Amtech Systems Inc (ASYS) 2014 Q1 法說會逐字稿

Good day, everyone, and welcome to the Amtech Systems first-quarter 2014 financial results conference call and webcast. 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, CFO. Sir, please go ahead.

Thank you very much. Good afternoon and thank you for joining us for Amtech Systems' first-quarter fiscal 2014 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 first quarter fiscal 2014 ending December 31, 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 and volatility in 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 including the equity and credit markets and market acceptance risks.

Other risk factors are detailed in our Securities and Exchange Commission filings including our 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 our view of the current market and how we continue to align our global organization with market demand. And I will then discuss first-quarter fiscal 2014 financial results.

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

Thank you, Brad. Good afternoon. Thank you for attending today and we really appreciate your interest in Amtech Systems. I am pleased to say that we executed well in Q1. We shipped $24 million, which resulted in very close to $15 million in revenue. We are particularly proud of our team for further advancing our high-efficiency N-type technology in the marketplace by completing and delivering an order from Mission Solar, previously known as Nexolon.

Recognizing the importance of technology's role in future solar growth we are continuing our intense efforts in technology advancement and product development programs throughout the down cycles. As a result more and more customers are engaging with us for their current and future technology and production solution needs.

We truly believe the future demand for leading-edge solar technologies represents significant opportunity for both our long-standing Tier 1 customers and Amtech. An important point regarding the industry opportunity is that the solar market is rapidly becoming global. Most of the major countries are now showing solar growth and the biggest power consuming consumers are also the biggest drivers of solar demand.

Solar costs have come down significantly in the past two years and Deutsche Bank forecasted that more than half of global solar market will be available for a non-(inaudible) business model in 2015. Solar is a core component of our future growth. We are excited about our long-term opportunities and we look forward to fully participating in the next solar growth cycle.

Our CEO, Fokko, will further update you on our progress. I will now turn the call over to Fokko. Fokko?

Thank you, J.S. We are pleased to report improved results in the quarter on many key value driving metrics. The improvement was driven by excellent execution of shipments of both solar and semiconductor customers validating the ongoing value of our business mix. We shipped over $24 million of products and services.

While we did defer a substantial amount of revenue, that revenue and related profits, which would have substantially improved our bottom line this quarter, will now benefit us in the future. Although we saw progress in the quarter, we are still operating in a soft demand environment.

We have maintained a constant dialogue with our customers and it is time we looked to the second half of 2014 for further strengthening in the demand for our products with 2015 expected to be even better. We believe the end market demand for solar products around the globe is a strong indicator of our business and what we see as the inevitable next capital spending cycle.

As J.S. said, the global market for solar is growing rapidly in many regions around the world. We had higher capacity utilization during the quarter and our employees performed very well and they delivered high-performance next-generation technologies to our customers. And we are well-positioned to meet the anticipated upturn in demand.

We continue to advance our ion implant, the N-type cell and the PECVD technologies. our customers indicate interest in these technologies and we believe PECVD alone has doubled our addressable market. These technologies are being developed to meet the specific goals of our customers, which are to produce higher efficiency solar cells at lower cost of ownership.

In regards to the other markets we serve, we continue to see improvement in the semiconductor market and expect this segment of our business to improve over fiscal 2013 levels. With the LED and other sapphire markets we continue to see strong demand for our templates and carrier products which are used in the lapping and polishing of sapphire silicon and silicon carbide wafers.

Brad will now discuss the first-quarter results in more details. Brad.

Thanks, Fokko. Net revenue for the first quarter of fiscal 2014 was $14.8 million compared to $6.9 million in the preceding quarter and $9.4 million in the first quarter of fiscal 2013. The increases are due primarily to a large shipment of our N-type cell technology partially offset by deferred revenues.

According to our revenue recognition policy, 100% of the revenue and cost of the PECVD shipments were deferred until they are accepted by the customer. Contributing to our increased revenues was an upturn in our semiconductor customers' capital equipment purchases.

Our total customer orders in the first quarter of fiscal 2014 were $9.8 million of which $2.2 million were related to solar, up from the total orders of $8.4 million in the fourth quarter of fiscal 2013. This compares to total orders of $5 million in the quarter a year ago.

At December 31, 2013 our total order backlog was $23.3 million compared to total backlog of $26.8 million at September 30, 2013. Our backlog at December 31, 2013 includes $14.1 million in solar orders and deferred revenue compared to a solar backlog of $17.1 million at September 30, 2013.

Foreign-exchange caused a $400,000 increase in our backlog in the December quarter due to the strengthening of the euro versus the US dollar. 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 2014 was 31% compared to 46% in the fourth quarter and 15% in the first quarter a year ago. The margins in the fourth quarter of fiscal 2013 reflected a high percentage of net revenue resulting from the recognition of previously deferred profit.

Our margins improved from a year ago due primarily to increased sales volumes, expense reductions from our companywide cost control initiative and use of previously written down inventory.

SG&A expenses in the first quarter of fiscal 2014 were $4.1 million compared to $3.2 million in the previous quarter and $4.3 million in the first quarter a year ago. The sequential increase of SG&A results primarily from increased commissions and shipping expenses related to higher revenues.

Compared to the first quarter year ago, our SG&A was lower due to the savings from our companywide cost control initiatives including lower salaries and benefits and lower stock-based compensation which was partially offset by higher commission expense related to higher revenues.

Research and development expense with $900,000 in the first quarter of fiscal 2014 compared to $1.5 million the preceding quarter and $1.2 million in the first quarter of fiscal 2013. The reduction in net R&D expense is primarily due to the recognition during the quarter of a significant amount of government grant funding.

Depreciation and amortization in the first quarter of fiscal 2014 was $623,000 compared to $653,000 in the preceding quarter and $699,000 in the first quarter of fiscal 2013. Included in the first quarter of fiscal 2014 results is $176,000 of stock option expense compared to $159,000 in the preceding quarter and $433,000 in the fiscal first quarter a year ago.

Income tax expense in the first quarter of fiscal 2014 was $560,000 compared to $580,000 in the fourth quarter of fiscal 2013 and a tax benefit of $480,000 in the first quarter of fiscal 2013.

Despite the pretax loss for the quarter we recognized tax expense due primarily to losses in tax jurisdictions where we cannot recognize tax benefits because we do not have a history of earnings or we have cumulative losses. Also, as we near breakeven for book purposes, permanent tax differences and other adjustments can have a significant effect on what is reported in the income statement.

Net loss for the first quarter of fiscal 2014 was $800,000 or $0.08 per share compared to a net loss of $1.7 million or $0.18 per share for the fourth quarter of fiscal 2013. The net loss for the first quarter a year ago was $4.2 million or $0.44 per share.

Total revenue by geographic region for the fiscal first quarter was North America region at 42%, Asia-Pacific region at 33% and Europe at 25%.

Our financial position remains strong with essentially no debt and total unrestricted cash and cash equivalents of $30.3 million compared to $37.2 million at September 30, 2013. The decline in cash is due primarily to the high volume of shipments in the last month of the quarter that resulted in an increase in receivables.

In January, just this past month, we received a tax refund of approximately $5.4 million. At December 31, 2013 he had working capital of approximately $43.1 million.

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

(Operator Instructions). Jeff Osborne, Stifel.

Just a couple quick questions here. Brad, on the tax refund you mentioned, the $5.4 million of cash received in Q1, is there an income statement impact to that for the upcoming quarter that we should be thinking about? And then also the receivables for the shipments in the last month of the quarter, would you expect to get that cash in the March quarter as well?

Yes, on the tax refund, there is no P&L effect of that; that was reflected already in past financial statements. So it was just a refund from our Dutch taxes that were paid.

As far as timing on the accounts receivable, that will depend on -- a lot of that is related to the N-type cells line that is being started up in San Antonio. So a lot of that depends on timing of all the equipment and facilities becoming ready and installed and geared up. So that timing is still -- could be a quarter or two away.

Okay. And then on the R&D drop, you talked about the government grant funding. I assume we will revert back to that kind of mid $1.5 million-ish type range on a run rate basis going forward. Or is there a residual trail of that government grant funding still kicking in here in the March and June quarters?

Well, we really would like to see that grant funding and what we expend be linear. It doesn't happen that way unfortunately because we have to evaluate where we are at as far as the government and their audit of how that money is being spent. And all of those things make the timing of it become lumpy.

As far as going forward, we don't get granular on the expectations for R&D on a forward-looking basis, but we continue to make investments at Tempress and at Kingstone. And Kingstone, as we have disclosed in our filings, does have money that -- grant money that is being used for other projects and a lot of that is flowing through on the R&D side, but not having an impact on Amtech cash.

Got you. And then I assume on the tax expense you are talking about the jurisdiction changes. Is that just the US becomes a bigger piece as the San Antonio project kicks in that you would then become more of a taxpayer than you might have been if you were shipping to China? Or is there a different moving factor there?

Yes, it would be nice if we could move the income around as easy as that. But unfortunately it depends on the jurisdiction which the income is being derived. And Tempress is the one who is generating the income related to the San Antonio project. So that will be taxed and primarily in Dutch -- in the Netherlands.

So that is -- and so the losses that have been incurred primarily in China and other -- outside of the US are requiring that we cannot record a tax benefit for GAAP purposes yet.

Okay. But in terms of looking at that backlog and the shipments over the next couple of quarters, probably tax rate would be -- or tax expense on a dollar basis is fairly consistent with this current mix of customers? Or is that --?

That would be tough. In my prepared remarks I mentioned as you get closer to kind of breakeven these adjustments that occur from a tax to book can have significant impact on the effective tax rate. So that is kind of difficult.

One good thing though is these losses that have been generated is they start to turn to making income, for example, in the Netherlands too, they will be able to shelter some of that income from these NOLs.

Got you. And just two other quick accounting questions and then one for Fokko. On the revenue acceptance, can you just remind us of what your kind of timing expectations are for the PECVD portion that has been deferred? And then also the timing of the ECN shipment for ion implant? Because wouldn't that have an impact on the two beta units that you shipped in the past in terms of rev rec of that?

Yes, as it relates to -- well, I don't know if I was stepping over Fokko's shoes. But as far as accounting is concerned, the PECVD, they get a recognition is because of new technology until we get two customer acceptances of like type equipment, which obviously this would be, then we have to defer. So once that acceptance has occurred then we will be able to recognize that.

As far as the timing, we just haven't gotten granular on that just because it is dependent on how fast the fab can ramp up, the equipment can get installed, all the vendors install their equipment and we ramp up and meet some of the minimum efficiencies on the line to be able to then get that initial customer acceptance.

Okay, and what about the ion implant piece? Because wouldn't you have the same treatments of when the ECN shipment is shipped? Would that then kind of revert the ion implant revenue for the units you shipped in the past?

Yes, we should see some benefit from that, yes.

Okay. Any sense of when?

We haven't gotten that granular as far as the timing of that shipment.

Okay. And then just the last one for Fokko. I apologize for all the questions. But just from a macro perspective you seem pretty upbeat about the second half of the year. What types of programs are you seeing your customers talk about? Are these new greenfield factories or are you seeing people just kind of do drop in replacements on existing facilities?

And then you mentioned the global nature of demand, are you seeing any aspects of the global nature of production? You saw Saudi Arabia with news from a competitor this week about feasibility studies, there is some stuff going on in Africa, just curious what you are seeing potentially outside of China.

Okay. Well, first then luckily it is a mix, it is not just greenfield new fabs, it is a mix. So what we do see is already now Taiwan and Korea are really a lot more active than before. So that is where it really starts first. In China it is a mix; there are some just expansions that are in China. Basically what is happening, real new fabs. You can't expect that in China; that is also what the government there tries to prevent.

So China is mostly additions to existing lines, some of which have already been planned quite some time ago. And of course outside China there are some plants from several companies. But that is still mostly in Asia.

If you look at the Middle East, yes, there is definitely activity. And we do see that as a market that really can become strong, although in some countries there things do take a lot more time, it is a little bit like India where a lot of it is announced and then it takes a bit of time to actually happen.

But contrary to India at least in the Middle East and Saudi and some other countries there financing is not an issue and they are really committed now to go this way. So, yes, that is also an area where we do see a lot of growth. If we look at Africa, yes, there are plans but I would see the Middle East as a higher potential at least in the next year.

Great, thank you. I appreciate all the detail.

Mark Miller, Noble Financial Capital Market.

I am just wondering what are you seeing or expecting in terms of consolidation of the solar industry in China? I think the government has been talking about that. Are you seeing tangible steps there?

Yes, it is not -- there are larger companies that are really closing down and we have only seen that with Suntech and even their parts have of course continued. But it is going in smaller steps. And real big closures, not, but it is definitely a difference from a few years ago that everybody starts to increase.

And if you look now all the people that we know of that are really having some plans to add, it is not those Tier 3s that are doing that. But it is slower process that is not forced when people are really shutting down, but is definitely a big change compared to some than a year ago.

You expressed optimism about seeing improvements in the semiconductor industry. Is this more from the LED side? Because, as you probably know, Intel, Samsung and Taiwan Semiconductor for the first time in many years projected flat CapEx this year. I'm just wondering where you are seeing those improvements specifically -- or expecting those improvements?

Well, it's -- yes, okay. If I look at semiconductor it is really in analog for the automotive and have several companies in that area which are very good customers and there is still growth there.

And sapphire is another area where more and more components are used, for example, on the phones for the fingerprint and for the lenses and even talks about having the whole front side touch screen in the future being made of sapphire.

That makes a lot of difference because if you have -- all of the cell phones have the little cameras and there is a lot of them there. And they are of course a lot larger than just the very tiny pieces that go in each individual LED.

So but LED is also picking up, it had a very slow period in the last years, but now it is really moving forward. And at the same time sapphire for mobile communications and that sort. So there is a lot of activity and increase in there.

We are not really involved in the DRAM or in the microprocessor area. So that doesn't really hurt us, it is more the analog. Okay?

And finally, you expressed optimism about the second half of the year. And I'm just wondering if you can give us any more color what is going on with the ion implant Qualls. Is that why you are optimistic? You think that is going to be becoming a bigger part of you in the second half of the year?

The optimism for the second half of the year is that we see projects that are becoming closer to a decision point. In the second half of the year is giving us -- with these mature and orders still need to come in, but that gives a good chance for a second half, especially on orders but even some shipments in the second half that could improve. And that is just with customer contacts knowing what is happening. And again most of that still is in Asia.

Does this include ion implanters?

Ion implanters, there is potential there and of course our organization from the ion implant is not as big. But there is potential for ion implant as well. But that is not the original statement that we see improvement for the second half.

Thank you.

(Operator Instructions). Gordon Johnson, Axiom Capital Management.

Congrats on a good quarter.

Thank you, Gordon.

So I guess a lot of the questions have been answered, but I guess just anecdotally if you guys had to say what really drove the strength this quarter I guess versus expectations what would you say?

I would say that the driver was the shipment of the -- most of the equipment related to the San Antonio order that we had previously announced and discussed that due to some great operational execution we were able to ship that in the December quarter.

Okay. So we should expect maybe the fundamentals to weaken a little bit next quarter sequentially?

Well, you always look to the order book and you can see what is happening there. But we haven't announced another San Antonio project lately.

And I guess the question was asked on kind of what is behind the impetus for your optimism in the second half. But I mean is it fair to think we will start to see some ramp up of or even replacement of equipment in the second half hoping your orders improve?

It is a combination. It is not just orders in the second half because that is still further away. But also some improvements in shipments in the second half of this year is what we expect. But then again the market is -- we see an improvement. But we have seen this market go in ups and downs.

From what we see now it is definitely moving the right direction. But there is always things that could change that again. But for now at this moment it looks a lot better.

Okay, and then lastly, it looks like there was some cash burn. Is that primarily due to the increase in accounts receivable?

Yes. Yes, if you look, we actually, from a take the pretax or operating loss and look at what we -- what our non-cash items were related to depreciation and everything else, there was really no burn through the P&L, it was all through investment in working capital.

Right. Okay. Congrats, guys.

Thank you.

And at this time I'm 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 continued interest in Amtech. This concludes today's call. Thank you.

And, ladies and gentlemen, that does conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your telephone lines.