[Technical Difficulty] In the fourth quarter of 2019, revenue from North America was 10%, Asia pacific 68% and Europe 22%. In the fourth quarter two customers were each 10% of revenue and the top five customers generated approximately 42% of revenue. Gross margin in the fourth quarter was 21% down from 29% in the prior quarter. Approximately 4% of this decline or half the decline was due to lower manufacturing efficiencies and yields primarily related to the ramp of two new products, six-inch indium phosphide substrates and a new six-inch germanium product configuration for a large customer. Both products address new market opportunities for AXT that we believe will contribute positively to our business later this year and for years to come. Further we view this decline in efficiency as temporary. Larger diameter substrates are inherently more challenging, where we are already taking steps to refine the processes and expect to show improvement in the coming quarters. The balance of the gross margin decline in Q4 came from the following. We had lower gross margins in each of our two consolidated raw material companies and this accounted for 1.5% of the decline in gross margin. We also had a negative swing in adjustments to inventory in excess and obsolete which accounted for 2.2% of the change from Q3. These items are formulary driven and the lower revenue impacted formulas negatively. As we look into Q1 we expect to show incremental improvement in our gross margin and we'll be focused throughout the year on improving our manufacturing efficiencies across all of our product lines. Total operating expenses in Q4 were $6.7 million, up from $6.2 million in the prior quarter as a result of end of year bonuses for employees at our raw material joint ventures Jin Mei and Bo Yu…

Thank you, Gary. Q4 capped off a turbulent year in the geopolitical and macroeconomic climate. Overall the results was a weakened demand environment in 2019 that had a negative impact throughout the year on key applications as certain customers within AXT's gallium arsenide and germanium businesses. This impact made up the majority of our year to year revenue decline. Despite these more challenging conditions, our indium phosphide business exceeded our expectations in Q4 and finished 2019 with modest growth over the prior year. In fact, 2019 was the first year in our history that total indium phosphide revenue surpassed total gallium arsenide revenue. Why is this important? The fact that we saw growth in indium phosphide during the down year, the substrate market demonstrates the gathering momentum in the trend driving indium phosphide demand. These trends such as data center connectivity, 5G telecommunications, and optical network expansions are powerful and substantial and they are developing as we see. In addition, there are significant new trends visible on the horizon involving indium phosphide based sensors for new applications in healthcare, automotive and more. Collectively, these applications position indium phosphide as one of the most important material of this new decade. AXT has developed considerable expertise and industry leading [indiscernible] for this highly specialized substrate. We are setting the pace in our market for technical innovation and we are expanding facilities and additional equipment. That will allow us to keep pace with the market demand. As Gary mentioned, we are also bringing to market larger diameter indium phosphide substrates. This is a capability that most current and potential new customers are asking for. One of the large contributor to our gross margin decline in Q4 we believe this new capability will be essential to emerging large volume applications for indium phosphide. We…

Thank you, Morris. As Morris discussed, we believe that 2020 will be a year of growth for AXT. We're taking an appropriately modest view of Q1 given that the market is recovering slowly. We're also widening our typical revenue range a bit to allow for unanticipated effects in the supply chain from the coronavirus. As such, we expect to see revenue in Q1 between $18.5 million to $20.5 million. We believe that loss per share in Q1 will be in the range of $0.03 to $0.06, based on $39.78 million shares outstanding. This concludes our prepared comments and Morris and I will be glad to answer your questions. Operator, Prince?

[Operator Instructions] And our first question is from Richard Shannon from Craig-Hallum. Your line is now open

Hi guys, thanks for taking my questions. Let's see, a couple of them I'll jump into first here, Gary your commentary on sales growth for this year, maybe you can kind of spec out what you think between the revenue buckets not only you know raw materials versus substrates, but also within the substrate business if you could differentiate the revenue growth, maybe the path and speed of recovery if they're different between the substrate businesses?

Okay, I'll take the first crack, and then Morris probably is going to add a lot more color too, but let's just cover raw materials for the listening audience. You know in 2018 going backwards, we had three raw material companies that we consolidated. First part of 2019, we convert one to the equity method. So, we have two now that we consolidate, and they're both doing quite well. So their revenue will definitely grow in 2020. I don't know by how much, but their end markets are strong and the companies are in good shape, so that should be an upward arrow. And if you look at the substrate business, we definitely think indium phosphide will grow. We think germanium will grow. And I'll leave it up to Morris in terms of the timing, it's I'm not sure, we're a bit cautious at the Q1 because of the fear of uncertainty and doubt out there in the food chain due to the coronavirus. But we do hope and I think the experts predicted that should even out in Q2. Is it April 1st or is it June 30th, to be determined. So, Morris do you want to comment?

Sure. I think as I said in the prepared script, Q1 demand actually turns out to be fairly strong. We were seeing customers have an increased demand on PON's market. Actually, the PONs substrates is at all-time high right now. When we talk to customers, they are saying it's basically coming from the 5G base station build up. So we think that's very good news. We're seeing datacenter demand is sort of flat, but poised to grow. We're talking to our customers and they're saying the switch to 400G is still to come, when that comes that should help us substantially and we also see other new applications on the horizon. Gallium arsenide, I think, LED should see the other recovery. However, to what extent to what speed it is, is difficult to predict, especially with this coronavirus on the horizon. But germanium we definitely believe that it should be better than 2019. So, I didn't say anything quantitative. I think in our own budget, we think that indium phosphide is offering the best growth opportunity for us. And gallium arsenide specifically wireless is probably going to stay flat. LED is going to recover nicely and so is germanium.

Okay, great. Thanks for that. Question on gross margins. You talked about some issues in the fourth quarter fueled with a couple of products. Are these products actually shipping in any real volume and if not, when do you expect that to happen?

Not so much out of the indium phosphide. We spend a lot of effort on the indium phosphide, but then not shipping a large volume, but there's a great demand for it and we are gearing up to speed up our development. And but unfortunately, we don't, well or fortunately we don't break out that into R&D, so we are buried into the gross margin. Germanium, yes we are shipping, and we have a six-inch germanium product, but because of the big volume surge we undertake in Q4 of last year, and we had a stumble in our startup and mainly because, well, we increased the volume substantially in the quarter, as well as you remember that we have to move our crystal growth from [indiscernible] to Chaozhou and that sort of split our management attention to the crystal growth yield issues. So we had a bad quarter as far as yield is concerned. But we do expect – well – we - I want to say we do expect improvement, but on the other hand because of this travel restriction in China because of coronavirus, maybe the improvement is going to be slower than we expected, but this not going to be a persistent yield hit or margin hit for us.

Okay, fair enough. Last question from me, I'll jump out of the line. Regarding the new customer qualifications, maybe if you can give us a sense of a few different things, how long has the qualification been going on that you expect to finish this quarter? You're talking about major customers how - what percentage of your customer base could this potentially qualify for? And then, is this giving you any visibility into the rest of your customer base eventually moving to the new facility?

On that's a good question. I think we are poised to qualify in the first quarter. In fact, we are seeing that people are giving us the good signal. But as far as the percentage of the customer who will qualify Dingxing facility is concerned. I think we have to learn some numbers. I believe it could be as much as a good 50% to 60% by the end of Q1.

Okay. And then timeframe for the rest of the customer base to move over, how fast do you think that could happen?

We think it could happen by 85% by the end of June, but provided we have to hope and pray that this coronavirus doesn't spread and it was an extra hiccup.

That's fair enough. I think that's all my questions. Thanks for taking them.

Thanks, Richard.

Thank you, Richard. Next question?

Next question is from Gus Richard from Northland. Your line is now open.

Yes, thanks for taking the question. But in terms of gallium arsenide demand going into the back half of the year, do you expect any demand to come from visual or display applications?

Yes, I think so. I think good opportunity is absolutely brightens up more for year 2020 with our new facility opened up, and we are discussing with a quite a few of our number of customers. However, we are trying to get into this market. I don't believe the volume will be substantial for 2020, but we believe that we should be able to get into the visual market in 2014. Yes.

Okay. And then I think you mentioned, you know, you're doing the larger indium phosphide wafers, is there a specific application that is targeted for and can you talk about what it might be?

s,: We think in some kind of a photo detector, but we don't quite know at this point, what specific application that is, but they definitely require high quality, low defect density material, which fits our forte extremely well. As you know that VGF can produce very low EPD material. So it's not only the larger diameter you can deliver, which will fit the customer requirement, but also the very low EPD and low strain, low defect density, which is required. So I think that fits our capability very well.

Okay, and then just shifting to the sort of complexity of the operating environment China at the moment, can you just give us a sense of how much of your material is consumed in China, how much is shipped external to China and then, which is more difficult, shipping intra-countries or trying to get things in and out?

We don't have a supply issue. We start with gallium, we started with arsenide, and we start with indium phosphide and so the logistics of supply really there's not an issue. We do have an issue about facemasks because you know in China right now if you don't provide employees with facemask for health protection you are not allowed to operate. As far as our customer is concerned, I believe that we have around 15% sales volume to China customers.

No, and I think I'm doing it from memory, but we do put it into the 10-K because it's required. It's a little bit north of 30%.

In China?

Yes.

Oh really? Okay. So, yes, but shipping product. Yes, we do have some logistics and shipping, because a lot of airlines are cutting off their transport planes to China. So we may expect the cost of shipping to go up, but so far we still can ship our product out.

Okay, and I guess the final one from me is, I think you mentioned health application for an impasse site, could you talk about what that might be?

Well, there is a lot of public discussion, but in the photonics west, people - there are multiple sessions talking about using infrared laser to detect glucose in blood, but it's very speculative. And because the wavelength ranges from 1.5 microns up to 2.1 microns or 2.2 microns, and that’s a range that indium phosphide fit very well. So we're expecting, I mean, there's a lot of discussion about it. There is a lot of public speakers and people are focusing on it, but we don't know whether it is…

That is our only real source.

That's our source of the information.

Got it. Got it. All right. Thank you. Thank you. Thanks for your time.

Next question please?

[Operator Instructions] We have a question from Dave Kang from B. Riley FBR. Your line is now open.

Thank you. Good afternoon. Couple of questions. Gary, I've missed your comment about the number of shares for first quarter and also, how should we think about tariffs for the current quarter?

The number of shares in the first quarter - for the first quarter is that you're asking about?

Yes.

It was 39.78.

And then on tariffs?

Tariffs, it was about 250K in Q4, that actually was a little bit higher than normal. So I'd say that 200K is probably decent guess. So…

Got it and then under your production status, can you tell us what that was, like maybe you can give us a utilization before the outbreak and what is it now and what do you think that will be maybe in three, four weeks or maybe April?

Sure, we came back to work almost two weeks ago. So we would after Chinese New Year. We actually closed off for Chinese New Year celebration. So we came back to work early, and we were very well prepared. We have all the procedures that the government approves. So once they are okay with our procedures, so they allow us to work; however, that's not to say that you can operate full force because the travel restrictions for instance, if we have a employee who went back to home to visit their relatives during the holiday when they came back, they have to observe the 14 days quarantine. So such that, our three locations, although they are all operating, but I would estimate the average operating percentage is around 60% to 65%. As far as going forward by April heaven knows, I cannot predict. I think, you know I watch the news as much as you do. And I think from the Chinese published new infections, it seems to be better. I mean, it seems to be declining and there's a hope that with higher temperature in spring, you know, the virus will decline, but on the other hand there are other publications which says this thing is tougher to eliminate. So…

Yes, and let me mention one thing is that, at the reduced utilization rate that Morris quoted, we still think that we can meet the revenue goals. Okay? Now, on the other hand, if we thought we could do $28 million in the coming quarter then it might be a little bit trickier, but because the revenue isn't as high as we want it to be and it has been passed, even at this utilization rate we should be okay.

Got it. Actually, I'm kind of thinking about how to think about actually second quarter. So I'm trying to figure out how much are you assuming for the first quarter, how much are you leaving on the table for first quarter that will be shifted to second quarter? So are you assuming maybe $1 million impact that will be shifted to second quarter? How should we think about that? How should we think about second quarter actually?

Your guess is right. Actually, we are shifting some of the demand to second quarter.

Some of that is because the customer is shifting it.

Well.

Right. Right.

Some of them because we stretch it, but then on the other hand, our second quarter, the visibility is not that great. I mean, I think, what's challenging, I think is to say that the 5G base station, I think that's a very pleasant surprise. We're seeing the two-inch demand for China market is almost like all-time high as we said. However, the datacenter, we haven't got a signal from a customer yet. I mean, they seem to be still on the sort of level, demand level, whether they are going to bump up in second quarter or not is yet to be seen.

Actually, my final question is on the China 5G, because I've heard or from multiple sources that 5G deployment has been pushed out or delayed because of the outbreak. But and yet you're seeing pretty strong demand. So are customers just kind of building ahead in anticipation of whenever the ramp happens, whether its second quarter or third quarter?

Well, actually, from our perspective, we only see because we categorize there is PON, because there is a certain size and certain specification. So we think that's PON because datacenter usually use another type of specification for that market. So, we are reasonably sure it is for PON, but whether it serves the China market or market elsewhere we don't know. For that matter, they could just make the PON for the wireline market.

Got it. Thank you.

All right.

Thanks, Dave.

And we have a follow up question from Richard Shannon from Craig-Hallum, Your line is now open.

Hi, guys, couple of quick numbers questions. Gary, on your OpEx line here, you had a number for the fourth quarter that was a multi-year high I guess as far back as I can see and you are guiding to probably close to the similar level for the first quarter. I guess if you look back in the history here and understanding your factory move here, it's I think you've talked about some duplicative expenses. So I'm wondering to the degree to which we're seeing kind of near term high versus a new level, and should we expect the OpEx to come down as we move all the customers in the new facility?

Well, we do think that some of the duplicative expenses will continue to diminish. However, as we took a solid look at what's going on for 2020, we see at the beginning of at least for Q1, we had some bigger legal expenses. We also saw our D&O insurance, like many other companies go up. Payroll taxes start over because you pull your security and all that kind of stuff. So, our expectation is we should at least settle down at 6.5. But we would hope that we can give it the good stuff of that. That's still incredible goal, but right now it's for Q1, we're pretty sure it's going to be around 6.5?

Yes, obviously expenses is in your territory Gary, but I would guess, you know, as we move our factory and we will just consolidate more towards our new factory, things should decline.

Right.

But I don't think it's going to happen very quickly.

Okay.

Okay. I would expect the expenses to be around that number, but it doesn't increase, but hopefully that - our revenue can more than climb faster then.

Well, definitely, as we get back into revenue growth, we do not see reciprocal growth in OpEx.

Yes.

We will benefit when we enter that space.

Okay, fair enough and last question on CapEx. Gary, I think your remarks you mentioned like $5 million for gallium arsenide, possibly some for indium phosphide. If we exclude the indium phosphide, should we think about CapEx just a little bit more than $5 million so with some maintenance on top of that, or should it be higher than that level?

Maybe $5 million to $7 million. Yes, the big punch is sort of finishing up all the little stuff for gallium arsenide. So…

Okay, that's fair enough and that's all from me guys. Thank you.

Thanks, Richard.

I am showing no further questions at this time. I would now like to turn the conference back to Dr. Morris Young, Chief Executive Officer.

Thank you for participating in our conference call. As always, please feel free to contact me, Gary Fisher or Leslie Green directly if you would like to meet with us. We look forward to speaking with you in the near future.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may all disconnect.