Thank you, Jessica, 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, including the expected growth in the markets we serve; emerging applications using chips or devices fabricated on our substrates; our product mix; our ability to increase orders in succeeding quarters to control costs and expenses; to improve manufacturing yields and efficiencies; to utilize our manufacturing capacity; the growing environmental, health and safety and chemical industry regulations in China; as well as global economic and political conditions, including trade tariffs and restrictions. 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. These uncertainties and risks include, but are not limited to, overall conditions in the markets in which the company competes, global financial conditions and uncertainties, COVID-19 and other outbreaks of contagious disease, potential tariffs and trade restrictions, increased environmental regulations in China, the financial performance of our partially owned supply chain companies and the impact of delays by our customers on the timing of sales of their products. In addition to the factors 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 at axt.com through August 3, 2024. Also before we begin, I want to note that shortly following the close of market today, we issued a press release reporting financial results for the second quarter of 2023. 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 Fischer for a review of our second quarter 2023 results.

Thank you, Leslie, and good afternoon to everyone. Revenue for the second quarter of 2023 was $18.6 million, down from $19.4 million in the first quarter of 2023 and down from $39.5 million in the second quarter of 2022. To break down our revenue in Q2 by product category, indium phosphide came in at $4.6 million, reflecting the expected market softening, particularly in data center, consumer and telecommunications infrastructure. Gallium arsenide was $5.4 million, reflecting a modest improvement across a number of applications, particularly in China. Germanium substrates were $1.0 million. Finally, revenue from our two consolidated raw material joint venture companies in Q2 was $7.6 million, which is up from the prior quarter. In the second quarter of 2023, revenue from Asia Pacific was 75%, Europe was 16%, and North America was 9%. The top 5 customers generated approximately 24% of total revenue and no customer was over the 10% level. Non-GAAP gross margin in the second quarter was 9.8% compared with 26.9% in Q1 and 39.4% in Q2 of 2022. For those who prefer to track results on a GAAP basis, gross margin in the second quarter was 9.2% compared with 26.3% in Q1 of 2023 and 39.1% in Q2 of 2022. There are three key drivers affecting the gross margin. One is total volume. Last year's Q2 revenue was $39.5 million. The second key driver is mix. Last year's Q2 indium phosphide was $15.7 million. This recent quarter, it was $4.6 million, which we believe is the bottom of the decline. The third key driver was that our raw material business had lower gross margins due to working through higher-priced inventory in Q2. This was especially impactful because raw material sales made up more than 40% of our total revenue. As we look ahead to the coming quarters, we believe we will see improvement in our gross margin as a result of several factors. In the near term, we expect to see improvement from our raw material joint ventures as they have worked through much of their higher-priced inventory. We're also pleased to report that we expect JinMei to begin production in Q3 on our new gallium arsenide recycling program, which, like our indium phosphide recycling program, should positively impact gross margin. Further, we believe that indium phosphide revenues have bottomed out and should begin to recover over the coming quarters. Beyond the near term, we are confident that we can return to the mid-30% range as the environment strengthens through higher overall volume, a recovery in indium phosphide mix, and the benefits of our recycling programs, along with continued efficiency improvements throughout the business. Moving to operating expenses. With the reduction in overall revenue, we have continued to take steps to align our operating expenses with the current environment. Total non-GAAP operating expense in Q2 was only $7.8 million, compared to $8.7 million in Q1 of 2023 and $9.1 million in Q2 of 2022. On a GAAP basis, total operating expense in Q2 was $8.6 million, down from $9.5 million in Q1. For comparison, total GAAP operating expense was $10.1 million in Q2 of 2022. Our non-GAAP operating income for the second quarter of 2023 was a loss of $5.9 million, compared with a non-GAAP operating loss in Q1 of $3.5 million and a non-GAAP operating profit of $6.4 million in Q2 of 2022. For reference, our GAAP operating line for Q2 was a loss of $6.8 million compared with an operating loss of $4.4 million in Q1 of 2023 and an operating profit of $5.3 million in Q2 of 2022. Non-operating other income and expenses for Q2 was a net gain of $1.8 million. For Q2 2023, we had a non-GAAP net loss of $4.2 million or $0.10 per share, compared with a non-GAAP net loss of $2.4 million or $0.06 per share in the first quarter of 2023. Non-GAAP net income in Q2 of 2022 was a profit of $6.7 million or $0.16 per share. On a GAAP basis, net loss in Q2 was $5.1 million or $0.12 per share. By comparison, net loss was $3.3 million or $0.08 per share in the first quarter, and GAAP net income in Q2 of last year was $5.5 million or $0.13 per share. The weighted average basic shares outstanding in Q2 of 2023 was 42.6 million. Now let's look at the balance sheet. Trends were favorable in several areas. Cash and cash equivalents and investments were $49.6 million as of June 30, down from $53.6 million in March. The reduction in cash was primarily due to a repayment of a bank loan totaling $7.2 million, offset by a favorable reduction in inventory of $4.6 million. Several key working capital items trended favorably in Q2. Depreciation and amortization in the second quarter was $1.8 million, and CapEx was $750,000. Our stock compensation was $0.9 million. Net inventory decreased by $4.6 million to $87.1 million at June 30, with 44% as raw materials and 52% as WIP, while finished goods made up approximately only 4% of inventory. We continue to excel in recycling indium phosphide, which we believe will provide us with a significant cost advantage as the market recovers. This concludes our discussion of quarterly financial results. Let’s move on to our plan to list our subsidiary, Tongmei, in China on the STAR Market in Shanghai. We are making progress with the China Securities Regulatory Commission on the approval process. Shortly after Chinese New Year, we were asked to address two primary issues, and we believe we are close to resolving them. We remain optimistic about obtaining CSRC approval in the coming months and are excited to advance to the next phase of the IPO process, believing that Tongmei is an excellent candidate for this listing.

Thank you, Gary. Before I go to a review of our business, I wanted to give you an update on China's recent export control regulations. As mentioned in our July 3 press release, the regulations preventing the sale of materials that are exported out of China. They do not impact the export of indium phosphide products or sales of any products to our customers in China. Since the announcement of the regulations, Tongmei, our subsidiary in China, has moved quickly to prepare permit applications on behalf of customers who may be impacted. The permit process opened for applications on August 1. We have not been given a time frame for the expected length of the permitting process, but we are hopeful that we can resolve it quickly. We have been in close contact with our customers through this time and are working with them to minimize any disruption. Now turning to our business. As expected, our indium phosphide business reached what we believe is about its bottom, with consumer and data center applications showing the greatest decline. In the consumer segment, we'll be selling into two applications, one of which we continue to ship into. The second, a mobile device application, is not expected to be designed into the next-generation platform. However, we believe that these applications have validated our indium phosphide as a material of strategic importance in consumer products and validated AXT as a world-class supplier to Tier 1 companies. We also believe that there is significant development work underway for a number of consumer-related devices across multiple customers for use in tracking, health monitoring, LiDAR, and more. With our track record of being the dominant commercial supplier for consumer product applications, we are well-positioned for current and emerging applications. Turning to data center applications. In the first half of 2023, we saw considerable inventory digestion and believe that it is still ongoing. However, if we look beyond the immediate environment, we believe that indium phosphide will play an important role in increasing data throughput and enabling the widespread adoption of AI. Optical interconnects and technologies such as co-packaged optics powered by indium phosphide represent a game-changing approach to meet evolving demand for artificial intelligence workloads. By integrating optical interconnects directly into the processes or switch packages, co-packaged optics minimize latency, increase bandwidth, and reduce power consumption, enhancing the overall performance of the data center network. As a result, we believe that AI will drive strong industry-wide growth for indium phosphide, likely ramping in 2024 and beyond. Further, with our proven performance in optical devices for the data center, we believe we're in an excellent position to benefit from this growth. In telecommunications applications, including passive optical networks, or PON, demand appears to have stabilized around the current level. We're encouraged to see some improvement in China. And if China moves forward with a national stimulus program, as has been discussed, it would likely provide a catalyst for an upgrade cycle in the country's telecommunication infrastructure in 2024 and beyond. In gallium arsenide, we saw continued modest improvement in Q2 as key applications such as high-power lasers and IoT devices continued their recovery, particularly in China. As you may recall, gallium arsenide was the first of our materials to experience the micro downturn, beginning in Q3 of last year. We're also pleased to report that we are making significant progress with our 8-inch gallium arsenide development program for which micro LED will likely be the first application. We believe that the performance of our material is very competitive in the market and that we will do well in the formal qualification process that is expected to begin in the second half of this year. We continue to innovate in our crystal growth process to deliver higher and more consistent yield, and we are excited to apply these learnings to our 6-inch diameter products. Turning to our raw material business, sales increased in the quarter with both increased demand and rising prices. Since relocating to our Kazuo campus, both supply chain companies have been able to increase capacity to meet demand. Regarding the impact of our export license, exports from JinMei outside of China represented only a small portion of their sales in Q2, less than 2%. So we do not expect a meaningful direct impact on our revenue from the new regulations. As we move forward, we will have a better understanding of what the direct impact may be, if any. As Gary mentioned, we are pleased to report that our gallium arsenide recycling program will move into production in Q3. This will allow us to drive gross margin improvements and support our ongoing ESG efforts. In closing, though the micro environment will continue to impact growth near term, the trends that we have been pursuing in revenue and customer expansion remain very much intact. We continue to excel in our technical capabilities, and we are restructuring our business to support new applications in AI and consumer products that are likely to drive future growth. Further, we continue to work hard on improving our efficiency, and we are focusing on accelerating our return to profitability. I will now turn the call back to Gary for our third quarter guidance.

Thank you, Morris. We expect Q3 revenue to be between $16.5 million and $19.5 million. Product mix is likely to include growth in gallium arsenide substrates, but continued weakness in indium phosphide. We expect our non-GAAP net loss will be in the range of $0.11 to $0.13, and our GAAP net loss will be in the range of $0.12 to $0.15. Share count will be approximately 42.7 million shares. This concludes our prepared comments. Morris and I would be glad to answer your questions now.

I guess the first big-picture obvious question here is trying to understand your guidance in the context of the export licenses. I think you said you're starting to apply but haven't been awarded yet. And so I'm wondering if you're baking in any upside for further sales from the rest of the quarter into this guidance, or if you could give us some guidance here on how you're thinking about that and constructing that, please.

Sure. We began submitting applications on August 1, which was two days ago, since China is one day ahead of us. We received a fairly quick response, but we believe there are still more questions to address. Therefore, we are uncertain about how long the process will take, Richard. The lower end of our estimate reflects the possibility that we won't be able to conduct any export shipping during August and September. The higher estimate considers that we might be able to ship some in September, the last month of this quarter. This is why there is a significant range in our projections for this quarter.

Right. Okay. That certainly makes sense. Maybe just looking at other elements of the guidance here. I think you said gallium arsenide is improving, and indium phosphide, we kind of unsure if that means it's going to be flat or slightly down. I'm assuming that would be in the third quarter then. So if you can delineate that, then probably a couple of follow-ups after that.

Yes, I think you're right. Because I think as we said, we noticed gallium arsenide was the first product to go into a downturn, and indium phosphide actually still had pretty good shipment even in the first quarter of this year and started to decline about six months ago. So we expect that to continue a little bit more. But gallium arsenide, we actually already have seen two quarters of improvement, although very, very slight. We hope it will start to accelerate going forward.

Okay. And I guess maybe just on the topic of indium phosphide bottoming out. I wanted to get your sense of where that confidence comes from. Are you expecting any sort of meaningful bounce off the bottom? Or do you just think it's not going to go any lower?

We still have one more quarter ahead, so I can't say for certain if there will be a strong bounce back. Currently, customer orders are not being placed in large quantities. For instance, data center clients are seeing product shipments at only about 25% of what we achieved last year. We anticipate a recovery in this area as we approach the fourth quarter, which should be significant. Additionally, the market in China could see benefits from any stimulus package aimed at improving the economy, particularly in infrastructure, which may enhance optical network development there.

Okay. Fair enough. Let me ask some more questions. I'll jump out of the line, and that really goes to the spending here specifically in the OpEx. Gary, you mentioned and it's clear to see a fairly good cut from the first quarter, which is great to see. Wondering to what degree these are sustainable and structural versus onetime in nature. And then how do we think about going forward, specifically in the third quarter?

Well, I think it might tick up a little bit in the next quarter, $100,000 or $200,000. But in general, I think it's going to be in this neighborhood through December 31. We haven't done a ground-up going forward after that yet. So I think flat or up a little bit, but I'm very encouraged. It's just I think the team has really pulled together. It's a good illustration of how leadership affects company culture. And Morris is back from China now, but he's been in China for a number of months. And it's easy to make the team there, and the team here is responsive to leadership. So we put the word out that we're tightening up, and it's helping. So it's a great illustration of company culture stuff.

Let me add one more point. We are preparing for the 8-inch program, although the official increase in production is expected in the fourth quarter of 2024. To get ready for this ramp, we need to make a few equipment purchases. Once we are qualified, that process will be frozen, and we will be set for the ramp. Therefore, we need to invest a bit more in the micro LED program.

Okay, I realize I said I would be finished, but since you mentioned early registration, I want to touch on this. It sounds like you're discussing a call process in the second half, and you've indicated a specific timeline for ramping up in the fourth quarter of next year. I'd like to understand where that timeline comes from and the expected scale when the ramp-up begins.

Yes. I'm pleased to see that micro LED is finally confirmed. Many analysts, including myself, see several challenges ahead for micro LED, but customers are demonstrating confidence and moving forward. We have a qualification process scheduled and expect it to be completed before the end of the year. We believe our position in this area is strong. Regarding the ramp into production, we have received some estimates from customers, which indicate revenue could be around $4 million to $5 million next year, potentially doubling by 2025.

Okay. Fair enough.

Just the first question, over the past two to three years, whenever the U.S. government imposes export restrictions on China, companies have been impacted in the short term in terms of revenue. However, it seems that we are not anticipating a significant increase this time. I'm curious why that is the case, because I would have expected that ahead of August 1, some overseas customers outside of China would have wanted to expedite shipments, especially since you have a relatively high inventory and can turn things around quickly. Why are we not seeing that?

Well, we did. We have a bit of increased shipment in July. But there are two restrictions on that. One is that the order came in fairly late. We got the notice on July 3, and even though we started cranking out a lot of production, we are still limited on how much we can actually produce in the month of July. The second is that although the official restriction came in July, not until August 1, the China customs actually put a sort of delay tactics on most of the shipments in July already. Okay. So we did have, I would say, a good uptick in shipments in July, and that sort of alleviated some of the missing shipment revenue we can recognize in, let's say, August and part of September. That's why it's a flat quarter. If we're missing our two months out of the quarter, then you would expect the revenue to be down substantially, but it's not. So it's an effect of we overshipped some in July.

Another factor, Charles, is that several customers outside of China operate under a consigned inventory program where we, just to explain to people that may not be familiar with the concept, we ship to them, but we continue to own the inventory on our books until they pull it. So in a couple of cases, they've got enough to stay in full production with their schedule for August and September, even if we don't ship to them in August and September. Now they could have an issue in October and November if we're not shipping by then. But by then, we think we will be shipping.

Charles, you didn't ask this question, but I would like to explain some dynamics regarding the restrictions or applications for export permits. We are a substrate maker, which makes it easier for us to identify specific applications and customer needs, and we believe this is more transparent. In contrast, our competitor who makes gallium arsenide substrates requires gallium as a raw material, which is more complex because they do not need to disclose their ultimate customers or how much gallium goes to them. In a worst-case scenario, we would be on par with our competitors. However, if there is any caution regarding China's restriction on gallium supply globally, we may have an advantage in shipping more because our permitting process is likely clearer and more straightforward than that of our competition. This is how I view the situation.

Morris, actually, that was my second question, but you already answered it.

First one is just within indium phosphide kind of normalized, it seemed like normalized revenue run rate before COVID before you added those consumer applications was somewhere between $9 million and $10 million per quarter. I guess now do you have a feel for what normalized revenues might look like when inventories get worked down?

You put the number right there. I think it's going to be $9 million or $10 million. I think that normalized the real number I would expect without the increased demand, which I do believe is going to come. Once the first line of increased demand is AI, you need more calculation and more processing. But eventually, the data has to be fed in and taken out. And I believe that's the second wave. That should increase indium phosphide demand for data center and telecommunications.

And I know you don't have a ton of visibility into kind of how much inventory is beyond you. But any idea at all that you can give us in terms of what inning we're in and seeing that inventory get worked down and in terms of those revenues getting back to normalized levels?

I think I will put it in the first quarter of next year because I think you would say it normally takes about a year to digest all the inventories. And we did check with the customers. I mean they're still saying Q3 is still not good. But Q4, we really don't have much visibility yet. But I'm quite sure our customers are happy with us. I mean they just got inventory in their hands, so they need to work that down. And also during a more recessionary kind of period, everybody wants to control their inventory, including ourselves. We want to work down our inventory. So we got customers and we've got customer's customers, everybody wants to work on their inventory. And we are on the bottom of the totem pole. So I think the inventory probably will hit us more than normal. But I think once they come back, then they should come to us too.

From a bigger picture, go ahead, Matt.

No, sorry, Gary, after you.

I was going to say from a big-picture point of view, one of the unexpected consequences of COVID was that there were a lot of supply chain disruptions in 2021. And so a lot of companies, including us in 2022, bought instead of just in time, we bought just in case. So the overhang is probably more than a normal cyclical thing. It was probably accentuated to be larger than normal because of that. But it's going to work through. And we're seeing it on our own balance sheet, and we're in good communication with the customer. So it's just going to take a bit more time.

Yes, no, understood there. I guess for you, Gary, in terms of getting back to those mid-30% type gross margin levels, is there a certain revenue number that we should be thinking about?

We likely need to be around $28 million to $32 million in revenue. The volume is indeed a crucial aspect, but the product mix plays an equally significant role. If the mix leans towards indium phosphide, then aiming for around $28 million or $29 million should suffice. However, if the mix is weaker, we may need to target $32 million to $33 million. We're confident we'll reach these figures, and Morris has been making progress with supply chain initiatives while in China, along with some new efforts on our part. The recycling program, which is relatively new, is strong with indium phosphide and we are just beginning to implement it with gallium arsenide. If that progresses as Morris anticipates, it will be beneficial. We have been proactive during this slowdown and have not been idle.

No, completely understood. I guess that's my last question is that when you're thinking about those mid-30s levels, does that assume that the recycling program in gallium arsenide is as successful as the one in indium phosphide? Or does that offer some potential that you can again get up into the high 30s, 40% range? I guess do you need something else there other than just to lift volumes and get mix back to normal?

Yes. I think we probably counted that recycling program in there. We do have quite a few of these programs, we assume. And we've been working on it for almost the last year, year and a half. So I think there's no question in my mind those will work. But I think we did count it. We cannot have...

It's factored in. So we're excited about it.

A few follow-up questions here. I think I'll throw one of the obligatory one out here on the STAR listing process. I think your prepared remarks are related to a couple of comments you're still responding to. Wondering if you can tell us the nature of those comments and how fast do you think those will be completed. And then any other steps? I think late last year, you thought it would be completed early this year, and we're obviously quite a bit past that point. So I'm sure you feel a little snake bitten about trying to predict things too closely, but I want to get your sense of, as an example, do you expect to be done this year or not necessarily?

Yes, I want to be realistic about our expectations. We're quite experienced with this process and depend significantly on our bankers in China. It surprised us that it took so long for the authorities to be satisfied with our responses to a couple of minor questions. We believe we provided strong answers. While I’ve informed my Board that I expect a resolution next week, I advise not to rely on that timeline. There’s just one question left that, if approved, should allow us to move forward.

Okay. Fair enough. And a couple of more quick ones here.

We are starting with a P&L loss on a non-GAAP basis after excluding stock compensation and depreciation. This means that our cash loss is less than it appears, which was the case in Q2. We will continue to reduce inventory and address other working capital accounts on the balance sheet. If there is negative cash flow, we hope it will be similar to what we experienced in the recent quarter. It's worth noting that if we hadn't paid off the bank loan of $7.2 million, our cash would have increased rather than decreased, as it only fell by $3.6 million or $3.9 million. I believe we are in a manageable situation, and as Morris mentioned, we anticipate significant changes in our cash balance soon, hopefully within this quarter.

Is that a reference to the STAR listing, Gary?

A vague and veiled blessing reference.

Okay. That's what I figured. Last quick question from me. I'll jump out of the line again. Kind of following up one of the immediately prior questions here regarding gross margins and getting to that 35% level of revenues required for that, which I think you said was centered around $30 million a quarter. What do you think your OpEx would be in that case? I mean you obviously had a nice drop-down here talking about tightening expenses. Are you going to continue to keep those tightened down even as you approach that revenue level or open up a spigot? Or how should we think about that?

We need to be realistic about our expectations and cannot assume we will maintain a flat performance. We're currently assessing what our GAAP results might look like for next year, and we anticipate that by mid-next year, we could see quarterly figures in the range of $9.3 million to $9.6 million. My hope is that we will not exceed $10 million, and I believe it's important for us to manage our expenses to keep them at or below $10 million per quarter by the end of next year.

Thank you for participating in our conference call. This quarter, we will be presenting at the Needham Virtual Semiconductor Conference, the Jefferies Semiconductor Communication Technology Summit, and the Northland Capital Market Institutional Investor Conference. As always, please feel free to contact me, Gary Fischer, or Leslie Green directly if you would like to set up a call. We look forward to speaking with you in the near future.

Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.