Title

Presentation

AXT, Inc. beats earnings expectations. Reported EPS is $-0.01, expectations were $-0.04.

Operator: Good afternoon, everyone, and welcome to AXT, Inc.’s First Quarter 2026 Earnings Conference Call. Leading the call today is Doctor Morris S. Young, Chief Executive Officer, and Gary L. Fischer, Chief Financial Officer. In addition, Tim Bettles, VP of Business, will be participating in the Q&A portion of the call. My name is Tracy, and I will be your coordinator today. After today’s prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star 1 to raise your hand. I would now like to turn the call over to Leslie Green, Investor Relations for AXT, Inc. Leslie, go ahead.

Leslie Green: Thank you, Tracy, 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, emerging applications using chips or devices fabricated on our substrates, our product mix, global economic and political conditions, including trade tariffs and import and export restrictions, ability to obtain China export permits, timing of receipt of export permits, our plan to list our subsidiary, Tongmei, in China, our ability to increase orders in succeeding quarters, to control costs and expenses, to improve manufacturing yields and efficiencies, or to utilize our manufacturing capacity.

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. In addition to the matters just listed, these uncertainties and risks include, but are not limited to, the financial performance of our partially owned supply chain companies and increased environmental regulations in China. In addition to the factors just mentioned or 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 current expectations.

This conference call will be available on our website at axt.com through 04/30/2027. Also, I want to note that shortly following the close of market today, we issued a press release reporting financial results for 2026. This information is available on our website at axt.com. I would now like to turn the call over to Gary L. Fischer for a review of our first quarter results. Gary?

Gary L. Fischer: Thank you, Leslie, and good afternoon to everyone. Revenue for 2026 was $26.9 million, compared with $23 million in 2025 and $19.4 million in 2025 last year. To break down our Q1 2026 revenue by product category, indium phosphide was $13.6 million, primarily from data center applications. Gallium arsenide was $5.4 million, germanium substrates were $0.2 million. Finally, revenue from our consolidated raw material joint venture companies in Q1 was $7.6 million. In 2026, revenue from Asia Pacific was 78%, Europe was 21%, and North America was 1%. The top five customers generated approximately 32% of total revenue, and no customers were over the 10% level. Gross margin showed a substantial improvement in the first quarter.

Non-GAAP gross margin was 29.9%, compared with 21.5% in 2025 and a negative 6.1% in 2025 last year. For those who prefer to track results on a GAAP basis, gross margin in the first quarter was 29.6%, compared with 20.9% in Q4 and a negative 6.4% in 2025. Moving to operating expenses, total non-GAAP operating expense in Q1 was $8.6 million, compared with $7.5 million in Q4 and $8.5 million in 2025. On a GAAP basis, total operating expenses in Q1 were $9.6 million, compared with $8.7 million in 2025 and $9 million in 2025. Our non-GAAP operating loss for 2026 was $0.55 million compared to the non-GAAP operating loss in 2025 of $2.6 million and a non-GAAP operating loss of $9.6 million in 2025. For reference, our GAAP operating line for 2026 was a net loss of $1.6 million compared with an operating loss of $3.8 million in 2025 and an operating loss of $10.3 million in 2025.

Non-operating other income and expense and other items below the operating line for 2026 was a net loss of $0.035 million. The details can be seen in the P&L included in our press release today. In 2026, we made substantial progress towards profitability. We had a non-GAAP net loss of $0.585 million or $0.01 per share, compared with a non-GAAP net loss of $2.3 million or $0.05 per share in the fourth quarter and a non-GAAP net loss in 2025 of $8.2 million or $0.19 per share. On a GAAP basis, the net loss in Q1 was $1.6 million or $0.03 per share compared to a net loss of $3.6 million or $0.08 per share in the fourth quarter and $8.8 million or $0.20 per share last year in 2025. Weighted average basic shares outstanding in 2026 were 53.3 million.

Cash, cash equivalents and investments decreased by $5.1 million to $123 million as of March 31. By comparison, at December 31, cash, cash equivalents and investments were $128.4 million. Accounts receivable increased by $5.2 million, almost exactly the same as the change in cash. Depreciation and amortization in the first quarter was $2.4 million. Total stock comp was $1 million. Net inventory was up approximately $8.5 million for the first quarter to $90.2 million. 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, we remain very interested in completing the IPO, particularly in light of the rapidly evolving AI infrastructure build-out in China and China’s development of its semiconductor supply chain, which is fueling increased China-based demand for indium phosphide substrates.

We have continued to keep our IPO application current, and Tongmei remains in process as a part of a much more selective and smaller group of prospective listings than a few years ago. Though the current geopolitical environment is dynamic, Tongmei is considered a Chinese company and continues to be regarded in China as a good IPO candidate. We will keep you informed of any updates. With that, I will now turn the call over to Doctor Morris S. Young for a review of our business and markets. Morris?

Morris S. Young: Thank you, Gary. This is an incredibly exciting time for AXT, Inc. As many of you are aware, last week, we completed a capital raise for $632.5 million in support of Tongmei’s indium phosphide capacity expansion, as well as R&D investment in new products, like 6-inch indium phosphide, and other working capital needs. With our backlog of orders and customer forecasts achieving record levels, we are laser focused on adding capacity to support customer requirements. I am pleased to report that we are running ahead of our plan to double our indium phosphide capacity this year from 2025 levels. Our capability to scale up quickly is unique among our peers. Unlike our competitors, AXT, Inc. designs and builds our own crystal growth furnaces, has our own supply of critical raw materials, and has the manufacturing space in place to achieve our expansion goal this year.

As you can imagine, longer-term capacity planning is one of the most important discussions we are having today with customers and major supply chain players in our space. The message we are having for them is this: AXT, Inc. is stepping up. Beyond our 2026 capacity expansion, we are planning to double our indium phosphide capacity again in 2027 with a new facility near our current one that will be dedicated to indium phosphide wafer production. Our 2028 planning is also underway and we expect to expand again meaningfully. This is an industry in which scale matters. The barriers to entry are high, even for most skilled manufacturers. As the market continues to grow, capacity has become a critical enabler. What we are hearing from industry sources and echoed from our customers is the expectation that the market for optical components will increase significantly in the coming years, driving a four to six times increase in the substrate market overall in the next three to five years, driven by both scale-out and scale-up applications.

Beyond pluggable transceivers, we are seeing a very large developing market for CPO, co-packaged optics. We are actively engaging in discussions with customers about their technical and timing requirements and believe this could represent another inflection point in our business beginning in late 2027 and beyond. With this massive growth cycle ahead of us, we are actively working with a multitude of players from our direct customers to the end customers with whom we have not historically had direct relationships. We are there to understand their longer-term requirements and to align our growth and innovation plans accordingly. This will be a thoughtful and measured process, but we believe we are in the best position competitively to support and enable our industry in meeting its current and future needs.

Over the last few quarters, the expansion of our indium phosphide customer base has been gratifying. We are now supporting nearly all leading customers in the optical space. This includes tier-one laser manufacturers and optical transceiver module makers, both around the globe and in China. In alignment with our customers’ technical requirements and roadmaps, we are making important progress on our 6-inch indium phosphide product for both In-doped and S-doped specifications. A significant part of our capacity expansion will be focused on 6-inch crystal growth technology to support the planned roadmap of 6-inch capability by our customers. We are excited to be able to demonstrate the technological advantage of our low EPD wafers as the market moves to optical devices with higher speeds and greater sophistication for both scale-up and scale-out applications.

Now turning to Q1. Export permits in our first quarter came in slightly better than our guidance and are off to a solid start in Q2. Gary will take you through our full guidance in a few minutes, but we are expecting to achieve sequential revenue growth in Q2, driven primarily by growth in indium phosphide. In fact, Q2 would be expected to be our largest quarter for indium phosphide in AXT, Inc.’s history. This derives from an indium phosphide backlog that has now reached a new high of over $100 million. As we mentioned last quarter, customers are giving us more visibility into their expected demand and we are working closely with them in this supply-constrained environment to meet their needs as we continue to expand our capacity. From our geographic demand perspective, the massive AI infrastructure build-out and planned CapEx spending by cloud services and AI platform providers in the U.S. is the primary driver for EML and silicon photonics-based optical transceivers, as well as high-speed photodetectors.

We believe that today, our material is being used in multiple U.S. hyperscalers. We expect that end-customer use will continue to broaden. We are also seeing significant growth in China as China moves to accelerate its capability throughout the AI supply chain. Our revenue related to the indium phosphide-based laser market in China more than doubled in Q1 from the prior quarter and we expect it to double again in Q2. This highlights China’s increasing investment in AI infrastructure supply chain for the global market. This is a great opportunity for AXT, Inc. as there is no permit required to ship our product within China. Turning to gallium arsenide, in Q1, demand for semiconducting wafers for industrial robotics and data center laser applications all held steady from the prior quarter.

We continue to see demand for semi-insulating wafers for wireless RF devices and believe that we have a strong opportunity for market share expansion. However, this is gated primarily by our ability to obtain export licenses, which came in light in Q1. Finally, our raw material business continues to be a crown jewel in our growth strategy. We are pleased to report that our subsidiary Jinmei has begun to refine high-purity indium, which gives us direct control of and a guaranteed supply of other critical material for indium phosphide substrates. We are also investing to help Jinmei expand its capability so that as AXT, Inc.’s demand grows, Jinmei will continue to provide a meaningful portion of our raw material requirements. Globally, there continues to be a greater awareness of the importance of earth materials and we are decades ahead of the curve in developing our unique integrated supply chain.

We will continue to invest in our portfolio as we believe it is a major competitive differentiator. In summary, we believe AXT, Inc. is entering one of the most consequential chapters in our company’s history. The investments we are making today in capacity, in technology, and in our unique integrated supply chain position us to meet extraordinary demand we see building across the optical and AI infrastructure markets. Our customer engagement is deepening, our visibility is improving, and our competitive differentiation is strong. While we remain disciplined and thoughtful in our execution, we are confident that the groundwork we are laying now will enable us for meaningful growth in the years to come. With that, I turn the call back to Gary for our second quarter guidance.

Gary L. Fischer: Thank you, Morris. To reiterate a couple of key points from Morris’ commentary, we are seeing a strong increase in our indium phosphide wafer demand related to AI and the ongoing data center upgrade cycle. Given the geopolitical complexity surrounding this market trend, our customer base is diversifying and expanding, and customers are placing longer-term orders and providing greater visibility into their needs. With all of these positive market and AXT, Inc.-specific growth drivers, the most significant single factor to our growth in Q2 and beyond is the success and timing of getting export permits. Therefore, guiding for future revenue is somewhat tricky for us right now, as we cannot predict future timing of permits or our success in obtaining them for any customer or individual order.

But drawing on what we know and what we have experienced thus far in the export permitting process, we can offer the following insight into our expectations for Q2. As of today, we have approximately $34 million in revenue that can be realized in Q2 across our substrate product lines and raw materials for which we either already have a permit to ship or for which an export permit is not required. We have a high degree of confidence in recognizing this revenue in Q2. We could see upside, even significant upside, to this number in Q2 should we receive permits for additional orders for which we have the inventory to support. But we do want to stress that the timing for permit issuance is not predictable nor in our control and does not align with our quarterly reporting.

We continue to focus on gross margin improvement. Further improvement depends on a number of factors including total revenue as it relates to revenue mix by product, absorption of fixed costs, and our ability to continue to drive better manufacturing efficiency. With regards to OpEx, we expect that it will be approximately $9.3 million in Q2 on a non-GAAP basis and approximately $10 million on a GAAP basis. With these factors in mind, we expect to achieve profitability on both a GAAP and non-GAAP basis in Q2. We believe our non-GAAP net income will be in the range of $0.06 to $0.08 and our GAAP net income will be in the range of $0.05 to $0.07. We estimate share count for Q2 will be approximately 63.5 million shares. Okay, this concludes our prepared comments.

We will be glad to answer your questions now.

Morris S. Young: Tracy?

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 now to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Finally, please limit yourself to one question and one follow-up. Please stand by now while we compile the Q&A roster. Your first question comes from the line of Timothy Paul Savageaux with Northland Securities. Your line is open. Please go ahead.

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Timothy Paul Savageaux: Hey, good afternoon, and congrats on the step up in backlog and the strong guidance for next quarter in indium phosphide. I guess my first question, you mentioned backlog and customer forecasts at record levels, and we certainly saw that with $100 million in backlog. With regards to long-term capacity planning with customers, are you at the point of coming to any sort of long-term supply agreements with various customers and, if so, what sort of timing might you expect on that?

Tim Bettles: Thanks, Tim. Yes, we are talking to a number of customers right now on long-term supply agreements as we build our capacity out and try to understand where their demand is going. Nearly all of the larger customers in this space are talking about long-term supply agreements with us, and we expect to come to resolution with some of those in the very near future.

Timothy Paul Savageaux: Great. And just following up on that, you had mentioned last quarter that you are developing some relationships with tier-one customers or tier-one suppliers who had not necessarily been close relationships or customers over time. I wonder if we can get an update on that, and I have one more follow-up after that.

Tim Bettles: Yes, thanks. That is going really well, actually. We have qualification wafers in with a lot of customers and we are finding paths and avenues to get wafers into a lot of these tier-one customers. As we see this market grow, there is a lot of opportunity for us, and we have said in the past that we have really been focused on these next-generation technology products that require high-quality material that, frankly, only AXT, Inc. can build and can supply. And with emerging supply chain constraints within indium phosphide, we are in the strongest position to grow capacity. So we are qualifying and we are supplying wafers to a lot of new tier-one customers in this field. So it is exciting times for us.

Morris S. Young: I want to add one point. From my perspective, I started to hear three months ago from some of the tier-one customers, but now I am starting to hear even from the end hyperscalers. In other words, the customer’s customer, the end users, are also interested in seeing how we develop the supply chain guarantee for their growth plan.

Tim Bettles: Yes, that is correct, Morris. It is a good point. There have been a lot of press releases about long-term supply agreements into our customers from the hyperscalers and from the hardware companies, and there has been a lot of encouragement from those hyperscalers and hardware companies for their suppliers to enter into long-term supply agreements with AXT, Inc. That is actually driving a lot of the discussions that we are having on long-term supply agreements, and of course it has given us a lot more visibility into what the market demands are at the hyperscaler side of things and how that trickles down to demands for AXT, Inc. It also gives us a lot of visibility into technical demands as we move forward into high-end lasers and detectors in these new products.

Timothy Paul Savageaux: Great, and that makes sense. Maybe somewhat related to those discussions, I would be interested in an update on what you are seeing in terms of pricing for indium phosphide substrates?

Tim Bettles: That is a good question. We are raising some of our prices. We are seeing some recent pricing increases in raw materials and specifically with indium. So we are having conversations with our customers to align our costs and maintain or grow gross margins. We are also globalizing our pricing. Certain geographical regions have been more aggressive in the past on price targets, especially for lower-end markets such as GPON. We are standardizing our pricing across those geographical regions.

Morris S. Young: Let me add to that. The pricing opportunity for us is also the fact we are migrating more towards larger size. Some of the smaller sizes are more traditional and more price sensitive, and there are more competitors who can fill those needs. But when you get to 4-inch and 6-inch, as well as higher specification requirements, that is where our product shines.

Timothy Paul Savageaux: Thanks very much. Appreciate it.

Gary L. Fischer: Thanks, Tim.

Operator: Your next question comes from the line of Matthew Bryson with Wedbush Securities. Your line is open. Please go ahead.

Matthew Bryson: Hey, thanks for taking my question and great results. I just wanted to hone in on gross margins a bit. Obviously, you saw a pretty big uptick in Q1. I am not quite getting to the peak you had back in the COVID time frame, but I am getting pretty close. Could you talk a little bit about how much of that is higher utilization levels versus how much of it is increased pricing, and whether my math is roughly accurate?

Gary L. Fischer: For Q1, there is some impact from increased pricing, but the primary drivers are the traditional two that we highlight. One is volume is up, and the other is the mix is rich towards indium phosphide. As a matter of fact, if you look at it percentage-wise, indium phosphide was just a tad north of 50% of total revenue, which really helped. The pricing effects are being put in place, but you will see the impact from your viewpoint later this year.

Matthew Bryson: Got it. For Q2, Gary, if I said that the gross margins are coming in roughly around 40%, is that in the ballpark? And again, can you just talk to how much that is mix versus utilization versus price?

Gary L. Fischer: I think that is too aggressive. You know us—we like to be a little bit more conservative. We are definitely going to be crossing the 30% threshold, which we have said for several years: if we can get to $30 million in revenue and have a good mix, then we could be above 30% in gross margin. I would encourage you to maybe knock that down a bit. We can talk about it later. Having said that, we are headed in the right direction. Gross margins should go up and we feel very confident that they will. How fast and to what exact level is to be determined. All the indicators are exactly what I have been saying for many years: the mix is rich for indium phosphide, and the volume is up. Inside the company, we are very pleased.

Morris S. Young: I would argue our supply chain strategy will start to shine. AXT, Inc. is like a train with a strong locomotive. When we are accelerating, all the cars behind us—such as our Jinmei, BoYu (which makes our crucibles), high-purity materials, etc.—all move along with us. When we slow down, of course, they compress against us. But right now is a good time—we are moving very strongly. You are going to see their contribution to our ability to make profit grow too.

Matthew Bryson: Got it. And then just my one follow-up: I noticed, going back to the last filing, that you had gotten export licenses, I think, for every geography except for the U.S. Any more thoughts on getting licenses for shipping in the U.S., and how important is that in terms of being able to fully utilize that additional capacity you are bringing on?

Morris S. Young: We are not giving up on the United States. It is still pending.

Tim Bettles: We are still being encouraged to apply for export permits for U.S. customers both in the U.S. and in other global regions. At the moment, we are getting permits pretty readily for U.S. customers based in other global regions. But that does not mean we are stopping any work on trying to obtain permits for the U.S. We have been contacted by the Ministry of Commerce in China on a number of U.S. applications to submit more data. That gives us an encouraging sign that they are still looking at U.S.-based permits, and there is still a possibility to get a permit for the U.S. in the near future. In the meantime, we are supplying wafers globally to other regions as well. This is a very global supply chain and a very global market, and we are taking advantage of all the avenues that we can.

Matthew Bryson: Thanks again.

Operator: Just a reminder that if you would like to ask a question or a follow-up, please press star 1 to raise your hand now. Your next question comes from the line of Analyst with Needham. Your line is open. Please go ahead.

Analyst: Hi, thanks for taking my question. I want to ask you more about the capacity and the capacity build plan here. I think your last COVID high for indium phosphide quarterly record was $17.7 million. That was achieved in the second quarter of 2022. You are basically implying you are going to be at or above that level in this coming Q2. But I recall back in 2022, you probably also built above that $17.7 million because back then you thought you would have indium phosphide demand from the premium electronics company for smartphone applications. What is the max factory output for your existing factory today? How utilized is the existing factory, and what is the expected factory output once you add the next two factories? I think that is something you talked about after the follow-on offering. If you can provide any color on the numbers, that would be great.

Morris S. Young: We usually say our highest indium phosphide revenue per quarter was $17 million—you have a very good memory. We said in Q4 that we increased our capacity by about 25% in 2025, and in 2026 we are going to double that. In our capacity planning, we think we are going to get about $35 million per quarter capability by the end of 2026. Do not forget, capacity is increasing every month. In the next quarter, indium phosphide revenue is going to be above the $17 million per quarter—it will be a new record in Q2. We are acquiring land near our existing factory in Beijing. We are in the process of negotiating, buying the land, and doing the design. We are probably going to start building it, but because it is a greenfield, it will probably take about a year, maybe a year and a half to complete.

Our capacity expansion is in stages. Sometimes the cleanroom is the most critical—if you do not have cleanroom space, you cannot put in your machines—so that is more digital. Some of the crystal growth capacity is more incremental. Right now, the cleanroom capacity is greater than our crystal growth capacity, so we are increasing our capacity gradually. In the next year or so, once the greenfield is under construction, it will be more digital to expand our cleaning capacity. Tim?

Tim Bettles: Morris talked about doubling our capacity to a rate of $35 million per quarter in indium phosphide by the end of this year. Remember, that is in a brownfield site that was once a crystal growth facility used for gallium arsenide. As we relocated gallium arsenide, we have been able to move into that. We are in a position that nobody else in the indium phosphide world is in—that we can double our capacity so quickly. Looking into the next growth, we are acquiring a facility right next door to us—again, extremely fortunate. The building is already there, and that allows us to double yet again. By the time we have completed that expansion, which should be by 2027, maybe early 2028, we should be somewhere in the region of $65 million to $70 million of capacity per quarter.

Then, as Morris mentioned earlier, we are looking at where we need to go from there, looking at other opportunities and other ways to expand beyond that, probably in a greenfield site somewhere else.

Gary L. Fischer: To be a bit more specific as a detailed guide, $17 million we have already achieved. By the end of this year, we will be at $35 million per quarter. Annualized, once fully ramped, that implies roughly $140 million at the 2026 exit rate, and a year later it could be approximately $280 million at the exit rate, recognizing capacity increases are continuous, not instantaneous.

Analyst: Maybe a follow-up on the capacity expansion. Investors ask why you cannot do a “China plus one” strategy like many companies in the global electronics supply chain—continue to build in China to satisfy China demand, but also build outside of China to supply the rest of the world. Is there anything from the business perspective preventing you from doing that, and why?

Tim Bettles: There is certainly a lot of opportunity both within China and outside of China for us to consider. As part of our plan for 2028 and beyond—which is going to be meaningful capacity expansion—we are working closely with our customer base to understand the long-term requirements and aligning the plans globally. Our recent capital raise will be fundamental to expanding as we enter this next growth plan, which could include more capacity within China and potentially capacity outside of China.

Morris S. Young: I want to add one point. Adding capacity versus being able to deliver wafers are two different things. You are going to hear a lot of people say, “I am going to add capacity.” Indium phosphide is not easy. Investors ask why do you not triple or quadruple? Our need is 10 times. It is not easy.

Tim Bettles: That is a really good point, and that is why our focus over the next two years has been on Beijing and increasing the capacity on our existing Beijing Tongmei site.

Morris S. Young: It is also for the good of our customers. Their demand is so aggressive. The guaranteed way to satisfy that demand is to do what we can now. Do we have other plans? You bet. We do. We are stepping up.

Analyst: Thanks, Morris. Last question: you talked about 6-inch versus 4-inch or below. What is in the backlog right now in terms of mix between 6-inch and 4-inch or below? Also, the mix between In-doped and S-doped—one for lasers and the other for photodetectors—what is the mix within that $100 million-plus backlog?

Morris S. Young: In-doped is coming up big time. We used to see about 10-to-1 in favor of S-doped prior to this. Right now, especially at the large diameters, it is almost like In-doped is 40% and S-doped is 60%. Correct, Tim?

Tim Bettles: Yes. When we look at backlog and customer demand over the next few quarters into next year and beyond, we see there is still a lot of 3-inch out there, specifically for the laser—so S-doped is still going strong on 3-inch. There is a transition to 4-inch on n-type material for the laser, whereas the high-speed detector has pretty much all transitioned to 4-inch already. We are seeing a lot of 3-inch continuing, a lot transitioning over to 4-inch. Looking into the future, 6-inch is incredibly important, with a lot of interest and opportunity. At this moment, a lot of production and capacity is still focused on 3-inch and 4-inch, with a longer-term plan to transition to 6-inch within the next year or so.

Morris S. Young: The signal is very strong. A lot of customers are telling us, can we get more 4-inch? 6-inch is a little more out, but people are warning us it is coming. 4-inch is real. I would say the ratio for 3-inch to 6-inch right now is maybe 4-to-1 in favor of 3-inch. Going out about six months to a year, it could become 2-to-1 in favor of 3-inch in wafer count. 3-inch is still the majority, but because 4-inch is at a lower base right now, it is going to grow very rapidly in the coming quarters.

Analyst: Thanks. Great color. Appreciate that. Thank you.

Morris S. Young: Thank you.

Operator: Your next question comes from the line of Richard Shannon with Craig-Hallum. Your line is open. Please go ahead.

Richard Shannon: Hi, thanks for letting me ask a couple of questions here. I would love to understand how to think about the CapEx requirements for these capacity builds. You talked about a brownfield one this year that is doubling, and then a greenfield one that is going to happen in 2027 or maybe going into 2028. Can you give us some numbers or at least some statistics to think about what that will require and over what period of time?

Gary L. Fischer: For this year, it is mostly adding high-tech equipment for crystal growth—furnaces—and some back-end tools for polishing. As Tim and Morris have said, we have an existing footprint. Our current indium phosphide crystal growth site has room for more furnaces, and we are repurposing our gallium arsenide crystal growth that was in Beijing for even more. So this year, compared to future years, CapEx is probably going to be about $35 million—maybe $30 million, maybe $40 million—somewhere in that range. To be honest, we will spend as much as we can as fast as we can because we are uniquely positioned to be able to add capacity quickly. Next year, as we go into building out the facility next door, plus capacity through our supply chains, we are looking somewhere in the region of about $100 million or so.

Tim Bettles: And then beyond that, if we were to build a greenfield site somewhere else, we are looking at somewhere in the region of $220 million to $250 million, depending on what capacity we put in that greenfield site. If we are putting meaningful capacity there, you are looking at $200 million plus.

Richard Shannon: Okay, fair enough. Thanks for that detail. I want to ask on your indium phosphide business by geography. You made a couple of interesting comments: last call you said China was going to grow about 60% in the first quarter, and then you said it actually was up 100%, and then double again in the second quarter. What kind of percentage of your indium phosphide business in the second quarter is China going to be?

Tim Bettles: We are seeing a lot of growth in China, and it is not just because we are seeing data center growth in China, but we are seeing China in the global supply chain market for optical transceivers and potentially co-packaged optics as we go forward. A lot of transceiver companies that manufacture within China are driving to a Chinese supply chain of laser diodes and other detectors. In Q2, we estimate that Chinese demand is probably about 30% of the overall indium phosphide global market demand that we are seeing, and we are seeing that increasing through Q3 and Q4 as well. As we get into Q4, it could be as high as something pushing up to 40% share of the total indium phosphide market.

Richard Shannon: That is helpful, Tim. I will ask one last question on the topic of gross margins. Gary, you have talked in the past about hoping to get to 35% with kind of an upside goal of 40%. When you are talking about the strong mix shift towards indium phosphide and even about price increases, could that go higher at some point? I am not asking for any time soon, but are you looking for a ceiling of gross margins above that 40% level?

Gary L. Fischer: Internally, as a management team, we are definitely targeting something that begins with a four, but it is far out. We do not know yet. I would still stick with my sense that somewhere in the 35% range is very reasonable for the outside world—it is a safe arrival point. That does not mean that we are satisfied with it, and we think we can do better, but we need to get farther down the road and prove that first.

Richard Shannon: That is all I wanted to hear. That is all for me, Gary. Thank you.

Gary L. Fischer: You are welcome, Richard. Good to hear from you.

Operator: There are no further questions at this time. I will now turn the call back to Leslie Green, Investor Relations at AXT, Inc., for closing remarks.

Leslie Green: Thank you, Tracy, and thank you all for participating in our conference call. We will be participating in the B. Riley Securities 2026 Annual Investor Conference and the Craig-Hallum Institutional Conference in May, as well as the Northland Virtual Conference in June. We hope to see many of you there. As always, feel free to contact us if you would like to set up a call. We look forward to speaking with you all in the near future. Thanks.

Operator: This concludes today’s call. Thank you for attending. You may now disconnect.

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