Amtech Systems Inc (ASYS) 2014 Q2 法說會逐字稿

Good day, and welcome to the Amtech Systems Second Quarter Fiscal 2014 Financial Results Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Mr. Brad Anderson, Amtech's chief financial officer. Please go ahead, sir.

Thank you, Denise. Good afternoon, and thank you for joining us for Amtech Systems second 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 second quarter fiscal 2014 ending March 31, 2014. 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 second quarter fiscal 2014 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. It is a pleasure to have you all again today. For many of you who have joined our calls before, thank you for our ongoing interest in Amtech. For those who may be joining us for the first time, we really appreciate your interest and participation today. We are pleased to report that our Q2 reflects solid progress being made in the first half of current fiscal year. Fokko will discuss the details of the Q2 progress shortly.

We continue to plan for what we see as an exciting future for Amtech. As the solar energy cost continues to decrease for the end market, the demand for solar as an affordable clean energy has increased at compounded annual growth rates. We believe our ongoing investment in our technology solutions and product development programs, balance to which our (inaudible) focus on managing expenses and cash is a winning combination for new and long-term success.

The largest global economies, US, China, Japan and EU, continue to support solar expansion as an attractive solution to climate change. The (inaudible) mandated by governments are driving the development of utility scale projects and resulting in long-term power purchase agreements.

The growing interest in solar goes well beyond established market with the new emerging solar market growing to 8 to 10 gigawatts annually. Solar is truly becoming global. We are excited about Amtech's future, even industry forecast, which points to a global solar market that is expected to grow at a significant double-digit pace for the foreseeable future. We are looking forward to fully participating in this exciting global solar opportunity. And now I will turn this discussion over to our CEO, Fokko, who will discuss our Q2 progress and current market activities in more detail.

Thank you, J. S. We had good bookings in the quarter with $21.5 million in orders. It is our highest booking level in thee years. These new bookings result in a healthy backlog and solid book-to-bill ratios for the consolidated businesses and solar specifically. Today we also announced an additional $10.5 million in solar orders received so far in the June quarter, so a good start for our fiscal third quarter, and a good indication that we are fully participating in the opportunities that are currently present in the market.

We are pleased to announce that during our fiscal second quarter we received our second production order for our PECVD system. We brought this technology to market in 2013. During the downturn we stayed committed to our research and development plans and our PECVD tool is one of the outcomes of that investment. We believe it will double our served addressable market.

As we have announced in earlier quarters, we produced and shipped our diffusion and PECVD systems to Mission Solar Energy's San Antonio facility, and are currently installing and starting up the equipment and its lines. RENA being the main contractor for this recent solar project, recently entered into insolvency proceedings and a self-administration. Unfortunately, this has resulted in Amtech taking an expense of approximately $1.8 million in the March quarter. For notification of these proceedings we engage in discussions with the key project participants and worked out an (inaudible) framework to move forward that we believe will ensure a successful outcome of phase one. Beyond the write-off in Q2, we anticipate no further financial impact.

While demand for new solar equipment remains soft with customers still being very cautious about their investment in new equipment, we do participate in selected opportunities. At this time our sales and marketing activities in Asia and EMEA and other regions of the world include meaningful discussions with current and potential customers.

Our prospect pipeline is bigger today than it has been in the last two years. We continue to advance our ion implant, our N-type cell and the PECVD technologies, and we shipped the Kingston ion implant to (inaudible) and expect to install and start development efforts on higher efficiency cell technology in the coming months.

In regard 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. 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.

In conclusion, we are excited about our future and we look to fully maximize our expanding opportunities. Our team performed very well in this first half year of this fiscal year, responding to customer needs and proving that our streamlined manufacturing organization is well positioned to serve customers' current and future needs. We are optimistic that the second half of 2014 will reflect an improved demand for our products and with further growth in 2015, when there is expected to be more balance between the solar cell production capacity and the demand. I will now turn the discussion over to Brad, who will review our second quarter financial results. Brad?

Thanks, Fokko. Net revenue for the second quarter of fiscal 2014 was $12.7 million compared to $14.8 million in the preceding quarter, and $8.1 million in the second quarter of fiscal 2013. The increase compared to last year is due primarily due improved demand in all market segments partially offset by lower recognition of previously deferred revenue. Customer orders for the second quarter of fiscal 2014 were $21.5 million, including $13.6 million of solar, up substantially from the previous quarter and the quarter a year ago.

At March 31, 2014, our backlog was $31 million, up 33% compared to backlog at December 31, 2013, and includes $20.5 million that is solar related. As a reminder, backlog includes deferred revenue and customer orders that are expected to ship within the next 12 months.

Gross margin in the second quarter of fiscal 2014 was 23% compared to 30% in the second quarter of fiscal 2013. The lower margin resulted primarily from lower recognition of previously deferred profit, which was a high percentage of net revenue in the second quarter of fiscal 2013.

SG&A expenses in the second quarter of fiscal 2014 were $5.3 million compared to $4 million in the second quarter of fiscal 2013. Included in SG&A expense in the second quarter of fiscal 2014 is approximately $1.4 million of bad debt expense primarily related to one customer.

Research and development expense was $2.2 million in the second quarter of fiscal 2014, compared to $1.9 million in the second quarter of fiscal 2013. The increase in R&D expense is primarily due to higher activity in the development of additional markets for the ion implant technology.

Depreciation and amortization in the second quarter of fiscal 2014 was $583,000 compared to $683,000 in the second quarter a year ago. We recorded zero income tax expense or benefit in the second quarter of fiscal 2014 due to the effect of book tax differences and valuation allowances on net operating losses in certain tax jurisdictions in which the Company operates. This compares to a tax benefit of $800,000 in the second quarter of fiscal 2013.

The net loss for the second quarter of fiscal 2014 was $3.8 million, or $0.39 per share, compared to a net loss for the second quarter of fiscal 2013 of $2.1 million, or $0.22 per share. Total revenue by geographic region for the fiscal second quarter was North America region at 16%, Asia Pacific region at 60%, and Europe at 24%.

Our financial position remained strong at March 31 with essentially no debt and total unrestricted cash and cash equivalents of $36.7 million compared to $30.3 million at December 31, 2013. The increase in cash and cash equivalents is due primarily to the receipt of a tax refund of $5.5 million and the proceeds of $1.1 million from exercise of stock options. At March 31, 2014, we had working capital of approximately $40.4 million.

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

Thank you. (Operator Instructions) The first question will come from Mark Miller of Noble Financial Capital Markets. Please go ahead.

Congratulations on your orders. I just was wondering about the ion implant. You are going to be going through development efforts, and if all goes well, can you give us a ballpark type estimate of when they might be revenue?

Well, that's a difficult one and first we've got to get some more orders. But the development now is starting at each end to further work on the entire technology. But the orders from each end, of course, is a revenue that is already not in this quarter but will be in next quarter, right, Brad?

Yes. I think in the next couple of quarters we will recognize that revenue. It is just depending on when we get the machines installed and up and running and meeting their [stats], which are anticipated but sometimes there are facility issues and everything else. So, it just takes time for that, but expectations are that it will happen, it's just -- timing is probably next month, next quarter or two.

In terms of your sales, could you break out solar and semi sales? I didn't see that in the announcement.

Yes. We did not break that out. We broke out orders in the announcement, we didn't break out the sales.

Okay. You had a large tax benefit in the previous quarter and I guess taxes were basically nil in the March quarter. Can you give us any feeling for what the tax -- is it going to be close to zero over the next couple of quarters?

Yes, that's always a little bit difficult because we operate in several different tax jurisdictions, and in several of those we have had, for financial reporting purposes, cumulative losses. And therefore, while we do expect to utilize those tax operating losses or NOLs, as people refer to them as, for accounting purposes we have to reserve for those benefits until the profits return. And when you get close to the numbers we are at and have been in the quarters, the permanent tax differences can kind of wreak havoc on your effective tax rate. So, there is a -- it's difficult to predict right now as far as the P&L impact related to taxes.

Just one final question and I'll jump back in the queue. The lower margins this quarter, that was more driven by the lower recognition of previous deferred profits or was that a mix type factor?

As it relates in comparison to a year-ago quarter, yes, because we did recognize -- you saw that we had, what, $8 million plus in revenues a year-ago quarter and yet had a 30% margin. That was because there was some recognition of previously deferred revenue higher than what we would have in this quarter. Sequentially, a lot of that has to do with volume. While the revenues are down, we did have much higher shipments in the quarter, the December quarter.

Thank you.

(Operator Instructions) And the last question will come from Gordon Johnson of Axiom Capital Management. Please go ahead.

Hi, guys. This is James Bardowski in (inaudible). I have a few questions. I guess first, I know it's been a bit of time since you guys really broke out the operating EBITDA margins, but would you mind just giving us a sense of where your EBITDA margins stand per segment? Is it right to think that polishing would be maybe 7%, 7.5%? A little clarification, if you don't mind.

Yes. We don't get that granular as far as breaking down margins on each of our businesses. I mean, there are segment-related requirements that we have to put in our 10-Q, but we don't -- and 10-K, but we don't normally break that out.

And I know, I did hear a question before regarding the revenue between the segments. I know you mentioned that you didn't break it out. Does that mean that you're not going to? What's the sense from that?

We just break it out in the disclosure, in the press release.

Okay. And then, I guess, just two more quick ones. The lower gross margin, do you expect that to revert back up? What can we expect as far as a run rate for gross margin as well as OpEx, if you don't mind?

Yes, sure. Just in general, obviously we have not given guidance as relates to quarterly numbers. We have given some general indications of what we see with the market. I think everyone should remember that while there is -- we are optimistic about the future as we start to see more of an equilibrium between demand and supply. We are in a transition period right now, so while there are selected opportunities and we fully participate in those opportunities, and I think that's evidenced by what you see from our bookings this past quarter and what we announced today, it's still a transition period. And there will be from time to time lumpiness. And then from that standpoint, that has an effect on what happens with margins on a quarter-to-quarter basis. But generally we see, again, optimistic that the second half of 2014 we'll see improved demand. And then from there improving more in 2015.

And for the improvement on the margins, are you seeing any kind of specific benefit from -- because I know you mentioned that yet, about 60% out of the APAC region you'd see added benefit from operating more there as opposed to North America, EU, etc.?

Historically, a lot of our revenue has come from the Asia Pacific region. It does differ from quarter to quarter because depending on the concentration, whether it is more solar, more semi. For example, the equipment that we shipped to San Antonio heavily affected where our revenues came from last quarter.

In general, the cost structure we've taken significant adjustments to and feel like we were in a position to do, I think, a very good job at balancing the demand prospects that we see with the investment that we feel is needed to fully participate in the future opportunities, both capacity expansion and from a technology standpoint, as evidenced by the progress we've made with ion implant and with our new PECVD tool and the recent orders we have received.

Okay. All right, great. I guess one final one. Looking at some multiples on your business, just trying to get a good sense on whether you agree or not with some multiples to each of the segments, do you think it's appropriate to put about a five, six times multiple on semi, solar polishing? What are your thoughts on that?

You know, we are focused on operating the business, each of our businesses in, I think, the most prudent way and getting ourselves in positions to take advantage of opportunities in those markets that we serve, whether it's solar, semiconductor, LED. I think we've done a good job of managing during the downturn, looking forward. We really aren't investment bankers looking at putting multiples on the businesses. I think we are really more focused on driving and participating in these opportunities and managing our business to a cost structure that makes sense for the future.

Understood. Well, thanks a lot, guys, and great job on the orders and performance on the semi side.

Thank you.

And, ladies and gentlemen, that 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. This will conclude today's call. Thank you.

Thank you. Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.