Amtech Systems Inc (ASYS) 2013 Q1 法說會逐字稿

Good afternoon and welcome to the Amtech Systems First Quarter 2013 Financial Results Conference Call. All participants will be in a listen-only mode. (Operator Instructions) Please also note that today's event is being recorded.

At this time I would like to turn the conference call over to Mr. Brad Anderson, Chief Financial Officer of Amtech. Mr. Anderson, please go ahead.

Thank you and good afternoon and thank you for joining us for Amtech Systems first quarter conference call. On the call today are JS Whang, Amtech's Executive Chairman; Fokko Pentinga, our President and Chief Executive Officer; and myself, Brad Anderson, Chief Financial Officer.

After the close of trading today Amtech released its financial results for the first quarter of fiscal 2013 ending December 31, 2012. The release will be posted on the Company's website at amtechsystems.com.

During today's call, management will make forward-looking statements. All such forward-looking statements are based on information available to us as of this date and we assume no obligation to update any 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 our customers and competitors, change in volatility in the demand for our 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. Other risk factors are detailed in the Company's Securities Exchange Commission filings including its forms 10-K and 10-Q.

JS Whang, our Executive Chairman, will start our discussion today. Fokko Pendtinga, our President and Chief Executive Officer will update you on current operations and discuss the progress in our technology and product development roadmap. I will then discuss first quarter financial results.

So I will now turn the call over to JS Whang, our Executive Chairman, to begin the discussion.

Thank you, Brad. Good afternoon, everyone. We really appreciate your ongoing interest in Amtech Systems as you join us for this discussion of our Q1 2013 financial report. While Fokko and Brad will discuss our Q1 results and update you on technology and operational progress, I will focus my comments on our view of the market condition and what we see as a long-term opportunity for solar.

Today we continue to operate in a challenging and extended market down cycle as visibility of improved demand continues to be very limited. Therefore at this time we remain cautious in our outlook for fiscal 2013.

For this year we are expecting continued soft demand as the market remains conservative [towards] their capital and delays major investment for production line upgrades, capacity expansions and very importantly, new technology buying to produce higher-efficiency solar cell.

We expect to see some improved industry this year with regard to the supply-demand imbalance impacting the industry. We are already seeing some signs of this improvement and expect the factors support our view on this. Fokko, our CEO, will provide further comments on this (inaudible) leading indicators.

Before I turn the call over to him, Fokko, I want to emphasize that we are very optimistic about the longer-term opportunity in solar. We believe solar is a very viable source of renewable energy and will be an important part of the global energy and climate solutions. Even in this difficult times governments around the world continue to develop and support expansion and investment in solar. There is also more and more utility-scale solar projects being announced and there is an increased demand in all of the commercial and residential markets as cost of solar per watt continues to come down. It is clear solar is now an important part of the global energy mix, and we strongly believe in it as a long-term growth opportunity. We are very confident that we will again emerge from this time strong and well positioned to deliver profitable growth in the next solar recovery and growth cycle.

I will now turn the call over to our CEO, Fokko Pentinga. Fokko?

Thank you, JS. We are very pleased to announce today that Tempress Systems, our solar subsidiary, received approximately $5 million in new orders for our solar diffusion processing systems. These orders from one of our top customers in Asia are expected to ship within the next six months.

As JS mentioned, I'd like to comment on what we see as the drivers for an eventual market upturn. These are factors that we are reviewing each day as we talk with our customers and monitor the broader market for signs of the upturn.

First, I'd like to emphasize that global solar installations have been growing through these difficult times. Growth in China, the US and Japan is now offsetting the drop of installations in Germany and Italy. But 2013 global installations are predicted to be about 35 gigawatts, up from 30 gigawatts in 2012, so more than 10% growth. We view the continued growth through these difficult times as a positive indicator on the long-term opportunity. Many regions around the globe are adding solar to the energy portfolios in China in especially important growth market.

You may have seen the news regarding the fog in Beijing in late January and the need to shut down manufacturing plants and limit car and airline travel. I think there are many millions of Chinese who would say that China desperately needs solar and Beijing is acting on that expectation. Several forecast mentioned 10 gigawatts of solar capacity to be installed in China in 2013. At this time, this represents approximately 30% of the expected 2013 total global demand. Forecasts are now for 40 gigawatts to be installed in China by 2015 and we've seen over time that Beijing has been inclined to repeatedly accelerate their solar development plan. They also named the suppliers (inaudible) modules for this project which include our industry-leading customers.

Solar energy now at a competitive near-grid parity price is clearly proving to be a technical, viable and economic energy source. Incremental technology improvements are required to continue its progress, further increase the efficiency of solar cells and ensure ongoing progress is made in regards to the total cost.

We are uniquely positioned as the market leader and a proven provider of the next generation solar technology solutions, and we continue to see progress within our key developments and technology programs, namely the ion implant, the batch PECVD and N-type cell technology.

I'd also quickly like to touch the semiconductor business. It experiencing lower volumes given the current soft demand environment. However, as we have pointed out before it has value in that it diversifies our product mix, generates cash and requires near-zero investment as we serve the long-standing repeat customers.

In summary, with our December 31, 2012 cash position of more than $40 million, we believe we are well positioned to manage through this low point in the cycle and defend our position as a market leader. We are confident in our ability to deliver incremental technology improvements as we selectively invest in research and development initiatives and continue to work side-by-side with our customers.

The solar industry is progressing, and within that opportunity we are well positioned to deliver profitable growth over the longer term.

Brad will now discuss the quarterly results. Brad?

Thanks, Fokko. Let's review our first-quarter results. Net revenue for the first quarter of fiscal 2013 was $9.4 million compared to $10.9 million in the preceding quarter, and $24.7 million in the first quarter of fiscal 2012. The changes reflect the continued unfavorable market conditions in the solar industry as well as lower activity in the semiconductor portion of our business.

Total customer orders in the first quarter of fiscal 2013 were $5 million, 200,000 of which were solar, compared to total orders of $5.6 million in the fourth quarter of fiscal 2012.

At December 31, 2012 the Company's total order backlog was $14.7 million compared to total backlog of $18.7 million at September 30, 2012. Total backlog at December 31, includes $10.1 million in solar orders and deferred revenue compared to solar backlog of $13.8 million at September 30, 2012.

Foreign exchange caused a $400,000 increase in backlog in the December quarter due to the strengthening of the Euro versus the US dollar. As a reminder, backlog includes deferred revenue and customer orders that are expected to ship within the next 12 months.

Gross margin in the first quarter of fiscal 2013 was 15% compared to a negative 63% sequentially and a positive 29% in the first quarter of fiscal 2012. The negative gross margin in the fourth quarter of fiscal 2012 reflects significant inventory writedowns and losses on inventory purchase commitments. The lower margins compared to the first quarter of fiscal 2012 resulted primarily from lower sales volumes.

SG&A expense in the first quarter of fiscal 2013 was $4.3 million compared to the preceding quarter's $4.4 million. SG&A expenses decreased $2 million from the first quarter of fiscal 2012 due primarily to lower commissions and shipping costs related to lower revenues as well as lower consulting legal expenses and company-wide cost control initiatives.

Restructuring expense was $700,000 in the first quarter of fiscal 2013, reflecting severance costs related to reductions in force actions at certain operations. Research and development expense was $1.2 million in the first quarter of fiscal 2013, compared to $3.9 million in the preceding quarter and $2.8 million in the first quarter of fiscal 2012. The reduction in R&D expense is due to a decrease in R&D expenditures and increased recognition of government grant funding during the quarter.

Depreciation and amortization in the first quarter of fiscal 2013 was $699,000 compared to $670,000 in the preceding quarter and $769,000 in the first quarter of fiscal 2012. Included in the first quarter of fiscal 2013 results is $433,000 of stock option expense compared to $465,000 in the first quarter year ago and $422,000 in the fourth quarter of fiscal 2012.

Income tax in the first quarter of fiscal 2013 was a benefit of $0.5 million resulting in an effective tax rate of approximately 10%. Total revenue by geographic region for the fiscal first quarter was the Asia Pacific region at 54%, Europe at 24% and North America at 22%. We continue to maintain a solid financial position with essentially no debt and total cash and cash equivalents of $42.6 million compared to $46.7 million at September 30, 2012. The decrease in cash is due to the operating losses and continued investment in new technologies, including our solar ion implant.

At December 31, 2012 we had working capital of approximately $57.8 million. We continue to manage operations to maintain our solid financial position.

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

(Operator Instructions) Jeffrey Osborne, Stifel Nicolaus.

Yes, good afternoon. Thanks for all the detail on the call. Brad, on the R&D run rate, that was a lot lower than I thought, in particular with the grant. Can you just talk about what specifically that was for? And you mentioned recognition of the grant, is there any additional recognition for milestones that you would be achieving over the coming quarters or should we assume that we revert to the run rate that you had seen in prior quarters?

Hi, Jeff. The grants were primarily related to some solar government grants in China that we received. So the timing of those is hard to predict when those come in. And while some have certain milestones, others are more blanket grants. I think the expectation would be that we would not see that much of a significant recognition in future quarters.

Is this attributable to Kingstone then, is that why the Kingstone loss was better than expected as well?

A significant part of it was. There are some grants that we continue to receive in the Netherlands also, but the primary driver was Kingstone.

Understand. And then you mentioned the restructuring costs of $700,000. Is there a way you can just flush that out a little bit more? Was that all attributable to the Dutch location on the solar side or was there anything done domestically or in France with the other divisions of the Company?

Sure. The restructuring charge itself was primarily related to our European operations at both in Holland and in France, and we continue to make some adjustments even domestically on our semiconductor side. But that really didn't contribute much to the res charge.

Understand. Would you expect anything additional in this quarter, the following quarters or is everything kind of in the rearview mirror on the restructuring expense side?

I think the main comment to make there is we continue to evaluate our operations depending on what we see as far as order intake and opportunities in the next couple of quarters.

Great. And just two here for Fokko. On the semiconductor side what type of outlook are you seeing over the next six to nine months? Do you see any type of improvement on that front? And then on the solar side in particular, maybe just as things kind of normalize out here and you went in great detail on the call about the end-market demand and things improving, but do you have a sense of which geography you would expect? I imagine you will say Asia, but in particular within Asia do you expect the Taiwanese, the Koreans or the Chinese to spend first?

Okay, Jeff. On the semiconductor improvements of course most were in the analog and power and, for example, car sales in Europe are not really up. So it depends a little bit on what happens there. And hard to predict, but I would expect later on in the year that it will pick up again.

Semiconductor have this ups and downs. It's not like solar where it takes two years and they generally last a couple of quarters and then they'll pick up again. So I don't expect that to be very long.

And -- now for the solar which geography I expect, China is still the one that's in my opinion by far the highest chance although in Taiwan also the factory load is going up quite a bit. But still the end market is a lot dominated by the panel manufacturers and of course a lot of them -- most of them make their sales through from China.

And of course the 10 gigawatt potential market in China does make a big difference too. So there I definitely [should] say that China is there on the first part and Taiwan two and Korea you never know once they really start going, it can go quick. But for now I think China and for us that's a good thing because that's where our best customer base is.

Excellent. Just a follow-up on that, to my understanding the base -- install base of Taiwan, the 8 or 10 gigawatts is predominantly Centrotherm, if I am not mistaken and given their insolvency. Does that present an opportunity for you as that capacity becomes fully utilized or do you expect Chinese competitors to fair well in that market should they start spending?

See first of all in Taiwan, there is some consolidations in a way with DelSolar and Neo Solar and some more may start working together we might see a lot of expansion there. Of course, we'll do our best and get a larger portion of that, but if there is not much to -- if not much order, you can't get much out of it. So for us at the moment still China is our best opportunity.

Understand. Thanks much for the detail and good luck.

Thanks, Jeff.

Thank you.

Mark Miller, Noble Financial.

Yes, Intevac announced within the last two weeks that it received its first production order for ion implanter from a large Asian cell manufacturer. Just wondering if you can give any color on that, are you aware of that, are you aware of the capabilities of their system versus the system you are trying to market and where that might be?

Well, they did not provide further details on what customer it is. Of course, we can think of a few. No, I couldn't give too much further detail on that from our perspective, and we believe we have a better system but all depends also on what have you done and accustomed before and have you put any smaller systems [for test]. And so technically we don't see that as a system that would be better than ours.

We look at it, obviously, from the other side. We think we've got a better system, but I think all in all, they've started a little bit earlier than we did. So that may be bit of an advantage for them, but we're catching up very fast not only on the main, the big implant producer, but I think we really have a good position there, but it takes a bit of time.

I'm just wondering, you said you believe you have a better system. Can you provide some comparison which are basis for that belief technically?

Basis for that belief from what I see is what we see is our efficiencies improvements we get and what others have published. We think we have a good position there. Do I have the exact details on that, I don't, but that's from what we see on publications and our experience we have right now (inaudible) and qualification.

And I think overall cost of ownership in our case should be very good, especially compared to the earlier systems that were put in the market and technically we believe with the mass separation that we have a better system there. But then, again, over time the market will tell which one has a better case at the end.

Just my final question, I am just wondering in terms of the older diffusion furnaces, is it any possibility that people would retire them to replace them with more efficient newer units?

Well, it would not be just the diffusion furnace, what I expect more -- I mean if you have a line, it is just one part of it and those furnaces, especially the ones we make, they last a little bit longer than we sometimes like and they can tune to many different types of processes.

We believe more that the older lines, the total line is just getting very difficult to upgrade. So I more expect that some of those older lines will completely shut down and those equipments are not necessarily being used for the newer high-efficiency technology lines.

Thank you.

Welcome.

Thanks, Mark.

(Operator Instructions) Howard Halpern, Taglich Brothers.

Thank you. Thanks, guys. Going back to the restructuring charge, do you have some sort of run rate of savings that could occur over the next 12 months from this latest one?

Howard, this is Brad. We haven't given any specific numbers related to that. It's just a part of our overall plan of continued reduction in full-time equivalent head count. And I think you can start -- you can kind of see some of those results already showing up when you look at our SG&A line compared to a year ago and several quarters ago. We continue to see the benefits.

Okay. And I guess this is more of a question going out in time when the upturn does commence. Do you envision a quicker ramp to getting your gross margins to where they were in the past up cycle?

As far as a ramp in margins, depend on how the market situation is at that time. Of courses, we continue to feel some pricing pressure when business is difficult to come by right now, but really no predictions at this point in time as to how fast the ramp-up will be.

And one final question, of the new solar orders that were just received were any of them for the more efficient products that you are offering?

In our press release we had mentioned that it was related to our diffusion processing system and that's where the order is coming from for our diffusion furnace systems.

Okay, well thanks.

Thank you, Howard.

And ladies and gentlemen, on showing no additional questions, I would like to turn the conference call back over to management for any closing remarks.

Thank you for your time today and for your interest in Amtech. I'll be available for any additional questions you may have and welcome your follow-up calls. This concludes today's call. Thank you.

Ladies and gentlemen, that concludes today's conference call. We do thank you for attending. You may now disconnect your telephone lines.