Amtech Systems Inc (ASYS) 2010 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Amtech Systems Second Quarter Fiscal 2010 Results Conference Call. (Operator Instructions.) This conference is being recorded Tuesday, May 11, 2010. I would now like to turn the conference over to Jim Byers with MKR Group. Please go ahead.

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

After the close of market trading today, Amtech released its second quarter fiscal 2010 financial results. The release will be posted on their website at www.AmtechSystems.com. And 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 and competitors, change and volatility in the demand for diffusion, PECVD, and PSG removal equipment, success of our key technology vendors in delivering new products and confirming their technological advantage, 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, including the equity and credit markets and market acceptance 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. J.S.?

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 review some highlights of our Q2 and update you on recent business development.

We continue to see strong order momentum for our solar diffusion systems and increased activity in our business pipeline. Yesterday, we announced new solar orders from both new and existing customers totaling approximately $15 million. With the addition of these new orders our total solar orders for the fiscal year-to-date has now reached $98 million.

As these most recent orders further demonstrate, we continue to expand our solar market share and increase the number of top tier solar customers seeking our superior diffusion technology. To process our increasing orders, we have been rapidly building up our production capabilities, including expansion of our facilities and hiring of production and support personnel. The ramp up has been proceeding as planned and we are on track to produce record shipments in our fiscal Q3 and Q4, to meet current fiscal year revenue guidance of over $100 million.

As a part of our substantial growth in recent years and anticipating the growth we see ahead of us, last quarter we promoted Fokko Pentinga to President of Amtech to further strengthen our management [deck]. His near term focus is on successfully executing our operational ramp up to manage our tremendous backlog of solar orders.

Fokko was instrumental in securing our successful R&D partnership with Yingli and in obtaining the large customer order we announced last December, which we have disclosed came from Yingli. This large order was the direct result of our successful high efficiency solar cell collaboration with, [in the end], ECN, the Energy Research Center of the Netherlands, which is a well known and respected European solar research center and one of our long term partners. Yingli has successfully developed their next generation high efficiency N-type solar cell under the project called PANDA using our diffusion systems and ECN's technology know-how for their current 300-megawatt extension project. We see a very promising future for the N-type technology as it offers comparative advantages in the marketplace. And since last month, April, we are actively engaging with several key potential customers. We fully expect substantial revenue contribution from N-type products in our fiscal year 2011.

We remain focused on working with our key partners, consisting of top tier solar customers and our strategic research business partners to further enhance our solar technologies and leverage our diffusion expertise and leadership in the marketplace. We also continue to work very hard on our multi-product solar growth strategy, which includes our new PSG and PECVD products. While we expect to generate increasing customer interest in these new products, it takes time for a new product to gain market acceptance and we don't expect to see meaningful contribution to our revenue from these new products in fiscal year 2010.

Turning to our semiconductor segment, we continue to expect to see improvement in 2010 over 2009. Our semi book-to-bill continues to be positive and was 1.3-to-1 in the second quarter.

To conclude, we are very pleased with the substantial increase in orders we continue to generate from our growing solar customer base and an increasing number of new customers. We continue to see excellent quotation activities and remain focused on continued successful execution of our solar growth strategy. We are on track with the ramp up of our production capacity to process our record level of orders and our well positioned to deliver on our revenue guidance of $100 million to $105 million for fiscal year 2010.

I will now turn the call over to Brad to discuss our financial results. Brad?

Thank you, J.S. I will review some of the financial results for the second quarter of fiscal 2010, and also discuss our outlook for the remainder of the year. Second quarter net revenue was 16.1 million, up 4% sequentially and up 47% from the same period a year ago. This was driven primarily by higher solar shipments. Our book-to-bill for the quarter was a very healthy 2.2 with solar at 2.6, and as J.S. mentioned, semi at 1.3.

We entered the June quarter with a backlog of more than $87 million, an increase of 17%from backlog of 74 million at December 31. Total backlog includes 82 million in solar orders. Just as a reminder, our backlog includes deferred revenue and customer orders that are expected to ship within the next 12 months.

Our second quarter gross margin was 29%, compared to 30% in the preceding quarter and 22% in the second quarter a year ago. Compared to the same quarter a year ago, gross margin in the most recent quarter reflects improved production efficiencies for prior shipment volumes, partially offset by lower deferred revenue. We achieved better than expected gross margins in the second quarter, which contributed to our profitability. This was primarily due to the fast pace of our ramp up in production capacity near the end of the quarter, resulting in our ability to produce more product than we anticipated in the month of March for shipment in our fiscal third quarter. We have made tremendous and rapid progress with our ramp up. As of quarter end, our consolidated workforce has increased 57% from December 31.

Much of our cost on the production side went to our tools that are in process. Our work in process inventory went from 3 million at December 31 to more than doubling to over 8 million at the end of March. Our SG&A expenses in the second quarter were 4.1 million, just a slight increase from the preceding quarter. Depreciation and amortization in the second quarter was $420,000, compared to $385,000 in the prior year's second quarter. Included in the second quarter fiscal 2010 results was $193,000 of stock option expense, compared to 167,000 in the second quarter a year ago.

Income taxes in the second quarter were $140,000, reflecting an effective tax rate of approximately 41%. This compares to an income tax benefit of $580,000 we recorded in the second quarter last year. Net income for the quarter was $206,000, or $0.02 per diluted share, compared to net income of $80,000, or $0.01 per diluted share, in the preceding quarter. Total revenue by geographic distribution for the second quarter was in the Asia Pacific region 71%, North America at 10%, and Europe at 19%. We continue to maintain a solid financial position with essentially no debt and a strong cash balance. At March 31, 2010, our cash balance was $43.1 million, up from 42.5 million at December 31, and we had working capital of $56 million.

Now turning to our outlook. We are reiterating our previous guidance of revenues in fiscal 2010 to be in the range of $100 to $105 million, representing an 88 to 98% increase from fiscal 2009, based on our strong solar backlog and continued success in ramping up operations. Based on this guidance, we expect revenues to be in the range of 35 to 37 million in each of the next two fiscal quarters. Additionally, we expect GAAP operating margins to equal or exceed 10% in the second half of fiscal 2010.

Our operating results could be impacted by the timing of system shipments, net impact of revenue deferral on those shipments, and recognition of revenue based on customer acceptances, all of which have in the past and can in the future have a significant effect on operating results. A substantial portion of our revenues is denominated in euros. The revenue outlook we have provided is based on an assumed exchange rate between the United States dollar and the euro. A significant decrease in the value of the euro in relation to U.S. dollar could cause our actual revenues to be lower than anticipated.

So to recap, we remain on track to produce record volumes in our fiscal third and fourth quarters and execute on our guidance. We continue to see a strong business pipeline driven by the intense effort within the solar industry to increase production capacity and cell efficiency. Our substantial increase in orders reflects increasing market recognition for our superior diffusion technology and adoption of our market leading solar diffusion furnace system. And we continue to maintain a strong cash position to support our growth plans.

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

Thank you. (Operator Instructions.) Our first question comes from the line of Colin Rusch with ThinkEquity. Please go ahead.

Good afternoon, and congratulations on the solid execution. Can you help us understand how the gross margin should trend in the June quarter? I know that you tend to have a hold back at your customers typically, which may impact the gross margin line. So if you could just give us a little bit more color there.

Sure, Colin. I think with the tremendous ramp up in shipments--in the volume of shipments, we will see some positive gross margin improvement just because of the volume. That will be tempered somewhat by the deferral that we have to do. Typically, we defer probably 10 to 15% of the revenue upon shipment of a tool. But as we--in the third and fourth quarter the volume -- benefits of the higher volume will override the negative effects of the net deferrals that you'll see. So we'll see improvement in margins.

Great. And then--.

--That's our expectation.

Okay. And are you starting to see any revenue from the LED industry? And if you could talk to us a little bit about what you're selling in there, if you are.

Well, with LED we do--we have--with our P.R. Hoffman subsidiary that sells polishing supplies and machines we are seeing some initial modest revenues--orders and revenues, coming in from that division.

And how big do you think that business could end up being?

Well, it's early in the process as far as our activity involvement in LED with -- on the consumables side, so it's a difficult thing to answer. Right now, it's a modest contribution. I think that's about as far as we can go with that answer.

Great. And can you give us an update on quoting activity now versus the last nine months? Are you still seeing a similar feverish pace? Have things slowed down? Can you just give us an update there?

From a quotation standpoint, as we mentioned in our press release, 15 million that just came in here pretty much call it April, the first week in May, which was good, a couple new customers. And so, the quotation activity continues to be good and favorable. We see that. And expectations are that we'll continue to have a good we'll call it fiscal year and calendar year from a quotation standpoint.

Colin--.

--Great, thanks a lot. Oh, sorry, go ahead.

Adding to that, we just finished the Shanghai solar show and we were also impressed with the customers' activity with us in building our better quality pipelines, all those who were [confirmed] during the show. It seems that there is no slow down from new entries to existing customers' desire for the continued expansion, at least at the moment, and it is continuing.

Perfect. Thanks a lot, guys.

Thanks, Colin.

Thank you. Our next question comes from the line of Gordon Johnson with Hapoalim Securities. Please go ahead.

Hi, guys. Thanks for taking my call. This is Ned [Irvin] on behalf of Gordon Johnson. Congratulations on a great quarter. What kind of -- you guys are obviously flat out for the rest of the year trying to get your -- get these orders done. It looks like you have a lot of confidence that you're going to be able to execute. What--how do you see 2011 playing out? Do you guys have any visibility into 2011 at this point? Could you just give us some idea of how you see next year playing out?

So we continue to say that our business pipeline is heavy; and like last year, before all those things in the pipeline plays out, we will have another great year in 2011.

Great, that's encouraging. As far as your N-type units, when can we expect you guys to start seeing incremental business from that? When do you guys plan on rolling out on those new machines and really marketing them to people other than who you're working with right now?

As I said earlier, definitely we see substantial revenue contribution from N-type products in 2011. And that's because of the timing. We are here in May now. Any equipment that requires to have a capacity filled up in this calendar year is already placed in order. So any orders that we are working on either for P-type or N-type, now we are looking at 2011 fiscal year. And so, usually our turnaround time is about six to seven months and we expect to see orders coming in early enough to contribute to 2011.

Great. As far as leveraging some of your costs here, when can we expect to really start to see the leverage kick in? Is it going to be as soon as Q2 or Q3--fiscal Q3 for you guys, or is it really going to be Q4 when we start to see the real gains from your leveraging of your fixed costs?

We should see that in both Q3 and in Q4.

Great. Thank you very much, guys. Congratulations, again.

Thank you.

Thanks, Ned.

Thank you. Our next question comes from the line of Bill Ong with Merriman and Company. Please go ahead.

Yes. Good afternoon, gentlemen, and nice job. A couple of accounting questions. What type of R&D expenses can we expect going forward, especially given that you're going to be ramping new products for both of fiscal '10 and fiscal '11?

We haven't given any specific guidance, Bill, on R&D expenses other than initially we said for the year we'd start to see a higher ramp up of expenses and I think that will be the case compared to where we've been.

Maybe you can talk about staffing of staffing, any plans of increasing your engineering staffing just in the (inaudible) of these new products?

We are in the midst of that right now and we continue to look at filling--finding quality people to fill in certain points in the engineering process, whether it's production engineering or research and development engineering. We've brought on several people, both from a--whether it's mechanical, electrical, and process engineering, the process continues to be very important for us as we go forward with our future products.

What kind -- okay. What kind of tax rate should we also model for this year and next year?

Well, right now, it's probably best to stick with around the 40%. We hopefully can see -- hopefully see some improvement to that in 2011, but for right now, I think 40% is the best number to use at this point.

Okay. And then, two more questions. On -- just given the demand for this year overall, looking at a range of nine gigawatts to as much as 12 gigawatts this year, what's your (inaudible) for this capacity and what type of market share do you think you can reach by the end of this year?

As far as the market share that we can reach, I think that we're probably right at about that 40%. And can we improve on that? We continue to work hard to do that. We don't discount our competition. We have a healthy respect. But we think we can at least maintain if not grow the market share.

And your furnace capacity by year end?

Furnace capacity from a production standpoint, we don't get that granular as far as what we say in these calls. We continue to ramp up to meet the demand that's there, and that's where we're at today.

Okay, then my last question is, given that the analog chip market has seen tight capacity, what type of visibility do you see towards the end of this year into next year? I know you indicated some pretty good visibility currently. But do you have a sense of when capacity could maybe start to loosen up in the analog chip market?

How capacity will loosen up in which market?

Analog. Analog chips going to the--for your furnace.

The--analog tends to do their capacity expansion on an incremental basis. So it's never--it's an anomaly if you ever see a whole new fab. So it's a furnace here, a furnace there. So we always are looking for those opportunities. We continue to have blue chip customers, be it Infineon, Analog Devices, TI's analog division, and we continue to take advantage of the opportunities that are there. Seasonality also within analog is--while we've seen a nice up tick from where we were in 2009, and if you look our book-to-bill has been plus one for the last couple of quarters, that we're having in a growth mode. Maybe not the growth mode that you see in high end, because in the analog space you're competing with a lot of different folks, be it refurb houses to there being vertical furnaces that may be less -- fairly inexpensive that are on the market. So there's a lot of dynamics that play into that. We could benefit (inaudible) from having (inaudible) installed base and being able to capitalize on opportunities as they come up. And it's been a nice increase, a modest increase for us and we'll continue to pursue those opportunities as aggressively as we can.

Thank you. Well done, gentlemen.

Thanks, Bill.

(Operator Instructions.) Our next question comes from the line of Howard Halpern with Taglich Brothers. Please go ahead.

Thanks for taking my call, guys. In Q2, the hiring ramp, did that mostly occur towards the end of the quarter or from the very start of the quarter?

Hi, Howard. That ramp up really was weighted more towards the end of the quarter.

Okay.

Which is another reason why things came out a little bit more positive, and the fact that the people we were able to bring on for the most part are pretty experienced people and being able to be productive faster than originally planned, which is why we're able to increase our work in process as well as we did to fuel this June quarter.

Okay. In terms of--I mean, you talk about the robust quotations that you have. Could you give maybe a sense of how many new --potentially new customers are looking at you guys?

So we are quite impressed with the big names and this is from big semiconductor players, top tiers in the world, entering solar market, and the very serious overall commitment being talked about. And so, the new entrants seem to be the big guys that we are latching onto and as well as our existing customers continue executing their mass production, giving us (inaudible).

Okay. And then, one final question. I know that I guess regionally the -- Brad had mentioned that the ash cloud in Iceland had disrupted shipments for a couple days. And now that it's starting to spew ash again, have there been any delays at this point, or has the shipping--the shippers figured out how to maneuver around the ash cloud?

When you ramp up doubling--more than doubling the capacity at a very rapid pace, there are some glitches there inevitably. However, nothing is serious enough to reduce our confidence to meet our commitment of shipping more than $100 million for this fiscal year.

Okay. Thanks, guys. Keep up the good work.

Thanks a lot.

Thanks, Howard.

Thank you. (Operator Instructions.) At this time I am showing no further questions. I'd now like to turn the call back over to management. Please go ahead.

Well, 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.

Ladies and gentlemen, this concludes the Amtech Systems Second Quarter Fiscal 2010 Results Conference Call. If you'd like to listen to a replay of today's conference, please dial 1-800-406-7325 followed by 428476#. AT&T would like to thank you for your participation. You may now disconnect.