Q2 2024 AXT Inc Earnings Call

Christina: Good afternoon, everyone, and welcome to AXT's second quarter 2024 financial conference call. Leading the call today is Dr. Morris Young, Chief Executive Officer, and Gary Fischer, Chief Financial Officer. My name is Christina, and I'll be your coordinator.

Operator: Good afternoon, everyone, and welcome to AXT's second quarter 2024 financial conference call.

Speaker Change: Phones too.

Speaker Change: Good afternoon, everyone, and welcome to AXT's second quarter 2024 financial conference call.

Operator: Leading the call today is Dr. Morris Young, Chief Executive Officer, and Gary Fischer, Chief Financial Officer.

Christina: Leading the call today is Dr. Morris Young, Chief Executive Officer, and Gary Fischer, Chief Financial Officer. My name is Christina, and I will be your coordinator today. All lines have been placed on mute to prevent any background noise.

Operator: My name is Christina, and I will be your coordinator today. All lines have been placed on mute to prevent any background noise.

Gary Fischer: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone key. Or if you would like to withdraw your question. Revenue for the second quarter of 2024 was $27.9 million, up 23% from $22.7 million in the first quarter of 2024.

Operator: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, you can press star one again. Thank you.

Speaker Change: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. And if you would like to withdraw your question, you can press star 1 again.

Leslie Green: 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 and succeeding quarters to control costs and expenses, to improve manufacturing yields and efficiencies, or to utilize our manufacturing capacity.

Christina: Thank you. I would now like to turn the call over to Leslie Green, Investor Relations for AXT.

Leslie Green: 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,

Leslie Green: 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.

Leslie Green: to improve manufacturing yields and efficiencies, or to utilize our manufacturing capacity. We wish to caution you that such statements deal with future events, are based on management's current expectations, and are subject to risks and uncertainties that could cause actual events or results to differ materially. In addition to the matters just listed, these uncertainties and risks include, but are not limited to, the financial performance of our partially-owned supply chain companies, increased environmental regulation in China, and COVID-19 and other outbreaks of a contagious disease.

Leslie Green: 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 regulation in China, and COVID-19 and other outbreaks of a contagious disease. In addition to the factors just mentioned or that may be discussed in this call, we refer you to the company's periodic reports filed with the Securities and Exchange Commission.

Leslie Green: In addition to the factors just mentioned, or that may be discussed in this call, we refer you to the company's periodic reports.

Leslie Green: These are available online by-length from our website and contain additional information on risk factors that could cause actual results to differ materially from our current expectations.

Leslie Green: 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.

Leslie Green: This call will be available on our website at AXT.com through August 1st, 2025. I also want to note that shortly following the close of market today, we issued a press release reporting financial results for the second quarter of 2024. This information is also available on the Investor Relations portion of our website at AXT.com.

Leslie Green: This call will be available on our website at AXT.com through August 1st, 2025.

Leslie Green: I also want to note that shortly following the close of market today, we issued a press release reporting financial results for the second quarter of 2024.

Leslie Green: This information is also 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 2024 results.

Gary Fischer: I would now like to turn the call over to Gary Fisher for a review of our second quarter 24 results. Thank you, Leslie, and good afternoon to everyone. Revenue for the second quarter of 2024 was 27.9 million, up 23% from 22.7 in the first quarter of 2024, and up 50% from 18.6 million in the second quarter of 2023. To break down our Q2-2024 revenue for you by product category, Indian Foss Spide was 7.7 million, reflecting continued demand from data center applications, including AI, as well as passive optical networks. GALIMR tonight also grew to 9.1 million, with broad-based improvement across the number of applications.

Gary Fischer: Gallium arsenide also grew to 9.1 million with broad-based improvement across a number of applications. Germanium substrates were $2.9 million, up from the prior quarter, with renewed strength in demand for satellite solar cells. Finally, revenue from our consolidated raw material joint venture companies in Q2 was $8.2 million, up substantially from Q1 on growing demand. In the second quarter of 2024, revenue from Asia-Pacific was 78%, Europe was 17%, and North America was 5%. The top five customers generated approximately 31.8% of total revenue, and no customer was over the 10% level.

Gary Fischer: Thank you, Leslie, and good afternoon to everyone.

Gary Fischer: Revenue for the second quarter of 2024 was $27.9 million, up 23% from $22.7 million in the first quarter of 2024.

Gary Fischer: and up 50% from $18.6 million in the second quarter of 2023.

Speaker Change: To break down our Q2 2024 revenue for you by product category, Indian Phosphide was $7.7 million, reflecting continued demand from data center applications, including AI, as well as passive optical networks.

Speaker Change: Gallium arsenide also grew to 9.1 million with broad-based improvement across a number of applications.

Gary Fischer: Germanium substrates were 2.9 million, up from the prior quarter, with renewed strength and demand for satellite solar cells. Finally, revenue from our consolidated raw material joint venture companies in Q2 was 8.2 million, up substantially from Q1 on growing demand. In the second quarter of 2024, revenue from Asia Pacific was 78 percent, Europe was 17 percent, and North America was 5 percent. The top five customers generated approximately 31.8 percent of total revenue, and no customer was over the 10 percent level. Non-GAAP gross margin in the first quarter was 27.6 percent compared to 27.3 percent in Q1 and 9.8 percent in Q2 of 2023.

Speaker Change: Germanium substrates were $2.9 million, up from the prior quarter, with renewed strength and demand for satellite solar cells. Finally, revenue from our consolidated raw material joint venture companies in Q2 was $8.2 million, up substantially from Q1 on growing demand.

Speaker Change: In the second quarter of 2024, revenue from Asia Pacific was 78%, Europe was 17%, and North America was 5%.

Speaker Change: The top 5 customers generated approximately 31.8% of total revenue and no customer was over the 10% level.

Gary Fischer: Non-GAAP gross margin in the first quarter was 27.6%, compared to 27.3% in Q1 and 9.8% in Q2 of 2023. For those who preferred to track results on a gap basis, gross margin in the second quarter was 27.4%, compared with 26.9% in Q1 and 9.2% in Q2 of 2023. Moving to OpEx, total non-GAAP operating expense in Q2 was $8.9 million, compared with $8.7 million in Q1 of 2024 and $7.8 million in Q2 of last year. Non-GAAP net loss in Q2 of 2023 was $4.2 million, or $0.10 per share. On a gap basis, the net loss in Q2 was $1.5 million, or $0.04 per share.

Speaker Change: non-GAAP gross margin in the first quarter was 27.6% compared with 27.3% in Q1 and 9.8% in Q2 of 2023.

Gary Fischer: For those who preferred to track results on a gap basis, gross margin in the second quarter was 27.4 percent compared to 26.9 percent in Q1 and 9.2 percent in Q2 of 2023. Moving to OPEX, total non-GAAP operating expense in Q2 was 8.9 million compared with 8.7 million in Q1 of 2024 and 7.8 million in Q2 of last year. On a gap basis, total OPEX in Q2 2024 was 9.5 million compared with 9.4 million in Q1 of 2024 and 8.6 million in Q2 of 2023. We expect OPEX to hold at approximately this level throughout the balance of 2024.

Speaker Change: For those who prefer to track results on a gap basis, gross margin in the second quarter was 27.4%, compared with 26.9% in Q1 and 9.2% in Q2 of 2023.

Speaker Change: Moving to OPEX, total non-GAP operating expense in Q2 was $8.9 million compared with $8.7 million in Q1 of 2024 and $7.8 million in Q2 of last year.

Speaker Change: On a gap basis, total OPEX in Q2 2024 was $9.5 million, compared with $9.4 million in Q1 of 2024 and $8.6 million in Q2 of 2023. We expect OPEX to hold at approximately this level throughout the balance of 2024.

Gary Fischer: Our non-GAAP operating loss for the second quarter of 2024 is 1.2 million compared with the non-GAAP operating loss in Q1 of 2024 of 2.5 million and a non-GAAP operating loss of 5.9 million in Q2 of 2023. For reference, our GAP operating line for the second quarter of 2024 was a loss of 1.9 million, compared with an operating loss of 3.3 million in Q1 and an operating loss of 6.8 million in Q2 of last year. Non-operating other income and expense and other items below the operating line for the second quarter of 2024 was a net gain of $369,000.

Speaker Change: Our non-GAAP operating loss for the second quarter of 2024 is $1.2 million, compared with a non-GAAP operating loss in Q1 of 2024 of $2.5 million, and a non-GAAP operating loss of $5.9 million in Q2 of 2023.

Speaker Change: For reference, our gap operating line for the second quarter of 2024 was a loss of $1.9 million compared with an operating loss of $3.3 million in Q1 and an operating loss of $6.8 million in Q2 of last year.

Speaker Change: Non-operating other income and expense and other items below the operating line for the second quarter of 2024 was a net gain of $369,000. The details can be seen in the P&L included in our press release today.

Gary Fischer: The details can be seen in the P&L included in our press release today. For Q2 of 2024, we had a non-GAAP net loss of 800K or 2 cents per share compared with a non-GAAP net loss of 1.3 million or 3 cents per share in the first quarter of 2024. Non-GAAP net loss in Q2 of 2023 was 4.2 million, or 10 cents per share. On a GAAP basis, net loss in Q2 was 1.5 million or 4 cents per share. By comparison, net loss was 2.1 million or 5 cents per share in the first quarter of 2024, and the GAP net loss in Q2 of last year was 5.1 million or 12 cents per share.

Speaker Change: For Q2 of 2024, we had a non-gap net loss of $800k or $0.02 per share compared with a non-gap net loss of $1.3 million or $0.03 per share in the first quarter of 2024.

Speaker Change: non-GAAP net loss in Q2 of 2023 was $4.2 million or $0.10 per share.

Speaker Change: On a gap basis, net loss in Q2 was $1.5 million, or $0.04 per share. By comparison, net loss was $2.1 million, or $0.05 per share, in the first quarter of 2024.

Gary Fischer: By comparison, the net loss was $2.1 million, or $0.05 per share, in the first quarter of 2024. And the Gapmat loss in Q2 of last year was $5.1 million, or $0.12 per share. Cash, cash equivalents, and investments increased by $2 million to $43.3 million as of June 30th. By comparison, at March 31st, it was 41 points. Depreciation and amortization in the second quarter was $2.2 million.

Speaker Change: And the Gapmat loss in Q2 of last year was $5.1 million or $0.12 per share.

Gary Fischer: The weighted average basic shares outstanding in Q2 was 4.43.1 million, cash, cash equivalence and investments increased by 2 million to 4.3 million as of June 30th. By comparison, at March 31st, it was 41.3. Depreciation and amortization in the second quarter was 2.2 million; total stock comp was 700K. Net inventory was down slightly in the second quarter to 85.8 million. This includes inventory added through our recycling program. 30% of the inventory is raw materials and WIP is 64%. Finish good makes up only about 2%. With improving demand, we hope to continue to bring our total inventory down in 2024.

Speaker Change: The weighted average basic shares outstanding in Q2 was $43.1 million.

Speaker Change: Cash, cash equivalents, and investments increased by $2 million to $43.3 million as of June 30th. By comparison, at March 31st, it was $41.3.

Speaker Change: Depreciation and amortization in the second quarter was $2.2 million. Total stock comp was $700K.

Gary Fischer: Total stock comp was $700,000. Finished goods make up only about 2%. We continue to make positive progress and have been in active discussions with the Shanghai Stock Exchange. Recent developments have been encouraging. We have kept our application current while many other Shanghai Stock Exchange applicants in the queue have been dismissed for business, financial, or other shortcomings. Thank you, Gary.

Speaker Change: Net inventory was down slightly in the second quarter to $85.8 million. This includes inventory added through our recycling program. 34% of the inventory is raw materials and WIP is 64%.

Speaker Change: Finished goods makes up only about two percent.

Speaker Change: With improving demand, we hope to continue to bring our total inventory down in 2024.

Gary Fischer: Okay, this concludes the discussion of our quarterly financial results.

Gary Fischer: Turning to our plan to list our subsidiary, Tongmei, and China on the Star Market in Shanghai, we continue to make positive progress and have been in active discussions with the Shanghai Stock Exchange. Recent developments have been encouraging with kept our application current while many other Shanghai Stock Exchange applicants in the queue have been dismissed for business, financial, or other shortcomings. We expect to continue to work through this process during the summer and hope to have more news in the fall. As we've consistently said, this is a lengthy process, but we continue to believe that Tongmei is an excellent candidate for the listing.

Speaker Change: 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.

Speaker Change: We continue to make positive progress and have been in active discussions with the Shanghai Stock Exchange. Recent developments have been encouraging. We have kept our application current, while many other Shanghai Stock Exchange applicants in the queue have been dismissed for business, financial, or other shortcomings.

Speaker Change: We expect to continue to work through this process during the summer and hope to have more news in the fall. As we've consistently said, this is a lengthy process, but we continue to believe that Tongmei is an excellent candidate for the listing.

Morris Young: Okay, with that, I'll now turn the call over to Dr. Morris Young for a review of our business and markets. Morris? Thank you, Gary. Q2 was another solid quarter of growth, with our revenue of 23%. In addition, our non-GAAP net loss was smaller than our earlier guidance. We saw good performance in heating phosphide substrates and healthy growth in galling austenite and humanian substrates. Our raw material business was also up substantially over Q1. Overall, we're encouraged by the science of addition adoption in new applications, such as AI, as well as ongoing broader-based market recovery. The magnitude of the revenue improvement is good news; we are encouraged.

Speaker Change: Okay, with that, I'll now turn the call over to Dr. Morris Young for a review of our business and markets. Morris?

Morris Young: Q2 was another solid quarter of growth, with our revenue up 23% and more than we anticipated. In addition, the magnitude of the revenue improvement is good news. We are encouraged by this growth, which has been a function of continued recovery in the pound market and a meaningful increase in demand related to high-speed optical connectivity and AI. We're already seeing development work happening today with next-generation silicon photonics devices, and we have strong contribution in Q1 and Q2 from these applications.

Speaker Change: Thank you, Gary.

Morris Young: Q2 was at a solid quarter of growth with our revenue up 23%. In addition, our non-gap net loss was smaller than our earlier guidance.

Speaker Change: We saw good performance in indium phosphide substrates and healthy growth in gallium arsenide and germanium substrates.

Speaker Change: Our raw material business was also up substantially over Q1. Overall, we are encouraged by the signs of additional adoption in new applications, such as AI.

Speaker Change: as well as ongoing broader-based market recovery.

Speaker Change: The magnitude of the revenue improvement is good news. We are encouraged.

Morris Young: We're expecting the recovery to be somewhat lumpy quarter to quarter, as the various segments work their way back to more normalized seasonalities.

Speaker Change: We're expecting the recovery to be somewhat lumpy quarter to quarter.

Speaker Change: as the various segments work their way back to more normalized seasonalities.

Morris Young: As we come into the second half of this year, we're feeling very good about our progress as a company and our ability to support exciting new growth, new high-value applications. Looking individually at our product lines, in the phosphide group 67% in Q2 of the same quarter a year ago; that growth has been a function of continued recovery in the palm market and a meaningful increasing demand related to high-speed optical connectivity and AI. Today, AI applications are primarily using galling austenite VIXO for shorter range transmissions, which require a relatively small amount of substrate material. But as the industry moves to 800 gig for median to long distance transmission, beginning in 2025, and then to 1.6 terabits speed, we expect that Indian phosphide will be a necessary material.

Speaker Change: As we come into the second half of this year, we're feeling very good about our progress as a company and our ability to support exciting new growth.

Speaker Change: New high-value applications.

Speaker Change: looking individually at our product lines.

Speaker Change: A&E Phosphate grew 67% in Q2 of the same quarter a year ago.

Speaker Change: That growth has been a function of continued recovery in the pound market and a meaningful increase in demand related to high-speed optical connectivity and AI.

Speaker Change: Today, AI applications are primarily using gallium arsenide VCSL for shorter range transmissions, which require a relatively small amount of substrate material.

Speaker Change: But as the industry moves to 800 gig for median to long-distance transmission, beginning in 2025, and then to 1.6 terabits speed, we expect that Indian phosphide will be a necessary material.

Morris Young: We already seen development were happening today with next generation silicon photonics devices, intellectual absorption modulated lasers, or EMLs. for high-speed data center transceivers. Those technologies use significantly more material than a GALA-STEM VIXIL. We have strong contribution in Q1 and Q2 from these applications. And while we always caution investors that the timing of pre-production orders can vary. Market trends and customer data points give us confidence in the growth potential of these emerging applications over the coming years. Our GALA-STEM revenue grew 22% in Q2 and are up 50% from our revenue level in Q4 of 2023. This increase reflects demand across a broad base of applications, including HPT power and applications for wireless switches, high power industrial lasers, and LEDs.

Speaker Change: We're already seeing development work happening today with next-generation silicon photonics devices.

Speaker Change: and Electroabsorption Modulated Lasers or EMLs.

Speaker Change: for high-speed data center transceivers.

Speaker Change: Both technologies use significantly more material than a gallium oxide mixer.

Speaker Change: We have strong contribution in Q1 and Q2 from these applications.

Speaker Change: And while we always caution investors that the timing of pre-production orders can vary, market trends and customer data points give us confidence in the growth potential of these emerging applications over the coming years.

Speaker Change: Our gallium arsenide revenue grew 22% in Q2 and are up 50% from our revenue level in Q4 of 2023.

Speaker Change: This increase reflects demand across a broad base of applications.

Speaker Change: including HPT power amplifiers, applications for wireless switches, high power industrial lasers, and LEDs.

Morris Young: Coming off two quarters of strong growth and some fluctuation in the industrial market, we're expecting a moderation of our GALA-STEM cells in Q3. But we don't believe that as much access inventory in the supply chain; we expect to continue to benefit from strengthening global demand as it occurs.

Speaker Change: Coming off two quarters of strong growth and some fluctuation in industry market, we're expecting a moderation of our gallium oxide sales in Q3.

Morris Young: But we don't believe there is much excess inventory in the supply chain. We expect to continue to benefit from strengthening global demand as it occurs. In addition, we have been highly successful.

Speaker Change: But we don't believe there is much excess inventory in the supply chain. We expect to continue to benefit from strengthening global demand as it occurs.

Morris Young: In addition, our GALA-STEM recycling efforts have been highly successful. We're now fully licensed and processing material that we collected over time, but did not have the capability to recycle. This is visible to the investment community in both our revenue and growth margin at GMA, one of our raw material joint venture companies. These efforts also advance our ESG commitments and drive meaningful efficiencies in our manufacturing.

Speaker Change: In addition...

Speaker Change: Our gallium oxide recycling effort.

Morris Young: We're now fully licensed and processing material that we collected over time but did not have the capability to recycle, one of our raw material joint venture upcomers. These efforts also advance our ESG commitment and drive meaningful efficiencies in our manufacturing. Demand for satellite solar cells, which was down substantially throughout 2023, is now showing signs of recovery, with renewed strength in Europe and Asia. Furthermore, we remain highly focused on accelerating our return to profitability and looking forward to reporting to you on our progress. With that, I will turn the call back to Gary for our third quarter guidance. Okay?

Speaker Change: have been highly successful.

Speaker Change: We're now fully licensed and processing material that we collected over time, but did not have the capability to recycle.

Speaker Change: This is visible to the investment community in both our revenue and gross margin at GMA.

Speaker Change: One of our raw material joint venture companies.

Speaker Change: These efforts also advance our ESG commitments and drive meaningful efficiencies in our manufacturing.

Morris Young: Turning to remaining substrates. The demand for satellite solar cells, which was found substantially throughout 2023, is now showing recovery. Our cells, more than doubled in Q2 over the prior quarter, with renewed strains in Europe and Asia. A portion of these strains was due to the timing of orders, which fell into Q2 rather than Q3. As such, we don't expect to see quite as strong results in Q3 of this year, but still a significant improvement from this time last year.

Speaker Change: Turning to germanium substrates.

Speaker Change: Demand for satellite solar cells, which was down substantially throughout 2023, is now showing recovery.

Speaker Change: Our sales more than doubled in Q2 over the prior quarter.

Speaker Change: With renewed strains in Europe and Asia, a portion of these strains was due to the timing of orders.

Speaker Change: which fell into Q2 rather than Q3. As such, we don't expect to see quite as strong results in Q3 of this year, but still a significant improvement.

Morris Young: And finally, our raw material business. It grew more than 40% in Q2, both on growing demand and the success of our recycling effort. Our portfolio of joint venture raw material companies continues to be a strategic value to our business, and they are contributing positively to our results.

Speaker Change: from this time last year.

Speaker Change: and finally our raw material business.

Speaker Change: It grew more than 40% in Q2, both on growing demand and the success of our recycling effort.

Speaker Change: Our portfolio of joint ventures, raw material companies, continues to be a strategic value to our business, and they are contributing positively to our results.

Morris Young: In closing, we are optimistic about the growth and the expansion of our business over the coming quarters. Across our portfolio products, the science of recovery are tangible, and though we expect some lumpiness quarter to quarter. We have positioned ourselves well for success in this highly dynamic technology landscape. Looking ahead, new catalysts such as AI are providing strong incremental opportunity that is likely to accelerate as we move into 2025. This can significantly benefit our any positive business. Further, we remain highly focused on accelerating our return to profitability and looking forward to reporting to you our progress.

Speaker Change: In closing, we are optimistic about the growth and expansion of our business over the coming quarters. Across our portfolio products, the signs of recovery are tangible, and though we expect some lumpiness quarter to quarter.

Speaker Change: We have positioned ourselves well for success in this highly dynamic technology landscape.

Speaker Change: Looking ahead, new catalysts such as AI are providing strong incremental opportunity that is likely to accelerate as we move into 2025.

Speaker Change: This can significantly benefit our e-mail password business.

Speaker Change: Further, we remain highly focused on accelerating our return to profitability and looking forward to reporting to you on our progress.

Gary Fischer: With that, I will turn the call back to Gary for the recorder guidance. Gary. Thank you, Morris. And keeping with our comments today, we expect Q3 revenue to be between 25.0 million and 27.0 million. We expect our non-GAAP net loss will be in the range of 6 to 8 cents, and GAAP net loss will be in the range of 7 to 9 cents. We expect share count will be approximately 43.1 million shares.

Speaker Change: With that, I will turn the call back to Gary for third quarter guidance. Gary?

Morris Young: Thank you, Morris.

Gary Fischer: In keeping with our comments today, we expect Q3 revenue to be between $25.0 million and $27.0 million.

Gary Fischer: We expect our non-GAAP net loss will be in the range of $0.06 to $0.08, and the gap net loss will be in the range of $0.07 to $0.09. We expect the share count to be approximately 43.1 million shares. Great, thank you. At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone. Hey, good afternoon.

Speaker Change: We expect our non-gap net loss will be in the range of 6 to 8 cents.

Speaker Change: and gap net loss will be in the range of seven to nine cents.

Gary Fischer: We expect share count will be approximately 43.1 million shares.

Gary Fischer: Okay, this concludes our prepared comments. Morris and I will be glad to answer your questions now.

Speaker Change: Okay, this concludes our prepared comments. Morris and I would be glad to answer your questions now. Christina, operator, you can take over now.

Operator: Christina, operator, you can take over now. Great, thank you. At this time, I would like to remind everyone that in order to ask a question, please press star, then the number one on your telephone keypad. Again, that's star one to ask a question. And we'll pause for just a moment to compile the Q&A roster. Thank you.

Christina: Great, thank you. At this time I would like to remind everyone in order to ask a question please press star then the number one on your telephone keypad. Again that's star one to ask a question and we'll pause for just a moment to compile the Q&A roster.

Charles: Your first question comes from Charles. She of Needham.

Charles: Your line is open.

Speaker Change: Thank you. Your first question comes from Charles Xie of Needham. Your line is open.

Charles: Hey, good afternoon.

Charles: Maybe the first question, I want to get a little bit more color on the Q3 guidance. Looks like 26 million at the midpoint, slightly down from the Q2 level. I think in the preparing marks, you already mentioned that maybe the some some degree of moderation and guardian has a night. Maybe even you talk about the sum of that in Germanian as well.

Charles Shee: Hey, good afternoon.

Charles Shee: Maybe the first question, I want to...

Speaker Change: get a little bit more color on the

Charles Shee: Q3 guidance looks like $26 million at the midpoint, slightly down from the Q2 level.

Speaker Change: I think in the prepared remarks, you already mentioned maybe some degree of moderation in gallium arsenide.

Gary Fischer: Maybe even you talk about some of that in Germanian as well, but I wonder if Indian phosphide, the raw material, is the other two product categories holding up, or what's the general sense, right? Sure, Charles. I think raw material is probably going to hold up. I think it's probably going to be at the same level as Q2. In phosphite, my feeling is, you know, the order we got from AI for Q1 and Q2, we're not counting on it to continue as yet.

Speaker Change: Maybe even you talk about some of that in Germanian as well. But I wonder, is Indian phosphide, the raw material, are the other two product categories holding up, or what's the general sense right now?

Morris Young: But wonder is Indian fast by the raw material is the other two product categories holding up or what's the general sense right now? Sure, Charles. I think raw material is probably going to hold up. I think it's probably going to be the same level as Q2. Indian fast by my feeling is, you know, the order we got from AI for Q1 and Q2. We're not counting on it to continue a sort of yet. But because it's a sort of a startup business. So, you know, order can come in anytime. If that were to come in, then we can probably sort of maintain our same level as Q2.

Speaker Change: Sure, Charles. I think raw material is probably going to hold up. I think it's probably going to be the same level as Q2.

Speaker Change: Indian phosphide

Gary Fischer: But because it's a sort of a startup business, so, you know, orders can come in anytime. If that were to come in, then we could probably sort of maintain our same level as Q2. But at this point, we're discounting that. So with that as a negative, you know, in the phosphite, it's not going to provide growth.

Speaker Change: My feeling is, you know,

Speaker Change: The order we got from AI for Q1 and Q2

Speaker Change: We're not counting on it to continue as of yet.

Speaker Change: But because it's a sort of a start-up business,

Speaker Change: So, you know, order can come in any time, if that were to come in, then we can probably sort of maintain our same level as Q2.

Morris Young: But at this point, we're not discounting that. So, with that as a negative. You know, Indian fast by starting to provide the growth. And as you know, telecom and data come regular data come business. They are still some inventory to be digested in Q3. So that's not going to provide growth.

Speaker Change: But at this point, we're not. We're discounting that. So with that, I'll say negative.

Morris Young: And as you know, telecom and Datacom, the regular Datacom business, there is still some inventory to be digested in Q3. So that's not going to provide growth. So, you know, as I said, I think we had very good, strong growth provided by AI applications in Q1 and Q2. And Q3, we are not counting on that at this point, assuming some, you know, some of the stuff that we thought was going to come in Q3 came in Q2.

Speaker Change: you know any phosphide standard will provide a growth and as you know telecom and data com, regular data com business, there are still some inventory to be digested.

Morris Young: So, you know, as I said, I think we had a very good, strong growth provided by AI applications in Q1, Q2, and Q3. We are not counting on that at this point. Yeah, what I would add too is that the orders are a bit jumping around some. Some of the stuff that we thought was going to come in Q3 came in in Q2, but I think the key thing for us is we are getting the orders. We're not losing market share, and we're in very close communication with our customers, and there's lots of transparency on both sides.

Speaker Change: in Q3, so that's not going to provide growth. So, you know, as I said, I think we had a very good, strong growth provided by AI applications in Q1 and Q2, and Q3, we are not counting on that at this point.

Speaker Change: Yeah, what I would add too is that the orders are a bit, you know,

Morris Young: But I think the key thing for us is that we are getting orders. We're not losing market share. And you know, we're in very close communication with our customers, and there's lots of transparency on both sides. So I think we're in a good spot. Yeah, thanks.

Speaker Change: Jumping around some.

Speaker Change: Some of the stuff that we thought was going to come in Q3 came in in Q2.

Speaker Change: I think the key thing for us is we are getting the orders. We're not losing market share and we're in very close communication with our customers and there's lots of transparency on both sides. So, I think we're in a good spot.

Morris Young: So I think we're in a good spot.

Charles: Yeah, thanks. Maurice, I think there are some new languages around your AI opportunity this quarter. I thought that we went through this exercise for a few quarters, and I think you and I were thinking maybe the Indian phosphate opportunity you were seeing in the prior quarters are more for like photo detector, some some really advanced photo detector. But this quarter sounds like you're gaining some confidence that the Indian phosphate substrates are actually going into the optical transceivers. I wonder if there's any new data points that lead to this slight change in how you think about the end of the occasion of the Indian phosphate?

Morris Young: Morris, I think there are some new languages around your AI opportunity this quarter. I think we went through this exercise for a few quarters, and I think you and I were thinking maybe the Indian phosphide opportunity you were seeing in the prior quarters might be more for like photodetectors, some really advanced photodetectors. But this quarter sounds like you're gaining some confidence that Indian phosphide substrates are actually going into the optical transceivers. I wonder if there are any new data points that lead to this slight change in how you think about the end application of Indian phosphide.

Speaker Change: Thanks. Morris, I think there are some new languages around your AI opportunity this quarter.

Speaker Change: I thought we went through this exercise for a few quarters, and I think you and I were thinking maybe the Indian phosphide opportunity you were seeing,

Speaker Change: In the prior quarter, so more for like, uh...

Speaker Change: photo detector, some relay.

Speaker Change: advance the photodetector, but this quarter sounds like you're gaining some confidence that Indian phosphide substrates are actually going into the

Speaker Change: optical transceivers. I wonder if there's any new data points that lead to this slight change in how you think about the end application of the Indian phosphide.

Morris Young: Um... Well, I'm not so sure. We have the confidence it's going into AI, but I'm not sure what specific application it is. I think it is a transceiver, but I think what we are not yet seeing is a continued order from our customer as of yet.

Morris Young: Well, I'm not so sure. I've got, I mean, we have the confidence is going into AI, but I'm not sure what specific application it is. I think it is a transceiver, but I think what we are, we're not, we're not seeing a continued order from our customer as of now yet. We're seeing maybe there are some market adoption for the time being, and it will come hopefully later this quarter and definitely, you know, through the second part of this year. And I'm not sure we're intelligent in terms of knowledge level to know precisely where the Indian phosphate is going into AI.

Speaker Change: Well, um...

Speaker Change: I'm not so sure. I've got, I mean, we have the confidence it's going into AI, but but I'm not sure what specific application it is. It is a, I think it is a transceiver.

Speaker Change: but but I think what we are, we're not

Speaker Change: We're not seeing a continued order from our customer as of now yet. We're seeing maybe there are some market adoption for the time being and it will come

Morris Young: We're seeing maybe there is some market adoption for the time being, and it will come, And I'm not sure we're intelligent in terms of knowledge level to know precisely where the Indian phosphide is going into AI. There may be more than one application within AI. We don't know yet. Absolute knowledge, yeah.

Speaker Change: hopefully later this quarter and definitely

Speaker Change: you know, through the second part of this year.

Speaker Change: And I'm not sure we're intelligent in terms of knowledge level to know precisely where the Indian phosphide is going into AI. There may be more than one application within AI.

Morris Young: There may be more than one application within AI. So yeah, as we discuss with you, I think we know that our end customer definitely told us it's for AI. Our second level, in other words, epic customers are telling us it's for AI. And they're also telling us who they are selling to and end customer application. I don't want to name them now at this conference, but I think it's well known. But it's what specific application is used for. We don't know yet. Absolute Knowledge.

Speaker Change: Yeah, as we discussed with you, I think we know that our end customer definitely told us it's for AI.

Speaker Change: Our second level, in other words, EPI customers are telling us it's for AI.

Speaker Change: We don't know yet. It's not absolute knowledge, yeah.

Morris Young: When you find out Charles, let us know, though, okay.

Morris Young: When you find out, Charles, let us know though, okay? Okay, so maybe the last question I still want to ask about this Indian Classified. I think over the past three months, we did hear from some of the optical transceiver companies based in North America talking about the potential Indian phosphide shortage. Bye. Bye. Bye. Bye.

Charles: Okay, so maybe the last question I still want to ask about this Indian phosphate. I think over the past three months, we did hear from some of the optical transceiver companies facing the North America. Talking about the potential Indian phosphate shortage. In the next five years, as things like you mentioned, the 800 gig plus transceivers ramped up in higher volume. We know you're an important player, but you do have a competition, so let's get out and whether that particular end customer talking about shortage, they are they are they talking about any specific supplier in mind, or they are they are giving a broad market comment, which could mean something quite positive for AXT going into the next few years at AIRX.

Speaker Change: When you find out, Charles, let us know though, okay?

Charles Shee: Okay, so maybe the last question I still want to ask about this Indian classified.

Speaker Change: I think over the past three months we did hear from some of the optical transceiver companies based in North America.

Speaker Change: Talk about the potential Indian phosphide shortage.

Morris Young: Bye, in the next five years as well things like you mentioned the 800 gigabit plus transceivers ramp up in higher volume. We know you're an important player, but that you do have a competition, so I want to get your thoughts on whether you see a shortage of Yeah, I would definitely think on our end, as far as substrate is concerned, Charles, we're confident we have the best technology in terms of EPD, in terms of And as you know, our Indian phosphate revenue at this point is only half of what the peak level was.

Speaker Change: over the next five years as well things like you mentioned the 800 gig plus transceivers ramped up in higher volume

Speaker Change: it could be an issue or not and whether that particular end customer talking about shortage they are they

Speaker Change: Are they talking about any specific supplier in mind, or they're giving a broad market comment, which could mean something quite positive for AXT going into the next few years at AI-REXA.

Morris Young: Yeah, I would definitely think in our end as far as subter is concerned, Charles, we're confident we have the best technology in terms of EPD, in terms of commercial availability and ability to expand our expansion, because we have a very good supply chain, you know, supplier through our joint ventures, and as you know that our in the fast ride revenue at this point is only half of what we the peak level was, so definitely we can we can grow to that level and as you also recall on that upcycle, we grew our in the fast ride revenue 50% year over year for two years in a row, okay, so we definitely don't feel any difficulties of explaining our capability to provide more substrate.

Speaker Change: Yeah, I would definitely think, in our end, as far as substrate is concerned, Charles, we're confident.

Speaker Change: We have the best technology in terms of EPD, in terms of commercial availability.

Speaker Change: ability to expand our expansion because we have a very good supply chain, you know, supplier through our joint ventures. And as you know that our phosphate revenue at this point is

Morris Young: So definitely, we can grow to that level. And as you also recall, in that up cycle, we grew our Indian Phosphate revenue 50% year over year for two years in a row. Okay, so we definitely don't feel any difficulties expanding our capability to provide more substrates. As far as technology is concerned, you know, we're developing six inch Indian Phosphate capability, and our four inch is going very well. On the technology front, we also applied, you know, two very good technological developments over the last six months or so.

Speaker Change: only half of what the peak level was. So definitely we can grow to that level. And as you also recall, on that up cycle, we grew our Indian specified revenue 50% year over year for two years in a row.

Speaker Change: Okay, so we definitely don't feel any difficulties of expanding our capability to provide more substrates.

Morris Young: As far as technology is concerned, you know, we have we're developing six inch in the fast ride capability, and our four inch is going very good on technology front. We also applied, you know, two very good technology development over the last six months or so, so that enables us to have much better yield and so we can have better quality material and controlling our costs. So, you know, if you know anybody who feels there's a potential shortage of in the fast ride, go talk to them and we can sign long-term deals; we guarantee supplies.

Speaker Change: As far as technology is concerned, you know, we are developing 6-inch indium phosphide capability and our 4-inch is...

Speaker Change: going very good on technology front, we also applied

Speaker Change: New York.

Speaker Change: two very good technology development.

Morris Young: So that enables us to have a much better yield, and so we can have better quality material and control our costs. So, you know, if you know anybody who feels there's a potential shortage of Indian phosphate, go talk to them, and we can sign a long-term deal. We guarantee supplies. I'm not sure that's my business, but thanks for the answers. Thanks, Morris. Thanks, Gary. That's all from me. Good questions, Charles.

Speaker Change: over the last six months or so, so that enables us to have

Speaker Change: much better yield, and so we can have better quality material and controlling our cost. So, you know, if you know anybody who feel there's a potential shortage of Indian phosphide, go talk to them and we can sign long-term deals. We guarantee supplies.

Charles: All right, I'm not sure that's my business, but thanks for the answers. Thanks, Marissa, thanks, Gary, that's all for me.

Richard Shannon: Good question, Charles. Your next question comes from the line of Richard Shannon from Craig Collume Capital Group; your line is open.

Morris Young: Your next question comes from the line of Richard Shannon from Craig Halloum Capital Group. I guess I'm going to take a point of view beyond this third quarter you just guided us to, where your body language sounds fairly positive across most of your business here, and maybe kind of push you to give us some sense of what you're seeing, not only for the fourth quarter qualitatively, but are you seeing any improvement or possibility of improvement across any of these segments? Sure, Richard.

Speaker Change: Your next question comes from the line of Richard Shannon from Craig Hallum Capital Group. Your line is open.

Richard Shannon: Well, hi, I'm Orson Garrett. Thanks for taking my questions as well. I guess I'm going to take a point of view past this third quarter you just guided to, where your body language sounds fairly positive across most of your business here, and maybe kind of push you to give us some sense of what you're seeing not only for the fourth quarter qualitatively. You know, are you seeing any improvement or possibility of improvement across any of these segments? And then maybe more broadly and higher level, how what kind of, what your conversation with the customers give you about competence going I think for my perspective, obviously we covers a lot of market segment.

Speaker Change: Hi Morris and Gary, thanks for taking my questions as well.

Speaker Change: I guess I'm going to take a point of view past this third quarter you just guided to where your body language sounds fairly positive across most of your business here.

Speaker Change: And maybe kind of push you to give us some sense of what you're seeing, not only for the fourth quarter qualitatively, are you seeing any improvement or possibility of improvement across any of these segments?

Speaker Change: and then maybe more broadly and higher level, how, what kind of, what the, what your conversation with customers give you about confidence going into 2025.

Morris Young: I think, you know, from my perspective, I think, you know, and whether they start coming in the fourth quarter or first quarter of next year, that's questionable. Then I think, you know... Elon Musk was talking about launching another 40,000 satellites, and China has a plan to launch another 15,000. So that market can grow rapidly, although, you know, I think I worry about that market a bit. It's because the germanium material is a fairly sensitive part of our cost of goods sold.

Speaker Change: Sure, Richard. I think, you know, from my perspective, I think, you know,

Speaker Change: Obviously, we cover a lot of

Morris Young: So if I were to pick one of my favorites, which is in the fast flight, I think the excitement of using it in AI is definitely excites me. We are in talk with customers about potentially running in commercial applications, although I don't know the exact timing of it, but I think your customers are increasing their trial order from 100 wait for 200 wait for one. And whether they start coming the first quarter or the first quarter of next year, that's questionable. And as far as the ponds market and telecom market is concerned, I mean, we hear there are data center businesses still sort of, and telecom market is not doing very well.

Speaker Change: market segment. Okay, so if I were to pick one of my favorite, which is in the fast track, I think the excitement of using it in AI, it definitely excites me.

Speaker Change: We are in talk with customers about potentially running in commercial applications, although I don't know the exact timing of it.

Speaker Change: But I think, you know, customers are, you know, increasing their trial order from 100 wafer to 200 wafer per month.

Speaker Change: And whether they start coming the fourth quarter or first quarter of next year, that's questionable.

Speaker Change: And as far as the pound market and telecom market is concerned, I mean,

Speaker Change: We hear that our data center business is still sort of lagging, and telecom market is not doing very well, but I think, you know,

Morris Young: But I think, you know, things will start to digest its inventory, and hopefully that we can have some recovery for the ponds market as well as the regular data center market. So, as far as guiding our sense concern, we are seeing good growth in terms of HVTs because our customers are sort of worried about diversifying their supply chain for wireless HVTs. So we hope that HVT would continue to grow.

Speaker Change: Things will start to digest its inventory and hopefully that we can have some recovery for the policy market as well as the regular data center market, right?

Speaker Change: So as far as Gallium Arsenate is concerned, we are seeing good growth in terms of HVTs.

Speaker Change: because our customers are sort of worried about diversifying their supply chain for wireless HVTs.

Speaker Change: So, we hope that HPT will continue to grow.

Morris Young: As far as industrial applications, we're seeing some softness in the LEDs, with customers telling us that they are seeing the third quarter slowing down a bit, but I don't know whether it's going to continue in Q4 or not; that I don't know. As far as industrial laser forgetting our science concern, again, it's softer for Q3 and Q2, but I don't have much visibility into Q4 yet. As far as satellite communications concern, I think Q2 was a very strong quarter and Q3 slowed down a bit, but if you hear that the low-orbit satellite, which is going to fill in the gap for 5G plus telecom network, then I think, you know, Elon Musk was talking about launching other 40,000 satellites and China has a plan to launch other 15,000.

Speaker Change: As far as industrial applications, we're seeing some softness.

Speaker Change: in the LVDs.

Speaker Change: what customers are telling us.

Speaker Change: That they are seeing the third quarter slowing down a bit, but I don't know whether it's going to continue in Q4 or not. That, I don't know. As far as industrial laser for galvanic oxide is concerned,

Speaker Change: Again, it's softer for Q3 than Q2, but I don't have much visibility into Q4 yet.

Speaker Change: As far as satellite communication is concerned,

Speaker Change: I think Q2 was a very strong quarter and Q3 slowed down a bit. But if you hear that the low-orbit satellite, which is going to fill in the gap for 5G+,

Speaker Change: telecom network, then I think, you know.

Speaker Change: Elon Musk was talking about launching other 40,000 satellites, and China has a plan to launch other 15,000. So that market can grow rapidly.

Morris Young: So that market can grow rapidly, although, you know, I think I worry about that market a bit is because Germany and material is a fairly sensitive part of our cost of the sold. So, you know, although the market potential to grow is very, very big, but, you know, we would need to see what the cost of the sold of raw material is going to be. And our raw material is shaping up to be a very, very good supply chain supply line. You can see that we have almost 40 percent growth last quarter, and I think Q3 is going to hold up on the same supply, and we have more supply chains, joint ventures to join us in the coming quarter.

Speaker Change: Although, you know, I think I worry about that market a bit, it's because germanium material is a fairly sensitive part of our cost of the soul.

Morris Young: So, you know, although the market potential to grow is very, very big, we will need to see what the cost of goods sold or raw materials is going to be. And our raw material is shaping up to be a very good supply chain. You can see that we had almost 40% growth last quarter, and I think Q3 is going to hold up on the same supply, and we have more supply chains, and joint ventures to join us in the coming quarters. So I think, you know, our supply chain joint venture is giving us good growth opportunities as well. So it just gives them a little color, I think.

Speaker Change: So, you know, although the market potential to grow is very, very big.

Speaker Change: But, you know, we will need to see what the cost of goods sold or raw material is going to be. And our raw material is shaping up to be a very...

Speaker Change: Very good supply chain.

Speaker Change: supply line. You can see that we have

Speaker Change: almost 40% growth last quarter and I think Q3 is going to hold up on the same supply and we have more.

Speaker Change: supply chain joint ventures to join us in the coming quarter. So I think, you know, our supply chain joint venture is giving us good growth opportunity as well.

Morris Young: So I think, you know, our supply chain joint venture is giving us good growth opportunity as well.

Morris Young: Yeah, I want to add a perspective that I think is useful, and it's sort of differentiates us from the traditional sort of chip companies in the semiconductor industry, which is that we have a record where our products and product segments have a very long positive trajectory. So, you know, we all know that if you're making chips, you've really got to rotate one out and a new one in maybe every 18 months. But, you know, we first got traction in Indian Fossified with passive optical networks back in 2013 and 2014, but it's still a market that exists. And so almost all the markets that we touch, while they may, you know, go up and down some, but the long 5 to 15 year path is generally upward and to the right.

Speaker Change: Yeah, I want to add a perspective that I think is useful, and it sort of differentiates us from the traditional sort of chip companies in the semiconductor industry, which is that

Speaker Change: We have a record where our products and product segments have a very long ...

Speaker Change: We all know that if you're making chips, you've really got to rotate one out and a new one in maybe every 18 months.

Speaker Change: We first got traction in Indian phosphide with passive optical networks back in 2013 and 14, but it's still a market that exists. And so almost all the markets that we touch, while they may go up and down some, but it's still a market that exists.

Morris Young: So, you know, we think we're well positioned for growth across a number of markets and, you know, gives us ability to deliver strong results going into 2025. The strong second quarter that we just had puts our first half run rate just over 50 million, so we're now targeting to be in triple digits once again. So that just gives a little color, I think.

Richard Shannon: So, next question. Thank you. Thanks for all that.

Richard Shannon: Maybe I'll dig in a little bit on the Indian fossilized and AI angle here. It can give us a perspective of the customer base here and really kind of digging out just into your direct customer, but the end customer, which has seemed to have visibility in certain cases. To what degree are these, you know, transceiver and ultimately end users, which I assume are to a large degree hyperscalers? So, what degree are those Chinese or Western world customers? I think at this point, we understand this definitely Western World customers.

Morris Young: Next question. So the way I understand it, Richard, is this. Okay. I mean, if I look at it from 25,000 feet up, you know, what is AI? You need competition, you need data storage, and lastly, you need to transfer this data very rapidly and in a massive amount. Okay. I think the first one to go is the short distance, which is VIXO.

Morris Young: So, the way I understand Richard is this. I mean, if I look at it from 25,000 feet up, you know, what is AI? You need competition. You need data storage. And lastly, you need to transfer this data very rapidly and in massive amounts. Okay. I think the first one to go is the short distance, which is VIXO, using sort of the optical cable. And as the short distance communication speeds up, then you're looking at sort of medium range and non-range. I think that's where I think Indian Fossified will start to shine. And so, you're talking about whether it's going to be a EML or Silicon Fatalics.

Morris Young: Okay. And as the speed goes up, as the data transfer needs to get more and more, definitely that we're confident it's going to grow. Okay. And it doesn't need a whole lot of market growth to move our needle, as you know.

Speaker Change: And as such vehicles up as the data transfer needs to get more and more definitely doubt we're confident it's going to grow okay and it doesn't need a whole lot of market growth to move our needle as you know.

Speaker Change: And I think the other thing is I think if you look at indium phosphide now it looks like it.

Morris Young: And I think the other thing is, I think if you look at Indian phosphide now, it looks like it's, you know, sort of waiting for its next growth opportunity. But look at it. I mean, when the consumer product started to grow two years ago, to make the supply chain satisfied. I mean, customers are very happy with us. I mean, the fact that they didn't adopt the next generation phone is not because of us, such as, you know, following the eyeball or glucose monitoring or consumer applications, but last quarter you talked about driving inventory down $10 million.

Morris Young: And I think the other thing is I think if you look at Indian Fossified now, it looks like it's some, you know, sort of waiting for its next growth opportunity. But look at it. I mean, when the consumer product started to grow two years ago, our revenue or any Fossified zoomed almost 50 percent year over year for two years in a row. And so, that shows that we have the capability. to make the supply chain satisfied. I mean, customers are very happy with us. I mean, the fact that they did adopt in the next generation phone is not because of us.

Speaker Change: Solar waiting for its next growth opportunity, but look at it.

Speaker Change: When a consumer product started grow two years ago.

Speaker Change: Our revenue, our indium phosphide zoomed, almost 50% year over year for two years in a row and so that shows that we have the capability.

Speaker Change: To make the supply chain satish.

Speaker Change: Satisfied customers are very happy with us.

Speaker Change: The fact that dividend adopt into next generation phone is not because of us.

Morris Young: And I know there are other customers, and there are other applications potentially than using the files file, such as, you know, following eyeball or glucose monitoring or consumer applications. It's poised to go out because, you know, it's special ability to work in the file infrared range. So it's not because of us. It's material characteristics. It would just shine in certain applications. I think it will come. Okay.

Speaker Change: And I know there are other customers and the other applications potentially going to use indium phosphide, such as following eyeball or glucose monitoring or consumer applications customer adaptations.

Speaker Change: Is poised to grow because.

Speaker Change: Special ability.

Speaker Change: To work in the <unk> infrared range. So is that because of us is the material characteristics.

Speaker Change: It was just shy in surging obligations I think it will come.

Speaker Change: Okay fair enough.

Richard Shannon: Fair enough.

Richard Shannon: Kind of a two-part question. That's probably mostly for Gary, kind of a moral financial side here. But last quarter, you talked about driving inventory down $10 million. This, this quarter, you just said, downwards, is $10 million still possible there. And then also in the last conference call, you talked about the potential for hitting break even in the fourth quarter. Just curious whether you still think that's possible.

Speaker Change: End of a two part question, that's probably mostly for Gary or kind of a more on the financial side here, but last quarter, you talked about driving inventory down $10 million. This quarter, just said downwards.

Morris Young: This quarter, you just said downwards. Is $10 million still possible there? And then, also, in the last conference call, you talked about the potential for hitting breakeven in the fourth quarter. Just curious whether you still think that's possible, you know, volume, of course, and mix.

Speaker Change: Is $10 million still possible there and then also in the last conference call you talked about the potential for hitting breakeven in the fourth quarter. Just curious whether you still think that's possible.

Gary Fischer: Thanks. Break even. I think it's still possible. Again, as we've said before, it's going to depend on, you know, volume, of course, and mix. So it's definitely something that we would strive to achieve. So bringing inventory down is, remains a priority for us. What clouds the picture a bit is that we've had great success in our recycling program. So you don't see the full effect of our inventory reduction efforts in the numbers. Our largest target is Indian Fossified for inventory reduction. And as our revenue grows, we expect to be in a good position to bring the inventory down.

Speaker Change: Breakeven I think is still possible.

Speaker Change: Again, as we've said before it's going to depend on.

Morris Young: So, it's definitely something that we would strive to achieve. So, Bringing inventory down remains a priority for us. What clouds the picture a bit is that we've had great success in our recycling program, so you don't see the full effect of our inventory reduction efforts in the numbers. Our largest target is Indian Phosphite for inventory reduction. Hi, good afternoon.

Speaker Change: Volume of course and mix so.

Speaker Change: So it's it's definitely something that we would strive to achieve so.

Speaker Change: <unk>.

Speaker Change: Bringing him Tory down is remains a priority for us.

Speaker Change: Wood clouds the picture a bit is that we've had great success in our recycling program.

Speaker Change: You don't see the full effect of our inventory reductions efforts in the numbers.

Speaker Change: Our largest target as indium phosphide for inventory reduction.

Speaker Change: And as our revenue.

Speaker Change: Grows we expect to be in a good position to bring the inventory down but.

Gary Fischer: But I have to say, you know, openly to the community that it's taking longer than I thought. But we understand why. And, you know, we're working it. So we haven't taken our eye off the ball. It's just, it's just happened as quickly as I hoped.

Speaker Change: I have to say it openly to the community that it's taking longer than I thought.

Speaker Change: But we understand why and.

Speaker Change: We're working on so we haven't taken our eye off the ball.

Speaker Change: Have been happening as quickly as I hoped.

Gary Fischer: Yeah, I'm rich.

Richard Shannon: Richard I think.

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Speaker Change: Gary.

Speaker Change: Gary It's definitely right about indium phosphide inventory and because you know.

Speaker Change: The demand all of a sudden drops in.

Speaker Change: Yes in Q3.

Speaker Change: 2023 that totaled four Soc.

Speaker Change: Two halves.

Speaker Change: You need to build inventory to do to supply into the customers and all of a sudden they put a stop to it that's why the <unk> was but I think the good part of it is that those indium phosphide will never.

Speaker Change:

Speaker Change: <unk>.

Speaker Change: <unk> written off or written down because they are as good as gold I mean, if anything the value will go up rather than go down.

Speaker Change: Okay fair enough thanks, guys.

Richard Shannon: Thanks Richard.

Tim: Your next question comes from the line of Tim <unk> from.

Speaker Change: Northland Capital markets. Your line is open.

Richard Shannon: Okay.

Dave Kang: Hi, good afternoon. Pardon me. We're going to go back to the kind of capacity, flash shortage question. You mentioned Morris, I think, talking about in Indian classified, you know, trial orders for customers, you know, going from 100 to 200 wafers. And I'm getting the sense that a lot of what's occurred to date has been that kind of, you know, development sort of activity. But I guess my question, my first question is, are you getting a sense as we kind of move forward in the year here, you know, what production volumes might look like in the future relative to the trial volumes that you just discussed?

Tim: Hi, good afternoon.

Morris Young: Pardon me, I wanted to go back to the.., you know, what production volumes might look like in the future for guidance. Okay. I mean, one specific data center customer, Silicon Photonics, they give us forward guidance. So that's a 400 way for a month.

Speaker Change: I wanted to go back to the.

Speaker Change: Kind of capacity.

Speaker Change: Cash shortage question.

Morris Young: You mentioned Morris I think talking about.

Speaker Change: In indium phosphide.

Speaker Change: While orders for customers, we're going from 100 to 200 wafers.

Morris Young: And I'm getting the sense that a lot of whats occurred Gabe has been that kind of development sort of activity.

Speaker Change: But I guess my question My first question is.

Speaker Change: Are you getting a sense as we kind of move forward in the year here.

Speaker Change: What production volumes.

Speaker Change: Look like in the future relative to the <unk>.

Speaker Change: Trial volumes that you just discussed.

Morris Young: I'll follow up from there. Yeah, I, I think, you know, I think, first of all, most of our customers, they gave us four guidance.

Speaker Change: So up from there.

Speaker Change:

Speaker Change: Yes.

Speaker Change: I think.

Speaker Change: Okay.

Speaker Change: You know I think.

Speaker Change: First of all.

Speaker Change: Most of our customers they gave us for guidance, Okay. One specific data center.

Morris Young: Okay. I mean, one specific data center customer, Silica photonics. I mean, they give us four guidance. So, you know, that is production. But they can change; for instance, that customer, when the market was really slow, they told us they have inventory. They went as slow as, I say, 400 for a month. And they told us it's going to grow to 900 months in the fourth quarter. We cannot hold them to it, but usually they do deliver. Okay, that's one example of what customer will give us forecast. And on the, the, the, the pilot production customers concerned 100 to 200 trial order, I think we're hopeful, but they don't tell us when it's going to start in production.

Speaker Change: Silicon Photonics, I mean, they give us forward guidance.

Speaker Change: No.

Speaker Change: That is production.

Speaker Change: But they can change.

Speaker Change: For leases that customer.

Speaker Change: When the market was really slow they told us they have inventory they win a slowest.

Speaker Change: Let's say 400 wafer a month.

Speaker Change: And they told US is going to grow to 908 months in the fourth quarter.

Speaker Change: We get a hold them to it but usually they do deliver okay. That's one example of.

Speaker Change: What customer will give us forecast and all the pilot production customers concerned 100.

Speaker Change: Two 200.

Speaker Change: China Order I think we are hopeful but they don't tell us when there is going to start in production. They do give us a volume forecast that's how we negotiate.

Morris Young: They do give us a volume forecast. That's how we negotiate a sort of a forelooking total price package. And, but I don't know whether I can hold them to that or not, but they're talking about thousands away first.

Speaker Change: <unk> solar.

Speaker Change: Forward looking.

Speaker Change: Price package.

Morris Young: And I don't know whether I can hold them to that or not, but they're talking about thousands of waivers. OK. I mean, last time when consumer products started to boom, it was in the $5,000 range.

Speaker Change: But I don't know, whether I can hold into that or not but they are talking about thousands of wafers.

Speaker Change: Okay.

Morris Young: Okay. So, you can say, you know, if they go to one to 200, definitely the minimum level is a thousand before we're going to give them the big discount. Okay. But whether they go to a 1500 or 2000, it's, I mean, last time when customer product starts a boom, it was even 5,000. Yeah, Tim, what I would say is that we have very strong convictions about these markets for India's onsite. We don't have quite as much clarity on quarter to quarter, but we definitely see that these things are coming. And, you know, I've mentioned this, I think, in the past, but I want to remind you that in the last five years, we have significantly upgraded our facility in Beijing, where we manufacture the Indian Fossilide.

Speaker Change: So.

Speaker Change: You can't say.

Speaker Change: If they go to 1% to 200.

Speaker Change: Definitely the minimum level is 1000 before we're going to give them the big discount okay.

Speaker Change: But whether they go to <unk> <unk> hundred 2000.

Speaker Change: I mean last time when consumer products start to boom it was in the fives.

Speaker Change: Yes, Tim what I would say is that.

Morris Young: Yeah, Tim, what I would say is that we have very, but we definitely see that these things are coming. I've mentioned this in the past, but I want to remind you that in the last five years, we have significantly upgraded our facility in Beijing, where we manufacture Indian phosphide.

Tim: We are varied.

Tim: Strong convictions about these markets for indium phosphide.

Speaker Change: We don't have quite as much clarity on quarter to quarter.

Tim: But we definitely see that these things are coming.

Speaker Change: And.

Speaker Change: I've mentioned this I think in the past, but I want to remind you that in the last five years, we have significantly upgraded our facility in Beijing, where we manufacture the indium phosphide.

Speaker Change: Customers have toured it had been very impressed and we've added capacity so.

Morris Young: Customers have toured it and have been very impressed. And we've added capacity. So, I don't think we're not losing sleep about total capacity capabilities. So, and we will have enough advanced knowledge and awareness when it's time to add more equipment. But that's going to be the issue. It's not; it's probably not going to be facilities now, which is good. It'll be equipment. And we're set up to be able to do that relatively quickly for a manufacturing company. So, I think we're really in a great spot. And when it comes, it's going to be a lot of fun.

Gary Fischer: Customers have toured it, and have been very impressed, and we've added capacity. So I don't think we don't, we're not losing sleep about total capacity capabilities. So, and we will have enough advanced knowledge and awareness when it's time to add more equipment, but that's gonna be the issue. It's probably not gonna be facilities now, which is good. It'll be equipment.

Speaker Change: No.

Speaker Change: I don't think we don't we're not losing sleep about total capacity capabilities, so and we.

Speaker Change: We will have enough advanced knowledge and awareness.

Speaker Change: It's time to add more equipment, but that's going to be the issue. It's not it's probably not going to be facilities now which is good it will be equipment, and we're set up to be able to to do that relatively.

Gary Fischer: And we're set up to do that relatively quickly for a manufacturing company, so I think we're really in a great spot. You know, you'd mentioned your, I'll let Morris give the, uh, you know, forward look, but let's just look. I'm just quickly looking back to confirm my memory. In real life, we got as high in terms of any phosphide revenue as 17.7 million, And we haven't subtracted capacity. So I think it's pretty easy to say, for me, it's just a mere Well, we could at least get to $17.7 million. But I know Morris will say we could do more than that.

Speaker Change: Quickly for a manufacturing company. So I think we're really in a great spot.

Speaker Change: And when it comes it's going to be.

Speaker Change: A lot of fun.

Gary Fischer: All right. Looking forward to that. And along those lines. And, you know, you've mentioned your, I guess, a little bit below half your previous peak. I mean, in terms of any emphosphide revenue, but my question kind of goes to what you were just saying, Gary, which is. You know, you've talked in some example here of, you know, some of these pilot volumes going up by a factor of 10 or fiber 10 or something like that. But what is your, could you estimate for us your maximum. Kind of quarterly revenue capacity to any emphosphide right now without adding any new gear or space.

Speaker Change: Okay.

Speaker Change: Alright.

Speaker Change: Forward to that and along those lines.

Speaker Change: You'd mentioned your.

Speaker Change: I guess, a little bit below half your previous peak.

Speaker Change: In terms of indium phosphide revenue.

Speaker Change: But my question kind of.

Speaker Change: It goes to what you were just saying Gary which is.

Gary Fischer: Talk to you some examples here.

Speaker Change: Some of these pilot volumes going up by a factor of 10, or five or 10 or something like that but.

Speaker Change: What is your could you estimate for us your maximum.

Gary Fischer: From a quarterly revenue capacity of indium phosphide, right now without adding any new.

Speaker Change: Gear or space.

Gary Fischer: Well, I'll let more. I'll let more give the, you know, the forward look, but let's just look, I'm just quickly going back to confirm my memory. In real life, we got as high in terms of any phosphide revenue as 17.7 million. Okay. So, and we haven't subtracted capacity. So I think, you know, it's pretty easy to say for me as just a, you know, a mirror counting thing. Well, we could at least get to 17.7 million, but I know more so say we could do more than that. So, yeah, there are two factors. One is that we have substantially up to our.

Speaker Change: Sure I'll ask of course.

Speaker Change: Or is it.

Speaker Change: Alright, great.

Speaker Change: I'll, let more skips.

Speaker Change: <unk>.

Speaker Change: The forward look, but let's just look.

Speaker Change: Quickly looking back to confirm my my memory.

Speaker Change: In real life, we got as high in terms of indium phosphide revenue.

Speaker Change: $17 7 million.

Speaker Change: Okay. So.

Speaker Change: And we Havent subtracted capacity.

Speaker Change: I think it's pretty easy to say for me it's just.

Morris Young: Amir accounting thing, while we can at least get to $17 7 million, but but but I know Morris will say, we could do more than that so yes. There are two factors. One is that we have substantially upped our.

Morris Young: Yeah, there are two factors. One is that we have substantially upped our yield. Don't tell our customers, for the common good of all consumers. I mean, you performed pretty strongly there in the quarter. But I think you'd expect address margins to come down given product mix, which looks like it, you know. A little bit of upside, but it looks like it came in as you expected. You look to be getting gross margins back down a bit. I wonder, you know, where the fact... But they're doing well, and Gin May's contribution to gross margin on the consolidated basis was above its normal average in Q2. 10% to 12% of India's Fast Five?

Speaker Change: Yes.

Morris Young: You don't tell our customer that. So that would be able to enable us to increase our capability to deliver more waivers, but on the downside. And also the shape of our cost, but on the downside is, as you know, every cycle brings the piranhas. The customer, when they have the ordering hand, they want the world price. So, you know, we are, you know, shopping about pencils and, you know, if customer give us big orders, we are willing to work with them. But I think you know what we have on savings in terms of better yields and better supply chain supply.

Speaker Change: Don't tell a customer that.

Speaker Change: So that will be able to enable us to to to increase our capability to deliver more wafers, but on the downside.

Speaker Change: And then also will reshape our shave off our cost but on the downside as you know every cycle.

Speaker Change: Brings the per on us.

Speaker Change: Customer when they have the order in hand, they want and the oil price.

Speaker Change: So.

Speaker Change: We are.

Speaker Change: She shops.

Speaker Change: Sharpening our pencils.

Speaker Change: If a customer gives us big orders, we are willing to work with them, but I think.

Speaker Change: What we have on savings in terms of better yields and better supply chain supply.

Morris Young: You know, in the fast way, we, we, we've upped our yield; we have increased our recycling capability. So, and we're going to have other supply chain supplement to help us to reduce the cost or in favor of reducing our cost to help our customers to deliver better product for the common goods of all consumers.

Speaker Change: Indium phosphide.

Speaker Change: We upped our yield we have increased our recycling capability.

Speaker Change: And when we're going to have other <unk>.

Speaker Change: Supply chain supplement to help us to reduce the cost.

Speaker Change: All in favor of reducing our cost to help our customers to deliver better products.

Speaker Change: For the come on goods all consumers.

Speaker Change: Okay.

Speaker Change: Yes.

Gary Fischer: Okay, great. And just one question on gross margins. I mean, you've performed pretty strongly there in the quarter. I guess talking about recycling being one of the contributors. But I think you'd expected gross margins to come down, given product mix, which looks like it, you know. A little bit of upside, but it looks like it came in as expected. So I wonder what the kind of moving parts were for the gross margins strength in the core. And likewise on the guide, you look to be guiding gross margins back down a bit. I wonder where the factor is driving that.

Speaker Change: Okay, Great and just one question on gross margins.

Argus: You performed pretty strongly during the quarter Argus.

Speaker Change: Talking about recycling being one of the contributors.

Speaker Change: I think you'd expect gross margins to come down.

Speaker Change: Given product mix, which looks like it.

Speaker Change: Little bit of upside, but looks like it came in as expected so.

Speaker Change: I wonder what the kind of moving parts were for.

Speaker Change: Gross margins strengthened in the quarter and likewise on the guide.

Speaker Change: <unk>.

Speaker Change: You look to be.

Speaker Change: Got it and gross margins back down a bit I wonder what are the factors driving that.

Gary Fischer: Yeah, you're following the trail pretty accurately. I think for the upside surprise, which we were pleased with, one contributor was a good performance on the gallium arsenide recycling program. And that's gotten more traction during the Q2 time period. We were actually starting that program back in 2023, but I think it's really getting into its making a difference. So what that means is that's done through one of our subsidiaries called Gin May. And actually, if you're one of their subsidiaries, so we're the grandparent, I guess. But they're doing well. And Gin May's contribution to gross margin on the consolidated basis was above their normal average in Q2.

Speaker Change: Yes, you are following the trail.

Speaker Change: Pretty accurately I think for the upside surprise, which which we were pleased with.

Speaker Change: One contributor was was.

Speaker Change: A good performance on the gallium arsenide recycling program.

Speaker Change: And that.

Speaker Change: That's gotten more traction.

Speaker Change: During the Q2 time period.

Speaker Change: We were actually starting that program back in 2023, but I think it's really it's really getting into its making a difference.

Speaker Change: So what that means is that's done through one of our subsidiaries called Jin Mei.

Speaker Change: Yeah.

Speaker Change: Actually if youre one of their subsidiaries, so where the grandparent I guess.

Speaker Change: But they're doing well and Jim Mesa contribution to gross margin on a consolidated basis was above their normal average in Q2. So.

Gary Fischer: So that's that was one thing. And we also did better on manufacturing efficiencies just in general. So you know, each little it's, it's never one in this kind of business. It's never, it's rarely ever one big thing. It's usually two or three or four medium sized things. But efficiencies is one. The recycling program is another. So, and you know, we're hopefully being a little bit conservative for the implied guidance on gross margin. But you know, that's kind of our style. I think it's to be a little bit more, you know, cautious because we're not always sure.

Speaker Change: Okay.

Speaker Change: So that was one thing and we also did better on.

Speaker Change: Got it.

Speaker Change: Manufacturing efficiencies just in general.

Speaker Change: So each little it's never one in this kind of business. It's never it's rarely ever one big thing, it's usually two or three or four medium sized things.

Speaker Change: Efficiencies has won the recycling program is another so.

Speaker Change: And.

Speaker Change: Hopefully a being a little bit conservative for this.

Speaker Change: The implied guidance on gross margin.

Speaker Change: But.

Speaker Change: That's kind of our style I think has to be a little bit more.

Speaker Change: Cautious because.

Speaker Change: We're not always sure so.

Gary Fischer: So great. Thanks very much. You're welcome to have good questions.

Speaker Change: Great. Thanks very much.

Speaker Change: Youre welcome two good questions.

Dave Kang: Your next question comes from the line of Dave Kang from B. Riley. Your line is open. Thank you. Good afternoon.

Speaker Change: Your next question comes from the line of Dave Kang from B Riley Your line is open.

Dave Kang: Thank you. Good afternoon first question is.

Dave Kang: First question is on Indian philosophy. Just wondering if you have the data on the mix between high-speed optics for AI versus the rest. Well, actually, at this point, AI is still relatively small. If I were to estimate, it's probably 10% to 12% of Indian philosophy. Yeah. Oh, okay. Got it.

Dave Kang: On indium phosphide, just wondering if you.

Dave Kang: Have the data on the mix between high speed optics for AI versus the rest.

Speaker Change: Thanks.

Speaker Change: Well.

Speaker Change: Actually at this point the AIA is still realm.

Speaker Change: Relative to say a small if I were to estimate is properly.

Speaker Change: 10%.

Speaker Change: 12%.

Speaker Change: Of indium phosphide.

Speaker Change: Yes.

Speaker Change: Oh, okay.

Speaker Change: Got it.

Morris Young: And then second question is on any market share data. So I'm assuming you know, most of your I mean, your competitors have a most of the AI market share at this point. Is that a fair assumption or like like sumitomo? I would tend to think we, I mean, unless we are wrong, but of course, we don't have what our competitors are doing. We don't have their financial numbers. But from what I understand from our customer, they are buying everything from us. The reason for that is that our quality on the number of measurements, including EPD, is hands over our competitors.

Speaker Change: And then second question is on on any.

Speaker Change: Well.

Speaker Change: Any market share data of film assuming.

Speaker Change: Most of your.

Speaker Change: One of your competitors that have most of the AI market share at this point is that a fair assumption or like like Sumitomo.

Speaker Change: I would tend to think we.

Speaker Change: Unless we are wrong, but of course, we don't have.

Speaker Change: What our competitors are doing we don't have their financial lenders, but from what I understand how our customer they are buying everything from us.

Morris Young: Yeah. Oh. Got it. The reason for that is our quality. So, for companies that wear yield counts and they don't wear reliability counts, they're going to AXT. We look forward to speaking with you in the near future.

Speaker Change: The reason for that is that our quality.

Speaker Change: On the number of measurements, including Apd.

Speaker Change: Is his hands over our competitors so keep in mind, the only serious competitor is sumitomo.

Morris Young: So keep in mind, the only serious competitor is Sumitomo. And we're just better than on this particular product; we are viewed as orders of magnitude better. So for companies that wear yield counts and they don't, they wear reliability counts, they're going to AXT. And we don't think that's going to change. We've got a really long head start, shall we say. Got it.

Speaker Change: And we're just better than on this particular product we are viewed as.

Speaker Change: Orders of magnitude better so.

Speaker Change: So for companies that were yield counts and they don't they were reliability counts, they're going to <unk>.

Speaker Change: And we don't think Thats going to change we've got.

Speaker Change: A really long headstart shall we say.

Speaker Change: Got it and.

Morris Young: And just quickly on the Tell Me listing situation, you've mentioned zero companies got dropped. I mean, what are the odds that you guys getting dropped? Well, you know, I think the environment for going public in China, or the requirement for going to be listed on the Shanghai Stock Exchange, or Shanghai Stock Exchange, or even Beijing Stock Exchange, there are three of them now, they are in China. But I think the regulations so allow company to be listed has changed very dramatically this year. I mean, two years ago, there are up to about five or 600 companies going public on the stock market.

Speaker Change: Just quickly on the tongue.

Speaker Change: Listings situation you mentioned zoro companies got dropped I mean, what are the odds that you guys getting dropped.

Morris Young: Yes.

Speaker Change: Well, you know I think the environment for going public in China.

Speaker Change: Requirements are going to be listed on the Shanghai stock exchange, our Shenzhen stock exchange are even Beijing stock exchange there are three of them now.

Speaker Change: They are in China, but I think the regulations to allow company to be listed.

Speaker Change: Has changed.

Speaker Change: Very dramatically this year.

Morris Young: I mean two years ago.

Speaker Change: There are up to about five or 600 company going public on star market.

Morris Young: And this year, I think there are probably, I think you can count with your fingers less than 10. And they were 300 companies asked to be not on the queue for application to be listed on the stock market. And we just updated our application for six months' results. So that's a good sign for us. And as we also, Gary said, we have worked on one of the very important issues that Shanghai Stock Exchange was looking at. So hopefully, we can resolve that. And with our six months' results, hopefully, we have better days to report in the next three to six months.

Speaker Change: This year I think there are probably.

Speaker Change: I think you can come up with your fingers less intense.

Speaker Change: And they were 300 companies us.

Speaker Change: <unk> not.

Morris Young: The.

Speaker Change: Q4 application to be listed stock market and we just updated our application.

Morris Young: For the six months results so.

Speaker Change: That's a good sign for us.

Speaker Change: As we also Gerry said, we have worked one of the very important issue that Shanghai stock exchange was looking at so hopefully we can resolve that and with our six months results and.

Morris Young: Hopefully we have better things to report in the next.

Speaker Change: Three to six months, yes.

Gary Fischer: Yeah, just a little bit more on that, which is that you have to refresh your application. And a number of companies, more than you're not ready for prime time. You know, they had companies going in early 2020 that had no revenue. So they've raised the bar over the time period. But never to us in terms of saying, "go away." So they, on the contrary, they have actually told our investor bankers that this is an attractive offering. You guys have a lot of good stuff that we were in favor of. We can't guarantee that they wouldn't change their mind, but they've had plenty of time to say something negative like this, and they have not.

Speaker Change: Just a little bit more on that which is that.

Speaker Change: You have to refresh your application.

Morris Young: And.

Speaker Change: A number of companies more than several hundreds of companies were asked not to bother don't refresh because.

Speaker Change: Youre not ready for prime time.

Morris Young: Had companies going in early 2020 that had no revenue. So so they've read they've raised the bar over the time period.

Speaker Change: But never to us in terms of saying go away so.

Speaker Change: On the contrary they have actually told our investment bankers that this is an attractive offering.

Speaker Change: You guys have a lot of good stuff that we were in favor of so.

Speaker Change: We can't guarantee that they wouldn't change your mind, but.

Speaker Change: They've had plenty of time to to say something negative like this and they have not so.

Dave Kang: That's why we remain optimistic, and we're just staying in the game to go for it. Okay, thank you. You're welcome.

Morris Young: That's why.

Morris Young: We remain optimistic and we're just staying in the in the game to go for it so.

Speaker Change: Okay. Thank you.

Speaker Change: Youre welcome.

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

Speaker Change: And with no further questions I'll turn the floor back over to Dr. Morris Young.

Morris Young: Thank you for participating in our conference call. This quarter we were participating in the Needham Virtue Semicap Growth Conference, the Jeffrey's Technology Summit, and the Evercore ISI Semiconductor. IT hardware and networking conference. We hope to see you there. As always, feel free to contact me, Gary Fischer, or Leslie Green. If you would like to set up a call, we look forward to speaking with you in the near future.

Speaker Change: Thank you for participating in our conference call. This quarter, we were participating in the Needham virtual semi cap growth conference.

Jeffrey: Jeffrey as technology summit.

Speaker Change: Evercore ISI semiconductor.

Speaker Change: It hardware and networking conference.

Speaker Change: We hope to see you there.

Morris Young: As always.

Speaker Change: Feel free to contact me, Gary Fischer or Leslie Green, if you will like to set up a call. We look forward to speaking with you in the near future.

Operator: Thank you, and this does conclude today's conference call. You may down disconnect. Have a great day. Thank you.

Speaker Change: Thank you and this does conclude today's conference call. You may now disconnect have a great day.

Morris Young: Okay.

Morris Young: [music].