Amtech Systems Inc (ASYS) 2011 Q1 法說會逐字稿

(Operator Instructions) Ladies and gentlemen, welcome to the Amtech Systems first quarter fiscal 2011 financial results conference call. During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions).

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

Thank you, Operator. Hello, everyone, and thank you for joining us this afternoon for Amtech Systems first 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 first quarter fiscal 2011 financial results. The release will be posted on their 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 that 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 its products, 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 that are 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 Mr. J.S. Whang.

Thank you, Jim. Good afternoon, everyone, and thank you for joining us today. We are very pleased to report another strong quarter including record revenue and bookings. Our Q1 revenue of nearly $54 million is up 18% sequentially and up 248% year-over-year. To put this quarter into perspective, we produced more revenue in this one quarter than we did in entire fiscal 2009, a tremendous tribute to our employees and to our customers.

The Q1 bookings were a record $137 million and our quarter end backlog at December 31st was a record $173 million, nearly doubling our backlog of $94 million at September 30, 2010.

Our second quarter we are off to a very strong start. Last week we reported $32 million in new solar orders for the month of January and our fiscal 2011 year to date solar orders are more than whopping $159 million. We believe these record results and our continued strong order momentum further demonstrate our technology leadership in high efficiency solar diffusions which is our core competency. And we continue to aggressively pursue additional market share in our diffusion business.

At the same time, we remain very focused on our solar growth strategy of transforming Amtech into a solar technology provider, expanding the market we serve by timely preparing ourselves for a higher than 20% efficiency market at low cost of ownership that all top-tier customers are intensively working toward.

About our ion implant company acquisition, last week we announced an agreement to acquire Kingstone Semiconductor, a Chinese-based technology company specializing in ion implant solutions for the solar and semiconductor industry. The intense effort by our customers and the solar industry to increase cell efficiency at lower cost will lead to more advanced and complex solar cell architecture in the future. And we believe this market as well, an ion implant (inaudible), can make a bigger contribution.

We believe this acquisition creates the best opportunity for successful development and production of an ion implant machine for the solar market and will also compliment and protect our core solar diffusion business expertise and leadership. We are very excited to work with Kingstone's management led by John Chen, their CEO. John and his team bring a tremendous amount of ion implant technical expertise and also hands-on experience to this project.

As a result of this acquisition, Amtech will immediately establish a technology beachhead in a strategically key part of the world. This will increase our technology expertise and will set the foundation for our future solar business opportunities.

For N-type, we continue to make progress with our high efficiency N-type product and continue to selectively introduce and promote the competitive advantages of this new technology with key potential customers on an ongoing basis.

Regarding filing of our $60 million shelf registrations, concurrently with our 10-Q filing this afternoon we filed a shelf registration to issue up to $60 million in securities. With the tremendous increase in our business, our upcoming execution of the ion implant project post acquisition of Kingstone, our potential growth acceleration arising from execution of our multi solar product growth plan, and our positive long term outlook on the solar market, we believe it is strategically important to have the financing flexibility in the future that comes with the shelf registrations to support continued execution of our solar growth strategy.

We continue to see a healthy business pipeline and we remain on track to continue to produce and ship at high volume in the current Q2. I will now turn the call over to Brad Anderson to discuss our financial results in more detail. Brad?

Thank you, J.S. I am very pleased to report another quarter of strong financial results for our first quarter of fiscal 2011. First quarter net revenue was a record $53.7 million, up 18% sequentially from the preceding quarter's record revenue and up 248% from the first quarter last year, driven primarily by higher system shipments to customers in the solar industry.

Our book to bill was a very strong 2.3 with solar at 2.5 and semi at a healthy 1.2. As J.S. mentioned, we had record quarterly bookings in the first quarter of $137 million including $127 million in solar orders, up 176% from the preceding quarter and as we entered the March quarter with record backlog of $173 million which includes $162 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.

First quarter gross margin was 36% compared to gross margin of 39% in the preceding quarter and 30% in the first quarter of fiscal 2010. As anticipated, margins were impacted by the increase in the amount of net revenue deferral in the December quarter which was due to the high level of shipments.

Our SG&A expenses in the first quarter were $10.4 million or 19% of revenue, compared to $7.9 million or 17% of revenue in the preceding quarter. The increase in SG&A expense was primarily due to increased commissions on higher revenues and higher commission rates, higher legal and consulting fees which were primarily related to the China acquisition activity.

Depreciation and amortization in the first quarter was $647,000 compared to $422,000 in the prior year first quarter. Included in the first quarter fiscal 2011 results is $374,000 of stock option expense compared to $377,000 in the first quarter a year ago.

Income taxes in the first quarter were $3.3 million reflecting an effective tax rate of approximately 40%. This compares to a 39% effective tax rate in the preceding quarter.

Net income for the first quarter of fiscal 2011 was $5 million or $0.52 per diluted share compared to net income of $5.4 million or $0.58 per diluted share in the preceding quarter and net income of $80,000 or $0.01 per share in the first quarter last year.

Total revenue by geographic region for the fiscal first quarter was Asia Pacific region came in at 81%, Europe at 12%, and North America at 7%.

We continue to maintain a solid financial position. At December 31st our cash balance was $53.2 million, a decrease from $56.8 million at September 30th and we had working capital of approximately $71 million.

Now turning to our outlook, we expect fiscal 2011 full-year revenues to surpass $230 million, a greater than 92% increase from fiscal 2010 with second quarter fiscal 2011 revenue in the range of $55 million to $60 million.

Our operating margins in the second quarter could be negatively impacted by higher revenue deferral due to expected continued ramp up of shipments, expected higher material costs, and continued acquisition costs and increased research and development costs resulting from the expected acquisition of Kingstone Technology. As a reminder, our operating results 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 have in the past and can in the future have a significant effect on our operating results.

In addition, 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 the US dollar could cause our actual revenues to be lower than anticipated.

So to recap, we had another record quarter in revenue, bookings, and backlog. We remain on track to produce and ship at a high volume in the March quarter. We continue to see a healthy order pipeline driven by the intense effort within the solar industry to increase production capacity and cell efficiency. We are hitting on all cylinders, leveraging our business model and investing in the future and with $173 million in backlog and continued strong order momentum, we expect 2011 to be another record year for Amtech.

On the investor relations front, later this month Amtech will be presenting at the Jefferies Clean Technology Investor Conference in New York City on February 23rd. We hope to see many of you there. In addition, we'll be exhibiting at Asia's largest photovoltaic show, the SNEC Fifth International PV Power Expo in Shanghai February 22nd thru the 24th.

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

(Operator Instructions) Colin Rusch, ThinkEquity LLC.

Congratulations, guys. Can you help us understand the SG&A spending breakdown on the legal fees? How we should think about pulling those out in the March and June quarter and what we should expect to see as you scale up revenue a little bit in terms of additional overhead?

Well we haven't broken out what the acquisition costs were in our disclosures, so I really can't give out those numbers here. But the announced acquisition costs in the March quarter should be lower than what we had in the December quarter.

Okay, and then looking at the receivables being up pretty sharply quarter over quarter, can you go into some additional detail on terms, the level of deferred revenue that you guys were looking at coming out of the December quarter?

Sure. Well receivables did increase substantially. A lot of our shipments were towards the latter half of the quarter. We did have a tremendous collection in the early part of January this quarter, so there's no real concerns, no concerns related to the receivable balance. Really nothing changes as far as terms, it was more timing of shipments within the quarter.

And then on deferred revenue, I guess historically we've understood that 10% to 20% of the sale would be held back until final acceptance of the tools. Can you just give us a sense of how much of the revenue you held back and we could see rolling forward into the next quarter?

In our notes to the financial statements we showed the balance of about $17.5 million of deferred revenue, deferred profit at about $16 million.

Okay, perfect, thanks for the clarification there. And then just two more for me. Can you help us understand the trends in automation levels and what you're seeing in terms of system ASPs? Are you seeing everyone, all of your customers continue to order automation? Are they ordering more automation? And how is that affecting the sales price?

Well I would say the trend has been to order more automation than less. So that's the trend is most everyone is ordering some level of automation, whether it's the full (inaudible) automation transfer or just what we call lift only solution. But almost everyone is ordering automation with their tools. From an ASP standpoint, I would say ASPs always vary customer by customer, but the trends have been that we continue to hit we believe a good price for our product. And while there's always negotiations that occur and as there is larger orders from individual customers, there's always an expectation of some reasonable discount and we work with our customers in that regard.

And how about lead times? Where are you guys at right now in terms of bookings out in terms of slots for your customers?

Well it's longer than it was six months ago. I would say it's probably we're getting in that six, seven month range with -- I think that's essentially where we're at right now.

Okay, I'm going to sneak one last one in, and thanks for giving me so much time. Can you just talk about the N-type process with the ion implant technology from Kingstone? I guess is there a material advantage that you can talk to versus P-tech processes and do you think the ion implant is going to help you introduce N-type processes into a couple of new markets? And that's it for me. Thanks so much, guys.

Hi, Colin. The ion implant emphasis will be on both N-type and also P-type. However, probably we will put more interest in N-type as a part of our already fully developed N-type technology. And supported by ion implant will clearly make a bigger differentiation opportunity in any competing technology. So we will put more emphasis on N-type.

Great. Thanks a lot, guys.

Bill Ong, Merriman Capital.

Good afternoon, gentlemen. Congratulations on the record quarter. A couple questions. With your full year guidance of $230 million, that sort of implies a flattish quarterly revenue guidance. So are you being conservative? Perhaps you can give us some insight in terms of booking visibility why there's a lack of seasonality in your guidance?

Sure, Bill. I think we're being realistically conservative. When you think about the tremendous ramp up that we've already done and factored in some level of continued ramp up, there's still a lot of execution to occur between now and these next three quarters to make that come to reality.

Okay, that's helpful. And then my next question is, when you're speaking with your customers, when they evaluate processes for information, what is their opinion on solar implant technology? Is that really being driven by the customer or is this being pushed by another implant vendor? So I'd like to get your thoughts on how they view commercial viability and what do they see as the pros and cons of solar versus implant technology?

Hi, Bill, it's J.S. I don't think it was either a customer push or technology company push. It was a joint effort. It will require joint effort because employing ion implant is requiring new process technologies, working on more complex cell architecture. And so it will require also a partnership of customers and also company like (inaudible) and we are joining that.

Okay, and then maybe to extrapolate a little bit -- do you see implant being the end game on some of the technology, similar to the semiconductor industry where (inaudible) was a starting point and then it moved over to implant, other than some legacy (inaudible) steps. So I'd love to get your long term view of the viability of implants.

My longer term view is approximately 50/50 split between ion implant and continuing using batch furnace. And that's because lower efficiency is our bread and butter, giving customers good cash flow. And while high end efficiency, while efficiency might be high, the cost of manufacturing will definitely be higher than standard cell structure. And so I believe with solar -- if you look at end market applications, it's going to be high growth and between solar (inaudible) solar farm all the way to residential, commercials including some different types of applications, smaller applications, we'll continue to introduce. So it depends on applications. I think there will be a variety of efficiency will play role, not just on one high efficiency or low efficiency. So with that reason, I present that it will stay a long time, for about half and half split between ion implant and the batch furnace.

That's helpful. And then my last question is, what's the solar sales mix in the quarter between P-type and N-type?

Would you phrase that one more time?

Your solar furnace mix, what percentage was P-type and what percentage was N-type in the December quarter?

Oh, you mean orders?

Yes, your order numbers.

Brad?

I would say as far as shipments were concerned, we had already shipped -- and really our one customer is Yingli as it relates to N-type, we shipped almost all if not all of it by the end of the September quarter, so there really was no meaningful N-type revenue in the December quarter as far as shipments are concerned.

That's helpful. Nice job, gentlemen.

Edwin Mok, Needham & Co.

Hey, thanks for taking my question and congrats on a great quarter. Just a follow up question to Bill's question, I'm just wondering on your backlog that you guys have reported including what the order intake was in the first quarter, how much of that is N-type? And then just a follow up question to that is, you guys talked about at least outside of Chinese, you saw engagement of some customer on N-type. How is that tracking? And do you anticipate to announce more N-type customers this year?

As far as backlog, obviously we did get a nice order from Yingli as it relates to N-type in the December quarter. But as far as breaking out how much of that is backlog, it's probably in that probably 15% to 20% range.

And then regarding traction with new customer?

As J.S. mentioned in his prepared remarks, we continue to visit and work with several key potential customers in that regard. This is not buy a furnace, this is a technology sale. So that I think takes time and takes a lot of work with the potential customers. But we continue to make progress.

Okay. I want to ask a question about the outlook. So if I look at your backlog and your revenue guidance of $55 million to $60 million, can you help me out, is that shipment level, is that more because of customer demand in your shipment at that level? Or is more just you guys are somewhat limit by operation right now to be able to ship above that level?

Well I think we continue -- well we did ship and generate $54 million of revenue December quarter, so our guidance is, at the high end, still over 10% higher than that number. So I think that's a pretty good ramp up from quarter to quarter as far as operations are concerned. So we continue to see operations and from a customer standpoint, I'd say it's been pretty constant with our customers.

So it sounds like your demand pool could be stronger, that obviously execution is the key in (inaudible). That's helpful. And then on the financial model, if I look at this past quarter, you guys were around 15%, 16% operating margin, then you talked a little bit about more investment on this Kingstone deal, that backing out that, there should be some improvement on the legal expense side. Should we expect similar type of run rate for this year if I just look out in terms of 2011? Or do you see more leverage as you either increase your revenue level?

I think this quarter, this March quarter we'll see some impact on the margins due to those acquisition related costs and as we start into the research and development project with ion implant machine at Kingstone. And then as we go out into the last half of the year, we should then start to see back again improvements into the operating margin as those revenue levels are maybe a little bit higher but also we get a little more efficient at what we're doing.

Great, that's very helpful. Two more questions for me. One is, how should we think about tax for this year?

The taxes, you should continue from a modeling standpoint look at the high 30s percent, 38%, 39% for the rest of the year. We are continuing with a very important strategic project. We are reorganizing the company from a legal structure to try to maximize the lower tax jurisdiction that we operate in and hopefully we can have that done by the end of this fiscal year. But we won't see benefits of that until next fiscal year.

Great, that was very helpful. Then the last question, just on the ion implant side, so in the press release you mentioned that this company you guys acquired majority has already sold ion implant equipment previously. So are you guys developing new equipment based on existing hardware that's been developed? And would that in any way lead to faster process development or do you have to start from scratch and just basically take the IT and develop from that point?

Well the machines that were sold were with companies that they were with prior to Kingstone. Obviously they bring that understanding and expertise, but the point of that was to say these guys are not newbies. They've been able to build this and build machines. So we're taking that expertise and bringing that to this development of the solar ion implants.

So maybe a question for J.S. J.S., if you can at a high level, we heard from one of the ion implants suppliers talking about their (inaudible) using ion implants. Maybe you can help us there. And you mentioned focus on N-type. Is it just the concern about (inaudible) and that timing of the diffusion process taking too long and that's the area, that's the main key that you try to address? Or do you see other benefit of ion implant?

I think the accuracy of a controlling (inaudible) profile is one clear benefit and also an effort to improve efficiencies to 20% and higher are long, real long term goal for our customers shows that we are all the way up to 26%. So the same structure will get a lot more complex and ion implant really can do a good job on the lower temperature and managing more complex cell design structure. So those are the two things that are advantages that we know of.

Plus our strategies, knowing that customers criteria, any improvement should come from lower cost of ownership and our focus will be around designing and adding machine performing high level at lower cost. So that's our plan.

I see, great. That's all very helpful, thank you. That's all I have.

Howard Halpern, Taglich Brothers.

Hi, guys. Just a couple questions. Everybody was pretty detailed. In terms of once the acquisition is complete, could you give me some idea on what the R&D ramp would be on an annualized basis?

We haven't specifically detailed that. It will be obviously substantially higher than what we historically have done. In the 8-K that we filed and the press release, we detailed some of the commitments that we're making, but from an annual basis, it's going to run in the several millions of dollars of R&D.

And I guess could you describe a little bit, I know you talked about Q2 and some of the higher material costs, what are you seeing, I guess, in terms of higher material costs on a year over year basis?

These are incremental. We see higher costs for certain key components like quartz and silicon carbide. And while most of our inventory is in average cost basis, so it takes a little bit of time for that to flow into the cost of goods, we're starting to see that come into play a little bit more in the March quarter. And from the standpoint of exactly how much that is, I mean you're talking maybe a basis point or two increase in our cost of goods related to that issue.

Okay. And last one, the tax issue was mentioned a little bit, but once you get everything all settled and assuming it is by the end of this year, where might the tax rate settle down once everything is in place with the new structure?

Lower than we are today. I'm joking. Of course it will be. As we get a little bit closer to implementing this project, I think we'll be able to bring a little more clarity as to what the expectation should be.

Okay. Well thanks and keep up the great work.

Mark Miller, Noble Capital.

Let me add my congratulations for the job done this quarter. Just wondering, with the large increase in orders you've seen, are these basically repeat customers? Do you feel you're gaining share? Or are there any new wins here for you?

It's a combination. It's primarily driven by existing customers and their capacity expansion plans. But over the last year, we've continued to add some additional new customers and believe that that's helped us to, over the last I'd say six to nine months, actually gain some market share in the diffusion furnace arena.

In terms of Kingstone, I assume there's not going to be any sales for a period of time. Could we expect some sales of tools next year? Or what's your thoughts about that?

As far as 2012, that's going to be a bit early for any sales, of revenue of any tools. This is an 18, 24 month type project and that's where our expectations are. We believe it's going to provide us with the right opportunities as customers really start to adopt these higher efficiency plans in the future.

Then final -- well two questions. Then finally, your SG&A expenses next quarter, can we assume they'll be slightly lower because of the acquisition costs reducing? Or are they going to be higher?

I would say the bulk of the acquisition costs were recorded in the December quarter. There will continue to be some in the March quarter, but our S, meaning selling of our SG&A, a lot of that is variable because of commission. And the guidance we give would indicate that there will be slightly higher commissions also. So from an SG&A standpoint, you'll probably see that still be a little bit higher than it was.

Finally, can you tell me what your cash flow from operations were in this quarter?

Yes, it was -- we actually used cash. I have our cash flow statement. We used $4.3 million of cash in operating activity.

And that's from the acquisition basically or for materials?

Well actually that's operating activity, so you're talking primarily because of the shift in working capital and the increase in AR.

Okay, thank you.

(Operator Instructions). Jay Srivasta, Chardan Capital Markets

Thanks for taking my question. If I look at your revenue split by region, a lot of it is heavily focused in Asia obviously. But within the Asian markets, are you seeing interest in other regions that you haven't seen before? Is that something you are baking into your forecast for this year?

Our focus, where our bread and butter has been, has been in the Asian market. And that's where we continue to be focused. We're always open to other markets and we have the resources in those markets, but the capacity expansion outside, it's not really happening outside of the Asia region. So that's where our focus is.

Let me reword it, I guess what I was meaning, within Asia, outside of China and Taiwan, are you seeing interest in other segments within Asia?

There's always interest and we continue to see that primarily in Korea.

Okay. Turning to the competitive landscape, you said you've potentially gained some market share. Could you elaborate on what drove the market share increase?

There really isn't one item that you can pinpoint for that that, it's a combination of things. One being just overall reputation within the industry continues to grow. And people see us and they see blue chip companies that we do business with like Yingli and Trina, that carries a lot of weight in their decision making. We believe we provide great service to our customers and obviously a top tier product that has really demonstrated itself in the field with our customers.

All right, and last question on the semiconductor market itself, looks like you've got a lot of traction on the solar side. How do you see the solar semiconductor market playing out this year for you?

As we've mentioned in past calls, semiconductor business continues to be a nice bread and butter business for us. We had -- our orders this last quarter were tremendous, almost $10 million in orders. I wouldn't consider that, wouldn't annualize that and say that's the run rate for semiconductor, because we've never really been at that level. But we've always said it's a $20 million to $30 million business for us per year. And as a reminder, when we talk about semiconductor for us it's primarily the analog space that we are supplying tools and consumables.

Okay, Thank you very much.

(Operator Instructions). I show no further questions in the queue. At this time I'd like to turn the conference back to management for closing remarks.

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

Ladies and gentlemen, this concludes the Amtech Systems first quarter fiscal 2010 financial results conference call. If you would like to listen to a replay of today's conference, please dial 1-800-406-7325 or international participants may dial 1-303-590-3030 and enter the access code of 4407587 followed by the pound sign. Thank you for your participation. You may now disconnect.