Amtech Systems Inc (ASYS) 2013 Q4 法說會逐字稿

Good afternoon, and welcome to the Amtech Systems Fourth Quarter 2013 Financial Results Conference Call.

(Operator Instructions)

After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Brad Anderson, Chief Financial Officer. Please go ahead.

Thank you, and good afternoon, and for joining us for Amtech Systems fourth quarter and fiscal 2013 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 fourth quarter and full fiscal year ending September 30, 2013. 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 technologies used by our customers and competitors; change in volatility and the 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, the including equity and credit markets and market acceptance risks. Other risk factors are detailed in the Company's Securities and Exchange Commission filings, including Forms 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 our views of the current market, and how we continue to align our global organization with market demand. And I will then focus and discuss the fourth quarter 2013 financial results.

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

Thank you, Brad. Good afternoon. As we continue to tightly manage our business and plan for the long term, we appreciate your interest in Amtech Systems.

While our financial results reflect the challenges of the current solar down cycle, we anticipate improved demands in 2014 for our technology and product, based on our current market activities. We are working closely with our customers and potential customers, as solar is rapidly becoming global, and we continue to seek opportunities in the newly emerging global market. Even during a very difficult year, we achieved some major milestones.

First, we made substantial progress in transitioning from an equipment supplier to a technology supplier. Fokko will talk more about that. Second, we developed and brought to market our PECVD tool, which will double the size of the market we serve. Third, we secured our first production order for our PECVD tool. Fourth, we obtained another customer for our [impartial], a high efficiency N-type cell technology.

We have streamlined our global operation to successfully manage through this down cycle. We have very tightly organized our global operations with highly capable professionals throughout, and we will further strengthen our technology leadership to stay ahead of our competitors. Fokko will update you on the progress being made with our partners, and the never ending collaboration with our well respected industry leading customers.

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

Thank you, J.S. Our fiscal 2013 was, without a doubt, a challenging year. But despite the challenges of the current market, I'm happy to report that good progress was made at Amtech.

Throughout the year, we continued to restructure our global operations: including periodic reductions in headcount, management salaries, and discretionary spending. Today, we continued to be very selective in the allocation of cash across the areas, all areas of the business. And even in the reduced staff environment, our employees' hard work and diligence keep us very well-positioned to advance our technologies and provide premier service to our customers.

Although demand is soft, activity in the market has increased. We believe that the reason for this increased activity is that our customers have experienced improved utilization rates, and see that the end market continues to be growing. Besides the general increase in the market activity, also the interest in new technologies has increased.

We continued to engage more and more with current and future customers, and we are definitely perceived today as a provider of technology solutions, not only a manufacturer of equipment. Although we have been a leader in our market for some time, being broadly recognized as a provider of technology solutions further strengthens our market position today, and as a preferred partner in the next cycle.

Regarding our new PECVD tool, I'm very proud of our solar team for developing and bringing to market a product that will compete very effectively for market share. This product essentially doubles our served available market.

In June this year, Tempress Systems, our solar subsidiary, received a multi-million dollar order for Tempress advanced diffusion and PECVD equipment, which will be used in Nexolon's USA facility in San Antonio, Texas. We have built most of the equipment for this order, and Brad will talk later about the accounting treatment of the PECVD systems (inaudible).

The compelling points of the N-type bifacial cell concept technology we also discussed in our last call, and these n-Pasha cells used for the bifacial modules generate electricity from the light from both the front and the back side of the panel, which can generate 10% to 20% more power in solar fields and do not suffer from the light-induced degradation like P-type cells. This technology represents much progress for the industry, in that it conclusively yields higher cell efficiency at an increasingly competitive price.

As this high efficiency technology uses several steps that require the Amtech product, this results in more than doubling the potential revenue for Amtech compared to the standard P-type multi-lines. An Nexolon oder also validates that Amtech and its partners are leading the way to bring next-generation solar solutions to the marketplace.

We announced today that we entered into a contract to place our ion implant system in the iron solar at ECN. That's the Energy Research Center of the Netherlands. The system will be used for our high efficiency cell technology research and development.

The ion solar was developed and built with Kingston Semiconductor, a majority owned subsidiary of Amtech. Through Tempress, we have a long relationship with ECN, and having the ion solar addition together with the Tempress diffusion and the positioned equipment allows us to have an additional tool that can be used in the development of the high efficiency cell technology.

During the downturn, we have continued to invest in our R&D, and believe that we now have the right technology and products at the right time available to the solar market, which at this point is show good signs of improvement.

Now let me take a minute and talk about the other markets we serve. We have started to see a recovery in the semiconductor market, and expect this segment of our business to improve over the 2013 levels.

As in the LED and sapphire market, we continued to see strong demand for our template and carrier products, which are used in the lapping and polishing of sapphire and silicon carbide wafers. A potentially exciting growth opportunity is the expanded use of the sapphire in mobile devices, which could result in more consumption of sapphire wafers.

Brad will now discuss the fourth quarter and fiscal year 2013 results with you. Brad?

Thank you, Fokko.

Net revenue for the fourth quarter of fiscal 2013 was $6.9 million, compared to $10.4 million in the previous quarter, and $10.9 million in the fourth quarter of fiscal 2012. The lower revenues reflecting lower shipments across all segments of our business. Total customer orders in the fourth quarter of fiscal 2013 were $8.4 million.

At September 30, 2013, our order backlog was $26.8 million, up 8% compared to total backlog of $24.8 million at June 30th. Total backlog at September 30th includes solar backlog of approximately $17.1 million. Foreign exchange caused a $600,000 increase in backlog in the September quarter. Just as a reminder, backlog includes deferred revenue and customer orders that are expected to ship within the next 12 months.

Gross margin in the fourth quarter of fiscal 2013 was 46%, primarily reflecting a high percentage of net revenue, resulting from recognition of previously deferred revenue. In the prior quarter and in the fourth quarter of fiscal 2012, gross margin was negative, due primarily to significant inventory write-downs.

Our SG&A expenses in the fourth quarter of fiscal 2013 were $3.2 million, compared to $5.4 million in the preceding quarter, a 41% reduction, which is due in part to lower stock compensation expense. In the June quarter, stock compensation expense was higher due to the acceleration of vesting and voluntary cancellation of certain stock options. Additionally, the latest quarter reflects cost reductions resulting from corporate wide cost control initiatives, as well as lower commissions and shipping costs related to lower revenues.

Our research and development expense was $1.5 million in the fourth quarter, compared to $1.9 million in the preceding quarter. Expenses were lower primarily due to ongoing cost control on our solar R&D projects.

Depreciation and amortization in the fourth quarter of fiscal 2013 was $700,000, compared to $600,000 in the third quarter of 2013. Included in the fourth quarter of fiscal 2013 results is $159,000 in stock option expense, compared to $422,000 in the fiscal fourth quarter a year ago, and $1.6 million in the third quarter of 2013.

Tax expense for fiscal 2013 was $1.9 million. We incurred a tax expense for the year due primarily to establishing a valuation allowance on deferred tax assets related to net operating losses incurred in the Netherlands.

Net loss for the fourth quarter of fiscal 2013 was $1.7 million, or $0.18 per share. Net loss was $12.1 million, or $1.27 per share the preceding quarter. The net loss was $14.1 million, or $1.49 per share in the fourth quarter a year ago.

The total revenue by geographic region and for the fiscal fourth quarter was the Asia Pacific region at 66%, Europe at 15%, and North America at 19%. As Fokko mentioned earlier, we have built most of the equipment for the Nexolon order, which includes our advanced solar diffusion systems and our PECVD systems. For accounting purposes, the PECVD system is considered new technology, and therefore, the revenue and costs of the PECVD systems will be deferred until customer acceptance which could come in the September quarter.

Our financial position remains strong, with essentially no debt and total unrestricted cash and cash equivalents of $37.2 million compared to $46.7 million at September 30, 2012. At September 30, 2013, we had working capital of approximately $42.9 million. We continue to execute our financial management strategies 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)

Mark Miller of Noble Financial Capital Markets.

I was just wondering if there were any solar revenues in the September quarter.

The September quarter, there were, but they were very low.

Okay. And how did cash flow in from operations during the quarter?

If you look at overall our cash balance from quarter to quarter, we were down just a little bit, but we continued to manage that very closely.

Okay. There's been conflicting things out of China. A month or so ago, the Chinese government was talking about consolidating some of the solar cell manufacturing in the country, but then there are projections for a fairly significant solar installations in China. I'm just wondering, can you give us some color on what you feel is going on in China right now?

You said there is increasing activity. I assume that's in China also. But there seems to be some conflicting information coming from the government.

Yes, Fokko here. First of all, we do see some consolidations already, with Suntech and [sumphang] going together, and that is something that probably will continue also in other areas. So yes, there is some consolidation, but that is not everywhere. And of course, China is not the only market we serve.

There is more places in Asia, and Taiwan is even a bit more active these days. And like J.S. mentioned, it's becoming global. So it's -- there are more places where there is activity. But, yes, indeed, in China, they are struggling with the over capacity and with the growth in demand, this equilibrium comes closer by. So that will take a little bit more time, but that does not stop everybody from being active.

And finally, Innovac has entered the ion plant market also. I'm just wondering if you had -- and they announced they had registered their first order for an ion implanter. Any color on that also in terms of did you compete for that, or what do you feel contributed to Innovac getting that order?

I have not that much information about what the competitor exactly does here. What I can say, is that especially for us, it's important that our implanter now is at the source of many new technology developments. We've seen over many years that ECN is very good in bringing new technologies to market, and those who have been working with them with new equipment with new technology, there is a good chance that that goes into their next technology.

And so for us, that's a very important factor, especially all the other Amtech Tempress equipment is in that same R&D lab. But it means then you can tune all those together and come up with a good flow and with a good process at a good cost. And some competitors have machines at customers, but -- and that, of course, is an advantage, but we believe for the longer term this is a very important step to have this machine at this specific space.

Thank you.

Thank you, Mark.

(Operator Instructions)

Gordon Johnson of Axiom Capital.

In China, there's been some issues associated with their targets for utility scale and distributed solar. And what we've seen is that there's been limited monies given, and the fact that a lot of these companies have been paying debts back with respect to expansions of capacity. So you guys talk about increased activity there, and piggybacking off the last question, is there any way you can give us a little more detail into activity there?

And then also, it seems like Taiwan, there's clearly a lot of demand for cell capacity via tolling in Taiwan into the United States. Is there any opportunities for you guys there? And then I have a follow-up.

Let's first start with Taiwan. There is always opportunities for us there like in other places. And when there is more activity in Taiwan is a little bit in time ahead of China.

So, yes, there are opportunities, and we hope they will mature. Still work to be done there. And as of China, yes, there is talk about its utility scale and distributed. There's a lot of talk about China, and it's more people talking about what they think is going to happen then that exactly we really know how the Chinese government actually is going to do it.

So that almost changes from week to week, the comments that you read and (inaudible). So, I'm not so very concerned that they will not look at the problems they have with the environment. They will be forced to do this. And generally China, if they say they have a target, they will generally meet it. So I'm not too much concerned about it.

On the other side, they do have a little bit of time now. There is still capacity that can be -- cells can be bought at the tier 2s and 3s. So, I think the timing it's not a matter of just a few weeks or a month or two.

It's a little bit further out, but the present situation gives the Chinese major cell producers sufficient time to make good choices rather than to rushing into a very quick expansion, and then having no time to find the right technology. So I believe that China will be doing quite a bit also, and some increase in capacity, but not necessarily the standard products. So that's also where you see our remarks on activity and cell technology of higher efficiency that has to be, the as we all know, above 24.

But mono isn't above 18 for the [melteason]. They need a little bit of time to make sure they do the right choice, but there's a lot of activity, particularly in that area.

Okay, that's very, very helpful, Fokko. And then, when I look at your customer deposits on the liability side, I notice a pretty significant pickup there. How should one read that?

Yes, I think as we said in our I think our Q3 earnings call, we did get a deposit or a sizable deposit during the quarter.

Okay. And you guys have this business with Nexolon that it seems like it's going to be something that we should expect to contribute clearly in the fiscal 2014. Is there any way we should think about that business coming in?

And maybe if could you give us a little clarity or maybe a little guidance, if you could, on how we should think about gross margins going forward. Because clearly, there was significant up side on the gross margin side, and clearly on the operating margin side.

So, should we think about these levels being the levels we should think about going forward? And then on the revenue side, should we think about an improvement in revenues associated with the Nexolon order, or are we waiting until the second half when China starts to pick up? And thanks for the questions, guys.

Yes, Gordon, as it relates to gross margin, I think one of the things we highlighted was we had relatively low revenues, but yet we had a very high margin. Again, that's primarily due to the what we call the deferred revenue that is or deferred profit that sits on our books, that when we get customer acceptances, we then recognize that. And it's usually at a very high profit margin. And we had, as it related to regular type revenue shipments, its proportion was greater, and therefore, add greater impact on the margin.

Unfortunately, this business can be lumpy from quarter to quarter, and that is what happens. So looking forward from a margin standpoint, we think generally we should see some relatively improved margins as the volume picks up. And we saw that back in 2010 and 2011, when volume improved so did margins.

As we're down at these lower levels though, we are highly impacted by the revenue mix, whether it's previously deferred revenue, or when we do do shipments, we are going to be deferring some revenue. So giving a little bit of color going into 2014, Nexolon obviously is going to help. But as you can see from the backlog, there's more orders that need to come in in order for it to be a better year and showing improvements. But as our commentary that we gave, our expectations are that we'll start to see that, especially in the second half 2014.

Thanks. That was very helpful, guys. Good luck.

Thank you.

Jeff Osborne of Stifel.

Great. Congratulations on the ECN order. Just a couple questions following up on Gordon's. On the deferred side, Brad, can you comment on how much of revenue flowed through from deferred this quarter, and kind of what the true margin profile of the largely semiconductor revenue mix was?

Yes, the amount was relative to the total, which was a little under $7 million, was a higher percentage than normal. We didn't break it out, but it was a larger percentage. So therefore, that's why you see most of that higher margin.

And then the rest of the business, semiconductor/ call it LED optics business that we have with P.R. Hoffman played a significant role in improving the margins. So, that had to do with our semiconductor business would be a little bit lower in margin than what you saw on a consolidated basis.

Okay. If you can't answer it from the that perspective, is there a way you can tell us how much deferred profit that's at the high margin is left on the books to flow through in the next couple quarters?

Yes.

I think it's about $3 million, but I just want to make sure that's the right number.

Yes, yes, it's $3 million.

Okay. And then on the OpEx side, a lot of moving pieces on stock-based comp, but how should we think about the true run rate of that as we enter calendar 2014?

Yes, we said for the quarter it was about $160,000 a quarter.

For operating expenses?

No, yes, I wish. But no, and it's a stock comp expense.

On the stock comp. Yes, but just with the true, excluding stock comp, now with the changes in accelerating vesting schedule, and et cetera, that did you last quarter, how do we think about the true run rate of operating expenses on the R&D and SG&A outside of stock-based comp?

Yes. We haven't given any specific guidance as it relates to each of those line items. Trying to -- looking at the R&D will depend on what our building activity is. Again, at Kingstone, where a lot of that R&D occurs, we have tools that have not yet been accepted at customers.

So it's still a development phase company. So there's a lot of expenses hitting there. That should continue on pretty reasonably, consistent with what we've just seen.

As relates to Tempress, where most of our other R&D, should continue to see kind of a similar run rate. SG&A will be highly influenced by -- on the S side as it relates to shipments and commissions related to shipments. So that's about as much color as I can give as to the SG&A.

Okay, thanks. As it relates to the Nexolon contract, I heard you on the PECVD side that that might take until September to get acceptance because it's a new product. But can you just talk about the diffusion side? You mentioned that those are already largely built. I imagine you're starting to ship those now. Should we think about those coming in over the next couple months, or is there a lag in that product line as well?

No, I think that's a reasonable expectation over the next coming months. And again, accounting for those are our normal accounting treatment where we record the revenue at shipment, except for the holdback for acceptances.

Got you. Just a couple other quick ones here. On the ion implant side, to my recollection you had shipped two before. I believe your 10-K states that you need to ship three units to record revenue to what you just mentioned previously about waiting for acceptance on those.

So as the ECN unit is shipped, I imagine that would be around mid-2014, would you then have 100% margin catch up revenue recognition on the two previously shipped units, or how do we think about the timing of that? Is it 100% margins?

Yes, the revenue recognition is, we need to get acceptance from two similar systems that are similarly configured for customers, and therefore the third one. But to your point, the costs related to the build of those systems have been expensed.

So at the point in time where there is customer acceptance of the ion implant tools, we'll be able to record those as revenue with probably very little cost. When we said that, we're not really giving any expectation as to timing of when that will happen. Just to be clear.

Okay. Last question, is there any -- with all the new products and things moving around here, is there any CapEx needs for the Company next year, or how do we think about your cash flow needs? Is it all driven by the P&L, or are there any large expenditure items that might be incurred?

Yes, as far as CapEx plans or concern, there are not any significant expenditures for production equipment or anything else that we can see right now.

Okay, thanks much. Appreciate all the detail.

Thanks, Jeff.

(Operator Instructions)

And showing no additional questions, I would like to turn the conference back over to Brad Anderson for any closing remarks.

Thank you. We appreciate everyone for joining us on this conference call, and look forward to reporting on our future results. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.