Good afternoon, everyone. Welcome to AXT's Third Quarter 2024 Financial Conference Call. Leading the call today from China is Dr. Morris Young, Chief Executive Officer, and Gary Fischer, Chief Financial Officer. Also participating in the Q&A segment is Tim Bettles, AXT’s Vice President of Business Development. My name is Christina, and I will be your conference coordinator today. I would now like to turn the call over to Leslie Green, Investor Relations for AXT.

Thank you, Christina, 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, our ability to increase orders in succeeding quarters to control costs and expenses, to improve manufacturing yields and efficiency or 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, increased environmental regulations in China and COVID or other outbreaks of contagious disease. In addition to the factors just mentioned or 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 a 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 31, 2025. 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 2024. 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 third quarter 2024 results.

Thanks, Leslie, and good afternoon to everyone. Revenue for the third quarter of 2024 was $23.6 million, compared with $27.9 million in the second quarter of 2024, and $17.4 million in the third quarter of 2023. To break down our Q3 ‘24 revenue by product category, indium phosphide was $6.8 million, reflecting continued demand in data center applications, including AI, as well as passive optical networks. Gallium arsenide was $6.6 million in line with the pullback we expected after the strong growth in Q2. Germanium substrates were $1.6 million, down from the prior quarter, based on our decision to walk away from certain low-margin business opportunities. Finally, revenue from our consolidated raw material joint venture companies in Q3 was $8.6 million, based on continued healthy demand. In the third quarter of 2024, revenue from Asia Pacific was 77%, Europe 12%, and North America 11%. The top five customers generated approximately 29.4% of total revenue, and no customer was over the 10% level. Non-GAAP gross margin in the third quarter was 24.3%, compared with 27.6% in Q2 ‘24, and 11.3% in Q3 of 2023. For those who prefer to track results on a GAAP basis, gross margin in the third quarter was 24.0%, compared with 27.4% in Q2 2024, and 10.7% in Q3 of 2023. On to operating expenses. Total non-GAAP operating expense in Q3 was $9.0 million, compared with $8.9 million in Q2 of 2024, and $7.8 million in Q3 of 2023. On a GAAP basis, total operating expense in Q3 of 2024 was $9.1 million, compared with $9.5 million in Q2, and $8.6 million in Q3 of last year. We expect OpEx to be holding up at approximately this level throughout the balance of 2024. Our non-GAAP operating loss for the third quarter of 2024 was $2.6 million, compared with a non-GAAP operating loss in Q2 of $1.2 million and a non-GAAP operating loss of $5.8 million in Q3 of 2023. For reference, our GAAP operating line for the third quarter of 2024 was a loss of $3.4 million compared with an operating loss of $1.9 million in Q2 of 2024 and an operating loss of $6.7 million in Q3 of 2023. Non-operating other income and expense and other items below the operating line for the third quarter of 2024 showed a net gain of $469,000. The details can be seen in the P&L included in our press release today. For Q3 2024, we had a non-GAAP net loss of $2.1 million or $0.05 per share compared with a non-GAAP net loss of $800,000 or $0.02 per share in the second quarter of 2024. The non-GAAP net loss of Q3 2023 was $4.9 million or $0.12 per share. On a GAAP basis, net loss in Q3 was $2.9 million or $0.07 per share. In comparison, net loss was $1.5 million or $0.04 per share in the second quarter of 2024. GAAP net loss in Q3 of 2023 was $5.8 million or $0.14 per share. The weighted average basic shares outstanding in Q3 of 2024 was 43.2 million. Cash, cash equivalents, and investments decreased by $4.5 million to $38.8 million as of September 30th. By comparison, at June 30th, it was $43.3 million. Depreciation and amortization in the third quarter was $2.3 million. Total stock compensation was $0.8 million. Net inventory was up slightly in the third quarter to $86.1 million. This includes inventory added through our recycling program. 36% of the inventory is raw materials and WIP is 61%. Finished goods make up approximately 3%. Okay, 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, let me give you a brief update on the IPO status. We have continued to keep our application current. Last year and part of this year, the total value of the Shanghai Stock Exchange struggled as the China economy slowed and the real estate sector moved down significantly. This trend resulted in much fewer IPOs. It also led to weaker IPO applicants being removed from the in-process category. We are encouraged that Tongmei was not one of those companies. We are still part of the in-process group and it is a much more selective and smaller group than a few years ago. More recently, the substantive stimulus package in China has helped the economy and boosted the total value of the Shanghai Stock Exchange and we believe these movements may be generating positive momentum for IPOs and for Tongmei. We have continued to lead the team with diligence as we think that Tongmei is a good IPO candidate. We'll keep you informed and hope to have good news to deliver to you. With that, I'll turn it over to Dr. Morris Young for a review of our business and markets.

Thank you, Gary. Q3 came in largely in line with our expectations. Coming off of a stronger than expected Q2, the primary difference from our guidance was our lower germanium substrate, which reflected our choice not to participate in certain low-margin opportunities. Outside of this, data center-related demand remains solid for our indium phosphide substrates, and we are beginning to grow our market share in HPT devices for wireless headsets. Looking individually at our product line, in indium phosphide, data center high-speed optical connectivity and AI continue to be our strongest drivers. In particular, growth in demand for high-speed pixels of 100 gig or faster per line is opening a greenfield market opportunity for indium phosphide-based photodetectors in 400 and 800 gig multimode optical interconnects for short distances. We saw indium phosphide orders related to 800 gig applications in Q1 and Q2 and have received a follow-up order in Q4, which puts us on track for healthy growth in 2035. In addition to photodetector applications, we know that indium phosphide will be a necessary material for high-speed lasers as the industry moves to 800 gig and 1.60 pluggable transceivers for median to longer-distance transmission beginning in 2035. We're working with a number of customers and are already seeing exciting opportunities with next-generation silicon photonics devices and electro-absorption modulated lasers, or EMLs. For example, we're seeing growth in demand with increased orders in Q3 and Q4 from one of our larger silicon photonics customers for optical transceivers. In addition, we have developed a new indium phosphide product targeting silicon photonics and EMLs. We have our first design win with our leading customer and multiple ongoing qualifications with additional customers. Our gallium arsenide revenue pulled back in Q3 as expected after growing more than 20% in Q2. Overall, the market recovery is somewhat uneven, particularly given the weak economic conditions in China. But new fiscal stimulus in China announced in September could provide a catalyst for a healthier market environment. This will benefit demand across a broad range of applications, including power amplifiers, HPT applications for wireless switches, high-speed power industrial labels, and LEDs. We continue to be encouraged by our relatively new traction in HPT applications by bringing the learnings from our product that's advancing in our 8-inch gallium arsenide development to our 6-inch gallium arsenide wafer production. We believe we can improve our cost structure and provide a highly competitive solution to a market where our penetration historically is low. Initial shipments to our leading customers give us confidence that we can be successful in gaining additional market share. We expect our revenue from these applications to grow in 2035 as we continue to rise. In addition, our gallium arsenide recycling efforts continue to be successful. We're now fully licensed and processing material that we have collected over time but did not have the capability to recycle. This is visible to the investment community in both our revenue and gross margin as we make one of our raw material joint venture companies. These efforts also advance our ESG commitment and drive meaningful efficiency in our manufacturing. Turning to germanium substrate, with the rapid rise in germanium raw material pricing which negatively affects our gross margins. We are being highly selective in the opportunities we choose to participate in. This impacted our revenue in Q3 and will bring our germanium revenue down meaningfully again in Q4. We expect that they will bottom out in Q4 with limited overall contribution so that there will no longer be a headwind to our growth as we're expanding other areas of our business. We do believe that the market for low orbit satellites is promising in the coming quarters and we will participate in those opportunities where we can derive corporate-level business value. And finally, our raw material business grew again in Q3 on increasing demand, stable gallium prices, and the success of our recycling efforts. Our portfolio of joint ventures of raw material companies continued to provide strategic value to our business and continued to contribute positively to our results. In closing, we are optimistic about the growth and expansion of our business over the coming quarters. Data centers represent a great opportunity for us in our indium phosphide business. And we see further tailwinds in 2035 with recovery of telecom and CapEx spending for power and backhaul applications. Our gallium arsenide business is poised to benefit from those in HPT applications. I believe that a strengthening of the economy in China in 2035 is likely to be a positive catalyst for improvement in a wide variety of applications, including industrial lasers and LEDs. We remain highly focused on accelerating our return to profitability and look forward to reporting to you on our progress. With that, I turn the call back to Gary for our first quarter guidance.

Thanks, Morris. And keeping with our comments today, we expect Q4 revenue to be slightly improved, coming in between $23.0 million and $25.0 million. This takes into consideration growth in our indium phosphide substrates, driven by data center applications, as well as approximately consistent contribution from our gallium arsenide substrates and stronger raw material revenues. Growth in these areas is expected to be partially offset by a decrease in germanium revenues, which are likely to bottom out in Q4. We are pleased by the growth in the most strategic parts of our business, and we believe we are positioning ourselves strongly for 2025. In terms of the rest of our guidance, with the expectation of changing healthy gross margin performance, we expect our non-GAAP net loss will be in the range of $0.03 to $0.05, and GAAP net loss will be in the range of $0.05 to $0.07. Share count will be approximately 43.1 million shares. Okay, this concludes our prepared comments. So we'd be glad to answer your questions.

Your first question comes from the line of Richard Shannon with Craig-Hallum.

Hi, Morris and Gary. Thanks for taking my questions here. I guess there's a number of them that seem important to ask. Let me just look back into the third quarter here real briefly and understand the dynamics relative to the germanium business here. How big of a surprise was this to you? I would assume it's a difficult pricing environment? Is this a business you expect to hope to continue and compete in and generate revenues like you have in the past or is this a serially lower level of revenue expecting this business over time?

Yes, I think the germanium raw material price more than doubled during the quarter. And as you know, it's difficult to increase prices to our customers because most of our customers are satellite builder companies and so they have their own budget. Therefore, we opted not to quote those moderate and attractive margins, but we're going to decline some more business in Q4, so that will reduce our expectation of germanium. However, the germanium substrate business, I believe still has solid footing. Other than the fact that it's very much dependent on the cost of raw material. But what I see is that our competitors will have the same problem as we do, so we think as the market settles down, we believe we're highly competitive. When the market stabilizes, we will come back. As you know, the low orbit satellite business is booming and is expected to have about 40,000 low altitude satellites and China is going to launch a number of satellites as well, so I think that market will eventually recover, but we will see how the pricing structure evolves.

Okay, that's helpful and good to know. Thanks for that, Morris. Let's touch a question or two on indium phosphide, probably the most strategic business here. I want to get a sense of the drivers here you're talking about for growth here. I mentioned data centers. Does that mean photo detectors or silicon photonics? Or can you be clear on what the growth drivers are?

Yes, I can take that.

Yes, go ahead, Tim.

Thanks for your question. And this is Tim. Yes, we believe that AI and data center revenues will be strong growth for us and we think we're seeing the beginnings of that right now. We've seen some good increases in demand in Q3 and Q4. So what we're really looking at here is indium phosphide-based high-speed photo detectors that go into a VIXL photo detector pair for a multi-mode transceiver. So we all know that the short-distance multi-mode transceiver market is growing quickly at the moment. And as the speeds of the VIXL go to 100 gig per line and higher, there's a need to move to an indium gallium arsenide photo detector. So we're seeing quite a large increase in that, and we're participating well in that. We believe that's a greenfield opportunity for us that is only set to grow through the rest of this year and then into next. We're also participating strongly; we've chosen to focus on the silicon photonics and the EML applications, where our substrate benefits really count for these devices. So we've penetrated some key silicon photonics customers and also some EML customers, and we're seeing growth there as well.

Okay, and Tim, just to follow up, just to be clear, these silicon photonics are specifically for lasers and not photo injectors, is that correct?

Yes, that's correct. It's predominantly CWDFP lasers or other lasers that go into that silicon photonics business, correct.

Okay, fair enough. How would you characterize the breadth of engagements and visibility into that growth? Do we have wins in place? We have forecasts in place? How do we think about the kind of general trajectory here, and what could this mean for AXT over the next, say, one to two years?

Right, so yes, we're definitely participating heavily in that. I think we're in a number of the key customers in this space. And what we're seeing so far is we're seeing growth in our silicon photonic sector over the next one to three years as being one of the largest sectors of the data center business, and specifically at this time for the transceiver product. We are, as they say, participating heavily with a number of customers in that market already for their lasers. We've still got some more work to do. We've still got some other customers that we need to get qualified with. But as Morris said in the discussion, we have a design win with a new product that we've launched specifically for silicon photonics and EML. And we're qualifying a number of other customers. So we see the opportunities there to be significant.

Okay, wonderful. Thanks for that detail, Tim. Maybe one last question, I'll jump out of line. Morris, you mentioned in your prepared remarks about some opportunities here with HPTs. Noting, as I think most of us know, that it's been a market you've been under-penetrated for quite some time. Maybe talk to where and how you're getting design wins. What kind of visibility are you seeing here? What kind of share is possible in this market? Again, it's one where you haven't been, and I would imagine the incumbents here might resist losing share, so I just want to get a sense of how big we could see this market getting over time.

Yes, this market size is about $80 million to $100 million. And it's a sort of a steady business depending on how many more 5G phones are built because they require more HPTs per phone. And I think the interest in our participation in the HPT market really comes from a number of China customers who are worried about the gathering restrictions from exporting out of China. So they want a diversified supplier. So we got that door opening for us. We believe we spent a lot of development effort into the edge development. We think that was very successful. We have been able to improve our yield as well as our characteristic of the edge. But unfortunately, that edge program has slowed. However, we find that what we learned on edge, we can easily apply into the 6-inch program so that we should be able to reduce our costs, improve our yield, and with the newer demand for the HPT for 6-inch, I think we're highly competitive because I think right now, we have approximately 10% of the market share. As you know, there are only three players in this competitive landscape, but we believe that we have plenty of opportunities to increase our share.

We do have another question from Richard Shannon from Craig-Hallum. Your line is open.

Well, great. I'm not sure if I got out of line, but thanks for another opportunity here. Maybe just one or two quick ones, guys. Morris, you talked about the stimulus opportunity in China. Can you talk about which product or product line or lines you expect to see impact and how fast that might happen? And then if we're trying to judge you on your China-based revenues over, say, the next couple of quarters, how should we think about where that can go?

Yes. I think our indium phosphide opportunity, mainly our direct customers, we believe are mainly Western customers, although we sell into active customers. But where do they go? They probably go through one or two layers of device makers, but they could then go into the hyperscalers in the United States. Although the China data center market speed is slower, they will also enjoy that market when they expand. I mean, the China market really, I think probably we know the high power laser market is very sensitive to economic activities. As you know, lasers are mainly used for high power cutting tools. And so, both in battery manufacturing and automobile manufacturing, when the economy slows a bit, their demand drives down. LEDs are another example. As you know, cell phones were having a recovery early this year, coming from really low selling volume during COVID. But I think the economy in China right now, especially in the second half of the year, is not really strong. So we believe that anything related to consumer, industrial activities, and cell phones in particular, if they go up, they should help us. So I think the stimulus package will not only help us in terms of our product offering activities but also, I believe will positively impact us to help us go public. Because the Shanghai Stock Exchange index has moved from the bottom. Last I saw was almost like 30% up. So I think that if the momentum builds, I think that should clear the way for us to go public in China.

Okay. That is helpful. Thanks for that, Morris. I'm going to touch on my last question related to that in a second here, but I just want to touch on, again, the indium phosphide side. I think you made a brief comment relative to the telecom market, which we haven't heard about in a little while here. Sounds like you're seeing some signs of visibility in that market. I assume, again, that's to be clear, is excluding the pawn market. If you can clarify, please do so. But are you getting any sense of visibility in terms of orders or other things that indicate telecoms can be an improvement next year?

Richard, I think right now, it seems steady. But it's not going down. I mean, it's not like last year when it almost all dried up and everybody had too much inventory. But right now, we gauge that by looking at our pawns market activity. They are, if I will say the boom time is 100, the low was maybe 20; we are around 30.

Okay. All right, that's fair. One last question here, just kind of hitting on the topic. The topic of China as it relates to the potential STAR listing. You mentioned the market regulator winnowing out some of the weaker opportunities there. And AXT has been left in here, I guess. Maybe if there's any positive signs or interactions you can suggest that we're seeing some progress moving forward. Obviously, you've been talking about this for more than a couple of years and want to get a sense of, if there's any positive signals here rather than just the lack of negatives.

Yes, Richard, that's a good question, but it's a hard question. I think one of the difficulties, I mean, I think when we first applied, we were fairly optimistic because at that time, China's Stock Exchange was approving three to four companies going public per week. However, ever since early 2020, we got some questions from the China Stock Exchange. They go through each of the companies all the way from exactly their personal finances, look very thoroughly at your comparable, receivable, as well as your inventory and who you sell to, and they conduct, I would say, 100% more due diligence on everything you do. But ever since COVID happened and the market collapsed, especially in real estate, which impacted all the Shanghai Stock Exchange public market activities, they have started to blame and say, 'Hey, don't bring any more companies public unless they are stellar in performance as well as they are needed to drive economic advancement, especially in high technology.' I think we sit in that latter field, but however, we see the revenue downturn for us over the last two years definitely didn't help. But I think our revenue is coming back and the Shanghai Stock Exchange, because of the stimulus package is coming back a bit, as well as we have resolved some major issues with one of their concerns in the last quarter. So hopefully, we're seeing the light at the end of the tunnel here.

Okay, fair enough. I appreciate it.

I think, sort of dancing a little bit, because although I think I'm fairly optimistic, but it's really very much up to them. They have to check all the boxes; they have to approve everything before they let us go.

Thank you. And with no further questions, I'll turn the floor back over to Dr. Morris Young.

Thank you for your participation in our conference call. Before we report earnings to you again, we will be participating in the Needham Growth Conference. We hope to see many of you there. As always, please feel free to contact me, Gary Fischer, or Leslie Green if you would like to set up a call with us. We look forward to speaking with you in the near future.

Thank you. This does conclude today's conference call. You may now disconnect. Have a great day.