Amtech Systems Inc (ASYS) 2018 Q1 法說會逐字稿

Good afternoon, and welcome to the Amtech System's first quarter fiscal 2018 earnings conference call.

(Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Mr. Robert Hass, Amtech's Chief Financial Officer.

Please go ahead.

Thank you.

Good afternoon, thank you for joining us for Amtech Systems First Quarter Fiscal 2018 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, Robert Hass, Amtech's Chief Financial Officer.

After the close of trading today, Amtech released its financial results for the first quarter fiscal year 2018 ending December 31, 2017.

That earnings release will be posted on Amtech'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 and including government-funded solar initiatives and trade sanctions; the effect of overall market conditions, including the equity and credit markets and market acceptance risks.

We encourage you to read the more comprehensive description of the risk factors relating to Amtech's business detailed in our Securities and Exchange Commission filings, including our Form 10-K for the September 30 year-end and Form 10-Q for the quarter ended December 31, 2017.

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

J.S?

Thank you, Robert.

Thank you for joining our call today.

As a leading global supplier of solar and semiconductor production and automation systems, we continuously look to address our customers priorities with market-leading technologies that support their objectives and provide the high level of quality and service possible.

In doing just that, we are pleased to report sound Q1 results, which CEO, Fokko, and CFO, Robert, will discuss in detail.

Our solar customers continue to look to next generation solar technology solutions.

The timing of needed production line upgrades and expansions is customer specific and causes, variances in our period-to-period performance potential.

However, working with each customer in their long-term planning, pursuing new customers and reducing our structural costs are the highest priority for us and the foundation open, which we expect to grow over the long term as a leading provider of next generation technology solutions to the growing global solar market.

Our semi business complements our solar business well.

Several years ago, in planning for the long term, Amtech completed the acquisition of BTU International.

It gave us the opportunity to drive growth in our semi business, increase scale and shape a more consistent cash flow stream.

For semi, the continuously expanding mobility in power markets and trends in the Internet of the things had become important contributors to that improved cash flow, and we believe that those end markets present ongoing long-term opportunity for our business.

Now I will turn the call over to Fokko, who will discuss results, our business operations and outlook.

Fokko?

Thank you, J.S. Good afternoon to all who are joining us today for this discussion.

J.S. pointed to the value of our diversified business models, semi and solar.

That value is clearly demonstrated in our first quarter financial results and outstanding record top line performance of over $73 million in revenues.

In our solar business, we shipped phase 2 of a large turnkey project and had continued strong performance from our semi and polishing businesses.

We are pleased with our results and the efforts of our global team to deliver high value products and services to our customers.

And we would like to thank all of our stakeholders around the globe, our customers, our employees, our business partners and our shareholders for making this happen.

During the December quarter, our semi and polishing business outperformed our expectation, coupled with strong revenues in the quarter of $24 million were even stronger bookings of approximately $30 million resulting in a book-to-bill ratio larger than 1. This is the second consecutive quarter of revenues over $24 million.

Our semi business reflects the increased demand and the evolving mobility, automotive and power markets.

We look for that to continue.

So our business mix is good as our semiconductor and polishing business continues to help balance out our operating results of the solar business where order flows is inherently lumpy.

In our solar business, we shipped over $50 million in the December quarter, tremendous execution by our Solar team.

The installation of our turnkey project is going well and meeting customer's expectation.

Timing of the next phase order is expected within the next few months.

Solar bookings are clearly light in the December quarter.

There continues to be increased competitive pressure on selling prices, primarily driven by the Chinese equipment manufacturers that offer low prices coupled with liberal payment terms and localized service.

We remain confident we have superior technology.

Yet, we are seeing more often that the competition can win with a lower price, making it more difficult for us to win orders.

Our cost position is a constant focus of ours.

And with a dedicated effort by our global team, we have enhanced our operation and process and expect to continue to make the needed adjustments to help us compete.

For example, the migration to more of an outsourcing model is working well and contribute to our operational success in the December quarter.

We are using high responsive contract manufactures for large portions of our machines.

Our internal team fully controls the final assembly of the machines.

Important, this model can give added pricing flexibility, which is required in the current operating environment.

However, we need to do more.

And therefore, we will continue to make the needed adjustments to best align our operations to compete when the marketplace changes.

We continue to do more strategic sourcing of components and study the possibility of outsourcing manufacturing of some of our key solar projects in lower cost locations such as China.

A few words on the new U.S. tariffs on solar imports.

The level of the tariffs and the uncertainty of which countries would be exempt caused many of our customers to delay their expensing plans outside of China.

So there is still uncertainty as to if and where expenses will occur.

We are well positioned to work with them as they analyze and execute their forward plans.

And now Robert will go over the quarter's result in more detail.

Robert?

Thank you, Fokko.

Let's now review our first quarter fiscal year 2018 financial results.

Net revenue in the first quarter was $73.6 million compared to $54.7 million in the fourth quarter of fiscal 2017 and compared to $29.1 million in the first quarter of fiscal 2017.

The sequential increase is due primarily to the shipment of all the equipment for Phase 2 of the solar turnkey order compared to shipping 1 cell line of Phase 1 in the first -- in the fourth quarter of fiscal 2017.

Increased demand for our polishing templates also contributed to the increased revenue in the first quarter.

The increase from the prior year first quarter is due primarily to shipments related to Phase 2 of the solar turnkey order, as well as increased shipments of our semiconductor equipment and sales of our polishing templates.

Net income for the first quarter of fiscal 2018 was $6.5 million or $0.42 per diluted share compared to a net loss of less than $100,000 or $0.00 per share for the first quarter of fiscal 2017 and sequentially, net income of $7.3 million or $0.51 per diluted share.

Unrestricted cash and cash equivalents at December 31, 2017 were $52.7 million compared to $51.1 million at September 30, 2017.

At the end of December 2017, our total order backlog was $65.9 million, of which solar accounted for $39.3 million compared to a total backlog at September 30, 2017 of $102.4 million, which included $81.4 million of solar backlog.

Backlog includes deferred revenue and customer orders that are expected to ship within the next 12 months.

Now, I will get to the changes in gross margin and certain categories of expense.

Gross margin in the first quarter of fiscal 2018 was 28% compared to 36% in the preceding quarter and 29% in the first quarter of fiscal 2017.

Sequentially, gross margin decreased primarily due to $2.1 million of revenue deferrals in the first quarter of 2018 compared to the recognition of $1.5 million previously deferred profit in the fourth quarter of fiscal 2017.

Additionally, less usage of previously reserved inventory and sales of lower margin products in our semiconductor segment also contributed to the sequential decrease in gross margin.

Compared to the prior-year, gross margin decreased slightly on higher sales volumes, due to a lower margin product mix and a deferral of profit in the first quarter of fiscal 2018 compared to recognition of previously deferred profit in the first quarter of fiscal 2017.

Selling general and administrative, SG&A, expenses in the first quarter of fiscal 2018 were $10.6 million compared to $9.8 million in the preceding quarter, and $7 million in the first quarter of 2017.

Sequentially, SG&A -- the SG&A increase was due primarily to increased commissions and freight related to the higher revenues, partially offset by lower employee-related expenses.

The increase in SG&A from the prior year quarter is due primarily to higher commissions, freight and other selling expenses.

And the 3 months ended December 31, 2016, also included the collection of previously reserved accounts receivable of approximately $1 million.

Research, development and engineering expenses was $2 million in the first quarter of fiscal 2018 compared to $1.8 million in the preceding quarter and $1.6 million in the first quarter of fiscal 2017.

Income tax in the first quarter of fiscal 2018 was $1.2 million compared to $0.5 million in the preceding quarter and $0.1 million in the first quarter of fiscal 2017.

Now let's take a look at our view for the coming periods.

The company expects revenue for the quarter ending March 31, 2018, to be in the range of $26 million to $29 million.

Gross margin for the quarter ending March 31 is expected to be in the mid-20% range with operating profit slightly negative.

The solar and semiconductor equipment industries can be cyclical and inherently impacted by changes in market demand.

Additionally, operating results can be impacted by the timing of orders, system shipments and the financial results of the solar and semiconductor businesses.

The results for the second half of fiscal 2018 will be significantly influenced by the timing of the Phase 3 order of the 1-gigawatt turnkey project.

Operating results could also be affected by the net impact of revenue deferral on shipments and recognition of revenue based on customer acceptances and progress on the startup of the turnkey production lines, all of which can have a significant effect on operating results.

A substantial portion of Amtech's revenues are denominated in euro.

The revenue outlook provided in this press release is based on an assumed exchange rate between the United States dollar and the euro.

A significant decrease in the value of the euro in relation to the United States dollar could cause actual results -- revenues to be lower than anticipated.

I now will turn the call over to the operator to start the Q&A portion of our call.

Operator?

(Operator Instructions) Our first question comes from Philip Shen with Roth Capital Partners.

Congrats on the nice results.

I wanted to kind of talk about the Phase 3 order.

Do you have a sense for -- I think you guys touched on this, but can you give us a little bit more color of timing, if possible?

And also, how is the Phase 1 equipment operating?

Is the customer happy?

Is everything -- are the efficiencies being delivered as expected?

And if Phase 2 is operating, perhaps you could share some color on that.

And does the Phase 3 order depend on the performance of the Phase 1 and 2 operations?

Hi, Phil.

Yes, I can give some input, I was at this customer just a few weeks ago.

And Phase 1 installation is mostly finished.

There is always work to be done.

And ramping up, it, so far, going really well.

The Phase 2 still needs installation, some of the shipments and customs took a little bit longer, outside of our control.

But, all-in-all, especially the Phase 1 install and ramp up is going really well.

The customer is -- you know, we meet what they expect.

It's not that I can say -- the efficiencies we're still working on that.

But this is not the first time we deal with projects like this with this technology.

So there's no issue with that.

Is there a direct relationship to it?

Of course, it makes a lot of difference and I said -- I think also said it in the last call, but when you see machines running and a process running, it's a lot easier to make the decision on to next step.

So in the remarks I gave earlier, I said the next phase is in the next few months and that's pretty much as much as I can say right now on that one.

Okay.

No that's fair.

And we were just looking for the additional color, so thank you.

No, the performance looks good, so it's going well, really good.

Thanks.

Shifting to the semiconductor business and polishing, can you share what the outlook is for these segments?

You know, I think seasonally, this is part of the reason why guidance may have been a touch light is the seasonality of Chinese New Year.

But beyond that, how does the business look for calendar Q2 and 3?

On a year-over-year basis, are you getting the sense that there could be growth in 2018 calendar year versus calendar year 2017?

So some color on the outlook there.

Well, that's what it definitely looks like.

As I already said, we had a couple of quarters where we had high shipments and the bookings are really good, especially in our first quarter, and we don't necessarily see that stop.

So we do definitely believe that the BTU or, let's say, the semi/electronics business is -- it will do definitely better than last year.

Of course, the year is still just started, but it really looks good and they booked also some longer-term projects.

So I wouldn't say that for the reflow, the timing, of course, is short from order till shipment, but some of the high time is a bit of a longer.

So, that's really filling up well for the rest of the year.

So that looks good.

And the polishing is the same, they've been really having a really good first quarter and also, there we don't see things really slowing down, more the opposite.

So also there we believe, we could have a really, really good year.

So you never know what semi does and things can change, but for now, for all of the semi business and definitely also for the polishing, we look to very good chance to have a real good year.

Yes, the polishing is a book and ship type of business, but it really looks good.

It has new product, which is helping to drive to growth.

Great.

So to put a kind of finer point on all of that, I think bookings in the past couple quarters has been light.

So looking ahead, given some of this visibility that you have and some of the progress you're making, do you get the sense -- can you give us a sense for what the bookings look like ahead?

Do you get the sense that bookings may outpace revenue?

As we get past this trough-ish potential FQ2 period?

Of course, for the solar bookings, it's lumpy.

First of all, the turnkey makes a huge difference and besides that, if there is projects you get, these projects tend to be a little bit bigger.

If you don't get them, you don't get a lot.

So there is a lot more -- the semi and polishing is a lot more stable growth.

But depending on the timing, I said a few months.

And is it impossible this quarter that we get the next phase?

That's not impossible at all.

We hope for that.

But a quarter ends at a certain date, and we only book those orders if they are 100% certain.

So that sometimes takes a little bit longer than you'd really like.

But all-in-all, I think it looks quite positive.

I would agree.

(Operator Instructions) Our next question comes from Jeff Osborne with Cowen and Company.

I had several, so you can keep your answers brief.

But -- so I get it, you don't have visibility on the order, but can you just talk about the customer in general?

Have they sold any of the output of this plant?

Are they exposed to the U.S. and Section 201?

That might delay their decisions...

This is not -- no, it has nothing to do with the export to the U.S. It is really local.

Mostly for what we see as a captive one, where they supply to their own installs.

But no, we don't see any risk of that having any influence on the U.S. at all.

Okay.

That's good to hear.

So Fokko, you also mentioned some pricing pressure in the market, which has been the case for years, and looking at subsystems in final assembly, I believe, in Holland.

But can you just talk about if this were a -- maybe a baseball game is a bad analogy for you, but a soccer match out of 90 minutes, where are you in that transition of moving production or having a more flexible assembly process?

Just I want to make sure that that's not going to cause any disruption should this order appear in a few months?

No, no, there is no disruption at all.

That means if you do multi-phase in a major order, you also do pretty much a copy XX (inaudible), so you would build it in the same way.

All of the outsourcing is done mostly in, of course, in the Netherlands with VDL(inaudible), there's a lot of this type of work for many U.S. and European companies and also in some other places.

So that outsourcing is not affected and if we start to do outsourcing more in Asia, that will take a little bit of time and it would not affect what we do today, not at all.

Because of course, it's -- you have to provide the same equipment, same quality and also, the timing is -- the time between getting the order and shipping shouldn't be too long and it should be the same type of the equipment.

So there is no risk of not being able to supply that.

Good to hear.

2 other quick ones here.

Maybe for Fokko or JS.

Cash balances are obviously very high here, especially as a percentage of your market cap.

Do you have a shopping list of things you're looking at from an M&A prospective?

Or what's the strategy there?

So if you look at the history of Amtech and how we are here today from decades, overall, we have that activity in our genes.

So we always do have a few lists of prospects on our hand and nothing definite, but that's our ongoing work.

Understand.

And then the last one, maybe for Robert, and this may be buried in the 10-Q, I haven't gone through it with a fine-toothed comb yet, but can you just talk about the solar backlog in particular?

How much of that is deferred revenue attributable to the first 2 phases of the turnkey customer?

And can you remind us upon installation?

So it sounds like Phase 1 is installed, what's the usual time lag of when that deferred would flow through the P&L?

So for the turnkey, there's 3 points in which that deferred gets released.

What we call [FAT] 1, FAT 2, FAT 3. And so that timing -- so that will be released over time, but we generally do not break out deferred revenue, deferred profit from the rest of our backlog.

Is it a safe assumption to say that the bulk of the backlog is attributable to the turnkey customer and not some other mystery customer that has hopped onboard to buy diffusion furnaces or any other product?

Certainly less than half.

19% is deferred.

Got it.

So can you just talk about the rest of the solar backlog, like I think that's been one of the investor fears of getting involved in the stock, is just the exposure to 1 mystery customer.

So has there been any progress in terms of customer diversification in the quarter?

Well, the backlog is based on several different customers, not any 1 -- just 1 customer.

There is 1 a little bit larger than the other but that's typical.

The next question is from Mark Miller with The Benchmark Company.

We saw some strengthening in the euro.

I was wondering what impact, if any, that had on your sales for the previous quarter?

Well, the orders that -- particularly, the solar is all in euros so that definitely helps a bit because then for the same euros you get a few more dollars in revenues and profit, so that helps.

I mean, the semi business and polishing is all dollars.

So let's say, this quarter, 40% is dollars, 60% euro, and the euro helps us here, because if you're in a profit position, and the revenue and profit, it does help us now when the euro is a little bit stronger.

So are you able to estimate how the appreciation of the euro -- the strengthening of the euro, how that boosted your sales?

Was it a couple million?

I don't have that number.

We can try to get that, yes, offline.

Again, one of the difficult things is trying to estimate, in terms of your sales because of the deferred revenues.

Can you estimate how much of the backlog at the end of 2017 will be recognized in revenues this quarter?

Well, it all depends on -- that deferred revenue is made up of a number of different customers and a number of different orders and each one is unique as to the acceptance requirements, and it will just be over the next few months.

Sometimes, there will be more than others.

Yes, like on the turnkey, Robert already explained it, also you have to do a startup and process, but then also you've got to prove a yield and a total throughput of the total line, and that may take 6, 7 months before that part is coming along.

So that is spread out over a longer period of time.

But that's not a huge portion, but that takes a bit longer.

Well, just going from your revenue guidance for the current quarter of [26] to [29] and then what you did in terms of the sales during the quarter, not from deferred in the prior quarter, it looks like very little that backlog is expected to be recognized.

Just using that type of thinking.

Well, as we said, it's -- about 19% of that is the (inaudible) and that will be recognized over the coming quarter.

Your unrestricted cash went down significantly, what was the cause of that -- sequentially?

I'm sorry, would you say -- ask that again?

Your unrestricted cash declined significantly over the last quarter, not your -- your restricted cash, I'm sorry, declined sequentially over the past quarter.

I'm just wondering what was going with the cash.

And also could you provide the cash used by operations?

Or generated?

So, well, the cash used by operations.

But the restricted cash, of course, is being used when you ship.

It goes from restricted to unrestricted and that's where you pay your bills from.

So the restricted cash was just a down payment that got unrestricted when you start shipping.

And what was the cash used by operations prior quarter?

It was basically 0. $263,000.

(Operator Instructions) Your next question is a follow-up from Jeff Osborne with Cowen and Company.

Just one real quick one here on the -- back on the deferred revenue topic.

Can you remind us, Robert, when the deferred flows through the P&L for Solar, in particular, what the -- did you expense all of the cost associated with that and so it's higher margin as deferred flows through?

From my memory, I thought that was the case when Yingli was a big customer years ago.

But I just want to get a refresher on how deferred flows through the P&L and then what the gross margin impact of that is.

Right.

Well certainly, most of the costs are already incurred.

There is still the cost to install and get acceptance, but generally, there is a higher margin on the deferred profit.

From a generic standpoint, is it safe to say that kind of a mid-20s gross margin was what the kind of upfront portion of the turnkey solar piece was?

And then it would be something higher than that as that portion of solar flows through over the next quarter or 2?

That doesn't have equipment shipments assigned to it?

That'd be our expectation.

Yes.

At this time, I'm showing no additional questions.

So I would like to turn the conference back to Mr. Robert Hass for any closing remarks.

Thank you.

Thank you for your time today and for your interest in Amtech Systems.

This concludes our call today.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.