0001437749-25-026516
SEC filingAXT's revenue fell 26.2% YoY to $37.3M in H1 2025, driven by China export restrictions on InP and GaAs substrates, collapsing gross margin to 0.5%.
For the six months ended June 30, 2025, AXT, Inc. reported total revenue of $37.3 million, a decrease of 26.2% compared to $50.6 million in the prior-year period. This decline was primarily driven by a 38.9% drop in substrate revenue to $22.4 million, as demand for indium phosphide (InP) wafers used in data center and passive optical network applications was severely impacted by export restrictions imposed by the Chinese government. Gallium arsenide (GaAs) and germanium (Ge) wafer substrates also experienced decreased demand across various applications. Partially offsetting this, raw materials revenue increased 7.1% to $15.0 million, driven by higher sales of refined gallium and recycled materials.
Gross profit collapsed by 98.6% to $0.2 million, with gross margin falling from 27.2% to 0.5%. Management attributed this to significant unfavorable yields in gallium arsenide production lines, which resulted in charges to cost of goods sold, and to lower substrate revenue, which increased unabsorbed overhead. Selling, general and administrative expenses decreased 3.6% to $11.6 million, while research and development expenses fell 19.1% to $5.6 million, primarily due to lower product development costs. The company recorded a net loss attributable to noncontrolling interests of $1.9 million, compared to income of $0.4 million in the prior year, reflecting lower profitability in PRC subsidiaries.
The substrate segment, which generated 60% of total revenue in H1 2025, faced severe headwinds from China's export controls. On February 4, 2025, China added indium phosphide substrates to its export control list, requiring permits for all three wafer substrate families. While initial export permits for InP were received on June 11 for customers in Europe and Japan, permits for U.S. shipments remain pending. This regulatory action caused substrate revenue in Taiwan to plummet 78.1% and in Europe to drop 56.0%. Revenue in North America, which represented only 3% of total revenue, fell 45.3%.
Conversely, the raw materials segment showed resilience, growing 7.1% to $15.0 million. This was driven by increased sales of refined gallium and recycled materials, partially offset by weaker demand for pBN crucibles. This mix shift towards lower-margin raw materials, combined with the collapse in high-margin InP substrate sales, fundamentally altered the company's profitability profile.
Management faces significant uncertainty regarding the timing of U.S. export permits for indium phosphide substrates and the ongoing impact of escalating U.S. tariffs, which reached approximately 100% on wafer substrates from China. The company is actively monitoring trade policy shifts and evaluating mitigation strategies. Despite these challenges, AXT believes its existing cash and investments of $35.1 million are adequate to meet operating needs and capital expenditures over the next 12 months. The company continues to pursue the listing of its Tongmei subsidiary on the STAR Market, though the process remains subject to regulatory review. No specific quantitative financial guidance was provided.
As of June 30, 2025, AXT reported cash, restricted cash, and cash equivalents of $35.1 million, up from $33.8 million at year-end 2024. Of this total, $8.1 million was classified as restricted cash, down from $11.0 million, primarily due to the release of restrictions upon settlement of collateralized bank loans. The company held no available-for-sale debt securities. Total debt stood at $60.9 million, comprising $55.9 million in short-term loans and $5.0 million in long-term loans classified under other long-term liabilities. Short-term loans increased from $47.3 million at year-end, reflecting net new borrowings. Inventory decreased to $80.1 million from $85.1 million, with reserves for excess and obsolete inventory rising to $26.5 million from $24.1 million. Stockholders' equity declined to $202.6 million from $216.3 million, driven by a net loss and partially offset by foreign currency translation gains.
AXT has entered into cooperation agreements with local governments in Dingxing and Kazuo, China, containing good faith covenants to demonstrate total investments of approximately $90 million, $15 million, and $8 million in value, assets, and capital. These agreements have no specific timeline or penalty for breach. The company also has a cross-license agreement with a competitor running through December 2029, requiring fixed annual payments over a 10-year period. No outstanding purchase orders with cancellation penalties existed as of June 30, 2025. The redeemable noncontrolling interests of $38.0 million carry a potential redemption obligation of approximately $49 million if the Tongmei STAR Market IPO fails to gain approval or is cancelled.
Capital expenditures for the six months ended June 30, 2025, totaled $0.8 million, down significantly from $4.7 million in the prior-year period. The company's stock repurchase program has $2.7 million remaining authorization; no shares were repurchased during the period. No dividends were declared on common stock. Preferred stock cumulative dividends of $2.9 million remain accrued. Debt activity included $24.4 million in proceeds from short-term bank loans and $2.8 million in long-term loan proceeds, offset by $20.2 million in short-term loan repayments. Strategic investments in privately-held raw material companies totaled $0.8 million.
AXT operates in a single segment but discloses revenue by product type and geography. Substrate revenue fell to $22.4 million for the six months from $36.6 million year-over-year, while raw materials and other revenue rose to $15.0 million from $14.0 million. Geographically, China remained the dominant market at $27.9 million, followed by Europe at $3.7 million. One customer represented 10% of six-month revenue. The company holds equity method investments in three private Chinese raw material companies with a combined carrying value of $14.3 million, plus one fair value method investment of $0.4 million.
For the six months ended June 30, 2025, AXT, Inc. reported a net loss of $17.7M, while net cash used in operating activities was $7.9M. The significant difference between net loss and operating cash flow is primarily attributable to non-cash charges of $4.5M in depreciation and amortization and $1.3M in stock-based compensation, as well as favorable working capital movements. Notably, decreases in accounts receivable ($3.2M), inventories ($6.2M), and prepaid expenses ($5.3M) provided substantial cash inflows, partially offset by a $4.9M decrease in other long-term liabilities and a $2.9M increase in other assets.
Capital expenditure intensity declined sharply, with purchases of property, plant and equipment falling to $0.8M from $4.7M in the prior-year period. This reduction in capex, combined with the operating cash outflow, results in negative free cash flow, though the company did not disclose a specific free cash flow figure. No share repurchases or dividends were paid during the period.
Financing activities provided $6.6M in cash, primarily from net short-term bank loan proceeds of $4.3M and net long-term loan proceeds of $2.3M. A favorable foreign exchange effect of $4.3M also contributed to the overall $1.3M increase in cash, restricted cash, and cash equivalents, bringing the ending balance to $35.1M. The company's reliance on external financing to fund operations and investments, coupled with negative operating cash flow, warrants monitoring.