AXT INC [AXTI] Filings

10-Q 1 axti-20240930x10q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended September 30, 2024

☐

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from to

Commission File Number 000-24085

AXT, INC.

(Exact name of registrant as specified in its charter)


DELAWARE		94-3031310
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)

4281 Technology Drive, Fremont, California 94538

(Address of principal executive offices) (Zip code)

(510) 438-4700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading Symbol

Name of each exchange on which registered:

Common Stock, $0.001 par value

AXTI

The NASDAQ Stock Market LLC

Indicate by check-mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check-mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check-mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ◻		Accelerated filer ⌧

Non-accelerated filer ◻		Smaller reporting company ☒
		Emerging growth company ☐

If an emerging growth company, indicate by check-mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check-mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ⌧

As of November 1, 2024, 44,750,581 shares, $0.001 par value, of the registrant’s common stock were outstanding.

AXT, INC.

FORM 10-Q

TABLE OF CONTENTS


	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023	3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023	4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2024 and 2023	5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023	6
Notes To Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3. Quantitative and Qualitative Disclosures About Market Risk	56
Item 4. Controls and Procedures	58
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	59
Item 1A. Risk Factors	59
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	86
Item 3. Defaults upon Senior Securities	86
Item 4. Mine Safety Disclosures	86
Item 5. Other Information	86
Item 6. Exhibits	87
Signatures	88

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

AXT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except per share data)


	September 30,		December 31,
	2024		2023

ASSETS
Current assets:
Cash	$	24,898	$	37,752
Restricted cash		13,893		12,362
Short-term investments		—		2,140
Accounts receivable, net of allowances for credit losses of $263 and $579 as of September 30, 2024 and December 31, 2023		27,970		19,256
Inventories		86,109		86,503
Prepaid expenses and other current assets		14,991		12,643
Total current assets		167,861		170,656
Property, plant and equipment, net		166,459		166,348
Operating lease right-of-use assets		2,451		2,799
Other assets		18,809		18,898
Total assets	$	355,580	$	358,701
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,780	$	9,617
Accrued liabilities		11,941		19,019
Short-term loans		54,052		52,921
Total current liabilities		78,773		81,557
Noncurrent operating lease liabilities		1,993		2,351
Other long-term liabilities		8,595		5,647
Total liabilities		89,361		89,555
Commitments and contingencies (Note 12)
Redeemable noncontrolling interests (Note 18)		41,237		41,663
Stockholders’ equity:
Preferred stock Series A, $0.001 par value; 2,000 shares authorized; 883 shares issued and outstanding as of September 30, 2024 and December 31, 2023 (Liquidation preference of $8,008 and $7,875 as of September 30, 2024 and December 31, 2023)		3,532		3,532
Common stock, $0.001 par value; 70,000 shares authorized; 44,677 and 44,239 shares issued and outstanding as of September 30, 2024 and December 31, 2023		45		44
Additional paid-in capital		240,770		238,452
Accumulated deficit		(38,576)		(32,040)
Accumulated other comprehensive loss		(5,038)		(5,999)
Total AXT, Inc. stockholders’ equity		200,733		203,989
Noncontrolling interests		24,249		23,494
Total stockholders’ equity		224,982		227,483
Total liabilities, redeemable noncontrolling interests and stockholders’ equity	$	355,580	$	358,701

See accompanying notes to condensed consolidated financial statements.

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AXT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023

Revenue	$	23,645	$	17,366	$	74,256	$	55,366
Cost of revenue		17,963		15,500		54,828		46,675
Gross profit		5,682		1,866		19,428		8,691
Operating expenses:
Selling, general and administrative		5,650		5,667		17,656		17,439
Research and development		3,438		2,926		10,410		9,261
Total operating expenses		9,088		8,593		28,066		26,700
Loss from operations		(3,406)		(6,727)		(8,638)		(18,009)
Interest expense, net		(391)		(381)		(1,022)		(1,143)
Equity in income of unconsolidated joint ventures		1,007		369		2,495		2,344
Other income, net		529		223		2,052		1,282
Loss before provision (benefit) for income taxes		(2,261)		(6,516)		(5,113)		(15,526)
Provision (benefit) for income taxes		626		(101)		1,021		(92)
Net loss		(2,887)		(6,415)		(6,134)		(15,434)
Less: Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests		(50)		592		(402)		1,174
Net loss attributable to AXT, Inc.	$	(2,937)	$	(5,823)	$	(6,536)	$	(14,260)
Net loss attributable to AXT, Inc. per common share:
Basic	$	(0.07)	$	(0.14)	$	(0.15)	$	(0.34)
Diluted	$	(0.07)	$	(0.14)	$	(0.15)	$	(0.34)
Weighted-average number of common shares outstanding:
Basic		43,157		42,638		43,079		42,574
Diluted		43,157		42,638		43,079		42,574

See accompanying notes to condensed consolidated financial statements.

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AXT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023

Net loss	$	(2,887)	$	(6,415)	$	(6,134)	$	(15,434)
Other comprehensive income (loss), net of tax:
Change in foreign currency translation gain (loss), net of tax		3,932		(580)		1,175		(6,938)
Change in unrealized gain on available-for-sale debt investments, net of tax		5		65		20		253
Total other comprehensive income (loss), net of tax		3,937		(515)		1,195		(6,685)
Comprehensive income (loss) attributable to AXT, Inc.		1,050		(6,930)		(4,939)		(22,119)
Less: Comprehensive (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests		(798)		701		(636)		2,396
Comprehensive income (loss) attributable to AXT, Inc.	$	252	$	(6,229)	$	(5,575)	$	(19,723)

See accompanying notes to condensed consolidated financial statements.

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AXT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Nine Months Ended
	September 30,
	2024		2023
Cash flows from operating activities:
Net loss	$	(6,134)	$	(15,434)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		6,736		6,424
Amortization of marketable securities premium		—		18
Stock-based compensation		2,344		2,718
Loss on disposal of equipment		—		18
Return of equity method investments as dividends		2,063		3,666
Equity in income of unconsolidated joint ventures		(2,495)		(2,344)
Deferred tax assets		(22)		122
Changes in operating assets and liabilities:
Accounts receivable		(8,526)		9,594
Inventories		1,134		(1,013)
Prepaid expenses and other current assets		(5,823)		1,909
Other assets		1,173		219
Accounts payable		3,043		(3,375)
Accrued liabilities		(1,387)		(1,742)
Other long-term liabilities		(5,488)		1,194
Net cash provided by (used in) operating activities		(13,382)		1,974
Cash flows from investing activities:
Purchases of property, plant and equipment		(5,604)		(11,178)
Proceeds from sales and maturities of available-for-sale debt securities		2,160		7,423
Proceeds from sales of equity securities - 15% Jia Mei		—		827
Investments in non-marketable equity investments		(560)		(1,918)
Net cash used in investing activities		(4,004)		(4,846)
Cash flows from financing activities:
Proceeds from common stock options exercised		28		10
Proceeds from short-term bank loans		41,582		42,197
Payments on short-term bank loans		(42,295)		(40,673)
Proceeds from capital increase in subsidiary shares from noncontrolling interests		—		708
Proceeds from long-term loan		5,831		—
Payments on long-term loan		(643)		—
Net cash provided by financing activities		4,503		2,242
Effect of exchange rate changes on cash and restricted cash		1,560		(1,418)
Net decrease in cash and restricted cash		(11,323)		(2,048)
Cash and restricted cash at the beginning of the year		50,114		41,348
Cash and restricted cash at the end of the period	$	38,791	$	39,300
Supplemental disclosure of non-cash flow information:
Notes receivables paid to purchase fixed assets	$	3,608	$	—
Investment in subsidiary shares from noncontrolling interest	$	—	$	308
Consideration payable in connection with construction in progress, included in accrued liabilities	$	149	$	3,315

See accompanying notes to condensed consolidated financial statements.

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AXT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The accompanying condensed consolidated financial statements of AXT, Inc., a Delaware corporation (“AXT,” the “Company,” “we,” “us,” and “our” refer to AXT, Inc. and all of its consolidated subsidiaries) are unaudited, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, this interim quarterly financial report does not include all disclosures required by U.S. GAAP for complete consolidated financial statements. In the opinion of our management, the unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary to present fairly the financial position, results of operations and cash flows of the Company for all periods presented.

Our management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements in conformity with U.S. GAAP. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. These estimates and assumptions may change as new events occur and additional information is obtained. Actual results could differ materially from those estimates.

The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected in the future or for the full fiscal year. It is recommended that these condensed consolidated financial statements be read in conjunction with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2024, and our Quarterly Report on Form 10-Q for the three months ended March 31, 2024 and June 30, 2024 filed with the SEC on May 10, 2024 and August 9, 2024, respectively.

The condensed consolidated financial statements include the accounts of AXT and our consolidated subsidiaries, Beijing Tongmei Xtal Technology Co., Ltd. (“Tongmei”), AXT-Tongmei, Inc. (“AXT-Tongmei”), Baoding Tongmei Xtal Technology Co., Ltd. (“Baoding Tongmei”), ChaoYang Tongmei Xtal Technology Co., Ltd. (“ChaoYang Tongmei”), ChaoYang LiMei Semiconductor Technology Co., Ltd. (“ChaoYang LiMei”), ChaoYang XinMei High Purity Semiconductor Materials Co., Ltd. (“ChaoYang XinMei”), Nanjing JinMei Gallium Co., Ltd. (“JinMei”), ChaoYang JinMei Gallium Ltd. (“ChaoYang JinMei”), ChaoYang ShuoMei High Purity Semiconductor Materials Co., Ltd. (“ChaoYang ShuoMei”), MaAnShan JinMei Gallium Ltd., (“MaAnShan JinMei”) and Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd. (“BoYu”). All significant inter-company accounts and transactions have been eliminated. Investments in business entities in which we do not have controlling interests, but have the ability to exercise significant influence over operating and financial policies (generally 20-50% ownership), are accounted for by the equity method. As of September 30, 2024 and December 31, 2023, we have three companies accounted for by the equity method. In May 2023, we reduced our ownership in Emeishan Jia Mei High Purity Metals Co., Ltd. (“Jia Mei”) from 25% to 10% by selling a portion of our Jia Mei shares to a third party for approximately $827,000. As a result of our decreased ownership and the fact that we do not have the ability to exercise significant influence over Jia Mei’s operations, as of May 2023, we no longer reported Jia Mei as an equity investment in our condensed consolidated balance sheets. Our Jia Mei investment was re-measured to fair value at the time of sale. Any future changes to the fair value are recognized through net income (“fair value method”). For the majority-owned subsidiaries that we consolidate, we reflect the portion we do not own as either noncontrolling interests in stockholder’s equity or as redeemable noncontrolling interests in temporary equity on our condensed consolidated balance sheets and in our condensed consolidated statements of operations.

When warranted by favorable market conditions, we intend to construct facilities at the ChaoYang LiMei location to provide us with additional production capacity. For the three and nine months ended September 30, 2024, expenses associated with ChaoYang LiMei had a de minimis impact on our condensed consolidated financial statements.

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In February 2021, Tongmei signed a joint venture agreement with certain investors to fund a new company, ChaoYang XinMei. The agreement called for a total investment of approximately $3.0 million, of which Tongmei would fund approximately $1.8 million for a 58.5 percent ownership of ChaoYang XinMei. In February 2021, Tongmei and the investors completed the initial funding of approximately $1.5 million. Tongmei’s portion of the investment was approximately $0.9 million. In May 2021, Tongmei and the investors completed the funding of the remaining balance of approximately $1.5 million. Tongmei’s portion of the final investment was approximately $0.9 million, for a total investment of approximately $1.8 million for a 58.5 percent ownership of ChaoYang XinMei. In September 2021 and October 2021, ChaoYang XinMei received funding from a minority investor of $0.9 million and $1.0 million, respectively. In December 2021 and January 2022, ChaoYang XinMei received funding from Tongmei of $1.4 million and $1.4 million, respectively. In January 2022, the China local government certified this additional funding in ChaoYang XinMei as an equity investment. In April 2022, Tongmei entered into a capital increase agreement (the “Capital Increase Agreement”) with minority investors to further invest approximately $4.5 million in ChaoYang XinMei. Tongmei’s portion of the investment was approximately $2.6 million, of which $1.1 million was invested in April 2022 and $0.8 million was invested in May 2022. The minority investors’ portion of the investment was approximately $1.9 million, of which $0.7 million was invested in April 2022 and $0.6 million was invested in May 2022. As a result, noncontrolling interests increased $1.4 million and redeemable noncontrolling interests increased $0.1 million. In July 2022, Tongmei and the minority investors further invested $0.8 million and $0.6 million in ChaoYang XinMei, respectively. This completed the investment obligations under the Capital Increase Agreement. As a result, noncontrolling interests increased $610,000 and redeemable noncontrolling interests increased $57,000. Tongmei’s ownership remained at 58.5% after these equity investments.

In April 2022, ChaoYang JinMei signed a joint venture agreement with certain investors to fund a new company, ChaoYang ShuoMei, our consolidated subsidiary (the “ChaoYang ShuoMei Joint Venture Agreement”). The ChaoYang ShuoMei Joint Venture Agreement called for a total investment of approximately $4.4 million, of which ChaoYang JinMei would fund approximately $3.3 million for a 75 percent ownership of ChaoYang ShuoMei. In July and August 2022, ChaoYang JinMei completed the initial funding of $1.0 million in ChaoYang ShuoMei. In August 2022, the investor invested $334,000 in ChaoYang ShuoMei. As a result, noncontrolling interests increased $406,000 and redeemable noncontrolling interests increased $73,000. In January 2023, ChaoYang ShuoMei received $0.5 million in funding from ChaoYang JinMei and $0.2 million in funding from one of the minority investors. As a result, noncontrolling interests increased $0.2 million and redeemable noncontrolling interests increased $36,000. In May 2023, ChaoYang ShuoMei received $1.0 million in funding from ChaoYang JinMei and $0.3 million in funding from one of the minority investors. As a result, noncontrolling interests increased $0.4 million and redeemable noncontrolling interests increased $75,000. In August 2023, ChaoYang ShuoMei received $0.6 million in funding from ChaoYang JinMei and $0.2 million in funding from one of the minority investors. As a result, noncontrolling interests increased $0.2 million and redeemable noncontrolling interests increased $44,000. ChaoYang JinMei has completed its investment obligations under the ChaoYang ShuoMei Joint Venture Agreement. ChaoYang JinMei’s ownership of ChaoYang ShuoMei remained at 75% after these equity investments.

In April 2022, Tongmei signed a joint venture agreement with certain investors to fund a new company, ChaoYang KaiMei Quartz Co., Ltd. (“ChaoYang KaiMei”) (the “ChaoYang KaiMei Joint Venture Agreement”), which called for a total investment of approximately $7.6 million, of which Tongmei would fund approximately $3.0 million for a 40 percent ownership of ChaoYang KaiMei. In July 2022, Tongmei and the investors completed the initial funding of approximately $2.2 million. Tongmei’s portion of the investment was approximately $0.9 million. In January 2023, Tongmei made an investment of $0.9 million to ChaoYang KaiMei. In each of July 2023 and August 2023, Tongmei made an investment of approximately $0.6 million in ChaoYang KaiMei. In September 2023, Tongmei entered into another joint venture agreement with the same group of investors. This new agreement called for additional investment of approximately $5.6 million, with Tongmei committing to fund approximately $2.3 million. In December 2023, Tongmei made its initial additional investment of approximately $0.6 million in ChaoYang KaiMei, followed by additional investments of approximately $0.3 million each in June and July 2024. Tongmei’s ownership of ChaoYang KaiMei remained at 40% after these equity investments.

All activities for MaAnShan JinMei ceased during the first half of 2022 and the subsidiary was subsequently dissolved in May 2022. The dissolution of MaAnShan JinMei had a de minimis impact on the condensed consolidated results.

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During the quarter ended December 31, 2020, Tongmei entered into two sets of definitive transaction documents, each consisting of a capital increase agreement along with certain supplemental agreements in substantially the same form (collectively, the “Capital Investment Agreements”), with several private equity investors in China.

In preparation for Tongmei’s application for a listing of shares in an initial public offering (the “IPO”) on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd (the “STAR Market”), in late December 2020, we reorganized our entity structures in China. JinMei and BoYu and their subsidiaries were assigned to Tongmei and effectively merged with Tongmei although they retained their own respective legal entity status and are wholly owned subsidiaries of Tongmei. The 33% minority interest stakeholders of BoYu converted their ownership to a 7.59% minority interest in Tongmei. The 8.5% minority interest stakeholders, employees of JinMei, converted their ownership to a 0.38% minority interest in Tongmei. Further, a number of employees, key managers and contributors purchased a 0.4% minority interest in Tongmei. Additionally, Baoding Tongmei and ChaoYang Tongmei, were assigned to Tongmei as wholly owned subsidiaries. In 2020, the private equity funds (the “Investors”) had transferred approximately $48.1 million of new capital to Tongmei. An additional investment of approximately $1.5 million of new capital was funded in January 2021. Under China regulations these investments must be formally approved by the appropriate government agency and are not deemed to be dilutive until such approval is granted. The government approved the approximately $49 million investment in its entirety on January 25, 2021, at which time the Investors owned a redeemable noncontrolling interest in Tongmei of 7.28%. As of September 30, 2024, Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5%. We remain the controlling stakeholder of Tongmei and hold a majority of the board of director positions of Tongmei. In June 2021, we sold AXT-Tongmei to Tongmei for $1. Since Tongmei is 85.5% owned by us, and the transaction was between common interest holders, the transaction was accounted for at net book value and resulted in an increase of $1.2 million to noncontrolling interests and $1.2 million to redeemable noncontrolling interests.

Note 2. Investments and Fair Value Measurements

Our investments consist of instruments with original maturities of more than three months. As of September 30, 2024 and December 31, 2023, our cash and debt investments are classified as follows (in thousands):


	September 30, 2024								December 31, 2023
			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
	Cost		Gain		(Loss)		Value		Cost		Gain		(Loss)		Value
Classified as:
Cash and restricted cash	$	38,791	$	—	$	—	$	38,791	$	50,114	$	—	$	—	$	50,114
Investments (available-for-sale):
Certificates of deposit ¹		—		—		—		—		2,160		—		(20)		2,140
Total cash, restricted cash and investments	$	38,791	$	—	$	—	$	38,791	$	52,274	$	—	$	(20)	$	52,254
Contractual maturities on investments:
Due within 1 year ²	$	—					$	—	$	2,160					$	2,140
	$	—					$	—	$	2,160					$	2,140

1.	Certificates of deposit with original maturities of more than three months.

2.	Classified as “Short-term investments” in our condensed consolidated balance sheets.

We manage our debt investments as a single portfolio of highly marketable securities that is intended to be available to meet our current cash requirements. Certificates of deposit and corporate bonds are typically held until maturity.

Historically, the gross unrealized losses related to our portfolio of available-for-sale debt securities were immaterial, and primarily due to normal market fluctuations and not due to increased credit risk or other valuation

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concerns. There was an insignificant amount of gross unrealized losses on our available-for-sale debt securities as of September 30, 2024, and historically, such gross unrealized losses have been temporary in nature and we believe that it is probable the principal and interest will be collected in accordance with the contractual terms. We review our debt investment portfolio at least quarterly, or when there are changes in credit risks or other potential valuation concerns, to identify and evaluate whether an allowance for credit losses or impairment would be necessary. Factors considered in determining whether a loss is temporary include the magnitude of the decline in market value, the length of time the market value has been below cost (or adjusted cost), credit quality, and our ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value.

The following table summarizes the fair value and gross unrealized losses related to available-for-sale debt securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2024 (in thousands):

In Loss Position

Total In

< 12 months

> 12 months

Loss Position

Gross

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

As of September 30, 2024

Value

(Losses)

Value

(Losses)

Value

(Losses)

Investments:

Certificates of deposit

—

Total in loss position

—


	In Loss Position				In Loss Position				Total In
	< 12 months				> 12 months				Loss Position
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
As of December 31, 2023	Value		(Loss)		Value		(Loss)		Value		(Loss)
Investments:
Certificates of deposit	$	—	$	—	$	2,140	$	(20)	$	2,140	$	(20)
Total in loss position	$	—	$	—	$	2,140	$	(20)	$	2,140	$	(20)

Restricted Cash

We maintain restricted cash in connection with cash balances temporarily restricted for regular business operations. These balances have been excluded from the Company’s cash balance. As of September 30, 2024, $13.9 million was included in restricted cash in our condensed consolidated balance sheets.

Investments in Privately-held Raw Material Companies

We have made strategic investments in private companies located in China in order to gain access at a competitive cost to raw materials that are critical to our substrate business (see Note 7). The investment balances for the non-consolidated companies are accounted for under the equity method, included in “Other assets” in the condensed consolidated balance sheets, totaled $13.5 million and $12.5 million as of September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024, there were three companies accounted for under the equity method. One of our equity investments, Beijing JiYa Semiconductor Material Co., Ltd. (“JiYa”), determined one of their equity investments was fully impaired and wrote the asset balance down to zero. This resulted in a $754,000 impairment charge in our second quarter 2023 financial results. Except as mentioned above, there were no impairment charges for the remainder of these investments during the three and nine months ended September 30, 2024 and 2023.

In May 2023, we reduced our ownership in Jia Mei from 25% to 10% by selling a portion of our Jia Mei shares to a third party for approximately $827,000. As a result of our decreased ownership and the fact that we do not have the ability to exercise significant influence over Jia Mei’s operations, we adopted the fair value method of accounting to

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report on the investment in Jia Mei. Our investments under the fair value method are reviewed for other-than-temporary declines in value on a quarterly basis. We monitor our investments for impairment and record reductions in carrying value when events or changes in circumstances indicate that the carrying value may not be recoverable. As of September 30, 2024, our investments in this unconsolidated company had a carrying value of $551,000 and were included in “Other assets” in the condensed consolidated balance sheets. As a result of the share sale, we recognized a gain of $575,000. Additionally, in accordance with Accounting Standards Codification (“ASC”) 321-10-35-2, we adjusted the investment in Jia Mei to its fair value at the time of the sale, which resulted in a gain of $383,000. The gain resulting from the sale and the subsequent remeasurement was incorporated as a component of “Equity in income of unconsolidated joint ventures” in the condensed consolidated statements of operations in the second quarter of 2023.

Fair Value Measurements

We invest primarily in certificates of deposits, corporate bonds and notes, government securities and money market accounts. We review our debt investment portfolio for credit loss at least quarterly or when there are changes in credit risk or other potential valuation concerns. As of September 30, 2024 and December 31, 2023, the total unrealized loss, net of tax, included in accumulated other comprehensive income was immaterial. We believe it is probable the principal and interest will be collected in accordance with the contractual terms, and the unrealized loss on these securities was due to normal market fluctuations, and not due to increased credit risk or other valuation concerns. ASC 820, Fair Value Measurements and Disclosures, establishes three levels of inputs that may be used to measure fair value. Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets of the asset or identical assets. Level 2 instrument valuations are obtained from readily- available, observable pricing sources for comparable instruments. Level 3 instrument valuations are obtained from unobservable inputs in which there is little or no market data, which require us to develop our own assumptions. On a recurring basis, we measure certain financial assets and liabilities at fair value, primarily consisting of our short-term and long-term debt investments.

The type of instrument valued based on quoted market prices in active markets includes our money market funds, which are generally classified within Level 1 of the fair value hierarchy. We classify our available-for-sale debt securities, including certificates of deposit and corporate bonds, as having Level 2 inputs. The valuation techniques used to measure the fair value of these financial instruments having Level 2 inputs were derived from bank statements, quoted market prices, broker or dealer statements or quotations, or alternative pricing sources with reasonable levels of price transparency.

We place short-term foreign currency hedges that are intended to offset the potential cash exposure related to fluctuations in the exchange rate between the United States dollar and Japanese yen. We measure the fair value of these foreign currency hedges at each month end and quarter end using current exchange rates and in accordance with U.S. GAAP. At quarter end, any foreign currency hedges not settled are netted in “Accrued liabilities” on the condensed consolidated balance sheets and classified as Level 3 assets and liabilities. As of September 30, 2024, the net change in fair value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact on the condensed consolidated results.

There were no changes in valuation techniques or related inputs in the three and nine months ended September 30, 2024. There have been no transfers between fair value measurements levels during the three and nine months ended September 30, 2024.

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820 as of September 30, 2024 (in thousands):

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Quoted Prices in

Significant

Active Markets of

Significant Other

Unobservable

Balance as of

Identical Assets

Observable Inputs

Inputs

September 30, 2024

(Level 1)

(Level 2)

(Level 3)

Assets:

Investments:

Certificates of deposit

—

Total

—

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820 as of December 31, 2023 (in thousands):

Quoted Prices in

Significant

Active Markets of

Significant Other

Unobservable

Balance as of

Identical Assets

Observable Inputs

Inputs