Good afternoon, everyone, and welcome to AXT's first quarter 2023 financial conference call. Leading the call today is Dr. Morris Young, Chief Executive Officer, and Gary Fischer, Chief Financial Officer. My name is Abby, and I will be your coordinator today. 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 keypad. If you would like to withdraw your question, again, press star one on your telephone keypad. Thank you. I would now like to turn the call over to Leslie Green, Investor Relations for AXT. Thank you, Abby, 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, including expected growth in the markets we serve, emerging applications using chips or devices fabricated on our substrates, our product mix, our ability to increase orders in succeeding quarters, to control costs and expenses, to improve manufacturing yields and efficiencies, to utilize our manufacturing capacity, the growing environmental, health and safety, and chemical industry regulations in China, as well as global economic and political conditions, including trade tariffs and restrictions. 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. These uncertainties and risks include, but are not limited to, overall conditions in the markets in which the company competes, global financial conditions and uncertainties, COVID-19 and other outbreaks of contagious disease, potential tariffs and trade restrictions, increased environmental regulations in China, the financial performance of our partially owned supply chain companies, and the impact of delays by our customers on the timing of sales of their products. In addition to the factors 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 online by link from our website and contain additional information on risk factors that could cause actual results to differ materially from our expectations. This conference call will be available on our website at axt.com through April 27th, 2024. Also before we begin, I want to note that shortly following the close of market today, we issued a press release reporting financial results for the first quarter of 2023. This information is 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 first quarter 2023 results. Gary. Thank you, Leslie. Good afternoon to everyone. Revenue for the first quarter of 2023 was $19.4 million, down from $26.8 million in the fourth quarter of 2022, and down from $39.7 million in the first quarter of 2022. To break down our Q1 revenue for you by product category, indium phosphide came in at $7.1 million, reflecting market strengthening, particularly in data center, consumer and telecommunications infrastructure. Gallium arsenide was $5.0 million, reflecting the overall slowdown across a number of applications, particularly in China. Germanium substrates were $1.4 million. Our germanium substrate revenue was up slightly from Q4, and we have resolved the payment issue we described in the past quarters. Finally, revenue from our two consolidated raw material joint venture companies in Q1 was $5.9 million. In the first quarter of 2023, revenue from Asia Pacific was 68%, Europe was 18%, North America was 14%. The top five customers generated approximately 28% of total revenue, and no customer was over 10%. Non-GAAP gross margin in the first quarter was 26.9% compared with 32.5% in Q4 and 33.8% in Q1 of 2022. For those who prefer to track results on a GAAP basis, gross margin in the first quarter was 26.3% compared with 32.1% in Q4 and 33.6% in Q1 of 2022. Total non-GAAP operating expense in Q1 was $8.7 million. This compares with $9.0 million in Q4 and with $8.6 million in Q1 of 2022. On a GAAP basis, total operating expense in Q1 was $9.5 million, down slightly from $9.6 million in Q4 of 2022. For comparison, total GAAP operating expense was $9.6 million in Q1 of 2022. Our non-GAAP operating line for the first quarter of 2023 was a loss of $3.5 million, compared with the non-GAAP operating loss in Q4 of $256,000, and a non-GAAP operating profit of $4.8 million in Q1 of 2022. For reference, our GAAP operating line for the first quarter of 2023 was a loss of $4.4 million, compared with an operating loss of $1.0 million in Q4 of 2022 and an operating profit of $3.7 million in Q1 of 2022. Non-operating other income and expense and other items below the operating line for the first quarter was a net gain of $1.1 million. The details can be seen in the P&L included in our press release today. For Q1 of 2023, we had a non-GAAP net loss of $2.4 million or $0.06 per share, compared with the non-GAAP net income of $2.1 million or $0.05 per share in the fourth quarter of 2022. Non-GAAP net income in Q1 of 2022 was $4.3 million or $0.10 per share. On a GAAP basis, net loss in Q1 was $3.3 million, or $0.08 per share. Net income was $1.3 million, or $0.03 per share in the fourth quarter of 2022, and $3.2 million, or $0.07 per share profit in Q1 of 2022. The average basic shares outstanding in Q1 was 42.5 million. Cash, cash equivalents, and investments were $53.6 million as of March 31st. At December 31st, it was $52.8 million. Depreciation and amortization in the first quarter was $2.1 million, and CapEx was $2.7 million. Most of this is facilities and indium phosphide equipment related. Total stock comp was $0.9 million for the quarter. Net inventory at March 31st was $91.7 million. 45% of the inventory is raw materials, and WIP is 51%. Finished goods makes up approximately 3% of inventory. We had a very successful quarter in our recycling efforts, which benefited our margins and our ESG efforts. When we grow new ingots with recycled indium phosphide, it adds to the inventory. Almost half of the increase in inventory is from recycling. Inventory reduction remains a key focus for us this year, and we expect to bring it down as the demand environment improves. 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. Since the Chinese New Year, we have had active dialogue again with the China Securities Regulatory Commission or the CSRC. Their process is detailed and thorough, and they have asked us to respond to a couple of additional items. We're in the process of doing so now and remain optimistic that we'll get CSRC approval in the coming months. We have posted a brief summary of the plan and the process on our website. 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. Good afternoon, everybody. Well, it's good morning here in China. As expected, revenue took a step back in Q1 as the inventory correction that we began to see in gallium arsenide late last summer accelerated in indium phosphide applications. Despite lower revenue, we feel confident in our market position and strong customer relationships. We have continued to focus on manufacturing efficiencies, having increasing success in our recycling efforts, which benefit our gross margin performance in Q1. We look forward, while the current demand environment remains dynamic, we are seeing positive signs that our revenue is stabilizing and that certain applications within gallium arsenide, such as power amplifiers, are beginning to show some improvement. This makes sense, as these were among the first applications to experience weakness beginning in September of last year. Turning to our individual markets. Indium phosphide held fairly firm through January and then experienced a meaningful decline in February and March, most notably in the data center and consumer applications. We're not expecting an improvement in these applications in Q2, though they appear to be stabilizing. If China moves forward with the national stimulus program, as has been discussed, it would likely provide a catalyst for upgrade cycle in China telecommunication infrastructure. As I mentioned, gallium arsenide demand appeared to be improving modestly. Power amplifier and power lasers showed some signs of recovery in Q1. We also continue to be encouraged by the industry progress in microLED, as well as our own progress in preparing our business for this opportunity. We're already delivering 8-inch gallium arsenide wafers to customers and generating modest revenue. While formal qualification for the flagship program with our large customer won't occur until sometime in the second half of 2023, we have visibility into the likely technical specification that will be required. We feel good about our ability to meet it. In addition, our 8-inch line for gallium arsenide crystal growth is up and running at our Kaihua facility, and we are very excited by our progress in driving improved efficiency there. Turning to germanium substrates. Following a resolution of the payment issue with one of our customers, we saw incremental growth in revenue. While the germanium substrate market has also been affected by the micro softness, we will be working towards sequential growth in the coming quarters. Finally, to our raw material joint ventures. Our revenue in Q1 was approximately flat with the fourth quarter and represent another area where we are seeing stabilization. gallium raw material prices remained approximately flat this quarter and up from the low levels we saw in the fourth quarter of 2022. In closing. Though a softening of the microenvironment will continue to impact growth near term, the trend that we have driven our revenue and customer expansion remains very much intact. We continue to excel in our technical capabilities, and we are ready for our business to support new applications that are likely to drive future growth. Further, we continue to work hard on improving our efficiency, and we are focusing on accelerating our return to profitability. I will now turn the call back to Gary for our second quarter guidance. Gary? Thank you, Morris. Given the continuing inventory correction, we expect Q2 revenue to be between $19 million and $21 million. Product mix is likely to include growth in gallium arsenide substrates and continued weakness in indium phosphide. We expect our non-GAAP net loss will be in the range of $0.10-$0.12, and our GAAP net loss will be in the range of $0.12-$0.14. Share count will be approximately 42.7 million shares. This concludes our prepared comments. Morris and I will be glad to answer your questions now. Abby? At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the question and answer roster. Your first question comes from the line of Charles Shi from Needham. Your line is open. Hi. Good afternoon. Maybe good afternoon to Gary, good morning to Morris. I just wanna understand how you think about the revenue progression through 2023. It's a downturn year, and but I tried to see if we can find any historical precedent to try to get a sense of how this year's gonna shape out. Looks like you're kind of guiding flattish revenue into second quarter of the year. Does it kind of make sense to you maybe the second half of the year, maybe you'll continue to bump along the bottom? That's my first part of the, this question. The second half of this question is, I think historically, in normal environment, Q3 tends to be slightly higher, definitely than Q1. Q3 tends to be the peak quarter of the year. Would that be the case this year, or you think maybe it's gonna be a little bit different given the severity of the downturns? Thank you. Go ahead, Morris. Let me take that. Okay. I think, you know, certainly, I agree with you, Charles. I think that's the normal pattern. I think, you know, we certainly see that, you know, for consumer product and the data center for indium phosphide, because it's just got into the inventory correction, you know, two months ago or three months ago, so we expect it to continue. We do see some activity, especially on HBT and power laser in China, especially. You know, they saw a stabilize last quarter, and we're seeing revenue modestly going up a bit. That perhaps is a encouraging sign. How strong they're gonna continue for the next quarter and how long this inventory digestion for indium phosphide consumer and data center will be, it is hard to say. Because I think, you know, although everybody's expecting the inventory to be consumed, but I worry, I guess, about although, you know, although the inventory may be down a bit, but how strong the recovery of the economy will be. In other words, will there be a other leg to go if U.S. economy were to slip into a recession? That could prolong the inventory or the demand recovery. Yeah. I... Charles, I would say that we don't see revenue declining in Q3. You know, in fact, internally, I think it might start to tick up in Q3. Because the circumstances in the economy are so unusual right now, I would agree with Morris. It doesn't necessarily mean that Q4 will be below Q3. We don't know. So... Got it. The other question I wanna ask is on the cost side. Can you remind us again, what was your CapEx for Q1, and, can you also remind us what's the full year CapEx target for you in 2023? CapEx in Q1 was $2.7 million. I think for the whole year it will be below $5 million. We've really sort of put a lid on things. There was some stuff already in the works that, you know, crossed over into Q1, but in general, Morris and Gary have become Dr. No and Dr. No. We're not gonna do it. Got it. Sounds like you are you're gonna further put a brake on capital spending for the next three quarters of the year, given that in Q1 you already spent almost more than half of the budget you have for the year. Yeah. That, that's the goal. Got it. Got it. The, you know, there are some things that we have to do to stay in compliance with the building codes and regulations, but in general, we're resisting. Yeah. So. Got it. Maybe a last question. I wanna ask you about the consumer. Definitely we recently did hear some rumors about maybe the premium electronics company, they may be having second thought whether to continue with the under the display proximity sensor for headsets. Feels like it sounds like they may be thinking about reverting back to gallium arsenide-based solutions. Have you seen any of the signs that's really happening, and how should we think about that? I believe what I was talking about was the second consumer program, not any new data points for the third potential consumer program as of today. Yeah, on specific customer, you're talking about the proximity sensor. We hear the same thing. The emitter is probably gonna be switched back to gallium arsenide VCSEL. It's still up in the air whether the detector will use a indium phosphide detector or a gallium arsenide detector. As we understand it, indium phosphide detector is much more sensitive, so you can use a smaller area, thus maintaining the smaller notch or pill-shaped window on the phone. At this point, we really have no visibility at all, so I think we are nervously waiting on their decision or what they will decide for the, in the next few months. We do have one other customer in Taiwan, although they are fairly secretive, and they are looking for something to ramp using indium phosphide semi-insulating wafers. We believe it's a detector for collision avoidance or not, I mean, autonomous driving. Again, we're guessing what it is. They, looking at the pilot quantity production they have purchased wafer so far, and also the quotation we provided them for that application. I mean, up, it's still early. Those are probably the two, you know, consumer product that we're looking for. Obviously, I think, microLED, it's taking one step further into reality. I think although it will be launching late, we believe, but nevertheless, it becomes, we believe it is, it will come. As I said in the script that we are making very good progress, you know, in terms of preparing for it, although we're not gonna spend a whole lot of money. We already built a line for them. We're ready to ramp up production for them sometime in 2024, late 2023, 2024. Although samplings are already delivered to our major customers. By the way, this major customer was giving us a facility tour in the last week or so, and they are very pleased. We had a very good meeting. Got it. Thank you, Morris. Thank you, Gary. You're welcome, Charles. Next question. Your next question comes from the line of Matt Bryson from Wedbush Securities. Your line is open. Thanks for taking my question. First one is, you're guiding for flat to little higher revenues, but obviously, you're looking for that, for the loss to increase a bit. Is that mix or what else or where else is expense going up? It's mix primarily. We hope to keep expenses flat. There may be a little bit less contributed below the line, so not sure yet, so. Then I guess from a customer inventory perspective, everyone in the supply chain is struggling not just because end demand is softer, but also because inventory is getting worked out of the system. Do you have any idea where your customers are in terms of that process? How much do you think inventory rationalization versus lighter end demand is weighing on the revenues right now? Well, I think although, you know, gallium arsenide as we speak is giving us more order. You know, like in gallium arsenide, let's say HBT or lasers, when we visited our customers in Q1, or early Q1, it was. Or even Q4 of last year, there was just no order. For HBT, they're starting to take thousands of wafers. Compared to tens of thousand wafers, it's still only, you know, 20% of the peak. At least it's a consistent order pattern, so we feel reasonably comfortable it's coming. If you read into their conference script, they're talking about, you know, second half of the year will be better than first half, although they are still running, you know, 30%, 40% of their peak level. As far as power laser is concerned, it's just starting. We got, you know, we used to deliver thousands of wafer per month. It's now in the hundreds. It's one-tenth. We got to wait another month or so to see how sustainable it is. I think, it's difficult for us to tell is that, you know, everybody controls inventory because in this environment, probably everybody wants to, you know, squeeze the inventory and see if they can drive more cash out. There's no fear because every supplier is more eager trying to get orders. Along with it, there are price pressure with that as well. I think the long term, I mean, I'm looking at maybe a two or three quarter horizon. microLED definitely should be a driver. I don't believe there's any reason why, you know, power laser for gallium arsenide, because it's for industrial manufacturing. I think industrial manufacturing, the consumer market in China is coming back, I believe, because I see, you know, the streets are, you know, more traffic and more people. I think when will it translate into, you know, industrial production, which I think uses a lot of gallium arsenide power lasers. I think from my perspective, it's hard for me to say. I think, you know, the data center, although there is a inventory glut, I mean, our customers are telling us they just bought way too much last year, and although they are very happy with our performance, they just have to digest that inventory. Also, by the way, about data center, I think that the AI application, because it's gonna use so much more, you know, computing power, with the AI logic running. There is a prediction saying in the next few years, if AI is in full bloom, it probably will consume almost 30% of the total energy of the whole society because it's so data-intensive. you know, that should sound long-term good growth for us because, you know, if you need a data center to do more work and you need to access information faster, and you need to conserve energy for the data center, then that's more opportunity for silicon photonics and more opportunity for indium phosphide substrates. That, you know, it, it's a, it's a long sustainable drive for long-term usage, but it probably It's not gonna help us in the next quarter or two. Just to summarize, Morris, I guess what you're seeing is you're starting to see signs that gallium arsenide, at least in some markets, there's demand and inventory's been worked down. With indium phosphide, it's still gonna take a couple quarters before you figure out exactly where demand is just because there is so much inventory in the system. Is that fair? Yeah. In, in a way, that's what I'm saying, Matt. As I said again, as far as indium phosphide is concerned, it's because there are two ways we can look at the opportunity for us. I mean, one is existing market. When they recover, that should be a big, you know, drive for demand. I think there's another one that is new applications. As I said, we have a Taiwanese customer. They are making inquiries and making pilot line, runs onI am the semi-insulating indium phosphide. We don't know exactly what the application is, but from the looks of it's quite substantial in terms of volume. We're guessing it is for autonomous vehicle, but, you know, we, we just have to wait and see, where our, where we are getting that monthly order. The usual, old customers, such as consumer product and data center, the traditional data center, yes, they are bogged down in inventory. We're not seeing the order yet. Got it. Thank you. Thanks, Matt. Your next question comes from the line of Richard Shannon from Craig-Hallum. Your line is open. Well, hi guys. Thanks for taking my questions as well, and good morning to you, Morris in China. Let me ask you a couple of quick tactical questions here, probably for Gary, both for the first quarter results and your outlook for the second quarter here. Can you describe what your... or quantify what your China revenues did, not just Asia-Pacific, but China only? I'm happy to share it, but I don't have it in front of me. Maybe I can look it up and tell you. I don't know in my head. That's the question. Yeah. If you wanna look it up, I'll ask Morris a question here. Yeah. Morris, going to the topic of data center, you talked about in your one of your previous answers here about a fair amount of inventory your customer admitted to here, sounds like in the last quarter. Are you getting sense of continued movement in that business and forward roadmap planning and stuff like that? 'Cause I've heard of some, you know, potential reorganizations or something going on internally there. So just want to make sure you expect that to be a continuing business after, you know, what looks like an inventory burn. Richard, Well, I think they are very enthusiastic about the future product. We engaging with them almost weekly on, you know, trying to solve their next generation, futuristic, material requirement, as well as working with them on, you know. They are a very methodical and very good customer to work with. We don't see any reduced activity with them at all. I don't think they're gonna be dissolving anytime soon. Actually, we do see new product development. I think it's for higher power and higher speed, but, you know, from the materials level, it's very difficult to tell, but they are saying it's for new product. Thanks for that confirmation and thought process. That's good to hear. Morris, maybe if you can touch on and add a little bit more detail of what you're seeing going on within microLED. I guess, you know, when do you expect more, you know, more larger orders coming here, and kind of what are the stages of progress to getting to what I think you referred to as, you know, potential, you know, high volume production late in 2024? Yeah. You know, I think we are skewed to get qualification done in the next, I would say 3 to 4 months. In other words, we're ironing out all the specification the customer are needing, how many ingots and how many wafers they need for qualification, and they just did a site visit for us. I think both parties are fairly happy. I mean, especially the customers are very impressed with our facility. I mean, one of the comment was interesting, although they're saying, "Wow, you guys are doing so much 6S practice in manufacturing and all the SPC and all the controls. This look like a European semiconductor manufacturing plant, but you're in China." I took it as a compliment. I think we are all happy. As far as the volume ramp is concerned, yes, we always, we were told it's gonna ramp sometime, late in 2024. Okay. In the context of the forecast you're getting from this large customer or maybe large customers for 8-inch gallium arsenide for microLED, you said you've got a pilot line set up already. If the forecasts hold true to what you're hearing or seeing from them currently, when would you have to green light a second tranche of equipment to support higher volumes? Well, I think, you know, it's, you can maybe call it fortunately or unfortunately. I mean, we, I think we spent most of the money already. I think, and we're ready because I think, you know, our original planning was for probably 2x the volume before. And also, you know, infrastructure build, you cannot do sort of smaller incremental build. We spent more money on building, that's already done. As far as equipment is concerned, we feel fairly comfortable to fulfill the first tranche production in late 2024 starting without purchasing any further new equipment. Okay. Fair enough. I'll ask a couple of questions to Gary and jump out of line here. First of all, Gary, were you able to find those numbers on China? Yeah. China was $8.1 million in Q1. Okay. Is this expected to be no worse than flat in the second quarter? I think it'll be up a little bit in the second quarter. Well, okay. Good to hear. Last question for you, Gary, is just thinking about your balance sheet here, and I think one of the messages you portrayed last quarter and kind of repeated here is about, you know, trying to squeeze some cash out of working capital. Obviously inventory went up a little bit. You explained that about the recycling dynamic here. As you look throughout the year, with the CapEx plan and other things here, how do we think about where cash, you know, goes directionally? Is this a Is this a year where that goes up directionally, down? This is obviously independent of whatever debt levels you have as well. How do you see that working out this year? I think for the next couple quarters, I would expect it to be relatively flat. It could move up or down a little bit. But typically, with our business model, when we're in a down cycle, you know, we can rely on inventory, we tighten things up, and so the cash burn is not that high. You know, when we grow a lot, when we grow quickly, that's when cash can be cash flow negative because we're investing so much in the growth process. So, so I... Yeah, that would be my comment on that, so, yeah. Okay. That's fair enough. That's all I need to hear. That's all the questions from me, guys. Thank you. All right. Thanks, Richard. Thanks. There are no further questions at this time. Dr. Morris Young, Chief Executive Officer, I turn the call back over to you. Thank you for participating in our conference call. This quarter, we will be presenting at the 20th Annual Craig-Hallum Institutional Investor Conference in Minneapolis. As always, please feel free to contact me, Gary Fischer, or Leslie Green directly if you would like to set up a call with us. We look forward to speaking with you in the near future. Bye. This concludes today's conference call. You may now disconnect.