AXT INC 10-K Analysis & Summary – 3/14/2025

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AXT INC

10-K

Annual report

Filing date:

03/14/2025

TLDR:

ELI5:

AXT makes materials for electronics. They sold more stuff this year, but still lost money. They’re trying to do an IPO for their Chinese business, but there are risks involved.

Accession #:

0001558370-25-003004

Published on

March 16, 2025

Analyst Summary

Revenue increased by 31.1% in 2024, driven by growth in both substrate and raw material product lines.
Gross margin improved to 24.0% in 2024 from 17.6% in 2023, reflecting higher revenue and a favorable product mix.
Operating expenses increased, particularly in research and development.
Cash, restricted cash, and cash equivalents decreased to $33.8 million in 2024.
Management highlights the strategic importance of the STAR Market IPO for Tongmei.
Emphasis on expanding recycling programs and showcasing new facilities.
Focus on strengthening the raw materials supply chain.
Gross Profit Margin: 24.0% (2024), increased from 17.6% in 2023.
Operating Profit Margin: -14.9% (2024), increased from -28.5% in 2023.
Net Profit Margin: -11.9% (2024), increased from -25.3% in 2023.
Earnings Per Share (EPS): -$0.27 (2024), increased from -$0.42 in 2023.
Current Ratio: 2.1 (2024), decreased from 2.1 in 2023.
Quick Ratio: 0.98 (2024), decreased from 1.1 in 2023.
Cash Ratio: 0.44 (2024), decreased from 0.68 in 2023.
Debt-to-Equity Ratio: 0.39 (2024), decreased from 0.39 in 2023.
Debt-to-Assets Ratio: 0.25 (2024), decreased from 0.25 in 2023.
Interest Coverage Ratio: -7.5 (2024).
Inventory Turnover: 0.89 (2024).
Days Sales Outstanding (DSO): 94.3 days (2024).
Days Payable Outstanding (DPO): 59.7 days (2024).
Asset Turnover: 0.29 (2024).
Price-to-Book Ratio (P/B): 0.15 (2024).
Price-to-Sales Ratio (P/S): 0.82 (2024).
Revenue Growth: 31.1% (2024).
Net Income Growth: 38.6% (2024).
EPS Growth: 35.7% (2024).

Opportunities and Risks

Geopolitical Risks: Trade tensions between the U.S. and China, including tariffs and export restrictions, pose a significant threat.
STAR Market IPO: Failure to complete the IPO could trigger redemption rights for investors, impacting AXT’s cash position.
Chinese Regulatory Environment: Changes in regulations and government intervention in China could disrupt operations.
Competition: Intense competition in the semiconductor substrate industry.
Customer Concentration: Dependence on a limited number of customers.
Operational Risks: Manufacturing disruptions, yield issues, and supply chain vulnerabilities.
InP Demand: Growing demand for InP substrates in data centers and 5G applications.
Technological Leadership: AXT’s proprietary VGF technology and low defect density GaAs wafers provide a competitive edge.
Raw Material Supply Chain: Vertical integration in raw materials offers pricing advantages and supply reliability.

Potential Implications

Company Performance

Continued growth in InP and GaAs substrate demand could drive future revenue growth.
Successful completion of the Tongmei IPO could provide additional capital and strategic advantages.
Geopolitical risks and regulatory changes in China could negatively impact operations and profitability.
Failure to manage operational risks could lead to manufacturing disruptions and reduced yields.
Low inventory turnover suggests that it may be holding excess inventory or experiencing slow sales.
High DSO suggests that it is taking longer to collect payments from its customers.
High DPO suggests that it is taking longer to pay its suppliers.

Stock Price

Positive developments in the Tongmei IPO could boost investor confidence and increase the stock price.
Negative news regarding U.S.-China trade relations or regulatory changes in China could negatively impact investor sentiment and decrease the stock price.
Failure to improve profitability and manage risks could lead to a decline in the stock price.

AXT Inc. (AXTI) 2024 10-K SEC Filing Analysis

Executive Summary

This report analyzes AXT Inc.’s 2024 10-K filing. Key findings include increased revenue driven by InP and GaAs substrate demand, but ongoing risks related to international operations, particularly in China, and potential impacts from trade restrictions. The company’s gross margin improved but remains sensitive to various factors. The STAR Market IPO for Tongmei remains a key strategic initiative with potential redemption risks. Overall, a cautious outlook is warranted given the geopolitical and economic uncertainties. Recommendation: Hold.

Company Overview

AXT Inc. is a materials science company that develops and produces high-performance compound and single element semiconductor substrates (wafers). The company operates primarily in China. Key products include Indium Phosphide (InP), Gallium Arsenide (GaAs), and Germanium (Ge) substrates. AXT is pursuing a STAR Market IPO for its subsidiary, Tongmei.

Financial Statement Analysis

Revenue

Total revenue increased by 31.1% in 2024, driven by growth in both substrate and raw material product lines.

Product Type	2024 (USD thousands)	2023 (USD thousands)	2022 (USD thousands)
Substrates	67,748	47,466	111,094
Raw Materials and Other	31,613	28,329	30,024
Total Revenue	99,361	75,795	141,118

Gross Margin

Gross margin improved to 24.0% in 2024 from 17.6% in 2023, reflecting higher revenue and a favorable product mix.

Metric	2024	2023	2022
Gross Profit (USD thousands)	23,836	13,318	52,121
Gross Profit %	24.0%	17.6%	36.9%

Operating Expenses

Selling, general, and administrative expenses increased slightly, while research and development expenses increased by 20.4%.

Liquidity and Capital Resources

Cash, restricted cash, and cash equivalents decreased to $33.8 million in 2024. The company has access to short-term bank loans and a line of credit.

Management’s Discussion and Analysis (MD&A) Insights

Management highlights the strategic importance of the STAR Market IPO for Tongmei.
Emphasis on expanding recycling programs and showcasing new facilities.
Focus on strengthening the raw materials supply chain.

Risk & Opportunity Assessment

Risks

Geopolitical Risks: Trade tensions between the U.S. and China, including tariffs and export restrictions, pose a significant threat.
STAR Market IPO: Failure to complete the IPO could trigger redemption rights for investors, impacting AXT’s cash position.
Chinese Regulatory Environment: Changes in regulations and government intervention in China could disrupt operations.
Competition: Intense competition in the semiconductor substrate industry.
Customer Concentration: Dependence on a limited number of customers.
Operational Risks: Manufacturing disruptions, yield issues, and supply chain vulnerabilities.

Opportunities

InP Demand: Growing demand for InP substrates in data centers and 5G applications.
Technological Leadership: AXT’s proprietary VGF technology and low defect density GaAs wafers provide a competitive edge.
Raw Material Supply Chain: Vertical integration in raw materials offers pricing advantages and supply reliability.

Conclusion & Actionable Insights

AXT Inc. demonstrates growth potential in the specialty semiconductor substrate market, particularly with InP and GaAs. However, significant risks associated with international operations, geopolitical tensions, and the Tongmei IPO warrant a cautious approach. Recommendation: Hold. Monitor developments in U.S.-China trade relations and the progress of the Tongmei IPO closely.

Financial Analysis of AXT, Inc. (2024)

1. Commentary

AXT, Inc. experienced a challenging year in 2024, marked by a net loss despite a revenue increase. Revenue grew by 31.1%, driven primarily by substrate sales, but this growth was offset by a significant increase in the cost of revenue, leading to a lower gross profit margin. The company’s profitability was further impacted by increased operating expenses, particularly in research and development. While strategic investments in raw material companies and expansion into China offer long-term potential, AXT faces risks related to its international operations and the potential failure of the Tongmei IPO.

2. Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin
- Metric: 24.0% (2024)
- Trend: Increased from 17.6% in 2023, a 36.4% increase.
- Industry: The semiconductor industry generally has higher gross margins, often in the 40-60% range. AXT’s lower margin may reflect its position as a substrate supplier and competitive pricing pressures.
Operating Profit Margin
- Metric: -14.9% (2024)
- Trend: Increased from -28.5% in 2023, a 47.7% increase.
- Industry: Given the negative value, this is significantly below the industry average.
Net Profit Margin
- Metric: -11.9% (2024)
- Trend: Increased from -25.3% in 2023, a 52.9% increase.
- Industry: Given the negative value, this is significantly below the industry average.
Return on Assets (ROA)
- Metric: -3.4% (2024) (Net Income / Total Assets = -11,791 / 339,314)
- Trend:
- Industry: Semiconductor industry ROA typically ranges from 5% to 15% for profitable companies.
Return on Equity (ROE)
- Metric: -5.4% (2024) (Net Income / Total Stockholders’ Equity = -11,791 / 216,331)
- Trend:
- Industry: Semiconductor industry ROE typically ranges from 10% to 25% for profitable companies.
Earnings Per Share (EPS) – Basic and Diluted
- Metric: -$0.27 (2024)
- Trend: Increased from -$0.42 in 2023, a 35.7% increase.
- Industry: This is significantly below the industry average.

Liquidity

Current Ratio
- Metric: 2.1 (2024) (Total Current Assets / Total Current Liabilities = 158,272 / 74,176)
- Trend: Decreased from 2.1 in 2023, a 0% decrease.
- Industry: A current ratio between 1.5 and 2.0 is generally considered healthy. AXT’s ratio is within this range, suggesting adequate liquidity.
Quick Ratio (Acid-Test Ratio)
- Metric: 0.98 (2024) ((Current Assets – Inventories) / Current Liabilities = (158,272 – 85,077) / 74,176)
- Trend: Decreased from 1.1 in 2023, a 10.9% decrease.
- Industry: A quick ratio of 1 or greater is generally considered ideal. AXT’s ratio is slightly below 1, indicating that it may have some difficulty meeting its short-term obligations if it cannot quickly convert its inventory to cash.
Cash Ratio
- Metric: 0.44 (2024) ((Cash and Cash Equivalents + Restricted Cash) / Current Liabilities = (22,833 + 10,978) / 74,176)
- Trend: Decreased from 0.68 in 2023, a 35.3% decrease.
- Industry: A cash ratio of 0.5 or higher is generally considered strong. AXT’s ratio is below this level, suggesting a reliance on other current assets to meet short-term obligations.

Solvency/Leverage

Debt-to-Equity Ratio
- Metric: 0.39 (2024) (Total Liabilities / Total Stockholders’ Equity = 84,406 / 216,331)
- Trend: Decreased from 0.39 in 2023, a 0% decrease.
- Industry: A debt-to-equity ratio of 1 or lower is generally considered healthy. AXT’s ratio is well below this level, indicating a relatively conservative capital structure.
Debt-to-Assets Ratio
- Metric: 0.25 (2024) (Total Liabilities / Total Assets = 84,406 / 339,314)
- Trend: Decreased from 0.25 in 2023, a 0% decrease.
- Industry: A lower debt-to-assets ratio is generally preferred, as it indicates a lower level of financial risk.
Interest Coverage Ratio (Times Interest Earned)
- Metric: -7.5 (2024) ((Income from Operations + Interest Expense) / Interest Expense = (-14,803 + 1,340) / 1,340)
- Trend:
- Industry: A ratio of 1.5 or greater is generally considered safe. AXT’s negative ratio indicates that it is not generating enough operating income to cover its interest expenses.

Activity/Efficiency

Inventory Turnover
- Metric: 0.89 (2024) (Cost of Revenue / Average Inventory = 75,525 / ((85,077 + 86,503)/2))
- Trend:
- Industry: Semiconductor companies typically have inventory turnover ratios between 2 and 6. AXT’s low turnover suggests that it may be holding excess inventory or experiencing slow sales.
Days Sales Outstanding (DSO)
- Metric: 94.3 days (2024) ((Accounts Receivable / Revenue) * 365 = (25,640 / 99,361) * 365)
- Trend:
- Industry: The semiconductor industry typically has DSO values between 30 and 60 days. AXT’s high DSO suggests that it is taking longer to collect payments from its customers.
Days Payable Outstanding (DPO)
- Metric: 59.7 days (2024) ((Accounts Payable / Cost of Revenue) * 365 = (12,356 / 75,525) * 365)
- Trend:
- Industry: The semiconductor industry typically has DPO values between 30 and 50 days. AXT’s high DPO suggests that it is taking longer to pay its suppliers.
Asset Turnover
- Metric: 0.29 (2024) (Revenue / Total Assets = 99,361 / 339,314)
- Trend:
- Industry: Semiconductor companies typically have asset turnover ratios between 0.5 and 1.0. AXT’s low turnover suggests that it is not efficiently utilizing its assets to generate revenue.

Valuation

Price-to-Earnings Ratio (P/E)
- Metric: Negative (Since EPS is negative)
- Trend:
- Industry: The P/E ratio is not meaningful when earnings are negative.
Price-to-Book Ratio (P/B)
- Metric: 0.15 (2024) (Market Cap / Total Stockholders’ Equity = (1.80 * 45,358,000) / 216,331,000)
- Trend:
- Industry: A P/B ratio of around 1 is considered normal.
Price-to-Sales Ratio (P/S)
- Metric: 0.82 (2024) (Market Cap / Revenue = (1.80 * 45,358,000) / 99,361,000)
- Trend:
- Industry: The semiconductor industry typically has P/S ratios between 2 and 5. AXT’s low P/S ratio may indicate that it is undervalued by the market.
Enterprise Value to EBITDA (EV/EBITDA)
- Metric: Negative (Since EBITDA is negative)
- Trend:
- Industry: The EV/EBITDA ratio is not meaningful when EBITDA is negative.

Growth Rates

Revenue Growth
- Metric: 31.1% (2024)
- Trend:
- Industry: This is a good growth rate.
Net Income Growth
- Metric: 38.6% (2024)
- Trend:
- Industry: This is a good growth rate.
EPS Growth
- Metric: 35.7% (2024)
- Trend:
- Industry: This is a good growth rate.

Other Relevant Metrics

Raw Material Companies
- AXT consolidates several raw material companies in China, including Nanjing JinMei Gallium Co., Ltd., ChaoYang JinMei Gallium Co., Ltd., and Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd.
- These companies are integral to AXT’s supply chain, providing a more reliable supply of raw materials.
- Investments in these companies are accounted for using different methods (consolidated, equity, and fair value), depending on the level of control and influence AXT has over them.