Amtech Systems Inc (ASYS) 2008 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Amtech's fiscal 2008 third quarter conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS). This conference is being recorded today, Wednesday, August 13, 2008.

I would now like to turn the conference over to Jim Byers at MKR Group. Please go ahead.

Thank you, Operator. Hello, everyone, and thank you for joining us this afternoon for Amtech Systems' third quarter conference call. On the call today are J.S. Whang, Amtech's President and Chief Executive Officer, and Brad Anderson, Amtech's Chief Financial Officer.

After the close of market trading today, Amtech released its fiscal 2008 third quarter financial results. The release will be posted on our website at www.amtechsystems.com.

In addition, a phone replay of today's call will be available, beginning approximately two hours after the call's conclusion and remaining in effect for one week. The call replay information is included in the earnings press release.

Before we begin, let me note that during today's call, management will make forward-looking statements. All such forward-looking statements are based on information available to Amtech as of this date, and they assume no obligation to update any such forward-looking statements.

These statements are not guarantees of future performance, and actual results could differ materially from current expectations. Among the important factors which could cause actual results to differ materially from those in the forward-looking statements are changes in the technologies used by Amtech's customers; change and volatility in the demand for diffusion equipment; the effect of changing worldwide political and economic conditions; on government-funded solar initiatives; capital expenditures; production levels, including those in Europe and Asia; the effect of overall market conditions and market acceptance risks; other risks include those associated with dependence on suppliers; the impact of competitive products and pricing; technological and product development risks; and other risk factors detailed in the Company's Securities and Exchange Commission filings, including its forms 10-K and forms 10-Q.

With that said, I will now turn the call over to J.S. Whang.

Thank you, Jim. Good afternoon, everyone. Thank you for joining us today.

Brad will review our financial results in a moment, but first, I will provide some highlights of our Q3 and an update on recent business developments.

We saw strong growth in solar shipments in Q3, driven by increasing customer demand for our solar products. While our solar bookings were lighter in Q3, we continue to see good demand and we are optimistic about continued strength in our order bookings pipeline. Overall, including semi orders, we produced over $20 million in total orders in Q3 and have a healthy backlog to fuel Q4 and into fiscal 2009.

For the fiscal year-to-date total order bookings, including semi, have reached nearly $90 million. And we are well on our way to surpassing $100 million in total order bookings by the end of our fiscal 2008, the end of next month, September.

Our Q3 results also reflect significantly improved operational productivity, helping us to leverage higher volumes to achieve strong operating results, and our substantial progress reflects the increasing benefit we are seeing from investment in our infrastructure for our solar growth plan, and streamline and optimize our operations.

As so our results demonstrate, we are making good progress toward achieving our targeted operating models. We also remain focused on expanding our product offering. During the quarter, we introduced our new solar PECVD product, which performs coding of anti-reflective film on the solar wafers, a very important step in the manufacturing of solar cell. Following the announcement in June 10, we have been diligently promoting our PECVD product to the marketplace and have seen interest from potential customers.

On the semi front, while revenues are down year-to-date, we are pleased with the written order activity and healthy book-to-bill ratio. There continue to be uncertainties within the semiconductors industry and we remain cautious about future order activity.

To conclude, our performance in Q3 reflects good progress in strengthening our capability to achieve a significant operational leverage, and it truly demonstrates our successful transition from being a semi-dominant company to a solar-dominant company.

Now for Brad Anderson, our CFO. Brad?

Thanks, J.S. Net revenue for the third quarter was $24.1 million, representing an 88% increase over the third quarter last year and a 37% sequential increase, reflecting higher solar shipments driven by continuing demand for our solar products. Solar revenue for the third quarter was $16.6 million compared to $3.9 million in solar revenue in Q3 last year. Year-to-date, solar revenue totaled $33.2 million compared to $8.1 million for the same period last year.

Total order backlog as of June 30, 2008 was approximately $60 million, up 191% from a backlog of $20.7 million in the third quarter a year ago and down slightly from the end of last quarter. This total includes approximately $44 million in orders from our solar industry customers at quarter-end compared to $11.5 million of solar backlog in Q3 last year. Backlog includes deferred revenue in customer orders that are expected to ship within the next six to 12 months.

Third quarter gross margin was 29%, an increase of 200 basis points compared to -- from 27% in the third quarter of fiscal 2007, and up 650 basis points from 23.5% in the preceding quarter. Improvement is primarily due to higher shipment volumes and related efficiencies and economies of scale, offset by higher warranty costs and higher deferred profit in the quarter. During the quarter, we deferred $1.8 million of profit compared to $700,000 in the prior-year quarter and the same amount in the preceding quarter.

Selling, general and administrative expenses were $4.8 million in the third quarter of fiscal 2008 compared to $4 million in the preceding quarter and $2.7 million in the third quarter of 2007. As a percentage of revenues, SG&A was down 240 basis points sequentially, down from 22.5% in the March quarter to 20.1% in the June quarter. SG&A expenses were higher compared to the prior-year quarter, resulting from $1.1 million in increased selling costs -- primarily commissions -- as well as SG&A expense at R2D, which was acquired in the first quarter of fiscal 2008; increased costs related to stock-based compensation; increased depreciation and operating costs for the Company's new building in the Netherlands; and increased personnel and consulting costs.

As announced previously, we recorded a restructuring charge of $344,000 in the third quarter, reflecting a reorganization of our Bruce Technologies semiconductor division, and optimized operations in light of lower plant utilization resulting from a slowdown in the semiconductor industry.

Income taxes for the June quarter were recorded at an effective rate of almost 40%, which includes an adjustment to true-up the tax accrual to the tax return for fiscal 2007. This adjustment added approximately 2 to 3 percentage points to our effective tax rate in the third quarter. Looking forward, we are pursuing strategies to reduce our consolidated tax burden. We're hopeful that such strategies will be in place to benefit us starting next fiscal year.

Bottom line, our net income for the third quarter of fiscal 2008 was $1.2 million or $0.13 per diluted share compared to net income of $1 million or $0.15 per diluted share for the third quarter of fiscal 2007.

Turning to the balance sheet, as of June 30, 2008, we had a cash balance of $36.8 million and working capital of $58.7 million, up slightly from the end of March 2008. During the quarter, we were able to finance much of the growth in receivables and inventory with customer deposits and trade payables, limiting the reduction in our cash balances.

Now turning to the outlook for the remainder of our fiscal 2008. Looking into the fourth quarter of this fiscal year, we anticipate revenue to be in the range of $22 million to $24 million, representing growth of approximately 68% to 83% over the fiscal 2007 fourth quarter. Our operating margin as a percentage of revenue is expected to be slightly lower in the fourth quarter compared to the third quarter of fiscal 2008, excluding the effects of the restructuring charge, due to a heavier product mix of specialty furnace systems, R&D type furnaces, that require higher material labor costs, and due to higher commission rates.

For fiscal 2008, we anticipate revenue to be in the range of $75 million to $77 million, representing growth of 63% to 67% over fiscal 2007.

Operating results for the fourth quarter, as in every quarter for Amtech, could be impacted by the timing of system shipments, the net impact of revenue deferral on those shipments, and recognition of revenue based on customer acceptances, all of which can have a significant effect on operating results.

So to summarize, our third quarter results demonstrate the progress we are making to improve operational performance, our strong order backlog will continue to fuel our growth in the fourth quarter and into fiscal 2009. And we are optimistic about our order pipeline despite the recent slowdown in order bookings. We continue to be active with our efforts to add additional front end solar manufacturing steps to our product portfolio to more fully participate in the rapidly growing solar market.

This concludes the prepared remarks section of our conference call. Operator, please open the call to questions.

(OPERATOR INSTRUCTIONS). Colin Rusch, Broadpoint Capital.

Good afternoon, gentlemen, and congratulations on a strong quarter. Can you give us an update on the monthly run rate for production of diffusion furnaces?

I think we are about 7 and trying to push up for 8, but that's where we are.

Perfect. And how many tools did you ship in the quarter?

We don't typically give out that granular level of detail on a quarterly basis.

Okay. Sounds great. And then on the PECVD indications, can you give us a little bit of guidance on how to think about how that pipeline is shaping up and when we might expect to start to see orders?

We introduced this one just about two months ago or so. And like I said earlier, we are deliberately promoting this product in the marketplace. And we're seeing some good interest from potential customers. And so as to what the pipeline looks like, and while our hope is still high, a little bit premature to quantify that.

Okay. And then how should we think about the impact of the euro on your cost structure going forward, as we see some sharp swings in the euro appreciation and depreciation here recently?

Yes, well, it hasn't affected us really too much in our orders to date and the pipeline, the way it looks. Just recently, we've seen a little bit of a correction in the last few days. But overall, it has not been a significant effect, from a sales and marketing standpoint.

Okay. And are you starting to get any better pricing on the diffusion furnaces at all? Are you seeing pricing going up or down at this point?

No, I think it is rather consistent. And the prevailing market price seems to be in line with our pricing structure.

Excellent. And then with the rebound with the semi business this quarter, how should we start thinking about that going forward? If the $7.5 million a quarter run rate is going to be consistent, are you expecting that to be up or down quarter-over-quarter next -- in the fourth quarter?

As we said previously, still we're struggling to pin down where the trendline is for the semi recovery. And so I think always that we have been, as we have been. And we will check closely what industry performances are. Quarter-to-quarter, there might be some tick on our bookings which happened in this quarter, but we really cannot say that trend will continue through the Q4 or next year yet.

Perfect. And then one final question -- can you talk a little bit about the surface passivization with your diffusion process? And any incremental improvements that you're seeing with the tools or hearing about from your customers? And where they're seeing consistency and does the [dobing] come out with their cells?

All we know is whichever customers and they use our customer, but they seem to be very satisfied with our finance performance. And it reflects on we getting repeat orders from many of our customers. And beyond that, how much really is improving what effects on solar cell, why lower our -- we are happy with the customers, so general expression of the positive performance coming from our furnace, that's about as much as we can say.

So, then, well, thank you so much. Again, congratulations on the strong quarter.

Ramesh Misra, Collins Stewart.

First of all, in regards to your deferred revenue, that went up fairly sizably, about $2.4 million quarter-over-quarter. Can you give me a sense of what's going on over there? I know it tends to vacillate quarter-over-quarter, but is there something deeper than that going on?

No, I think what's really happening there is because of the ramp up in shipments and revenues quarter-over-quarter, you're seeing a continued ramp up in the net deferred profit increase quarter-over-quarter. So as you continue to increase revenues, you typically are not going to have more acceptances than you are going to have of new deferrals. That is the case.

Okay. In regards to your semiconductor orders and semiconductor business, Applied Materials also yesterday talked about their orders rising about 3% sequentially. You yourselves seem to be, well, probably even greater than that. And your semiconductor revenues also have jumped up. I think they're around $5.5 million just excluding the Polishing Supplies.

So do you think that the worst of the semiconductor business is now behind? Or is it there's a little bit of a seasonal uptick right now?

I think what we see there as it relates to the semiconductor business, from time to time we'll get a large -- I'll call it a refurbish or type of system order. That can have a dramatic impact on any quarter, your book-to-bill ratio. And so we've had a couple of nice orders as it relates to that. For Bruce, we've had probably more Polishing Supplies equipment orders than we have in the past, and that's helped to fuel that.

But there's nothing out there that we see that tells us that will be a consistent story going forward. We're not -- we just don't have that visibility at this time.

Okay. In regards to the solar orders, you had some very strong quarters for two executive quarters and then this quarter it seemed to slow down. What's going on over there? When do you expect orders to rebound? I know in the press release, you guys said that your pipeline looks pretty good, but if you can provide more information about that, I'd be grateful.

The order pattern is coming from two different segments. One is our existing established customers' expansion plan. And the other one is new customers that we're adding. And when it comes to the repeat orders from our existing customers, and we are now dependent on their order of booking -- an order of purchasing patterns. And so looking at the pipeline, as I have been saying for now a couple of years, we continue to stay strong.

And as to the timing of replacement of orders dropping down from the pipeline, and is more of a pattern that we've [extended] on customer purchasing timing. And so we have some slow -- or a pause in the quarter we just passed, Q3. But I continue to remain very optimistic about the future orders shaping up.

Okay. So, J.S., you recently spent quite some time visiting customers and potential customers. Can you give us a sense of what the qualitative message or tone was from these people? And clearly, a lot of companies are talking about for their capacity expansion, but does that necessarily translate into stronger business for you?

I expect that it will translate to stronger bookings of further future quarters. And what I see out there, as much as I pay attention to any potential hiccups, and I don't see that. I haven't found any of those signs. And a continued executing very progressive expansion plans. So I was very lifted by recent trips and directly interfacing with the customers. I think we will be fine going forward.

Okay. I think that covers all of my questions. Thanks very much and congratulations.

Thank you.

Oh, I'm sorry -- one quick question about this restructuring charge at Bruce Technologies. What's happened as a result of this restructuring? And what should be the impact on your P&L as a result?

We obviously recorded $344,000 in the quarter of restructuring charges. And started to see some of the benefit in the quarter, but most of that will be coming in future quarters.

So is that a better COGS line or a better SG&A line?

It will be a combination of both; both from a COGS and SG&A. But relatively speaking to the Company on a consolidated basis, I wouldn't factor in a lot of benefit from that. It's just something we needed to do to get them back into more of a consistent profitable basis.

Okay. All right, great. Thanks very much.

(OPERATOR INSTRUCTIONS). Manoj Nadkarni, ChipInvestor Group.

Hi, good afternoon and congratulations on solid results. How are you guys, capacity-wise, in being able to meet demand you are seeing in your senior backlog?

I think the capacity is sufficient right now to meet that backlog to the extent that backlog continues to grow. We still need to -- we'll be pushed a little bit to meet that as far as our solar furnace capacity is concerned. And we continue to look at what we can do to further that expansion into 2009.

As we said earlier, I think one of the answers to the question, I think it was from one of the analyst, that we're currently doing 7, 8 furnaces. We can do a little bit more than that on a quarterly basis from time to time. But with that, that's a fairly good run rate for us going forward.

Okay. And how would that translate to revenue levels with your current capacity? Let's say you are at 24 million a quarter right now, solar and semi combined -- and I presume we have capacity limitation if any would come first in the solar area?

Sure. Sure it would. Our revenue guidance that we've given as we mentioned was about $22 million to $24 million for the fourth quarter, which translates overall for the year. And that's really as far as we've gone in giving guidance.

Okay. And if I may ask, did you add any new customers during the quarter?

Oh, the answer is yes.

And that was on the solar side?

That was on the solar side, yes.

Okay. All right. Well, thank you and congratulations again.

Thank you. Thanks for support.

[Tom Schwartz], Collins Stewart.

Congratulations on a good quarter. The restructuring charge relating to Bruce, the $344,000, is that consistent with what you talked about on the last call? Or is the scope of the restructuring in its totality changed at all from what you talked about then?

Hello, Tom, this is Brad. No, it is very consistent. I think in our last quarter press release and conference call, I believe we said about $360,000. So it's really almost spot-on with what we gave as the estimate.

I just didn't remember -- you made a comment a few minutes ago saying that about something continuing over future quarters. I guess, I thought it (multiple speakers) --

That was the cost savings from the restructuring.

Oh, okay. So this will be the end of the restructuring charges?

You always -- yes, as far as (multiple speakers) --

Well, I mean, at least the ones -- at least those.

Right. Yes, thanks for the confidence, Tom.

The second question is kind of a follow-on to what that other gentlemen just asked. In terms of -- I know you can't go into a lot of detail about the profile of the solar business to a great extent, but in terms of the distribution of solar revenues between and among customers, is there any way that you could talk about that so we can get an understanding of all the solar revenue, for instance -- how much came from customer A or B or C or D? Or how many total customers there were? What percentage of them were new versus people to whom you were sending follow-on equipment, et cetera?

Yes. The -- in our 10-Q, actually, we disclosed that for the quarter -- you've got to think of this as a quarter -- one customer was about one-third of our revenues. And another one was, I think, 11% of our revenues. We don't disclose that on a -- just from a practice policy standpoint.

However, I can say if you think about the public announcement we made back, I believe, in October, the $15 million order from Yingli, that that was going to ship in these next -- in the third and fourth quarters of 2008. That should give you a pretty good idea of who is dominating really our revenue pattern right now.

Got it. Thank you.

(OPERATOR INSTRUCTIONS). And there are no further questions in the queue. I'd like to turn it back to management for any closing remarks.

Thank you all for joining us today. We look forward to reporting to you on our progress and appreciate your continued interest in Amtech. This concludes today's call.

Thank you. Ladies and gentlemen, if you would like to listen to a replay of today's conference, you can dial 303-590-3000 or 800-405-2236 and enter access code 11118369 filed by the pound sign. Thank you for your participation. You may now disconnect.