AXT Q4 2025 Earnings Call

Good afternoon everyone and welcome to AXT's fourth quarter 2025 financial conference call. Leading the call today

conference call. Leading the call today is Dr. Morris Young, Chief Executive Officer and Gary Fischer, chief financial officer. In addition, Tim

financial officer. In addition, Tim Bettles, VP of business development, will be participating in the Q&A portions of the call. My name is Audrey and I will be your coordinator today. I

would now like to turn the call over to Leslie Green, investor relations for AXT. Please go ahead. Thank you, Audrey.

AXT. Please go ahead. Thank you, Audrey.

And good afternoon, everyone. Before we

begin, I would like to remind you that during the course of this conference call, including comments made in response to your questions, we will provide projections or make other forward-looking statements regarding,

among other things, the future financial performance of the company, market conditions and trends, emerging applications using chips or devices fabricated on our substrates, our

product mix, global economic and political conditions, including trade tariffs and import and export restrictions. ability to obtain China

restrictions. ability to obtain China export permits, timing of receipt of export permits, our plan to list our subsidiary Tongme in China, our ability

to increase orders in succeeding quarters, to control costs and expenses, to improve manufacturing yields and efficiencies, or to utilize our manufacturing capacity. We wish to

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 results or events to differ materially. In addition

to the matters just listed, these uncertainties and risks include, but are not limited to, the financial performance of our partially owned supply chain companies and increased

environmental regulations in China. In

addition to the factors just mentioned or that may be discussed in this call, we refer you to the company's periodic reports filed with the Securities and Exchange Commission. These are available

Exchange Commission. These are available online by link from our website and contain additional information on risk factors that could cause actual results to differ materially from our current

expectations. This conference call will

expectations. This conference call will be available on our website through February 19th, 2027. Also, I want to note that shortly following the close of market today, we issued a press release

reporting financial results for the fourth quarter of 2025. This information

is available on the investor relations portion of our website. I would now like to turn the call over to Gary Fiser for a review of our fourth quarter results.

Gary, >> thank you, Lesie, and good afternoon to everyone. Revenue for the fourth quarter

everyone. Revenue for the fourth quarter of 2025 was 23.0 million compared with 28.0 0 million in the third quarter of 2025 and 25.1 million in the fourth

quarter of 2024.

To break down our Q425 revenue for you by product category, indium phospide was 8.0 million primarily from data center applications. Gallium arssonide was 7.0

applications. Gallium arssonide was 7.0 million. Germanmanium substrates were

million. Germanmanium substrates were 231,000.

Finally, revenue from our consolidated raw material joint venture companies in Q4 was 7.6 6 million. In the fourth quarter of 2025, revenue from

Asia-Pacific was 81.5%.

Europe was 17.5% and North America was 1%.

The top five customers generated approximately 22.6% of total revenue and no customers were over the 10% level.

Non-GAAP gross margin in the fourth quarter was 21.5%.

For comparison, we reported 22.6% 6% gross margin in Q3 of 25 and 18.0 gross margin in Q4 of last year. For those who prefer to track results on a gap basis,

gross margin in the fourth quarter was 20.9% compared with 22.3% in Q3 of 2025 and

17.6% in Q4 of 2024.

We continue to be highly focused on driving continued improvement, including further recovery in Q1. Moving to

operating expenses, our total non-GAAP operating expense in Q4 was 7.8 million compared with 6.5 million in Q3 of 2025.

As a reminder, Q3 included some favorable adjustments in R&D that brought our opex down to a lower than normal level. Non-GAAP OPEX in Q4 of 24

normal level. Non-GAAP OPEX in Q4 of 24 was 9.8 million. Uh on a GAP basis, total operating expense in Q425 was 8.8

million compared with 7.3 million in Q3.

and 10.6 million in Q4 of 2024.

Our non-GAAP operating loss in the fourth quarter of 2025 was 2.6 million compared with a non-GAAP operating loss in Q3 of 2025 of 384,000

and a non-GAAP operating loss of 5.4 million in Q4 of 2024.

For reference, our gap operating line for the fourth quarter of 2025 was a loss of 3.8 8 million compared with an operating loss of 1.1 million in Q3 of

2025 and an operating loss of 6.2 million in Q4 of 2024.

Nonoperating other income and expense and other items below the operating line for the fourth quarter of 2025 was a net gain of 285,000.

The details can be seen in the P&L included in our press release today.

For Q4 of 2025, we had a a non-GAAP net loss of 2.6 million or 6 cents per share compared with a non-GAAP net loss of 1.2 million or 2 cents per share in the

third quarter of 2025. Non-GAAP net loss in Q4 2024 was 4.2 million or 10 cents per share. On a gap basis, net loss in

per share. On a gap basis, net loss in Q4 was 3.6 million or 8 cents per share.

By comparison, net loss was 1.9 million or 4 cents per share in the third quarter of 2025. Gap net loss in Q4 of 2024 was 5.1 million or 12 cents per

share. Weighted basic shares outstanding

share. Weighted basic shares outstanding for the quarter was 44.7 million.

Cash cash equivalents and investments increased by 97.2 million to 128.4 million as of December 31st. This is

primarily the result of our public offering of common stock which closed on December 30th and generated approximately 93.9 million. By

comparison, at September 30th, cash was 31.2 million. Accounts receivable and

31.2 million. Accounts receivable and accounts receivable decreased in the quarter by 2.6 million.

Depreciation and amortization in the fourth quarter was 2.3 million. Total

stock comp was 1.3 million. Net

inventory was up by approximately 4 million in the fourth quarter to 81.7 million. This continues to be a focus

million. This continues to be a focus for us and we expect to bring it down in coming quarters. Uh this concludes our

coming quarters. Uh this concludes our discussion or comments about the quarterly financials. Turning to our

quarterly financials. Turning to our plan to list our subsidiary Tongme in China on the star market in Shanghai. We

remain very interested in completing the IPO particularly in light of the rapidly evolving AI infrastructure buildout in China which is fueling increased China based demand for Indian phosphide

substrates. We've continued to keep our

substrates. We've continued to keep our IPO application current and Tongme remains quote in process as part of much of a more selective and smaller group of

prospective listings than a few years ago. Though the current geopolitical

ago. Though the current geopolitical environment is dynamic, Tongme is considered a Chinese company and continues to be regarded in China as a good IPO candidate. We will keep you

informed of any updates. With that, I'll now turn the call over to Dr. Morris Young for a review of our business and markets. Morris,

markets. Morris, >> thank you, Gary.

We were disappointed And pardon interruption. This is the operator. Uh we have lost our speakers.

operator. Uh we have lost our speakers.

Give me one moment to reconnect.

>> Hello.

>> Yes.

>> Now. Yes, you are. Thank you.

>> Okay. Let me start from the beginning again. Uh just in case I missed part of

again. Uh just in case I missed part of it. We were disappointed that we didn't

it. We were disappointed that we didn't receive as many export permits in Q4 as we had hoped based on the average processing time we had seen up to that

point in October.

The good news is now that we have received permits in Q1 and we are in a stronger position today than that we were at the same time in in the prior

quarter.

Gary will take you through our full quarter guidance in a few minutes, but we do expect to achieve sequential

growth in revenue in Q1 driven primarily by growth in Indian fast for data center buildout for AI.

We're also very pleased to know that we are seeing a welcome expansion of our customer base for Indian phosph.

beginning to support leading customers in the optical space that we have not we had limited exposure to prior to this time.

This includes tier one laser manufacturers and optical transceiver module makers both in China and around the world.

We're excited to be able to demonstrate the technological advantage of our low EPD wafers as the market moves to

optical devices with higher speed and greater sophistication for both scale up and scale out applications.

In total, our backlog for Indian fast uh wafers have reached a new high of over $60 million.

As we mentioned last quarter, customers are planning for longer lead time by placing longerterm orders and giving us more visibility into their expected

demand.

As many of you know, the supply chain for optical transceiver is quite complex and highly globalized.

We believe this geographical interdependence is providing both opportunity and incentives for the ecosystem to work together in new ways

to solve global supply chain shortages.

Beyond pluggable receivers, we're seeing a very large developing market for co-ackaged optics for both scale up and

scale out applications.

We're actively engaging in discussions with our customers about their technical and timing requirements and believe this could be

represent yet another uh inflection point in our business developing in late

2027 and beyond.

From a geographic demand perspective, the massive AI infrastructure buildout and planned capback spending by cloud

services and AI platform providers in United States is the primary driver for EML and silicon photonics based optical

transceivers.

We believe that today our material are being used in multiple US hypers scale and we expect that end customers use

will continue to broaden in China. The data center buildout is

in China. The data center buildout is early in its ramp but we are seeing rapid growth as China moves to accelerate its data center expansion and

AI capabilities.

Our revenue related to the data center market in China are expected to grow by more than 60% in Q1 over Q4,

highlighting both increased investment in these tier one data centers as well as the strong desire for Chinese domestic suppliers to secure local

source at every level of the AI infrastructure supply chain.

Given the strong demand environment, it is important to know that AXC is well positioned to handle increased demand for Indian phosphite wafers.

Since we have last reported to you in October, we have already added approximately 25% more capacity and we

are on track with our current plan to double our capacity from Q4 2025 level by the end of this year.

Beyond our current plan for capacity expansion, we're working closely with our customer base to understand their long-term requirement and to align our

plans globally.

Our recent capital raise will be a fundamental to our future expansion as we enter our next significant cave

phase of growth.

A major focus of this expansion will be a increased investment in our 6-in indosfi product and we are excited to

work with our customers to meet the vigorous requirements of next generation EML and select a photonic space devices.

Now turning to Gingai.

We continue to see demand for semi-insulating wafers for wireless RF devices and believe that we have strong opportunity for market share expansion

gated primarily by our ability to obtain export permits.

In Q4, we saw an uptick in semiconducting wafers for both industrial laser applications and data center laser applications.

Vixel lasers are data center for data center applications typically do not require a lot of gallium oxide material

as the device are small. So they don't move the needle much as a growth driver for us.

However, we are seeing an increased demand for Vixo for autonomous vehicles in China uh Chinese automobile market

which is currently expanding rapidly.

high growth expansions. In addition to our watching uh we are watching with interest and emerging application in

robotics for vixels that uh increase the precision and dexterity of a modern robotic hand.

Counter the vixel used in data center applications. Machine vision vixels tend

applications. Machine vision vixels tend to be very large and use more gallium oxide substrates.

They also require high quality material which we are well very well positioned to supply. Again demand is more today

to supply. Again demand is more today primarily China based and covers a diverse set of customers but the breadth

of use case and the development is very exciting.

Finally, our raw material business is was up in Q4 with growth from uh our subsidiary BU which manufactures PBN

crucibles used in manufacturing of Indian phosphite crucible.

In addition, we're pleased to report that our subsidiary Chinme has begun to refine highquality Indian

which gave us now direct control of a guaranteed supply of yet other critical material for our Indian phosphite substrates.

Globally, there continues to be a greater awareness of the importance of earth materials and we are ahead of the curve in developing our unique

integrated supply chain.

In closing, this is a very dynamic exciting time for our company. As we

enter into 2026, we are fundamental supplier to the multi- multi-year optical buildout in

the AI infrastructure market. We have a broadening customer base of tier one companies and a strong balance sheet to support our continued business

expansion.

And with growing backlog, the receipt of Indian phosphet export license uh remains the single most significant gating factor for our

growth.

As such, we are highly focused on ensuring that we are proactive, organized and disciplined about managing

the process on behalf of our customers.

We also know that we must be laser focused on running our business with the greatest efficiency.

This include our continued effort to drive gross margin improvement, opex disciplines and inventory reduction with strong ongoing market trend fueling

the data center upgrade cycle. We

believe that we have tremendous opportunity in 2026 to drive meaningful growth in our business and to return to profitability.

I would like to personally thank our employees for their dedication and tireless effort during this singular moment in Axe history. And I would also

like to express my sincere gratitude to our customers, partners and shareholders for their ongoing support and believe

that in the future we are building together.

Uh we look forward to reporting to you our progress. With that, I will turn

our progress. With that, I will turn call back to Gary for our fiscal quarter guidance.

>> Thank you, Morris. uh to re to reiterate a couple of key points from Morris's commentary, we are seeing a strong increase in our Indian phosphide wafer

demand related to AI and the ongoing data center upgrade cycle given the geopolitical complexity surrounding this market trend. Our customer base is

market trend. Our customer base is diversifying and expanding and customers are placing longerterm orders and providing greater visibility into their

needs. With all of these positive market

needs. With all of these positive market and a specific growth drivers, the most significant single factor to our growth in Q1 and beyond is the success and

timing of getting export permits.

Therefore, guiding for the future is somewhat tricky for us right now as we cannot predict future timing of permits or a success in obtaining them for any customer or individual order. But

drawing on what we know and what we've experienced thus far in the export permitting process, we can offer the following insight to our expectations for Q1. As of today,

for Q1. As of today, we have approximately $26 million in revenue that can be realized in Q1 across our substrate product lines and

raw materials for which we either have already already have a permit to ship or for which an export permit is not required. We have a high degree of

required. We have a high degree of confidence in recognizing this revenue in Q1. We could see significant upside

in Q1. We could see significant upside uh to this number in Q1 should we receive more permits for additional orders between now and the end of the

quarter. But we want to stress that as

quarter. But we want to stress that as we experienced in Q4, the timing for permit issuance is not predictable nor in our control and doesn't necessarily

align with our quarterly reporting.

As Morris mentioned, we continue to focus strongly on gross margin. Uh

further improvement depends on a number of factors, including total revenue as it relates to absorption of fixed costs, revenue mixed by product, and our ability to continue to drive better manufacturing efficiency.

With regards to OPEX, we expect that it will remain at approximately 9.0 million in Q1. With these factors in mind, we

in Q1. With these factors in mind, we believe our non-GAAP net loss will be in the range of 2 to 4 cents and gap net loss will be in the range of 4 to 6

cents. This represents substantial

cents. This represents substantial year-over-year progress towards our return to profitability.

We estimate share count in Q1 will be approximately 53.2 million shares.

Okay, this concludes our prepared comments. Uh we'd be glad to answer your

comments. Uh we'd be glad to answer your questions now. Um Audra operator,

questions now. Um Audra operator, >> thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and

join the queue. If you would like to start your question, simply press star one again.

We'll go first to Richard Shannon at Craig Callum.

>> Well, great. Thanks uh Morris and Gary for uh taking my questions here. Um

Gary, I'm going to do a quick uh um request to uh give me the revenue number you gave for the quarter. It got my line got garbled here. I heard about 26 that you believe you can get highly likely to get. Was there a number to the upside

get. Was there a number to the upside there? Apologies for needing to ask

there? Apologies for needing to ask this.

>> No, we we normally gave you guys a range, but uh we discussed before the call today that we we're very very

confident at the 26 number. Um, we we did say just a moment ago that we believe we could go higher if we get more permits, but we that it it wouldn't

even it could even be more than just a normal range, which we usually have a a two or $3 million range for you guys.

>> Well, well, let me let me try to add on to this point that is uh our manufacturing are doing the manufacturing as if we

could get permit.

So there's a lot of these so soal semi finished good or finished good staging in our clean room ready to be shipped if

we can get a X4 permit.

>> Yeah, we we are building to forecast uh and to the backlog u whether or not we're not building to permits. We're not

waiting until we get a permit and then say okay let's get going. Um,

>> and so it's it's it's building and you know it's we're we're enthusiastic.

We're excited and of course yeah, we're a little bit frustrated because it would be pretty big numbers if we can get some more of these permits and we think that we will we can comment more in this in

this call, but uh we're we're hanging in there. You know, we're not we're not

there. You know, we're not we're not discouraged in giving up. So

okay, appreciate understanding your approach to the guidance and certainly makes a lot of sense in this environment. Let me ask uh about the

environment. Let me ask uh about the licensing process here. Last quarter you said it was about a 60 business day or three months process here and obviously that didn't turn out um as we saw from your pre-announcement which uh

unfortunate but uh we all know how governments can work from time to time here. Have any new insights as to how

here. Have any new insights as to how they're working here? And I guess is are there um are there any permits that are being rejected that you don't think should be? Uh just more insights here on

should be? Uh just more insights here on this on this licensing process.

Yeah, I I can answer that one. So, th

this trans this uh process is not transparent at all. Um, and we're seeing quite a lot of variability. You know, we started off in uh the end of Q3 by saying it was looking like we're seeing

a fairly consistent 60 business day process cycle. Um, we're now seeing a

process cycle. Um, we're now seeing a lot more variability as we go through there. And as I say, there's there's

there. And as I say, there's there's just no transparency to that. Um it it's reasonable to assume that there's geopolitics playing into this as well.

It's really hard to determine what and why. Um and it's difficult therefore to

why. Um and it's difficult therefore to figure out which permits um are are coming in on time, which are taking longer. I I'll answer the second

longer. I I'll answer the second question as well, which um you you asked whether there had been any permits that had been denied and why. We have

actually received a couple of denials.

um with the instruction that we can resubmit that application with more information. So, this is the first time

information. So, this is the first time we've we've actually received denials on permits. Um and we're not utterly sure

permits. Um and we're not utterly sure why. Again, no transparency to this. We

why. Again, no transparency to this. We

don't see any particular reason why any of these permits um should not be approved. Um and it's a process that

approved. Um and it's a process that we're just working through. So, these

these permits that um have been denied, we've we've already resubmitted with Moffcom. Um and we're hopeful that we

Moffcom. Um and we're hopeful that we continue to talk to MOFM and they will get reviewed quickly and could potentially turn around fairly quickly.

Could even make an impact on on Q1 Q1 numbers um if we can get a quick turnaround on them.

>> And what does MOCOM stand for?

>> Oh, that's the Ministry of Commerce in China.

>> Yeah. So let me add what makes viewpoint uh the comment about the team just give you um that is although there is a

denial of a application but they come with a specific instruction how to strengthen the application which we

think is is a good indication. In other

words if they really want to deny they just want to they can just let it sit there. I mean the fact that they want

there. I mean the fact that they want more information about a actually I think it's a sizable uh permit

application we have and that means hey you know they are taking a very serious look at it and hopefully that you know will turn to be a permit.

>> Yeah.

>> Okay. Uh that is helpful. Thanks for

that insight. Uh second question here is um kind of the backlog here and also following up on on Morris your comments about customers booking farther out. So

we went from a backlog of 49 to above 60 here and you also commented that people are or customers are ordering farther out. Can you suggest how far out they're

out. Can you suggest how far out they're going right now and also how far out are you hearing forecasts from these

customers as well?

Yeah, let me see how to answer that.

Actually, let me first answer my part of the question and I will turn over to team.

>> [laughter] >> Well, and the reason why is that um you know uh team really works with customers hearing what their demand is that

actually you know one of the interesting comments we have was that we have important meetings with our customers this week and they're telling us team at

least in two occasions people are saying gee you know our our demand forecast increases every So that that's the [clears throat] kind

of level I think I mean we we know it is tight and we know it's going up but I think you know people are upsizing their demand and they're telling us you know

what they want to do whether they're going to go to four 4 in how much they want to switch from between three to four and four to six.

Okay. And as far as how much inventory they're building, I think that depends upon customers. Some of the customers we

upon customers. Some of the customers we suspect that they they're buying into the inventory, but they also telling, you know, I'm

going to take it all if you deliver.

Whereas others I think they are telling us the real demand in the quarter because I think you know as of now we

cannot deliver enough of their demand.

So they are giving us longer lead time to give us more incentive to you know build up the expansion plan and

build the capacity for them. And also I think the other thing is Tim you want to comment on long-term commitment that you're talking to customer about.

>> Yeah I I'll definitely I'll comment a little bit on that and I'll also comment a little bit more on on backlog and and what we're seeing from this. Um so a lot

of this backlog remember is is scaled up uh based on the the permit dynamics right. So the the the permit dynamics

right. So the the the permit dynamics once we receive a permit to export materials, we have a six-month window to export. So a lot of backlog is built

export. So a lot of backlog is built that the moment that permit comes in, we have a six-month window maximum to deliver. Um and in many cases that

deliver. Um and in many cases that window the window of which the the customers are looking to receive material is a lot shorter than 6 months.

So really and truthfully this this is all being gated by by permits as we mentioned during the discussion.

um in in terms of of what we're seeing in in build out for um inventory, I I think at this moment in time, you know, people would like to keep more

inventory, but as Morris mentioned, just about everybody we're talking to is telling telling us that the demand um is growing literally on a weekly basis. So,

we just see the numbers expanding and expanding >> [clears throat] >> um over and over.

Now turning to forecasts and what kind of visibility we have. We are definitely talking about long-term supply agreements um with a number of customers

right now and we are we're we're planning our business according to those long-term supply agreements. We we're

seeing forecasts out beyond 2030 for many of these customers. Um but of course as I've just said those numbers

are increasing on a on a week-by-week basis. So um it's it's difficult to keep

basis. So um it's it's difficult to keep track of things but people are are talking about minimum um minimum demand requirements moving forward for at least

the next two to three years given us forecast out beyond 2030.

So um all in all I I think this this backlog is real. it's achievable. Um,

and it's it's kind of being um limited by our our permits at the moment.

>> Okay, makes sense. I'll ask one more question and jump out of line here, guys. Um, this is on capacity additions.

guys. Um, this is on capacity additions.

Um, just a few kind of uh multi-art question here. I I think I heard you say

question here. I I think I heard you say you're going to double your capacity uh from the end of 25 to the end of 26. you

could verify that and if so can you help us understand what level of capex are going to be requiring and then looking beyond that and Tim you just mentioned

forecast going out beyond 2030 which is interesting to hear um how much more capacity beyond that could you need let us let our minds wander about what kind

of scale of opportunity you're thinking about here thank you >> yeah I I I think I think we just said we we have

increased our capacity by 25% um now and we do expect to double our capacity by the end of this year. Okay.

And how much uh uh budget would do we need? Uh it could be about $30 million.

need? Uh it could be about $30 million.

And that is sort of on the low end in a way because the first phase of the expansion which is doubling our capacity mainly use

um brownfield. In other words in our

um brownfield. In other words in our existing tomate facility we already have green uh uh uh clean room available. We

have the building there already and power supply and clean uh uh water. So I

think that budget is lower be looking beyond 2026.

Uh we are looking at possibly doubling it again in 2027 and that budget is lying somewhere

around 100 to $150 million. Depends

about how we want to build it because then we're talking about a green field.

We need building, we need cleaning, we need power, uh etc. >> Okay, great. Thank you guys.

>> Thanks, Richard.

>> We'll move next to Tim Savajo at Northland Securities.

>> Hey, good afternoon. Um let's continue with that capacity discussion but maybe try to put some numbers around it. You

know, if I look at where you've peaked historically, and I think we're talking exclusive about Indian phosphide here, that's, you know, getting up toward 20

million a quarter in substrate revenue.

And I imagine your capacity is now slightly above that.

um given the uh the increase you talked about in Q4.

I guess question one is that reasonable and should we you know should we expect you to exit calendar 26 with you know revenue capacity roughly

double those levels and you know would you anticipate having to demand a to fulfill that at that time or you're building maybe a little bit ahead?

Thanks.

Uh let me first answer the question. The

I think we calculated I think um it's approximately $35 million a quarter uh by the end of the year run rate.

Okay. It could be a little bit more be given the the the the price environment is dynamic uh as we you know

the cost of Indian are going up.

Um and can we can we use up all this capacity?

I think looking at the backlog we can certainly do but the problem is the gating factor is the permits.

>> I'll I'll add something in here as well.

Um okay irrespective of permits you know we we mentioned we are seeing growth in this business in China as well.

>> Yeah. um and and looking at it quarter to quarter. Uh Q4 was probably double um

to quarter. Uh Q4 was probably double um revenue in China than Q1 in 2025.

Um and we would expect we're looking at potentially doubling again through 2026.

So we're definitely seeing growth there in China um that that warrants expansion as well as growth outside of China um

where we would need permits for Yeah, Tim, I I I agree with you, but then I don't want to minimize the importance of outside of China, right?

>> I think the AI growth, the budget we're seeing is really fueling the demand for Indian phosphor substrate. Yeah, Kim,

this is this is Gary and I, you know, I'm supposed to speak conservatives, but uh and I am, but I'm not sure you guys are getting the point is that every

customer is worried about getting enough for their needs. There there's a general concern where the meetings we've had this week, we're not meeting with the

purchasing manager. We're meeting with

purchasing manager. We're meeting with CEOs and general managers. they all want to talk to Morris about capacity and about future growth. So, um there's a

phenomenon going on here that all of us it's it's unusual for no matter what we do for our jobs, including the the analysts, this is a very unique and unusual situation. I mean, I'm I've been

unusual situation. I mean, I'm I've been around the block a few times and Morris has and this is very very unusual and it's

it's actually intense. It's a we're excited but um we're scrambling. We're

scrambling and I don't I don't see any end to it near term. This is this is people are telling us that the the their demand is going to be going up three,

four, 5x over the next four or five years. And you know there's not how many

years. And you know there's not how many suppliers are there? You know the answer to that? Two. And we're one of them.

to that? Two. And we're one of them.

Yeah, I I think let me add to that. I

think you know the investor usually ask the CEO the toughest question is what keep what keeps you up at night.

I think what's keeping up at night is calculating how we're going to expand that capacity, how we're going to get that product to our customers and how to develop the technology that customer

wants. I mean it's very exciting but

wants. I mean it's very exciting but it's also very straining. Uh you know we we need to be very much aware what the

customer wants and satisfy their demand.

I fortunately we have recent experience at adding capacity. What you know it was almost back 10 years ago when we learned that we needed to get uh gallium marsite

moved out of Beijing and you know so we had you know 2017 18 kind of time period where we we did add capacity from from

green grass fields. So, we have some strengths here, but it's going to tax us even though we are experienced.

>> Yeah. I I do want to give the analyst a point to ask the question, but I think I'm I'm we're talking to each other.

>> We're too excited. Yeah.

>> But I I think, you know, it is a very good point. I mean I think we prior to

good point. I mean I think we prior to this we probably overspent because the IPO preparation we actually expand from

one facility to three facilities but now I think we're looking at you know a great demand for Indian classify which I think it's uh you know it's really

meeting our challenge and I think Gary is right we're we are very well positioned uh to meet that demand I think we probably the best suited to

increase capacity and also because the the very low integration we have in terms of supply chain and we're in control of a lot of

other material which could short supply you know if Indian subsidy continue to grow like what we're talking about and

we have plans for that as well >> a good example is our subsidiary Jinme Jin makes the Indian phosphide poly for

tongme. So you know we have in our

tongme. So you know we have in our supply chain is supporting this growth process.

Next question Tim.

[laughter] Oh I'm a little bit afraid now. But um

[laughter] I was I was um you you actually highlighted um you highlighted in the release even the

increased presence um with um some big tier one customers.

I guess in the commentary you mentioned, you know, maybe some in China, but elsewhere, you know, in in terms of what's going on there. Are we talking

about orders with with major new customers qualification any specific programs? And and I'm not sure these two comments were related or

not, but I'll ask if they were with regard to your increased um investment in 6-in indium phospide. if you can maybe cover both of those points.

Appreciate it. Thanks.

>> Yeah, I'll uh I'll I'll take a stab at that one, Tim. So, yes, we are um we are gaining more traction uh with customers

as as we've said on previous calls as well um that we've we've not um we've not been so prolific in. So we are

gaining um we're gaining design in we're gaining qualifications on existing products as well as new products uh as we move forward and the customers are

looking to expand on their demand for indium phosphide.

As Morris mentioned in the call there's there's already been been a big move from 3in to 4 in. So, we've spent a lot of time and effort on scaling up our 4in

business. Um, and we're also seeing a

business. Um, and we're also seeing a lot of interest now. And of course, we all know one customer that's really

driving um 6-in demand. So, we're we're really taking 6 in um very very seriously. Um, and we're expanding as we

seriously. Um, and we're expanding as we expand capacity both now and our doubling capacity through 26 and beyond.

We're looking at um adding significant 6-in capacity in there during that expansion. And we're just we're just

expansion. And we're just we're just plowing through the numbers right now to um to see what we need to uh to drive 6

in um and and how we scale 6 in compared to three and four and more of the traditional wafer sizes.

>> Yeah. I I think you know >> Morris please.

>> Sure Tim I I think you know one part of it perhaps is the cooperative effort.

You know usually uh when your customer don't go to me they probably talk to the sales guy and

give us orders. But I think now the dynamics is such that we sort of need to interact more

to make sure that we putting the right amount of attention to both in terms of development and capacity expansion to where they need it.

>> Okay. And then you know virtually also to convince us this is the right investment we should have. Is that

right?

>> That's correct. We're also getting a lot more customer buy in um with uh with commitments NRE purchase orders to drive that

business forward as well.

>> Okay, thank you.

>> We'll move next to Matt Bryson at Wedbush Securities.

Hey, thanks for uh taking the question.

Um just can you talk a little bit about what might have been unfettered demand or shipments in in Q4 or what you might

be guiding to in Q1? Um, if you weren't restricted by permits, >> uh, if we're not restricted by permits, um, then the basic question is our

ability to manufacture high volume because there's there's no issue about demand or backlog. So the the variable that you you you're really focusing on

is manufacturing capability. So

>> yeah I I I I don't know whether the customer are telling us more demand than we can deliver but I think we definitely have more orders than we can actually

manufacture now as we as we add the capacity we're counting on who we can supply to >> but of course there's other leading factor which is

>> yeah so I I mean hypothetically assuming you you could be manufacturing around $20 million worth of Fund you could ship it all if you could get permitted.

>> Yes, correct.

And that will that will we expected to increase it to about $35 million a quarter by the end of the year.

and their way of making sure every every point along the supply chain uh receives equal attention in terms of

you know poly in terms of crucibles furnaces etc etc >> understood and then so you're completely confident that of that 35 million in

capacity if you can bring it on and you can get permits that come come to end of this year you could possibly be shipping

30 million 35 million um in orders. I I

guess is there are there any customer commitments or LTAs or or anything else that kind of solidifies that that demand?

>> Uh what's that term that LPTA?

>> We we we've we've got a lot of purchase orders in there to cover.

>> Right. We've we've got a lot of purchase orders in there right now and we're we're going through long-term agreements. Yeah.

agreements. Yeah.

>> Um, you know, long-term agreements, I think, are in terms of locking up capacity are are easy. Um, and we're talking to customers to lock that

capacity up. The the the gating factor,

capacity up. The the the gating factor, and we we've reiterated this a lot today and and previously, gating factor with long-term agreements is how much can we actually ship out of the country? What

can we get permits for? So, we're we're trying to um we're trying to address that through LTAs, but um for sure we can definitely cover this kind of this

kind of revenue volume with with purchase orders and LTAs.

>> Thanks, Kim. And then Gary, I think the last one I have is for you. Um I if you get to those those numbers in terms of shipments for Indian phosphodi so um 30

million plus can can you give us some of the parameters we should be thinking about in terms of uh gross margins what what are the puts and takes and you know

hypothetically would you be able to get back to the kind of co covid era highs um that you're reporting back in 2021

2022 too.

>> Yes. I mean, we we always like uh Indian phosphide. Um and

phosphide. Um and you know, if you have to pick of our three substrate product that you want to see go through the ceiling in terms of volume and demand, uh it's the right one

for us. Uh I think I think getting

for us. Uh I think I think getting somewhere at you know 40 million a quarter in agra not just Indian

phosphide but uh we should we should be getting hopefully somewhere close to 35% um gross margin. So,

>> oh, I I will add other point. You know,

I always describe EXC.

It's a fairly unique company because we I describe our substrate business as the locomotive engine in the front but we

have a lot of cars in the back following us such as Indian such as phosphorus quartz PBN crucibles

furnaces we make. So if our business is good we're pulling these guys along that should help us. So what you're seeing

here I'm more optimistic and Gary is that I think that 35% is you know the normal substrate business if we can pull those guys along that should help us

even further. Yeah. Yeah. Our internal

even further. Yeah. Yeah. Our internal

goal is higher Matt but um so that we don't overstate expectations from uh you know for your community you know we want to be a little bit cautious. So

>> we're very optimistic. So it's it it's it's pretty exciting.

>> Is just one quick followup. Um the the shift to 4 in and and 6 in does that does that change uh the the parameters at all on a on a gross margin perspective?

>> I think normally the larger the size we go the better margin we will get. On the

other hand, I'll be more cautious about six inches. We are still a little bit in

six inches. We are still a little bit in development stage. So I think initially

development stage. So I think initially we're looking at lower margin, but we're looking for ways to compensate that.

Right Tim?

>> Right. And um product mix is still very much um geared towards 3 in and 4 in at the moment. And and you know, as Morris

the moment. And and you know, as Morris says, we're running 6 in up. It is still a bit of a development project at the moment. Um it will be growing through

moment. Um it will be growing through this year. Um but again reme remember as

this year. Um but again reme remember as as we do that um 3 in and 4 in are still a big percentage of our business.

>> Understood. Thank you.

>> Thanks Matt.

>> And that concludes our Q&A session. And

I will now turn the conference back over to Leslie Green for closing remarks.

>> Thank you, Audra. And thank you all for participating in our conference call. We

will be participating virtually in the Loop Capital Conference in March and hope to see many of you there. As

always, feel free uh to contact us if you would like to set up a call and we look forward to speaking with you soon.

Thanks.

>> And this concludes today's conference call. Thank you for your participation.

call. Thank you for your participation.

You may now disconnect.