0001437749-26-017054
SEC filingRevenue grew 39% YoY driven by InP substrate demand and export permits, with gross margin swinging to 29.6%.
For the three months ended March 31, 2026, AXT reported total revenue of $26.9 million, a 39.1% increase from $19.4 million in the prior-year period. The growth was primarily driven by a 74% surge in substrate revenue to $19.3 million, as higher demand for indium phosphide (InP) wafers used in data center connectivity and passive optical networks benefited from additional export approvals from the Chinese government. Raw materials revenue declined 7.6% to $7.6 million due to weaker market demand for refined gallium, partially offset by stronger pBN crucible sales.
Gross profit improved dramatically from a loss of $1.2 million (negative 6.4% margin) in Q1 2025 to a profit of $8.0 million (29.6% margin) in Q1 2026. The $9.2 million increase was attributed to higher revenue spreading fixed costs over more units and a favorable shift in product mix toward higher-margin substrates.
Selling, general and administrative expenses rose 10.7% to $6.6 million, driven by higher compensation, travel, and legal costs. Research and development expenses decreased slightly by 3.4% to $3.0 million, reflecting lower compensation costs but increased material usage for new product development. Interest income net turned positive at $101,000 versus an expense of $269,000 in the prior year, due to higher interest income from the proceeds of a $100 million secondary offering in December 2025. Equity in income of unconsolidated joint ventures increased 42.3% to $353,000, reflecting stronger performance. Other income net fell to $76,000 from $354,000, primarily due to foreign currency exchange losses versus gains in the prior period. The provision for income taxes rose to $430,000 from $74,000, largely due to foreign taxes and full valuation allowance on U.S. deferred tax assets.
Net loss attributable to noncontrolling interests was income of $135,000, compared to a loss of $1.2 million in the prior year, driven by higher profitability at PRC subsidiaries.
Substrates: Revenue of $19.3 million grew 74% YoY, driven by strong demand for InP wafers for data center and PON applications as export permits were granted for Europe and Japan. GaAs and Ge substrate demand was mixed.
Raw materials: Revenue of $7.6 million declined 7.6% YoY, as weaker demand for refined gallium outweighed growth in pBN crucible sales.
Geographic revenue: China remained the largest market at $16.6 million (61% of total), up 23.4%. Europe grew 172.4% to $5.7 million due to export permits. North America fell 81.3% to $0.2 million as China's export restrictions on InP and GaAs continued to impact shipments to the U.S. Japan and Asia Pacific also saw growth from export approvals.
Management did not provide explicit financial guidance but highlighted ongoing uncertainties from trade tensions and export controls. The company expects tariffs and export regulations to negatively impact revenues, profitability, and cash flows. Recent receipt of export permits for InP substrates to Europe and Japan is positive, but permits for the U.S. remain pending. The company believes it has adequate cash and investments to meet operating needs over the next 12 months. Strategic priorities include supporting subsidiary Tongmei's manufacturing capacity expansion for InP substrates and continuing to navigate the regulatory environment.
As of March 31, 2026, AXT held $41.8 million in cash and cash equivalents, $16.1 million in restricted cash, and $65.4 million in short-term investments, totaling $123.2 million in cash, restricted cash, and investments. Restricted cash increased $8.0 million from December 31, 2025, primarily due to additional deposits pledged as collateral for borrowings by PRC subsidiaries. Inventory rose to $90.2 million, net of $29.8 million in excess and obsolescence reserves. Total debt stood at $75.7 million, comprising $68.9 million in short-term loans (including $5.1 million current portion of long-term debt) and $6.8 million in long-term loans classified under other long-term liabilities.
The company reported no outstanding purchase orders that would incur a penalty if cancelled as of March 31, 2026. A cross-license agreement with a competitor requires annual payments through 2029, but specific amounts are not disclosed in this filing. Land purchase and investment agreements with local Chinese governments in Dingxing and Kazuo call for total investments of approximately $90 million and $15 million, respectively, but are good-faith covenants without specific penalties. Operating lease obligations total $2.1 million in undiscounted payments, with $0.9 million due within one year.
No share repurchases occurred in Q1 2026; $2.7 million remains authorized under the 2014 program. Preferred stock dividends of $44,000 per quarter are accrued but not yet paid. Net debt increased $6.5 million during the quarter, primarily from $20.9 million in short-term loan proceeds offset by repayments. Capital expenditures were $1.4 million, or 5.1% of revenue. Notably, on April 21, 2026, AXT completed a $632.5 million equity offering, significantly strengthening its balance sheet and providing substantial growth capital.
AXT operates as a single segment: designing, manufacturing, and distributing high-performance compound semiconductor substrates and raw materials. Revenue by product: substrates ($19.3 million, up 74% YoY) and raw materials and other ($7.6 million, down 8% YoY). Geographically, China contributed 62% of revenue, Europe 21%, Asia Pacific 8%, Japan 6%, Taiwan 3%, and North America 1%.
Operating cash flow (CFO) was -$11.7 million in Q1 2026, compared to -$3.3 million in Q1 2025, a significant deterioration of $8.4 million. The net loss also widened from -$10.0 million to -$1.5 million (note: the net loss improved, but CFO worsened). Key non-cash adjustments included $2.4M depreciation, $1.0M stock-based compensation, and $0.1M deferred tax assets. However, large working capital outflows drove the decline: accounts receivable increased by $4.9M (vs. a $2.9M decrease last year), inventories surged by $7.4M (vs. a $5.0M increase last year), and payables/accruals provided less support. Capital expenditures (capex) doubled to $1.4M from $0.5M, indicating higher investment in fixed assets. The substantial investing cash outflow of -$67.3M was largely due to $65.9M in purchases of available-for-sale debt securities, a new activity. Financing cash flow of $8.0M came from short-term loan proceeds ($20.9M in, $16.6M out) and stock option exercises ($1.5M). There were no share repurchases or dividends. Overall, the company consumed cash from operations, with free cash flow (CFO minus capex) at -$13.1M, and relied on financing and debt security sales to fund investments.