0001437749-26-017054
SEC filingAXT's Q1 2026 revenue surged 39.1% YoY to $26.9M driven by InP substrate demand for data centers, swinging gross profit to $8.0M from a prior-year loss.
AXT, Inc. reported a significant turnaround in its financial performance for the first quarter of 2026. Total revenue reached $26.9 million, a 39.1% increase compared to $19.4 million in the same period of 2025. This top-line growth was the primary driver behind a dramatic improvement in profitability. Gross profit swung to a gain of $8.0 million, representing a 29.6% gross margin, compared to a loss of $1.2 million (-6.4% margin) in the prior-year quarter. The increase in gross profit is attributed to higher revenue, which allowed fixed costs to be spread over more units, and a favorable shift in product mix.
Operating expenses were mixed. Selling, general and administrative (SG&A) expenses increased 10.7% to $6.6 million, driven by higher compensation, travel, and legal costs. Research and development (R&D) expenses decreased slightly by 3.4% to $3.0 million. The company recorded a net interest income of $0.1 million, a positive swing from a $0.3 million expense last year, due to higher interest income from proceeds of a December 2025 public offering. The provision for income taxes increased to $0.4 million from $0.1 million, primarily due to foreign and federal taxes.
The company operates two product lines: Substrates and Raw Materials. The Substrate segment was the powerhouse of growth, with revenue surging 74.0% YoY to $19.3 million. This was overwhelmingly driven by higher demand for indium phosphide (InP) wafer substrates used in data center connectivity and passive optical networks, a trend management links to the growth of AI applications. The increase was also facilitated by the receipt of additional export approvals from the Chinese government, which had previously been a bottleneck.
Conversely, the Raw Materials segment saw a 7.6% decline in revenue to $7.6 million. This was primarily due to weaker market demand for refined gallium, partially offset by stronger sales of pBN crucibles.
Geographically, the revenue mix shifted dramatically. Revenue in China, the largest market, grew 23.4% to $16.6 million (61% of total). Europe and Asia Pacific (excluding China, Taiwan, Japan) saw explosive growth of 172.4% and 179.5%, respectively, driven by InP demand and export permits. In stark contrast, North American revenue collapsed by 81.3% to just $0.2 million, representing only 1% of total revenue. This was a direct result of China's export restrictions on InP and GaAs substrates, for which permits to ship to the U.S. have not been approved.
Management's outlook is dominated by the fluid and uncertain regulatory environment surrounding exports from China. The most significant challenge is obtaining timely export permits for indium phosphide substrates. While permits for customers in Europe and Japan have been received, a backlog remains, and the timing for U.S. permits is unpredictable. The recent enactment of China's revised Foreign Trade Law, effective March 1, 2026, adds further uncertainty by granting the government enhanced power to restrict exports.
Strategically, the company is positioning for growth. A major secondary public offering in April 2026 raised $632.5 million in gross proceeds. The primary use of these funds is to financially support subsidiary Tongmei in significantly increasing its manufacturing capacity for InP substrates to meet global demand. The company believes it has adequate cash and investments to meet its needs for the next 12 months, but warns that a decrease in sales or failure to secure export permits could adversely affect liquidity.
As of March 31, 2026, AXT, Inc. reported cash and cash equivalents of $41.8M, restricted cash of $16.1M, and short-term investments of $65.4M, for total liquid assets of $123.2M. This compares to $128.4M in cash and restricted cash at December 31, 2025, with the decrease primarily driven by $65.9M in purchases of available-for-sale debt securities, partially offset by financing inflows. Short-term investments consist of certificates of deposit ($7.9M fair value) and corporate bonds ($57.5M fair value), with gross unrealized losses of $0.5M. Restricted cash increased from $8.1M to $16.1M due to additional collateral deposits for subsidiary borrowings from PRC banks.
Total debt stood at $75.7M, comprising $68.9M in short-term loans and $6.8M in other long-term liabilities. Short-term loans include $63.8M in PRC bank loans (interest rates 2.0%–3.8%) and $5.1M in current portion of long-term debt. Of the short-term bank loans, $45.2M is unsecured, $10.7M is secured by time deposits, and $7.9M is secured by real estate. Long-term debt includes a $4.4M construction loan (6.5% interest), and $1.9M from sale-leaseback financing arrangements. Inventory increased to $90.2M from $81.7M at year-end, net of $29.8M in excess and obsolete inventory reserves. Contract liabilities (advances from customers) rose to $0.9M from $0.1M.
AXT has a cross-license and covenant agreement with a competitor expiring December 31, 2029, requiring fixed annual payments over 10 years (amount not quantified). The Company has cooperation agreements with local governments in Dingxing (targeting $90M total investment) and Kazuo ($15M), plus a separate BoYu agreement in Kazuo (~$8M). These are good-faith covenants without specific timelines or penalties. As of March 31, 2026, there were no outstanding purchase orders with cancellation penalties. Operating lease obligations total $2.1M in undiscounted payments, with a present value of $1.9M, extending through November 2029.
Capital expenditures for Q1 2026 were $1.4M (5.1% of revenue), down from $0.5M in Q1 2025. Construction in progress was $25.4M, with $18.7M related to new Dingxing and Kazuo facilities. The Company did not repurchase any shares during the quarter; $2.7M remains under the existing $5.0M repurchase authorization. Preferred stock dividends of $44,000 were accrued. Net debt increased by approximately $6.1M, with $23.8M in new borrowings and $17.3M in repayments. A significant post-quarter event occurred: on April 21, 2026, AXT completed an equity offering of 9,844,357 shares (including full exercise of underwriters' option) at $64.25 per share, generating gross proceeds of approximately $632.5M.
AXT operates as a single segment. Revenue by product type: Substrates $19.3M (71.6% of total), Raw Materials and Other $7.6M (28.4%). Geographically, China represented 61.5% of revenue ($16.6M), Europe 21.3% ($5.7M), Asia Pacific ex-China/Taiwan/Japan 8.1% ($2.2M), Japan 5.7% ($1.5M), Taiwan 2.6% ($0.7M), and North America 0.8% ($0.2M). No single customer exceeded 10% of revenue, though the top five customers represented 32% of revenue. One customer accounted for more than 10% of accounts receivable. Long-lived assets are heavily concentrated in China ($165.5M) versus North America ($1.0M).
AXT, Inc. reported a net loss of $1.5M for Q1 2026, but cash used in operations was significantly higher at $11.7M. This divergence is primarily attributable to substantial working capital investments, notably a $7.4M increase in inventories and a $4.9M increase in accounts receivable, which more than offset non-cash charges like $2.4M in depreciation and $1.0M in stock-based compensation. Compared to Q1 2025, operating cash flow deteriorated by $8.3M, driven by a swing in working capital from a source to a use of cash.
Capital expenditures were $1.4M, representing a moderate intensity relative to the company's scale. The company did not pay dividends or repurchase shares, so free cash flow coverage of capital returns is not applicable. However, the negative free cash flow (operating cash flow less capex) of approximately $13.1M was funded by financing activities, primarily net proceeds from short-term bank loans of $4.4M and stock option exercises of $1.5M.
A notable anomaly is the $65.9M used for purchases of available-for-sale debt securities in investing activities, a new activity not present in the prior-year quarter. This significantly increased total cash used in investing to $67.3M. Overall, cash, restricted cash, and equivalents decreased by $70.5M during the quarter, ending at $57.9M.