so low? Right, Tim?

Tim | VP, Operations

Right, right. And I think the market is maturing such as well. And the demands that our customers are being faced with, with increased demands, increased capacity, One of the customers said to us, every device is important. The yield of devices on a wafer has become so much more important today than it ever has been, both because of cost and capacity constraints within the fab. So people are turning to us because they get much higher device yields from our wafers.

Dr. Morris Young | President & Chief Executive Officer

Yes, that's what that customer told us. Straight in the face, they wouldn't tell us because we would have to ask higher price.

Gary Fisher | Chief Financial Officer

Richard, a secondary factor subservient to what Morris and Tim just described is there is a concern among the customer base about capacity and capacity potential. They're sensing that there's shortages, and we are the best positioned currently with capacity and with the ability to respond quickly to add capacity.

Richard Shannon | Analyst, Craig-Hallum Capital

Well, Gary, that was a perfect setup for my next question here, which is on a full run rate basis, hand-in-mouth basis here, what is your kind of maximum Indian phosphide revenues per quarter here? And how long would it take you to get a new capacity and what kind of CapEx commitment to grow it by, I don't know, say 25%? How does that look like?

Dr. Morris Young | President & Chief Executive Officer

Well, you know, we could double our capacity on Indian phosphide in about nine months time it would take us about my estimation is because this is our green field we got the clean room already we got your land already and all we need to do is add a few crystal boys so my estimation is about 10 to 15 million dollars but we need a signal i i'm i'm getting it Tim | VP, Operations: So let me answer the question on current capacity there, Richard. So it's a complex question because it depends on a number of factors relating to product mix and wafer size and inventory on hand and all that kind of stuff. But we estimate that current capacity is around about $20 million a quarter for indium phosphide with our current run rate and current capacity that we've got. You asked how quickly can we increase by 25%. Probably within about three months, we can increase by 25%. We do not need to build anything other than bring some more furnaces online.

spk01

And to add, for us to double that, then we need nine months.

I caught that. Richard Shannon | Analyst, Craig-Hallum Capital

That's perfect perspective. I've asked a lot of questions. I will jump in line and read you here, guys. Thank you.

Thank you very much. Operator | Conference Operator

Your next question comes from the line of Tim Savageau, Northland Capital Markets.

Please go ahead. Tim Savageau | Analyst, Northland Capital Markets

Hey, good afternoon. And again, congrats on that backlog number. Believe it or not, I still have a few questions. And I guess the overall question is, guys, is doubling capacity, is that a tsunami? Or is that just good business?

Dr. Morris Young | President & Chief Executive Officer

That's a good question, but I think I'll be happily retiring when the capacity is doubled with all these better growth modules. I'm joking. I think it's a lot more than that. I think, but one step at a time. I think if we can double that, and I think we have all the ability to increase our capacity, well, the easiest way is in China. But I think beyond that, we may want to consider building something.

Tim Savageau | Analyst, Northland Capital Markets

Yeah, US-based capacity would make a lot of sense. And yeah, I think just intuitively, a tsunami is like 5 to 10x. And I have heard numbers like that in the industry in terms of where demand is going to be. And it sounds like the tsunami reference in particular Is that a specific kind of looking forward, scale up, scale across comments, which is to say, I assume what you're seeing in terms of current demand is likely module driven, might be similarly CPO, you tell me, but in terms of the real big step function and capacity, is that discussion mostly CPO based or scale up type based?

Tim | VP, Operations

Yeah, that's absolutely right. So we are seeing growth right now. That is, we believe, in the pluggable market and probably will continue to be in the pluggable market for the next few years. But we are starting to have those discussions now about growth rates for CPO for scale up. And the tsunami, the 510X that you talk about, That is, a lot of that is coming from CPO for scale up.

spk01

Yeah.

Yeah. Tim | VP, Operations

Yeah.

Tim Savageau | Analyst, Northland Capital Markets

Makes sense. Sorry, Morris, were you saying something?

spk01

No, I said yes.

Yeah. Tim Savageau | Analyst, Northland Capital Markets

I like talking. The question, I'll add to the, just trying to get a sense of this backlog. So, you know, you increased your backlog. You doubled it and shipped 13 million in material. which I think gives you a book to build. It's approaching three, so that's not bad. But where would that kind of normally be, I guess? And so maybe as opposed to go back to last quarter, let's go back to last year or just historically, you know, without export, you know, permits required, what kind of backlog would you normally have in terms of, you know, quarters of revenue or just straight up, where was that indium phosphide backlog? you know, Q3-24?

Gary Fisher | Chief Financial Officer

Well, because we could be responsive to customer orders, we had a lot of terms business every quarter. So to be honest, we don't really, in terms of me and Morris and Tim, we don't manage the company by looking at it book to bill. You know, I have in other companies, but it's not very meaningful in this case. So it's hard to say what it was because I don't have a piece of paper in front of me with that list. Because there's no such list.

Tim Savageau | Analyst, Northland Capital Markets

Got it. Well, it sounds like it should be some fraction, you know, maybe half or a third of whatever your Indian phosphide revenue was a year ago.

Gary Fisher | Chief Financial Officer

Yeah.

Tim Savageau | Analyst, Northland Capital Markets

Your backlog is tsunami. It's up 10x, right?

Gary Fisher | Chief Financial Officer

Yeah. And again, tsunami was not, I agree with you, tsunami is 5 to 10x. And I'll say again, that was not our words. That was the words from you know, an end customer.

Tim Savageau | Analyst, Northland Capital Markets

So, uh, yep. Okay. Last one for me, um, mentioned two 10% customers in the quarter and, uh, Morris, you talked about kind of industry structure, you know, epi tier one back to the U S but, um, any color on, you know, whether you've got a, you know, an integrated device maker in there is just really focused on, EpiWave for suppliers or whether you might have a new 10% customer in there.

Tim | VP, Operations

Dan? Yeah, so the 10% customers that we've got, we've been dealing with for a while. The new customers that we've got are integrators as well. We're dealing more and more with integrators and hardware customers.

Dr. Morris Young | President & Chief Executive Officer

Including GPU and CPU makers.

Tim | VP, Operations

Exactly right. So we're dealing directly with GPU, CPU hardware makers. We're dealing with pluggable makers. So that's where really the visibility is coming from.

Gary Fisher | Chief Financial Officer

Yeah, I would say in the past we haven't had access to those people. But now they're calling us. They want to see us. So that's why we had better visibility.

Yeah. Tim Savageau | Analyst, Northland Capital Markets

Got it.

Thanks. Operator | Conference Operator

Your next question comes from the line of Matt Bryson of Wedbush Securities.

Please go ahead. Matt Bryson | Analyst, Wedbush Securities

This is going to sound a little bit like a complaint, but it's not a complaint. Just curious. So there's clearly a whole lot of demand out there. Your Japanese competitor has announced two capacity increases in the last I think, four months, three months. Just curious, if you have all this backlog and your customers want more product faster, why wouldn't you be building and shipping to capacity next quarter or this quarter?

Tim | VP, Operations

Well, all of our shipments, all of our ability to ship is based on permitting. So we, as we've talked about plenty of times, we've got a large backlog now and we can ship as we've been told by customers, we can ship as quickly as we possibly can. But we have to go through the permitting process. Now that permitting process, you know, it, it takes 60 business days, which is approximately three months. And there, there is some opaqueness to that permitting process. So, you know, If we had a bunch of permits today, I'm sure we could ship an awful lot more of that backlog today. We've guided at $27 to $30 million. If we got permits, could we ship more than that? Yes, we could. But we're basically running trend analysis on how long it takes to get permits and probability analysis of what permits we're going to get. And that's where the guidance comes in.

Dr. Morris Young | President & Chief Executive Officer

by the way we're not standing still on those orders that we are applying for permits we are putting that into whip you know in other words we're making it and we're packaging it and waiting for the permits to to be issued and then we can deliver right away got it understood so it i mean it comes down to the permissive gating factor but as hopefully permit approvals Matt Bryson | Analyst, Wedbush Securities: continue to get across the line and lift, there's a path to achieving the levels of shipments that you were at a few years back during COVID. And then I guess in terms of gross margins, obviously when you're running back at close to full capacity back then, you had substantially higher gross margins, I guess what's key to getting gross margins back up? Is it predominantly utilization or were you benefiting back then from higher pricing? Can you just talk to kind of the dynamics around gross margins, where they can go to from here if you can get indium phosphide back up to full utilization?

Gary Fisher | Chief Financial Officer

Yeah. Pricing is not really a big factor. I think the big factor is volume because it does carry more of the fixed assets in a proper way. And then I'm confident we can return. We're going to be over 30% because we can control that. So we need to improve the efficiencies on the line. but I already commented on that. So I see it going in that direction.

Thanks. Dr. Morris Young | President & Chief Executive Officer

And again, I think the most important factor is we got more, we can utilize our Indian phosphorus line. I think that's the greatest opportunity we're facing now.

Matt Bryson | Analyst, Wedbush Securities

Got it. Understood, Morris. Thanks. Thanks, Matt.

Operator | Conference Operator

Next question. Once again, ladies and gentlemen, if you would like to ask a question, press the star button, followed by the number one on your telephone keypad. There are no further questions at this time. And with that, I will turn the call back to Leslie Greene for closing remarks.

Please go ahead. Leslie Greene | VP, Investor Relations

Thank you, everyone, for participating in our conference call. We will be participating in the Northland Virtual Conference in December and the Needham Growth Conference in January, and we hope to see many of you there. As always, feel free to reach out to any one of us if you would like to set up a call, and we look forward to speaking with you in the near future.

Operator | Conference Operator

Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect. jsPDF 3.0.3 D:20260606090002-00'00'