Q1 2021 AXT Inc Earnings Call
[music].
Got it.
And welcome to the Axt's first quackery 2021 financial conference call, leading the call today is Doctor Morris Young.
Executive Officer, and Gary Fischer, Chief Financial Officer My.
My name is Laurie and I will be your coordinator today.
This time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session and so on.
Ask a question during this session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded.
I would now want to turn on the call over to Leslie Green Investor Relations for E X P.
Thank you Lori 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 expected.
Growth in the markets, we serve emerging applications using chips or devices fabricated on our substrate 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 scourge.
It will and timeliness regarding our relocation 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 sub.
Jack to risks and uncertainties that could cause actual events or results to differ materially.
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 a contagious disease potential tariffs and trade restrictions.
Increased environmental restrictions in China market acceptance and demand for the company's products 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 report.
<unk> 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 T Dot com through April 28 2022.
So 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 first quarter of 2021. This information is available on the Investor Relations portion of our website at AXT T. Dot Com I would now like to turn the call over to Gary Fischer for a review of our first.
Our results Gary Thank you Leslie and good afternoon, everyone.
We're pleased to report that total revenue for the first quarter of 2021 was $31 4 million up.
Up 16% from 27.0 million in the fourth quarter of 2020.
And up 51% from $20 7 million in the first quarter of 2020.
As many of you know we expected that the convergence of expanding markets such as five G.
Moving past the relocation program.
And overall growth in indium phosphide would push us past the $30 million, Mark, but we cannot predict the exact quarter for this event.
It is an exciting milestone in Morris is already pushing the team towards their goals.
Our total revenue substrate sales were $23 4 million compared with $21 5 million in the fourth quarter of 2020, and $16 9 million in Q1 of 2020.
Revenue from our two consolidated raw material joint company joint venture companies was 8.0 million in Q1 up from $5 5 million in Q4 of 2020 and from $3 8 million in Q1 of 2020.
In the first quarter of 2021, our revenue from Asia Pacific was 73 per cent Europe was 17% in North America was 10 per cent.
Also in the first quarter no customers reached 10 per cent of revenue and the top five customers generated approximately 26 percentage of total revenue.
As you know, we normally release statistics quickly and move on but today I want to highlight them because they are important usually we do have at least 110% customer and usually the top five customers contributed approximately 35% to 40% of total revenue this quarter, when we achieve over $31 million in revenue.
It was not because of one big order from one big customer further on this point the top five customers made up a smaller percentage of our total revenue in the normal.
Together these factors vividly portray an increasingly broad based diversified set of customers and applications from a business perspective. It is significant in demonstrating the growing adoption of the materials, we manufacture as well as the repeat ability of this quarter's success.
Okay moving on gross margin in the first quarter was 36, 8% up 33, 9% from Q4 of 2020.
From Q1 of 2020, which was 26 six per cent.
The increase was primarily driven by product mix and increasing revenue volume and there was some tailwind for us from one of the consolidated raw material companies.
Total operating expenses in Q1, or 8.0 million from $7 2 million in the prior quarter and $6 2 million in Q1 of 2022.
And comparing Q1 of 2020 to the recent Q1 the majority of the increase.
55 per cent in fact is in R&D.
Included in this are the development costs for eight inch gallium arsenide wafers.
Today after the market close we released an announcement described on our success in developing and shipping eight inch gallium arsenide wafers Morris will give you some color on this.
In a moment, but it is a big step and we believe our investment in this program could lead to sizeable new opportunities. We are currently in development of six inch indium phosphide wafers. This is another R&D project that is expected to position us to participate in some exciting new applications for indium phosphide.
To put Q1 operating expense perspective, total opex as a percentage of revenue was 25, 4% for the quarter.
This is a bit lower than the 2020 quarterly average of 27, 6%.
We currently have a lot of exciting growth initiatives underway, which leads us to believe that we will be in this range over the next several quarters. Nevertheless, we will be drilling down on more deeply to ensure controls and oversight or appropriate.
Total stock comp expense for the first quarter was 816 K. This is also part of the Opex increase as it is up 125, K over Q4, and a bit more than that.
Then Q1 of 2020.
Operating profit for the first quarter of 2021 is $3 6 million compared with an operating profit of $1 9 million in Q4, and an operating loss of 634, K and Q1 of 2020.
Other income below the line items, including tax provision for the first quarter of 2021 was a net gain of 204 K.
Especially noteworthy in Q1 is a net profit of $1 1 million from the partially owned companies in Axt's supply chain accounted for under the equity method.
The market for raw materials has tightened up in raw material pricing has increased.
These gains were offset by a foreign exchange loss of 173, King and the tax position of 746 game.
Our Q1 results included approximately 275 K in tariffs as a result of the 25 per cent tariffs charged on importing wafers into the United States from China.
For Q1, 2021, we had a net profit of $3 4 million or profit of eight cents per diluted share by.
By comparison, we had a net profit of $2 1 million or profit of five cents per diluted share in the fourth quarter of 2020.
And a net loss of 178000 or a loss of one cents per share in Q1 of 2020.
The share count for this recent Q1 was 42 726 million shares.
Cash cash equivalents and investments were $66 9 million as of March 31.
By comparison at December 31, it was $78 6 million.
The decrease is primarily attributable to an increase in working capital accounts for accounts receivable for inventory and Prepays of $9 8 million, which was modestly offset by an increase in a team of 730000, plus our cash capex payments.
To put this in context revenue was up $4 3 million from the previous quarter an accounts receivable.
Receivable is up $3 9 million. These two numbers are correlated and this is especially true for Q1 because of the early months of Q1 had the Chinese new year week long break and as a result, our shipments were backend loaded for the quarter collections from these shipments were moving into Q2 benefiting cash this quarter.
We also used cash for inventory, which was up because of two reasons first the order rate is strong which means we were needing more inventory secondly, raw material prices are moving up and we are buying a little bit ahead of the market to keep our Cogs lower.
Finally, we use cash for Prepays, which is which are up as a result of the European and the annual year payments that will be amortized over 12 months and example of this is insurance premiums. This gives you a bit of color on cash utilization.
Our depreciation and amortization in the fourth quarter was $1 6 million in capital investments were $5 6 million.
Net inventory at March 31 increased by $3 2 million in the quarter and ended at $54 seven.
Ending inventory consisted of approximately 46 per cent in raw materials 48 per cent and work in progress and 6% in finished goods.
Alright. This concludes the discussion of our quarterly financials before Morris speaks let me give you a brief update and comments about our plans to list our company in China on the star market in Shanghai.
As early as the fall of 2019, we were looking into this possibility and spent considerable time and effort in assessing the opportunity during all of 2020.
We finally publicly announced it to all of you in November 2020, while Morris and I, we're still together in China.
One of the things that became clear as we drill down is that the process is more complicated than an IPO in the U S. And then it takes longer to accomplish an interesting example is that prospective IPO company, especially the IPO company in China is required have mandatory training and what it actually means to be a public company.
What are the requirements and expectations placed upon our public company.
Morris took <unk> public in 1998, but even he is going to be required to take the trading in China. So.
We completed the private equity activity in January and the rest of Q1 efforts included aligning our hidden assets in China beneath our main company invasion named on my.
Telling me is also undergoing on audit conducted by Ernst and young China and here again, it is more detailed and more complicated Fortunately, we have a great team and they're both patient and persistent these sorts of steps will continue in Q2.
We're hoping to submit our FCC application around June 30th or in Q3.
Overall the process is going fine we continue to think that our overall timing is good in terms of market opportunities on the horizon and accessing favorable capital markets in China.
In conclusion, it has been a busy but good quarter and this concludes our financial comments I'll now turn the call over to Dr. Morris Young for the review of our business Morris.
Thank you Gary and good afternoon everybody.
Q1 was a very important milestone quarter for <unk>.
We met and exceeded the $30 million revenue threshold.
Which has been a goal of ours.
And the challenge that I gave to all the team.
Our performance surpassed our expectations with growth in nearly all of our strategic products.
Also drove improvements in gross margin achieved strong growth in profitability.
What we're seeing today is the convergence of a member on trends across our portfolio that are beginning to have a meaningful impact on that.
And for our products.
These include applications, Inc, <unk> telecommunications and its related technologies.
Data center connectivity.
LCD based sensing and display.
Healthcare monitoring on.
Also referred to as biometrics.
Humor devices.
In August.
Our investments over the past several years.
New and expanded facility elevated eight hour businesses and manufacturing processes.
In house expertise and product development efforts.
<unk> now, allowing us to support the requirements of new exciting growth opportunities.
Indium phosphide.
We have the second largest revenue quarter, Inc.
History.
December was surpassed only by eight sales in Q2 of 2019.
In which quarter, we received a very large order from a single customer who was buying for future demand.
By contrast, these past quarter of 2021, our sales were driven by a number of customers across a diversified set of applications, indicating that demand is broad based and building momentum.
In some ways Inc.
Phosphide wafers sketches, a classic Silicon Valley story.
10 years ago, Indium phosphide revenue was barely $1 million.
It was the lowest revenue generator out of our all product lines.
Lower even than germanium on raw materials.
It was costly a product waiting for the market to Iraq.
Do they.
We have demand from a number of different applications and we are seeing additional applications on the horizon.
In particular.
We saw continued strength from <unk> and its related technologies.
At the subsidiary level.
It will it can be difficult to distinguish between optical connection connections specifically from <unk> equipment.
Those four related technologies like passive optical networks that supports <unk> functionality.
But from our perspective.
Any more on the variation of telecom infrastructure that utilizes indium phosphide is positive for our business.
The bank continued to be strong in the second quarter and we can't scale quickly.
Cost effectively to meet our customers' requirements.
In data center connectivity demand remains steady.
And as a positive level.
During Q1, we were pleased to become fully qualified and our tier one customer.
This was a multi quarter process that touched nearly every aspect of our business.
And elevated our operations for our benefit.
Of all our customers.
We were pleased to work closely with our customer on this.
Qualification process and we are proud to have been awarded.
Sick patients.
As I mentioned in 2021.
We expect to see a meaningful emerges of additional on new applications for indium phosphide material.
In such areas as health care monetary.
Consumer devices.
Money are being driven by tier one players.
We're currently engaged in these applications, which represent a new growth area flow of business. This year.
Now I'll turn it to gallium arsenide.
Revenue in Q1 grew.
In wireless and led applications it was.
Our highest revenue quarter in gallium arsenide since Q1 of 2018.
Demand in Q1 was driven by high end applications, including automotive lighting and display.
And Iot.
As we look into Q2.
We expect L. B day demand to remain strong.
But we do expect revenue from wireless applications to decline from Q1 level.
We were very pleased to announce today, our successful development of eight inch gallium arsenide wafers for OLED applications.
We have diversified we have delivered sample quantities of interest to our interest that customer and we are working with them to meet their requirements, albeit they're emerging.
Next.
Increasing the that I majored in crystal growth is complicated to get for our forecast focus on materials.
Every step up Inc.
Major sizes comps with a major increase in technical challenges.
Ill.
Of producing it.
But they actually it's always from the pioneer in this area.
Took the neurostar treatment to drive innovation in order to unlock the potential for our new applications.
We have been able to overcome a number of hurdles.
This is no longer a test to laboratory for web.
We are now shipping wafers, according to our customer specifications.
This is a tremendous step for <unk> and <unk>.
We are very proud on firewall team.
I'm on the many benefits we believe this innovation will help to enable them to scale and efficiency required for a number on very high volume applications, including VIX shows for <unk> sensors.
Lighthouse as well as micro Leds.
Displays.
We believe that micro OLED are likely to benefit.
I mean likely to become the next major volume driver of gallium arsenide chips.
We're seeing reports.
Cash on micro led the market for smaller to consumer devices like Wearables and phones, maybe larger than the entire current market for gallium arsenide substrates.
Regardless our specific numbers.
This is an exciting space that could add significant new value to the OLED markets in 2024 and beyond.
These devices are expected to consume less power.
On the sharper contrast, and produce really in lighting and colors.
The application could extend from Wearables devices.
And handheld devices to very la screenings like high end TV is of the future.
Tier one players are already driving the development of the technology and we are we believe that our wafers used for early stage activities.
Turning to germanium substrates.
Coming off a very strong quarter in Q4 of last year revenue for germanium substrates decrease modestly in Q1.
Over the satellite solar cell market looks to be strong in Q 2021 we expect to see growth this year.
Finally, I want to touch upon our raw material business, which grew 45 per cent.
One.
As you May recall, we currently consolidate two joint ventures.
Volume, which manufactures high temperature <unk> crucibles, MTBE EBITDA based tools for OLED and.
Joint venture teammate.
Who said diversified industrial high purity material supplier.
In 2020, both companies to relocate it to our campus in casual.
And we're able then to expand capacity in response to strong market demand.
This coupled with a recovery in pricing on raw materials, such as raw gallium has evolved post company to grow meaningfully in recent quarters.
As we look ahead to Q2.
We expect that performance to remain at.
On the strong level, although perhaps coming down modestly from Q1.
The improvement of commodity pricing also enabled joint ventures that accounts for using the early equity method to perform very well in Q1.
In fact, we saw a 214 per cent increase.
India contribution during this quarter.
We believe the demand environment should.
Should remain healthy this year and that their performance will continue to be strong.
Two our age outs.
In closing.
We're off to a strong start in 2020 one.
Or is it broad based customers and applications showing healthy demand.
We're excited to see so many of our opportunities for which we have been preparing them over the last two years now.
Yielding results.
And with more to come.
In addition, our successful development of eight inch gallium arsenide lies.
Lies our product and technology capabilities with tier one customer requirements.
We believe this will open up significant new applications for us.
Over the next several years and enhance our reputation as the go to supplier.
With our new factories ramping up well and ample room for capacity expansion, we're ready and excited for the year ahead.
This concludes my prepared comments I will now turn the call back to Gary for our second quarter guidance, Gary. Thank you Morris.
As Morris discussed the demand environment remains healthy in Q2.
Indium phosphide coming off a very strong quarter. We believe we will see continued growth.
We also expect growth in gallium arsenide revenue for L. A D and a modest increase in germanium.
As Morris mentioned, we expect to pull back and gallium arsenide for wireless and a flat to slightly down for raw materials.
Such we expect to see revenue in Q2 of between $30 5 million to $31 5 million.
We believe that our net profit will be on the range of six to eight cents a share.
And that's based on a share count of approximately $42 8 million shares.
Alright. This concludes our prepared comments Morris and I will be glad to answer any questions operator glory.
And yes, as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key again I got to ask a question. Please press star one and we have a question from Dave Kang of B Riley Your line.
Okay.
Hi, This is Danny Cheng on for Dave.
I was wondering if you guys could comment on the effect of shaped charges.
Broadly, we're seeing chip prices increase and we were wondering are you guys also increasing prices as this phenomenon curves.
And the second question is how long can you expect.
You know this raw materials price environment to stick around.
So let me take a crack at that first and generally substrate business is difficult to increase price of a district subsidy level. However on the raw materials side, yeah, they do fluctuate with demand and supply.
On the raw material prices gallium price has increased from.
On the quote you just number about $150 per kilogram.
Last year on a slate last quarter was $400 a kilogram so it's more than double.
But recently did.
The price has come down a bit.
But but that's not.
While significantly down to about 350 from $400 a kilogram for gallium.
But I do believe that the demand is still very tight and so however, there are more new suppliers coming Inc.
Into the production line because the price has gone up.
In the subsidiary level I believe it's more difficult to increase prices. However, the way I would describe it these days.
In terms of indium phosphide, many times that we may increase price if the customer wants to tighten their specification for instance, if you if you want.
On my true, let's say with defect density in the neighborhood on 500.
And that.
That sort of set a price of X and if all of a sudden day requirement is such that you want the fact that she did it would be half of that 200 versus 500, then the price made rice by a factor of 20 to 25 per se. So that's the other way of increasing price in other words.
Drive your productivity up and increase the price.
Did I answer your question.
Yeah. Thanks, that's helpful and I guess just a quick one are you broadly seeing customers trying to tightened specifications more like.
Like maybe the <unk>.
Supply chain constraints are forcing them to be more deliberate with their specifications or anything or.
Yeah. That's that's an interesting question I actually I think he need phosphate specifically I mean, gallium I'm sorry, it's a lot more mature. So I think we see less of a change, but indium phosphide, we do see consumer coming with tighter specifications because they are mainly dealing with.
High end products, such as lasers, and you know very demanding performance levels, so that they want to tighten up the spec.
As they develop their next generation product.
Also while we also seeing was that we start to see you know would you liberty's better quality product to one customers and all of a sudden other guys are seeing the same thing. So the end customer starts to tighten their specification to the intermediate let's say at equal or so yes, we do see.
That tightening of the spec.
Yeah.
On indium phosphide.
Okay.
Got it that's helpful. Thank you.
Yeah.
Any commentary on mine can you ask a question. Please press star one on your telephone keypad.
Your next question is from Richard Shannon of Craig Hallum. Your line is open.
Well, good afternoon, Morris and Gary and Leslie Thanks for taking my questions.
Let me start with a kind of a multi part question on gross margins had some very nice numbers here on the first quarter I think you'd called out mixing.
Mix and volume as the drivers here I didn't hear you talk anything about the yields on but I think you've alluded in the last call or two that the potential of seeing those improve as you get more comfortable with the new facility.
And so I'd love to hear what you think about Norway for the second quarter on along those lines, but also.
You talked about buying some of some more inventory here at lower costs, but eventually that's going to start to bake in here. When do you see these are the raw materials prices start to bake any kind of level off kind of provided a headwind from gross margins.
Well I was just curious.
I'd say, we've already taken advantage of some of that because we saw this happening early in the quarter, even though.
As recently as last Q4.
<unk>.
So I don't see that all of a sudden we're going to have a huge benefit because the raw material price that we paid is gonna be.
You know.
Moving from inventory on the cost of goods sold.
It is a factor that we've taken advantage of but it's difficult for you to be able to measure the impact so well. So let me let me put my two cents on that.
Oh, Gary, but that's the way I see a day side raw material price increase.
It's difficult for us to pass along to our customers.
Okay, that's especially on short term.
However, the benefit to avoid NXP is our raw material supplier all the joint venture who supplies gallery and starting to make them all the profits. Okay. So that's the benefit to us.
But we don't write up our inventory because we have a lower cost gallium inventory right.
Right, we didn't write it up the only time that it will impact us is actually our newly purchased galleon, which we pay the higher price start to getting to our imagery that we sort of.
In average get to our cost of goods sold up.
Is that price.
<unk> to be higher than our cost of manufacturing that substrate becomes tighter and if we cannot pass along that increasing our cost to our customers. They're all gross margin would decrease however, we are probably still better off than our competitors because we have joint ventures too.
Offset part of it.
Wait we have suddenly insurance policies.
And I guess part of my question was when would that happen I assume that's a relic of your cycle time with manufacturing, but also wanted to bake in here the potential of seeing yield improvement on your substrate manufacturing as well on kind of get a multi quarter view on what you think your gross margins can do we've talked about in last few quarters about the potential or kind of law.
On term goal of getting to 40%.
It sounds like you've got a few tail once maybe a one or two headwinds here and wanted to kind of look at that on a multi quarter trend can you kind of help us out in that context.
Yeah I'd say.
It just to be specific about yields I think theres still some.
So some improvement that we can gain.
And I think we will see yields improve as things settle in and stabilize.
The new sites.
Reciprocally I think we'll probably see some push on cost of goods sold because of raw materials.
So they may have some offsetting effect.
We.
We still think that the prudent.
Comment that we should make.
For today is that somewhere around 35% is very achievable obviously.
But.
No.
Morris and I are not inclined to have everybody.
Moving to margins up after one quarter.
One quarter of improvement.
We'd like to see it if you know a couple more quarters before we think okay. This is kind of what the pattern is going to be so.
Certainly we're pleased with the margin from Q1.
We think we'll probably be at.
At or above 35 per cent for Q2.
But you know.
We're hesitant to sort of paint out the rest of the year.
And pick a new number so yeah. It is.
Richard maybe you and I on old timers.
I think you'll probably.
Thinking that with raw material price going up it should help us on.
Gross margin.
That was exactly what happened back in 2011 and 12 when.
Gallium price was going went from up to about $1000 a kilowatt.
However, the difference is that.
In 2011, we consolidate that joint venture.
Into all revenue, whilst we're on profit so when the profit on that joint ventures start to help us.
Our gross margin jumped up as well.
However that joint venture, although we still hold substantially I think his last I saw was 39% correct, but we don't consolidate that revenue anymore.
So, although we do enjoy the profit they make but we it.
It doesn't help US Inc turns out gross margins.
Because that sort of answer your question.
Yeah, No that's helpful. That's helpful.
I'll note. The fact that you called me old Morris stuff. Thanks for thanks for that.
Oh, Oh Oh.
Speaking for myself.
You kind of look me in on that one, but we'll leave that one alone my quick follow on question is.
Morris you talked about indium phosphide, some new applications here and you said, there's going to be some contributions this year any way you can help us scale.
This contribution is it gonna be noticeable or small how would you characterize that and help us think about that going forward into next year.
I think it's going to be meaningful I think you know not only this product, but I think I overall excited about this new approach utilizing the UV spectrum.
Lighting as well some in.
Lasers.
Which can do a lot of wonderful things.
Healthcare monitoring et cetera. So you know instead of just good old telecommunications, which is great. I mean, it just cannot escape from utilizing indium phosphide for fiber optics, however, when you're dealing with consumer products.
Imagination is limited.
You know everybody likes to you now.
Take care of your house.
And this is a great approach to help you monitor your health I mean, I think has a great future I mean, we are only starting the beginning of this.
I think there are other development, which can follow on this so I think not only is it can be.
Any forward, but also I think is gonna be multiyear.
And.
We just don't know how big it is going to be what it's going to be 500 per cent or 1000 per cent.
Okay fair enough.
Back in the queue. Thanks, Martin Thanks, Richard.
And your next question is from.
On the strength of Northland. Your line is now open.
Yeah. Thanks for taking my question.
Just going back to the new applications for indium phosphide.
You have a sense of whether it's a health monitor or some sort of other type of consumer product do you have.
Any sense of the application at this point.
Gus.
We really don't know and if anything that we can only cash.
But even if I know I don't think I'm allowed to talk about it anyway.
But because this is a brand new I would say you know you weigh down on a quarter or two.
He is going to go on the market and then somebody is going to take it apart and then you dig in to see what it is for.
But I don't think we're kicking around this is a real issue. So you know we work on with this for almost more than two years.
And we're seeing that Ramsey.
And you.
We expect this application to be you said, it's going to be significant.
Is it going to be.
Material part of the indium phosphide revenue in other words for the year could add up to 10% of your indium phosphide revenue.
Well that's hard question honestly I don't know how fast the rest of them are wrong, but there is a significant yeah. It could add good 5% to 10% yes.
Okay.
And then.
Gary for you just looking at the Opex it was quite a bit above what I was expecting.
In the quarter and clearly you've got.
Need to invest in R&D in Q.
SG&A was up can you give a little bit more color on.
Driving those SKU your SG&A in the quarter on.
How should we think about that going forward.
Yeah.
I mean, the biggest driver from 20000 feet up we just have a lot of initiatives.
A tremendous amount of activity energy implementation of division from Morris on the marketing team.
So that drives down in.
In lots of ways and touches lots of general ledger accounts that.
Expenses booked to them.
You know we are pleased that over half of its R&D that's good.
But to drill down on another layer.
There hasnt been growth in head count.
Both at.
Our total company and also a gin million boy you.
So.
Compensation has increased wages have increased.
The bonuses, we paid low recently.
Larger than normal because we finished <unk>.
2020 on a good note.
So.
I'd say the biggest single component.
<unk>.
Setting aside the R&D versus SG&A is labor.
Also.
Compensation for our reps and we pay commission to on sales and sales Rep commissions are up.
A fair amount towards what I would call.
Permits still in licenses and <unk>.
Things that have to do with with facilities and continuing to layer in on all the kinds of things that are required.
Those are things that come to my mind Extemporaneously. So it's all I mean from me as a numbers what share you know what am I, saying that Theres a story behind every number in the story for these numbers. It is about lots of exciting initiatives and good things happening, but you know the flu.
Side of it myself and our.
<unk>.
Senior level controllers and stuff.
We're watching it closely.
I'd also.
Take some comfort from me as a business person.
The percentage of revenue, it's actually lower in Q1 of this year than.
The average from all of 2020.
So.
Those are the kinds of things that can put around it.
You know I hope that's helpful. In giving you some color maybe Morris you want to add anything.
I think you know many times I remember, where our revenue was lower than people were asking US why are you feel revenue were to grow at a good 30% or 50% where most of these dropdowns on profit and when we say absolutely.
Not gonna get their higher raise salary and will have a high on it.
Senior Vice President of etc. However, young.
Now on the revenue grew 15% year over here and now.
Oh, you caught us being lighter on about it but then again we kept.
I said that I think I'm happy to see that we're spending a lot of activities in terms of you know the new hire to help us to go start Mark on this thing.
The six inch indium phosphide development.
The age gallium arsenide I mean, all of those are exciting initiatives, which will translate to even higher revenue higher profit. So what I'm, saying I think is if our revenue to grow 50% net stay there. We don't have you know.
Tremendous growth opportunity.
Listing in China, then yeah sure everything will come back because I don't expect.
Too much.
Much more than what we do and we don't need to add one more show spans.
A person.
To do more revenue. However, you know where you are preparing yourself for more growth and more opportunities.
You need to spend a little bit more money I think that's the way I see it I still think there's a tremendous leverage on our business model.
You know.
Yes.
We're proud of what we're accomplishing what we don't see it.
Increasing a lot right now so.
And then just as variable comp paid quarterly or annually.
It both bonuses.
Both have concurred switch, which company we're talking about so.
Uh huh.
Yes.
Okay, alright, thanks, so much thanks guys.
And again, if you have any questions at this time. Please press Star then the number one on your telephone keypad.
Yeah.
We have a follow up question.
From Richard Shannon of Craig Hallum. Your line is open.
Hi, guys. Thanks for taking my follow on question here.
Just wanted to ask about the star market listing process here and you mentioned the process, it's a more difficult than what you would what normally happens here on the U S.
When reading the news might suggest that those have gotten more difficult even within even for companies who started the process earlier and so I'm wondering if you can comment on the degree to which you're seeing those getting more difficult just within China seem.
It seems like there's some reticence about quality of companies on the stock exchange that are in China and worry about whatever the due diligence.
Requires get even worse for U S companies like yourself.
So let me try that first but definitely Gary is more qualified these very much involved in it every day.
They're on.
On money money activities, Gary's covering but so let me give you the high level.
<unk> first.
I believe that tightening process on the stock market listing.
I heard it was because they had too many companies going public on.
Stock market in China, that's why they want on tightening it up otherwise they are going to have hundreds and hundreds of companies all wants to go public okay.
So on.
As a result, I think that day.
Lengthening the process voices, let me give you a example, theyre looking at.
Senior management, they wanted to make sure there's no related party transaction, you want to make sure or revenue on real there's no.
From key business on and.
And.
They they are tightening up but I think to certain degree our investment banker, Inc. In China on telling us.
That part may be better for us.
We have been public company on IV assays for the last what 2020, some odd years 23 years. So you know we scrub all.
Every one of our quarters. So you know we are.
Really doing the right business and we also we're also you know a real company delivering high quality products.
So I think all of those speaks well for us however, because.
China regulatory agency are more cautious so they are tightening the screws, so they're slowing down the process.
So I think as a result, we may see that there's a slight delay are you know every step of the way they wanted to make sure it's doing right thing.
We have been doing all on anyway. So.
So I think it's a double edged sword I mean, Gary I E.
I think Morris hit the nail right on the head.
We were not so.
We're not surprised at what's causing things to be a little raised the bar if you will to leap over the linked from the time a bit more.
Because they are trying to be very very sure about who gets through that gate. So, but if you take a step back and look at our tongue many company it.
It was founded in 1998.
Hi, Morris and other leaders of the company at that time, so what that makes it over over 23 years old.
It collectively now with adding boy you and Jim Me, it's over 1000 employees, they're all Chinese citizens, they all pay taxes in China.
You drill down further into the supply chain I doubt, there's many other companies applying for star market listing that have partial ownership with 10 other companies in China.
So we're.
We don't want to be cocky at all but you know from a from a business standpoint. This is a very very attractive company to take public and we manufacture something you can see it we build things it's not software.
You know we've been audited just 1998 in or maybe 1999 in China. So.
It's harder it's more work, but the rewards are significant and if we as we see things growing on the horizon.
This is a wonderful opportunity they have a significant amount of capital set aside to take advantage of growth opportunities around the world. So so yeah, it's it's harder but.
We're all in in our guidance the team is excited and nobody's discouraged they're just tired so.
Okay I appreciate all the detail that's all from me guys. Thanks, Okay.
And there are no questions on queue at this time I will turn the call over back to Dr. Morris Young on for his closing remarks.
Thank you. Thank you everybody for participating on our conference call in June and it'll be participating and Craig Hallum 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.
And ladies and gentlemen, this concludes today's conference call. Thank you for your participation.
I'll disconnect.
Okay.
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