Amtech Systems Inc (ASYS) 2013 Q3 法說會逐字稿

Good day, and welcome to the Amtech Systems Third Quarter 2013 Financial Results. (Operator Instructions) I would now like to turn the conference over to Mr. Brad Anderson, Chief Financial Officer. Please go ahead, sir.

Thank you, and good afternoon. Thank you for joining us for Amtech Systems Third Quarter Results Conference Call. On the call today are J.S. 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 third quarter of Fiscal 2013 ending June 30. That earnings 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 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 technology used by our customers and competitors, change in volatility and a demand for our products, the effect of changing worldwide political and economic conditions, including 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 and Exchange Commission filings including its Form 10-K and Forms 10-Q.

J.S. Whang, our Executive Chairman, will start our discussion today. Fokko Pentinga, our President and Chief Executive Officer, will update you on current operations and then I will discuss the Third Quarter financial results.

So, I'll now turn the call over to J.S. Whang, our Executive Chairman, to begin the discussion.

Thank you, Brad. Good afternoon, everyone. We really appreciate your ongoing interest in Amtech Systems and solar as an investment opportunity.

While the current down cycle is expected to continue into 2014, we believe the longer-term growth opportunity with the solar sector remains strong. The global solar market continues to expand and [grow the] space. And, the industry's drive to lower the cost of solar power is further intensifying in each value chain including installation cost.

A Deutsche Bank analyst report of last week stated that 75% of the global solar market will be available for the non-government [subsidy] model within the next 18 months from the currently [subsidy] dependent business model.

Recognizing this exciting business opportunity is the purpose for developing our solar [strategic] growth plan. This is the reason for our continued R&D investment and plan execution, which includes a stronger marketing effort.

To this objective, last year in 2012 Amtech formed an alliance with the ECN, the Energy Research Center of the Netherlands, and RENA in Germany, the industry leader in texturing, etching, and cleaning solution for solar cell manufacturing. The objective of the alliance is to more effectively offer and promote our n-PASHA technology and products in N-type bi-facial cell concept developed by ECN to the marketplace.

In June, we were pleased to announce the booking of a 100 megawatt n-PASHA order which represents the first phase of a 200 megawatt project to be executed by the alliance. This order represents significant validation of the value of our new n-PASHA technology in today's marketplace.

Fokko will provide more details on the technology offering and the specific project for our second n-PASHA customer in San Antonio, Texas. When the industry fundamentals improve, we will look to our top-tier customers to again invest in next generation (inaudible) solar technology solutions. Our focus is on continuous innovation and preparing for the inevitable next buying cycle.

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

Thank you, J.S. Although we are very positive about our long-term opportunities, the current sales environment continues to be challenging. During our third quarter, we further streamlined our operations including reductions in head count and general and administrative expenses. Our cost control initiatives throughout the downturn have helped us to both preserve cash and continue to very selective investment important to advance our technologies and position us to meet the future needs of our customers.

And I'd like to discuss our new project for Nexolon USA. In June, Tempress Systems, our solar subsidiary, received a multi-million dollar order for the Tempress Advanced Diffusion [and] PECVD equipment, which will be used in Nexolon's USA facility located in San Antonio, Texas. The order is for 100 megawatt and is the first phase of a planned 200 megawatt turn-key project to be executed by the n-PASHA alliance which as J.S. detailed was formed in 2012. The order valued in the low teens and is expected to ship in the first half of Fiscal 2014.

Nexolon is our second customer for this N-type technology. The N-type bi-facial cell concept developed by ECN yields high cell efficiencies and an increasingly competitive cost level. The n-PASHA cell used for bi-facial modules generates electricity from light coming through both the front and the rear of the panel positioned in the solar [fields] to generate about 10% to 20% more power at basically no additional cost.

Additionally, the N-type modules do not suffer from the light-induced degradation compared to the typical power loss of several percentage points for the common use P-type modules.

Going forward, we are confident that the N-type cell will be the choice of other customers. We are optimistic that our solar technology will be highly relevant to meet a global demand for renewable energy solutions. Our customers have a high level of interest in the products we have in development, and the significant capabilities our advanced technology solutions.

However, at this point we look to 2014 before we have more visibility regarding the timing of investments in equipment upgrades and strategic capacity expansions in the industry.

And now, some words about EU dumping, anti-dumping settlement. We believe that a settlement of the EU anti-dumping actions and resulting floor on the per-watt pricing of shipment from China to Europe is not good for the industry as a whole, and we expect it will increase the cost of PV installations in Europe. Overall we believe the settlement will slow down the required cost reductions that has been so important for the large-scale adoption of solar. But, on a more positive note, the agreement is far better than the large import duties that was originally planned and now that there is an agreement, the industry can focus and move forward. This is very important to our customers.

This agreement may actually provide a better chance for the solar producers to improve margins for those companies that can supply to Europe, and at the same time help to consolidate the industry and reduce the large over-capacity.

With a minimum price, the efficiency and quality of panels delivered to Europe could become the [differentiating] factor providing of course there is sufficient supply.

Also, the Chinese State Council has a strong focus on promoting healthy developments of the PV industry including the strong emphasis on innovation and calibrations that lead to high-efficiency cells and panels. This objective is in line with Amtech's strategy to continued investment in R&D for the next generation cell technology and production equipment.

It will still take time for the industry to adjust to these new rules and agreements, and we expect that we will start to see the effects of these in 2014. While the market is also soft for our semiconductor business, we believe the cycle is shorter than solar and expect to see some improvement in the first half of Fiscal 2014 as we see increased activity from our key customers.

Brad will now discuss the quarter's results. Brad?

Thank you, Fokko. Let's review our third quarter results. Net revenue for the third quarter of Fiscal 2013 was $10.4 million, compared to $8.1 million in the preceding quarter and $24.3 million in the third quarter of Fiscal 2012. The sequential increase reflects a large shipment to a single customer during the June quarter, partially offset by lower recognition of previously-deferred revenue.

Total customer orders in the third quarter of Fiscal 2013 were $20.7 million including $15 million from solar, up from total orders of $9.6 million in the preceding quarter. At June 30, 2013, our total order backlog was $24.8 million compared to $14.2 million at March 31. Total backlog at June 30 includes $19.3 million in solar orders and deferred revenue compared to a solar backlog of $10.7 million at March 31.

Foreign exchange caused a $200,000 increase in backlog in the June 2013 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 third quarter of Fiscal 2013 was negative 26%, reflecting $4.4 million of inventory write-downs compared to 30% gross margin sequentially and 20% in the third quarter of Fiscal 2012. The inventory write-downs were a result of our review of expected future usage of inventory compared to what we have in stock. These write-downs do not necessarily indicate a technological obsolescence. If future bookings for solar diffusion equipment improve significantly, we should be able to utilize this inventory.

Selling, General and Administrative expenses in the third quarter of Fiscal 2013 were $5.5 million, compared to $4 million in the preceding quarter. The increase due primarily to higher stock compensation expense related to the acceleration of vesting and cancellation of certain stock options during the June quarter. For the next several quarters, we expect our quarterly stock compensation expense to be in the range of about $160,000 excluding the expense of any future grants.

Despite the higher stock compensation expense in the quarter, SG&A expenses actually decreased almost $1 million compared to the prior year quarter, primarily due to lower commissioned shipping costs related to lower revenues, as well as company-wide cost control initiatives to reduce salaries, professional fees, travel and insurance expense.

Our research and development, or R&D expense, was $1.9 million in the third quarter of Fiscal 2013, essentially unchanged from the preceding quarter. R&D expense decreased $1.7 million from $3.7 million in the third quarter of Fiscal 2012, due primarily to decrease in solar development related activities.

Included in the third quarter of Fiscal 2013 results is $1.6 million of stock option expense compared to $327,000 in the second fiscal quarter and $438,000 in the third quarter of Fiscal 2012. The increase in this stock option expense as I previously mentioned was the acceleration of vesting and cancellation of options during the quarter.

Turning to our income taxes for the quarter, in the third quarter of Fiscal 2013 there was a provision of $2.6 million. Normally you would expect to see a tax benefit in the quarter due to the losses. However, we established a valuation allowance of $4.7 million on all deferred tax assets related to the Netherlands, comprised primarily of net operating losses.

The valuation allowance was recorded due to cumulative losses in the Netherlands related to our Tempress subsidiary. These net operating losses can be carried forward, and to the extent Tempress generates future taxable income, we expect to utilize those NOL's.

The net loss for the third quarter of Fiscal 2013 was $12.1 million, or $1.27 per share, compared to a net loss of $2.1 million or $0.22 per share for the second quarter of Fiscal 2013. Total unrestricted cash and cash equivalents were $38.8 million at June 30, 2013, essentially unchanged from the previous quarter ending March 31. This reflects solid collections of receivables, utilization of existing inventory, and cost control measures.

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

(Operator Instructions) The first question will come from Jeff Osborne of Stifel, please go ahead.

Great, thank you. Just a couple questions on my end, Brad. A lot of moving pieces here on expenses, and taxes. How do we think about the tax payments for the third and the fourth quarter assuming a slow ramp here in solar and then a pick-up as you start delivering the Nexolon contract in the upcoming fiscal year?

From a tax payment standpoint, we've had a payable on our books for a while that was to pay the 2011 taxes related to the Tempress income that they generated, and that was paid here in this quarter. And then we are filing a 2012 refund to -- or a 2012 return to get a refund of those taxes that will probably come in the December quarter.

You should have a tax benefit then in the September quarter?

Yes, not necessarily. The benefit has already been reflected in the net, [no] payable or receivable on the books.

Got you. And then, a couple one-time items with the adjustment to the stock comp plan. How do we think about SG&A going forward over the next six months? You alluded in the release with some potential still adjustments at Tempress, what should the run rate be for SG&A and R&D looking ahead?

Yes, from an SG&A standpoint as I mentioned normally we've been running at about $400,000 a quarter for stock comp expense. It was $1.6 million this quarter, so there's about $1.2 million of additional expense above the normal run rate. And as I mentioned in my remarks here, on a go-forward basis that's now instead of being at that $400,000, it's down to $160,000. So, there's some decrease there and I think if you back out that and we had some severance costs that I think are separated on the P&L, a couple hundred thousand, take those out and it should get you to a closer run rate on the --

Kind of a high threes to [$4.4 million] or so? Does that seem reasonable?

You know, I'd have to go back and look at the trends but I think what we've given is trying to point out some of these -- I won't necessarily call them one-time, but these non-cash charges, larger charges, so people can be able to look at their models and adjust accordingly.

Okay. Any, maybe switching gears to Fokko, any increase in the pace of dialogue about potential changes in technology? I recognize there's a lot of issues with the macro market, but are more people looking at ion implant, for example? I don't think you've mentioned that on this call, but maybe just an update there?

Well, they're in the new technology, is not something where people were looking at over the last year. Now, all of a sudden we do see that for anything that's new, so that any new project not [stamped] before June 7 will have to comply with the guidelines of the State Council, meaning they have to have 18% on multi and more than 20% on mono. So, of course, these are not projects that start tomorrow, but yes we do see definite change in need in China purely because of that. So, that has a direct effect for the needs.

When we look at ion implant, the -- like I mentioned about the n-PASHA, the N-type not having the [LID] and still being a relatively straight forward process. The ion implant cost-effectiveness and the advantage of it is I think more in the N-type, so the next generation that we are working on between Kingston and Tempress and of course some of our partners. And, but that is a little bit further out, some time into '14 that there is a proven technology for N-type above 20%. But that's around the corner.

Okay. Two other quick ones here. Can you just talk about the general availability of N-type wafers is kind of question number one, and then question number two Fokko, you mentioned that you expected some softness here in the semiconductor sector I believe in the upcoming quarters which you're alluding to or potentially reflecting on the past quarter, I wasn't sure. But you mentioned that you expect an early Fiscal '14 rebound in that for you folks and could you just maybe point me in the end market that you expect to improve that would drive that strength for Amtech?

Okay. So first, about the N-type and availability, of course there is some availability of wafers, the last period hasn't been all that much of a problem. And there is a large production capacity expansion planned in Malaysia by Comtec. So, also the cost of N-type now becomes very close to P, so we do not see a shortage there. The move to N-type of course will be quite influenced also by the State Council requirement of having to be over 20 and once you're there, you want to move up a little bit further because P is sort of stuck at the 20% level. So yes, we see quite a bit of improvement there.

And about semi, what I was referring to that semi's been slow so far, and it's all you know, we have a limited number of customers that are mostly on the automotive, the [power] side, and we do see that the demand relatively -- well, in a short period, changed and we see quite a bit of activity there. So we see an improvement for semi, starting in the first half of 2014.

Great to hear, thank you for all the detail.

You're welcome.

(Operator Instructions) And showing no additional questions in the queue. This will conclude our question and answer session. I would like to turn the conference back over to Brad Anderson for his closing remarks.

Thank you for your time today and for your interest in Amtech. I will 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, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.