Good afternoon, everyone, and welcome to the AXT's First Quarter 2021 Financial Conference Call. Leading the call today is Doctor. Morris Young, Chief Executive Officer and Gary Fisher, Chief Financial Officer. My name is Laurie, and I will be your coordinator today. Conference Call.
And please be advised that today's conference is being recorded. And I would now like to turn the call over to Leslie Green, Investor Relations for AXT.
Thank you, Lori, 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 schedule and timeliness regarding our relocation, 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-nineteen and other outbreaks of the contagious disease, potential tariffs and trade restrictions, increased environmental restrictions in China, market acceptance and demand for the company's products, 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 current expectations. This conference call will be available on our website ataxt.com through April 28, 2022. 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 Q1 of 2021. This information is available on the Investor Relations portion of our website ataxt.com.
I would now like to I'll turn the call over to Gary Fischer for a review of our Q1 results. Gary?
Thank you, Leslie, and good afternoon, everyone. We are pleased to report that total revenue for the Q1 of 2021 was $31,400,000 up 16% from $27,000,000 in the Q4 of 2020 and up 51% from the $20,700,000 in the Q1 of 2020. As many of you know, we expected that the convergence of expanding markets such as 5 gs, Moving past the relocation program and overall growth in indium phosphide would push us past the $30,000,000 mark, but we cannot predict the exact quarter for this event. It is an exciting milestone and Morris is already pushing the team towards new goals. Of our total revenue, substrate sales were $23,400,000 compared with $21,500,000 in the Q4 of 2020 and $16,900,000 in Q1 of 2020.
Revenue from our 2 consolidated raw material joint venture companies was $8,000,000 in Q1, up from $5,500,000 in Q4 of 2020 and from $3,800,000 in Q1 of 2020. In the Q1 of 2021, revenue from Asia Pacific was 73%, Europe was 17% and North America was 10%. Also in the Q1, no customers reached 10% of revenue and the top five customers generated approximately 26% of total revenue. As you know, we normally read these statistics quickly and move on, but today I want to highlight them because they're important. Usually, we do have at least 1 10% customer, and usually, the top five customers contribute approximately 35% to 40% of total revenue.
This quarter, when we achieved over $31,000,000 in revenue, it was not because of 1 big order from 1 big customer. Further on this point, the top five customers made up a smaller percentage of our total revenue than normal. Together, these factors vividly portray an increasingly broad based diversified set of customers and applications. From a business perspective, it is significant Okay. Moving on, gross margin in the Q1 was 36.8%, up 33.9% from Q4 of 2020 and up from Q1 of 2020, which was 26.6%.
The increase was primarily driven by product mix and increasing revenue volume and there is some tailwind for us from 1 of the consolidated raw material companies. Total operating expenses in Q1 were $8,000,000 up from $7,200,000 in the prior quarter $6,200,000 in Q1 of 2020. In comparing Q1 of 2020 to the recent Q1, the majority of the increase, 55%, in fact, is in R and D. Included in this are the development costs for 8 inches Gallium Arsenide wafers. Today, after the market closed, we released an announcement describing our success in developing and shipping 8 inches Gallium Arsenide wafers.
Morris will give you some color on this in a moment, but it is a big step and we believe our investment in this program could lead to sizable new opportunities. We are currently in development of 6 inches indium phosphide wafers. This is another R and D project that is expected to position us to participate in some exciting new applications for indium phosphide. To put Q1 operating expense in perspective, total OpEx as a percent of revenue was 25 point 4% for the quarter. This is a bit lower than the 2020 quarterly average of 27.6%.
We currently have a lot of exciting growth initiatives underway, which leads us to believe that we will be in this range over the next several quarters. Nevertheless, we will be drilling down more deeply to ensure controls and oversight are appropriate. Total stock comp expense for the Q1 was $816,000 This is also part of the OpEx increase as it is up $125,000 over Q4 and a bit more than that than Q1 of 2020. Operating profit for the Q1 of 2021 is $3,600,000 compared with an operating profit of $1,900,000 in Q4 and an operating loss of $634,000 in Q1 of 2020. Other income and below the line items, including tax provision for the Q1 of 2021, was a net gain of 204,000.
Especially noteworthy in Q1 is a net profit of $1,100,000 from the partially owned companies in AXT supply chain accounted for under the equity method. The market for raw materials has tightened up and raw material pricing has increased. These gains were offset by foreign exchange loss of $173,000 and a tax provision of $746,000 Our Q1 results included approximately $275,000 in tariffs as a result of the 25% tariff charged on importing wafers into the United States from China. For Q1 2021, we had a net profit of 3,400,000 or a profit of $0.08 per diluted share. By comparison, we had a net profit of $2,100,000 or profit of 0 point 0 $5 per diluted share in the of 2020 and a net loss of $178,000 or a loss of $0.01 per share in Q1 of 2020.
The share count for this recent Q1 was 42,726,000 shares. Cash, cash equivalents and investments were $66,900,000 as of March 31. By comparison at December 31, it was $78,600,000 The decrease is primarily attributable to an increase in working capital accounts for accounts receivable, for inventory and prepaids of $9,800,000 which was modestly offset by an increase in AP of 730,000 plus CapEx payments. To put this in context, revenue was up $4,300,000 from the previous quarter and accounts receivable is up $3,900,000 These two numbers are correlated and this is especially true for Q1 because the early months of Q1 had of the Chinese New Year week long break. And as a result, our shipments were back end loaded for the quarter.
Collections from these shipments will move into Q2, benefiting cash this quarter. We also used cash for inventory, which is up because of two reasons. First, the order rate is strong, which means we are needing more inventory. Secondly, raw material prices are moving up and we are buying a little bit ahead of the market to keep our COGS lower. Finally, we use cash for prepays, which are up as a result of the year payment the annual year payments that will be amortized over 12 months.
An example of this is insurance premiums. This gives you a bit of color on cash utilization. Depreciation and amortization in the 4th quarter is 1 point $6,000,000 and capital investments were $5,600,000 Net inventory at March 31 increased by $3,200,000 in the quarter and ended at 54.7%. Ending inventory consisted of approximately 46% in raw materials, 48% in work in progress and 6% in finished goods. All right, this concludes the discussion of our quarterly financials.
Before Morris speaks, let me give you a brief update and comments about our plan to list our company in China on the STAR market in Shanghai. As early as the fall of 2019, we were looking into this possibility and spent considerable time and effort in assessing the opportunity during all of 2020. We finally publicly announced it to all of you in November 2020, while Morris and I were still together in China. One of the things that became clear as we drill down is that the process is more complicated than an IPO in the U. S.
And that it takes longer to accomplish. An interesting example is that prospective IPO company in China is required to have mandatory training and what it actually means to be a public company. What are the requirements and expectations placed upon a public company? Morris took AXT public in 1998, but even he is going to be required to take the trading in China. So we completed the private equity activity in January and the rest of Q1 efforts included aligning our hidden assets in China beneath our main company in Beijing named Tongmei.
Tongmei is also undergoing an audit conducted by Ernst and Young China And here again, it is more detailed and more complicated. Fortunately, we have a great team, and they are both patient and persistent. These sorts of steps will continue in Q2. We're hoping to submit our SEC application around June 30 or in Q3. Overall, the process is going fine.
We continue to think that our overall timing is good in terms of market opportunities on the horizon and accessing favorable capital markets in China. In conclusion, it has been a busy but good quarter and this concludes our financial comments. I'll now turn the call over to Doctor. Morris Young for the review of
our business. Morris? Thank you, Gary, and good afternoon, everybody. Q1 was a very important milestone quarter for AXT. We met and exceeded the $30,000,000 revenue threshold, which has been a goal of ours and a challenge that I gave to our team.
Our performance surpassed our expectations with growth in nearly all of our strategic products. We also drove improvements in our gross margin achieved strong growth in profitability. What we are seeing today is the convergence of a number of clients across our portfolio that are beginning to have a meaningful impact on the demand for our products. These include applications in 5 gs telecommunications and its related technologies, data center connectivities, LED based sensing and display, healthcare monitoring also referred to as biometrics, consumer devices and others. Our investments over the past several years in our new and expanded facility elevated our businesses and manufacturing processes, in house expertise and product development efforts are all now allowing us to support the requirements of new and exciting growth opportunities.
In indium phosphide, we have the 2nd largest revenue quarter in our history. December was surpassed only by 8 sales in Q2 of 2019, in which quarter we received a very large order from a single customer who was buying for future demand. By contrast, this past quarter of 2021, our sales were driven by a number of customers across a diversified set of applications indicating that demand is broad based and building momentum. In some ways, indium phosphide wafers sketches a classic Silicon Valley story. 10 years ago indium phosphide revenue was barely $1,000,000 and was the lowest revenue generator out of our all product lines, lower even than germanium on raw material.
It was constantly a product waiting for the market to arrive. Today, we have demand from a number of different applications and we are seeing additional applications on the horizon. In particular, we saw continued strength from 5 gs and its related technologies. At the factory level, it can be difficult to distinguish between optical connections specifically for 5 gs equipment or those for related technologies like passive optical networks that supports 4 gs and 5 gs functionality. But from our perspective, any modernization of telecom infrastructure that utilizes indium phosphide is positive for our business.
Demand continued to be strong in the second quarter and we can scale quickly and cost effectively to meet our customers' requirements. In data center connectivity, demand remains steady and at a positive level. During Q1, we're pleased to become fully qualified at our Tier 1 customer. This was a multi quarter process that touched nearly every aspect of our business and elevated our operations for our benefit of all our customers. We were pleased to work closely with our customer on this qualification process and we're proud to have been awarded this designation.
As I mentioned in 2021, we expect to see a meaningful emergence of additional new applications for indium phosphide material in such areas as healthcare monitoring and consumer devices. Many are being driven by Tier 1 players. We're currently engaged in these applications, which represent a new growth area for our business this year. Now turning to gallium arsenide, Revenue in Q1 grew both in wireless and LED applications. It was our highest revenue quarter in Gallium Arsenide since Q1 of 2018.
Demand in Q1 was driven by high end applications including automotive, lighting and display and IoT. As we look into Q2, we expect LED demand to remain strong, but we do expect revenue from wireless applications to decline from Q1 level. We were very pleased to announce today our successful development of 8 inches gallium arsenide wafers for LED applications. We have diversified we have delivered several quantities of interested to our interested customer and we are working with them to meet the requirements of their emerging projects. Increasing the diameter and crystal growth is complicated for our forecast focused materials.
Every step up in diameter sizes comes with a major increase in technical challenges of producing it. But AXT has always been a pioneer in this area with entrepreneurial spirit to drive innovation in order to unlock the potential for our new applications. We have been able to overcome a number of hurdles. This is no longer a test tube laboratory program because we are now shipping wafers according to our customer specifications. This is a tremendous step for AXT and we are very proud of our team.
Among the many benefits, we believe this innovation will help to enable the scale and efficiency required for a number of very high volume applications, including VCSELs for 3 d sensors, LiDARs as well as microLEDs for displays. We believe that microLED are likely to benefit may likely to become the next major volume driver of Gaoyano's arsenide chips. We're seeing reports that the potential micro LED market for smaller consumer devices like wearables and phones may be larger than the entire current market for Gallium Ionide substrates. Regardless of specific numbers, This is an exciting space that could add significant new value to the LED markets in 2024 and beyond. These devices are expected to consume less power, provide sharper contrast and produce brilliant lighting and colors.
Their application could extend from wearables devices and handheld devices to very large screens like high end televisions of the future. Tier 1 players are already driving the development of the technology and we believe that our wafers are used for early stage activities. Turning to germanium substrates. Coming off a very strong quarter in Q4 of last year, revenue for germanium substrates decreased modestly in Q1. However, the satellite solar sale market looks to be strong in Q2021, we expect to see growth this year.
Finally, I want to touch upon our raw material business, which grew 45% sequentially in Q1. As you may recall, we currently consolidate 2 joint ventures, Boyu, which manufactures high temperature PBM crucibles and PBM based tools for OLED and other joint venture Jingmei, who is a diversified industrial high purity material supplier. In 2020, both companies relocated to our campus in Cajun, enabled them to expand capacity in response to strong market demand. This coupled with a recovery in pricing of raw materials such as Raw Galleon, has allowed both companies to grow meaningfully in recent quarters. As we look ahead to Q2, we expect the performance to remain at around this strong level, although perhaps coming down modestly from Q1.
The improvement of commodity pricing also enabled joint ventures that account for using the early equity method to perform very well in Q1. In fact, we saw a 2 14% increase in their contribution during this quarter. We believe the demand environment should remain healthy this year and that their performance will continue to be strong to our results. In closing, We're off to a strong start in 2021 with broad based customers and applications showing healthy demand. We're excited to see so many of our opportunities for which we have in preparing over the last 2 years now are yielding results and with more to come.
In addition, our successful development of 8 inches Gallium Oxide aligns our product and technology capabilities with Tier 1 customer requirements. We believe this will open up significant new applications for us over the next several years and enhance our reputation as the go to supplier. With our new factories ramping up well and ample room for capacity expansion, we're ready and excited for the year ahead. This concludes my prepared comments. I will now turn the call back to Gary for our Q2 guidance.
Gabby?
Thank you, Morris. As Morris discussed, the demand environment remains healthy in Q2. Indium phosphide coming off a very strong quarter. We believe we will see continued growth. We also expect growth in gallium arsenide revenues for LED and a modest increase in germanium.
As Morris mentioned, we expect a pullback in Gallium arsenide for wireless and a flat to slightly down for raw materials. As such, we expect to see revenue in Q2 of between $30,500,000 to $31,500,000 we believe that our net profit will be in the range of $0.06 to $0.08 a share, and that's based on a share count of approximately 42,800,000 shares. All right. This concludes our prepared comments. Morris and I will be glad to answer any questions.
Operator, Laurie?
And we have a question from Dave Kang of B. Riley. Your line is open.
Hi, this is Danny Chang on for Dave. I was wondering if you guys could comment on the effect of ship charges and broadly we're seeing chip prices increase. And we're wondering, are you guys also increasing prices as this phenomenon occurs? And the second question is how long can you expect this raw materials pricing environment to stick around?
So let me take a crack at that first. In generally substrate business is difficult to increase price at the substrate level. However, on the raw material side, yes, they do fluctuate with demand and supply And the raw material for instance gallium price has increased from, let me quote you this number, about $150 a kilogram last year and as late as last quarter was $400 a kilogram. So it's More than double. But recently the price has come down a bit, But that not well significantly, but down to about $350 from $400 a kilogram per gallon.
But I do believe that the demand is still very tight. And so, however, there are more new suppliers Coming into the production line because the price has gone up. In the substrate level, I believe it's more difficult to increase prices. However, the way I would describe it is this, in terms of indium phosphide, many times That we may increase price if the customer want to tighten their specification. For instance, if you want material, let's say, with defect density in the neighborhood of $500,000,000 and that sort of set a price of X.
And if all of a sudden the requirement is such that you want defect density to be half of that $200 versus 500 then the price may rise by a factor of 20%, 25%. So that's yet the other way of increasing price. In other words, drive your productivity up and increased supplies. Did I answer your question?
Yes. Thanks. That's helpful. And I guess just A quick follow-up. Are you broadly seeing customers trying to tighten specifications more, like maybe the supply chain constraints are forcing them to be More, delivered with their specifications or anything or?
Yes, that's an interesting question. Actually, I think indium phosphide specifically, I mean gallium arsenide is a lot more mature. So, Typically, I mean gallium arsenide is a lot more mature. So I think we see less of a change, But in indium phosphide, we do see customer coming in with tighter specifications because they are mainly dealing with high end products Such as lasers and very demanding performance level so that they want to tighten up the spec as we develop that next generation product. Also what we also seeing was that we start to see we deliver this Better quality product to one customers and all of a sudden other guys seeing the same thing.
So the end customers start to tighten their specification To the intermediate, let's say, epi growers. So yes, we do see that timing of the spec, Yes, coming on indium phosphide. Got it. That's helpful. Thank you.
Your next question is from Richard Shannon of Craig Hallum. Your line is open.
Good afternoon, Morris and Gary and Leslie. Thanks for taking my questions. Let me start with a kind of a multi Part question on gross margins. Had some very nice numbers here in the Q1. I think you called out mix and volume as the drivers here.
I didn't hear you talk anything about yields. I think you've alluded in the last call or 2 that the potential of seeing those improve as you kind of get more comfortable with the new facility.
But and so I'd
love to hear what you think about not only for the Q2 and along those lines, but also, when you talk about buying Some more inventory here at lower cost, but eventually that's going to start to bake in here. When do you see these the raw materials prices start to bake in and kind of level off, kind of provide a little bit of from gross margins?
Well, I would this is Gary. I'd say we've already taken advantage of some of that because we saw this happening Early in the quarter, even as recently as last Q4. So I don't see that all of a sudden that we're going to have a huge benefit because the raw material price that we paid is going to be Moving from inventory into cost of goods sold. It is a factor that we've taken advantage of, but it's difficult for you to be able to measure the impact. So let me put my $0.02 I'm
not the CFO, Gary, but The way I see it is that raw material price increase is difficult for us to pass along to our customers, Okay. Especially in short term. However, the benefit of AXT is our raw material supplier, our joint venture who supplies gallium and start to make a lot of profits, Okay. So that's the benefit to us. But we don't write up our inventory Because we have a lower cost gallon in our inventory, right?
Right. We don't write it up. The only time that It will impact us is actually if our newly purchased galleon, which we pay the higher price, start to get into our inventory, then we sort of in average get our cost of goods sold up. And if that price remain to be high, then our cost of manufacturing that substrate becomes higher. And if we cannot pass along that increase in our cost to our customers, then our gross margin will decrease.
However, We are probably still better off than our competitors because we have joint ventures to offset part of it. In a way, We have some insurance policy.
And I guess part of my question is when would that happen? I assume that's The acrylic of your cycle time of manufacturing, but I also want to bake in here the potential of seeing yield improvement on your substrate manufacturing as well and kind of get a multi quarter view on what you think your gross margins can do. We've talked about in the last few quarters about the potential or kind of long term goal of getting to 40%. Sounds like you got a few tailwinds, maybe 1 or 2 headwinds here and wanted to kind of look at that in a multi quarter trend. Can you kind of solve this out in the context?
Yes. I'd say to be specific about yields, I think there's Still some improvement that we can gain. And I think we will see the yields improve as things settle in and stabilize at the new sites. Reciprocally, I think we probably see some push on cost of goods sold because of raw materials. So they may have some offsetting effect.
We still think the prudent comment that we should make for today is that somewhere around 35% is very achievable, obviously. But Morris and I are not inclined to have everybody Move the margins up after 1 quarter improvement. We'd like to see Couple more quarters before we think, okay, this is kind of what the pattern is going to be. So certainly, we're pleased with the margin from Q1. We think we'll probably be at or above 35% for Q2.
But we're hesitant to sort of paint out the rest of the year and pick a new number.
Yes. Richard, maybe you and I are old timers. I think you're probably thinking that with raw material price going up, it should help us on gross margin. And that was exactly what happened back in 2011 and 2012 when gallium price was going went from up to about $1,000 kilogram. However, the difference is that in 2011, we consolidate that joint venture into our revenue as well as our profit.
So when the profit of that joint venture start to help us, we our gross margin jumped up as well. However, that joint venture, although we still own substantially, I think it's The last I saw was 39%, correct. But we don't consolidate their revenue anymore. Although we do enjoy the profit they make, but it doesn't help us in terms of gross margins, Because that sort of answer your question?
Yes, that's helpful. And I'll note the fact that you called me old, Morris. So thanks for that.
I am only speaking for myself.
Okay. You kind of looped me in that one, but we'll leave that one alone. My quick follow on question is, Morris, you talked about indium phosphide and some new applications here and you said there's going to be some contributions this year. Any way you can help us scale This contribution, is it going to be noticeable, very small? How would you characterize that and help us think about that going forward into next year?
I think it's going to be meaningful. Yes, I think not only this product, But I think I'm overall excited about this new approach utilizing the UV spectrum of lighting as well as lasers, which can do a lot of wonderful things, healthcare monitoring and etcetera. So instead of just good old telecommunication, which is great, I mean, it just Cannot escape from utilizing any phosphide for fiber optics. However, when you're dealing with consumer products, Imagination is limitless. Everybody likes to take care of your health And this is a great approach to help you monitor your health.
I mean, I think it has a great future. I mean, we are only starting the beginning of Yes. I think there are other developments which can follow on this. So I think not only it's going to be Meaningful, but also I think it's going to be multi year and we just don't know how big it is going to be, whether it's going to be 500 1,000 percent.
Okay, fair enough. I'll jump back in the queue. Thanks, Morris.
Thanks, Richard.
And your next question is from Gus Richard of Northland. Your line is open.
Yes. Thanks for taking my question. Just going back to the new applications for indium phosphide, Do you have a sense of whether it's a health monitor or some sort of other type of consumer product? Do you have Any sense of the application at this point?
Gus, we really don't know. And if anything, that we can only guess. But even if I know, I don't think I'm allowed to talk about it anyway. But because this is very new, I would say, you weigh down a quarter or 2, eventually it's going to go on the market and somebody is going to take it apart and You're going to see what it is for. But I don't think we're kidding around.
This is real. This is we work with this For almost more than 2 years. We are seeing them ramping.
And You expect this application to be you said it's going to be significant. Is it going to be a material part of the indium phosphide revenue? In other words, For the year, could it add up to 10% of your indium phosphide revenue?
Well, that's a hard question, Gisankaj. I don't know how fast the rest of them will grow. But it's a significant Yes, it could add good 5% to 10%, yes.
Okay. Thanks. And then, Gary, for you, Just looking at the OpEx, it was quite a bit above what I was expecting in the quarter. And clearly, you've got a need to invest
In R and
D and SG and A was up. Can you give a little bit more color on what were driving those, particularly SG and A in the quarter? And How should we think about that going forward? Yes.
I mean, the biggest driver from 20,000 feet up is we just have a lot of initiatives. There's a tremendous amount of activity, energy, Implementation of the vision from Morris and the marketing team. So that drives down In lots of ways and touches lots of general ledger accounts that get expenses booked to them. We are pleased that over half of its R and D, that's good. But to drill down another layer, There has been growth in headcount, both at our Tongmei company and also Jinmei and Boyu.
So stock compensation has increased, wages have increased, The bonuses we paid more recently were larger than normal because we finished 2020 on a good note. So I'd say the biggest single component setting aside R and D versus SG and A is labor. Also compensation for our reps that we pay commission to on sales and sales are up, commissions are up. A fair amount towards what I would call permits still and licenses and Things that have to do with facilities and continuing to layer in all the kinds of things that are required. Those are things that come to my mind extemporaneously.
So It's all I mean, for me as a numbers watcher, what am I saying is there's a story behind every number. And the story for these numbers is about lots of exciting initiatives and good things happening. But the flip side of it, myself and our sort of Senior level controllers and stuff, we're watching it closely. I'd also I'd take some comfort for me as a business person that as a percent of revenue. It's actually lower in Q1 of this year than the average from all of 2020.
So those are the kinds of things I can put around it. And I hope that's helpful and gave me some Maybe, Marc, you want to add anything?
Yes. I think many times I remember where our revenue was lower, people were asking us, Well, if your revenue were to grow the good 30% or 50%, will most of these drop down to your profit? And we will say absolutely. We're not going to get a higher raise salary and we're not going to hire other some of the senior vice presidents, etcetera. However, now our revenue grew 50% year over year and now, Well, you caught us being liar about it, but then if we again, we dissect it, I think I'm happy to see that we're spending a lot of activities in terms of the new hire In terms of the new hire help us to go start market listing, the 6 inches in the pipeline development, the 8 inches gallium arsenide, I mean all those are exciting initiatives, which will translate to even higher revenue or higher Profit.
So what I'm saying I think is this, if our revenue were to grow 50% and stay there, we don't have Tremendous growth opportunity and star listing in China, then yes, sure, everything will come back Because I don't expect to earn much more than what we do and we don't need to add 1 more salesman or a person to do more revenue. However, when you're preparing yourself for more growth, more opportunities, You need to spend a little bit more money. I think that's the way I see it.
I still think there's a tremendous leverage on our business model. So we're
We're proud of what
we're accomplishing. We don't see it Increasing a lot right now.
Okay. And then just is variable comp paid quarterly or annually? Both. Bonuses. Both.
Okay, got it.
And which company we're talking about. So
Okay. All right. Thanks so much.
Thanks, guys.
1. We have a follow-up question from Richard Shannon of Craig Hallum. Your line is open.
Hi, guys. Thanks for taking my follow on question here. Just want to ask about the Star Market listing process here. And you mentioned a process that's more difficult than What normally happens here in the U. S.
When reading the news might suggest that those have gotten more difficult Even within even for companies who have started the process earlier. And so I wonder if you can comment on the degree to which you're seeing So it's getting more difficult just within China. Seems like there's some reticence about quality of companies on the Star Exchange that are in China and worry about whether Due diligence requirements get even worse for U. S. Companies like yourself.
So let me try that first, but definitely Gary is more qualified. He is very much involved. I mean every day, There are many, many activities Gary is covering. But so let me give you the high level comment first. I believe the timing process of the stock market listing, I heard it was because there are too many companies going public on the stock market in China.
That's why they want to tighten it up, otherwise they're going to have hundreds and hundreds of companies all want to go public, Okay. So as a result, I think that they are lengthening the process. For instance, let me give you an example. They're looking at senior management. They want to make sure there's no really departed transaction.
We want to make sure our revenue are real. There's no funky business and They are tightening up, but I think to a certain degree, our investment banker in China are telling us That part may be better for us because we have been public company in United States for the last, what, 2020 some are years. 23 years, yes. So we scrub out every one of our quarters. So we are Really doing the right business.
And we're also a real company delivering high quality product. So I think all those speaks well for us. However, because China regulatory agencies are more cautious, So they are tightening the screws, so they're slowing down the process. So I think as a result, we may see that There's slight delay or every step of the way, they want to make sure it's doing the right thing, Which we have been doing all along anyway. So I think it's a double edged sword.
I mean, Gary,
yes, I think Morris hit the nail right on the head. So we're not surprised at What's causing things to be a little raise the bar, if you will, to leap over, lengthen the time a bit more, Because they are trying to be very, very sure about who gets through that gate. So but if you take a step back and look at Our Tongmei company. It was founded in 1998 by Morris and other leaders of the company at that time. So what that makes Over 23 years old.
Collectively now with adding Boyu and Jinmei, It's over 1,000 employees. They're all Chinese citizens. They all pay taxes in China. You drill down further into the supply chain. I doubt there's many other companies applying for Star Market Listing that have partial ownership of 10 other companies in China.
So we're we don't want to be cocky at all. But from a business standpoint, this is a very, very attractive company to take public. And we manufacture something. You can see it. We build things.
It's not software. We've been audited since 1998 in or maybe 1999 in China. So It's harder. It's more work, but the rewards are significant. And if we as we see things growing on the horizon, This is a wonderful opportunity to have a significant amount of capital set aside to take advantage of growth opportunities around the world.
So yes, it's harder, but we're all in. And our guys the team is excited and Nobody is discouraged. They're just tired. So
Okay. Appreciate all the detail. That's all for me guys. Thanks.
Okay.
And there are no questions on queue at this time. I will turn the call over back to Doctor. Morris Yang for his closing remarks.
Thank you. Thank you, everybody, for participating in our conference call. In June, I will be participating in Craig Hallum's Institutional Investor Conference. As always, please feel free to contact me, Gary Fisher or Leslie Green directly if you would like to set up a call. We look forward to speaking with you in the near future.
And ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may all disconnect.