AXT 2026 Q2 Earnings Call

Thank you, Kenneth, 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, and list our subsidiary, Tongmei, in Hong Kong, 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 and 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 that may be discussed on 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 July 30, 2027.

Also, I want to note that shortly following the close of the market today, we issued a press release reporting financial results for the second quarter of 2026. This information is available on the investor relations portion of our website. I would now like to turn the call over to Gary Fischer for a review of our second quarter 2026 results.

Gary? Thank you, Leslie, and good afternoon to everyone.

Our Q2 financial results highlight an exciting inflection in our business trajectory and the beginnings of a multi-year growth phase for AXT. Revenue for the second quarter of 2026 is $47.6 million. This is the highest quarterly revenue in AXT's history, up nearly 77% from $26.9 million in the first quarter and up 164% from $18.0 million in the second quarter of 2025. To break down our Q2 2026 revenue for you by product category, indium phosphide was $30.7 million, also the highest in our company's history. Let me repeat that. Indium phosphide was $30.7 million, also the highest in our company's history, primarily from data center applications. Gallium arsenide was $6.6 million. Germanium substrates were $272,000. Finally, revenue from our consolidated raw material joint venture companies in Q2 was $10.0 million.

The top five customers generated approximately 30% of total revenue, and no customers are over the 10% level. Gross margin showed a substantial improvement again in the second quarter, primarily driven by an increase in total volume and a favorable product mix. Non-GAAP gross margin was 45.0%, compared with 29.9% gross margin in Q1 of 2026 and 8.2% gross margin in Q2 of 2025. For those who prefer to track results on a GAAP basis, gross margin in the second quarter was 44.9%, compared with 29.6% in Q1 and 8.0% in Q2 of 2025. This is a huge positive change from Q1 of 2025. Moving to operating expenses. Our total non-GAAP operating expense in Q2 was $10.2 million, compared with $8.6 million in Q1 and $7.6 million in Q2 of 2025.

On a GAAP basis, total operating expense in Q2 was $10.9 million, compared with $9.6 million in Q1 and $8.2 million in Q2 of last year. Our non-GAAP operating profit for the second quarter of 2026 is $11.2 million, compared with a non-GAAP operating loss in Q1 of $550,000 and a non-GAAP operating loss of $6.1 million in Q2 of 2025. For reference, our GAAP operating line for the second quarter of 2026 was.

Kenneth? You're back now. Okay, great.

Terrific. Continue, Gary. Am I just on the speaker on the cell phone now?

Kenneth, can you hear me okay?

Okay. For the benefit of the people listening, it's afternoon where you are. We're in China right now, and we're at the conference room of the Tongmei headquarters, so we have a little bit of a hiccup on the phone equipment. All right. non-GAAP operating profit for the second quarter of 2026 was $11.2 million, compared with a non-GAAP operating loss in Q1 of 2026 of $550,000, and a non-GAAP operating loss of $6.1 million in Q2 of 2025. For reference, our GAAP operating line for the second quarter of 2026 was a profit of $10.4 million, compared with an operating loss of $1.6 million in Q1, and an operating loss of $6.7 million in Q2 of 2025. Non-operating other income and expense and other items below the operating line for the second quarter of 2026 was a net profit of $705,000.