Amtech Systems Inc (ASYS) 2018 Q2 法說會逐字稿

Good afternoon, and welcome to the Amtech Systems Second Quarter 2018 Earnings Conference Call.

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

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

Please go ahead, sir.

Thank you.

Good afternoon, and thank you for joining us for Amtech Systems' Second Quarter Fiscal Year 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.

I would also like to introduce today the 2 individuals promoted to Vice President in January as previously announced.

First, Michael Whang was promoted to Vice President, Operations.

Good afternoon.

And Lisa Gibbs has been promoted Vice President and Chief Accounting Officer while retaining her responsibilities as our Corporate Controller.

Good afternoon.

Thank you.

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

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 and trade sanctions; 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 Form 10-Q.

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.

We are happy to again report that our semi and polishing business are delivering on our planned objective of producing a stream of consistent, predictable earnings and cash flow to balance our solar business cycle.

In our solar technology solutions business, as the global industry continues to evolve, we are building upon our distinctive technologies while working closely with our forward-looking customers.

Solar is a huge growth market.

Annual installed capacity in 2017 was around 100 gigawatt, almost double that of 2015, and the global momentum is for more and more reliance on cost-effective renewable clean energy solutions.

The continuously expanding market for solar energy is a strong foundation for the ongoing development of manufacturing solutions that reduce the total cost of our solar cell productions for residential, commercial, industrial and utility scale end users.

Our customers look to leading-edge technologies to protect and advance their positions in the marketplace.

We have seen that.

Not only is technology differentiation a key driver of investment decisions but so is cost.

So in conjunction with the development of superior technologies in alignment with our customers' needs, we are constantly improving our cost position to better support both our long-standing and future customers.

In summary, we believe the combination of our solar, semi and polishing businesses position us well to enhance shareholder value over the long term.

Now I will turn the call over to Fokko, our CEO.

Thank you, J.S. Welcome to our discussion today.

As always, we appreciate your interest in Amtech.

As J.S. mentioned, the consistent performance of our semiconductor and polishing businesses is again validated in our second quarter results.

Our business units, BTU and PR Hoffman, saw continued demand that converted to meaningful performance in the quarter.

We continue to diligently focus on market needs from technology development to customer service.

We expect to see ongoing strengths in our semi and polishing businesses in the second half of this fiscal year given the high demand in the consumer electronics, automotive and power markets.

Now let's discuss our solar business.

After a few quarters of good financial results, including last quarter, when we shipped over $50 million of solar, including phase 2 of a large turnkey project, the inherent fluctuations in the quarter-by-quarter bookings and financial performance was evident in our second quarter results.

We are engaged with our large turnkey customer to assist in their next phase plans.

We continue to look forward to a phase 3 order in the coming month.

The solar equipment market is highly competitive, where price, payment term, throughput and service capabilities are constant considerations.

We believe we have great technology and are working diligently to best position our offering to win in all cost of value comparisons.

We still have more work to do, and our global team is focused on delivering leading-edge innovation, operational excellence and the highest level of responsiveness.

As we discussed last quarter, we are doing more strategic sourcing of components and evaluating the outsourcing or manufacturing of solar equipment to lower-cost locations in China.

We see this as highly priority -- as a high priority given the changes in the marketplace and the ongoing pricing pressure.

We continue to advance our technologies like with the passivated emitter TopGun technology based on a polysilicon layer made by low process -- low-pressure CVD processes that can produce n-type bi-facial cells with over 22% efficiency.

With these advanced technologies and continued system cost reduction, we position ourselves to effectively compete for market share.

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

Robert?

Thank you, Fokko.

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

Net revenue for the second quarter of fiscal 2018 was $32.8 million compared to $73.6 million in the preceding quarter and $32.9 million in the second quarter of fiscal 2017.

The sequential decrease is primarily due to the shipment in the first quarter of this fiscal year of all the equipment for phase 2 of a large solar turnkey project.

The timing of large semiconductor orders and shipments also contributed to the sequential decrease.

Compared to the prior year quarter, net revenue is relatively flat with increases in semiconductor and polishing shipments, offset by decreases in solar shipments.

Unrestricted cash and cash equivalents at March 31, 2018, were over $50 million compared to slightly more than $51 million at September 30, 2017.

At March 31, 2018, our total order backlog was $63.1 million, including $35 million in the Solar segment compared to a backlog of $65.9 million with $39.3 million in the Solar segment at December 31, 2017.

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

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

The company expects revenues for the quarter ending June 30, 2018, to be in the range of $34 million to $37 million.

Gross margin for the quarter ending June 30, 2018, is expected to be in the mid- to upper 20% range with operating margins slightly negative.

The slower -- 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 financial results of solar and semiconductor manufacturers.

The results for the coming quarters 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, recognition of revenue based on customer acceptances and meeting startup milestones 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 euros.

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 relationship to the United States dollars could cause actual results -- revenues to be lower than anticipated.

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

(Operator Instructions) And the first question comes from Jeff Osborne from Cowen and Company.

A couple of questions on my end.

I was wondering if you can give us some perspective of your bi-facial customer?

Are they producing modules today in shipping?

Like how is their business progressing in backlog, et cetera?

And I would assume that business momentum would be needed to get the phase 3 order.

Any sort of perspective you could give would be helpful.

Yes, I'll try to do that, Jeff.

This customer is maybe not necessarily exactly like others.

They are really new start-up in a region where there is no solar at this moment.

So we just started up phase 1, and we still need to go through the last phase of our factory final acceptance.

In the first 2, there was firstly get the machines installed and all operational, so we got our first acceptance by there.

And then second one was to get sort of the throughput of everything.

Now we are getting very close to the start-up part of showing efficiency and the yield.

So we are not fully producing yet for them and the market.

Of course, the whole solar market is difficult.

And the other site, they're building up their business.

So the timing there, I think it's important that we finalize this phase 1 installation, phase 2 installation will start in just a few weeks.

So it's really coming closer to the point that they can go to the next phase.

And so we're -- you only have an order when you have it, right?

So it's not there yet.

And I would have hoped it would have been a little bit sooner, but these new startups take a bit more time, and there is not necessarily an issue with their output of their sales channel, and I think that does not necessarily affect the next phases of this project to follow.

Got it, that's great to hear.

Fokko, any sense of perspective on activity levels with other folks outside of this turnkey customer?

Is anyone else in the pipeline or funnel who are potentially close to placing an order?

Or is the near-term backlog growth largely dependent on this one person or one company?

Well, this one company, of course, is a very, very big one, and it uses all of our equipment.

So we have individual equipments in different companies.

But if you look at major projects for turnkey, I think we will have our hands full if everything goes according to our plan in next year to handle all of what's needed here because we always say that it was 1 gigawatt and often that's the ticket number, in a reality, it's a little bit more.

And so we should have our hands full with that.

But more and more, when we get to be able to sell also the next level of technology, the TopGun, I think that will open a lot more of the potential turnkeys a little bit further down the line.

But it's not something we're working on now.

I'm more than happy if we will get the next phases in not too short term from that one, I'd be more than happy with that and take them -- the next level for somewhat higher efficiencies.

Makes sense.

Two other quick ones.

I'm just trying to get a sense of share count here in the June quarter.

Have you been pretty active in the buyback?

Any thoughts on how we should be modeling share count?

And then the second one is on the semiconductor side.

It came in a little bit stronger than we were expecting this quarter.

And can you just remind us the cycle time between order and revenue recognition on the semi side, the PR Hoffman as well as BTU?

Was there some sudden turns from the end market, quick turn business that popped up to lead to the revenue strength there?

Or any sense of perspective would be helpful.

Well, I can do the second part, Jeff, with -- especially PR Hoffman, that's a relatively short time between booking and shipping, so that's a turnaround time I would say of days, but sometimes it is very short.

So that's just the market doing good for shipments in this quarter.

If you look at BTU, I think, in general, it's a combination.

The market is good.

It's also a short time between order and shipments for most of their reflow business.

And the reflow business is going well, but also we got some new products that are really doing good, taking a nice piece of the market.

We're a little bit hesitant to say we're getting a bigger market share, but it feels like that at least.

And the market is just strong and good product.

And besides that, the -- what BTU calls the high temp, which is more the traditional conveyor belt, for instance, it's a bit of a longer-term between getting the order and shipping.

And that is also doing well like on the copper -- direct copper bonding for the high-power applications, just as an example but, in general, the heat treatment.

And they're really definitely improving their position.

Three years ago, that was struggling.

And now the high-temp business is doing well.

And that's a bit of a medium range, maybe 4, 5 months type of cycle.

So it's a combination, and that market continues to be strong.

However, there are things happening where, all of a sudden, there are restrictions.

And these could have effects also in the near term.

But so far, we don't see that, let's say it that way.

And about the shares, maybe Robert can say a few words.

So at this point, we have not repurchased shares in this quarter, and that will be reviewed in our next board meeting.

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

Hey, I was wondering if you might be able to give a view of the semiconductor business on an annual basis.

You're kind of in the $20 million kind of run rate per quarter.

Is $80 million a fair number?

Or do you -- is there a potential for some decent growth in that segment this year?

And if so, how much could it grow on a year-on-year basis?

I think last fiscal year, it was about $70 million.

So how much could it grow on an annual basis this year?

Well, also there, the market has been strong so far, Phil.

And if we look at it -- back and we say, "Well, this is going to last a little bit longer," but we're a bit reluctant to say this $20 million-plus will continue for the rest of year, although for next quarter, it doesn't look too bad at all.

But on the longer term, the whole semiconductor has been doing well, the whole electronics has been doing well.

But we are very much dependent on the general world economic activities.

And the outlook for that becomes a little bit less clear lately.

So if it would have gone the way it's been over the last 12 months, I would say, yes, the gross of budgeting sort of indicating 10% a year, wouldn't be unreasonable.

But it's something where it's been more positive over the last several quarters than we would normally expect.

So is it a -- are we on a hype period?

And how long will it last?

That's a bit difficult to say.

So for the longer term, we're not giving clear projection for that.

Does it help you?

Yes, it does.

As it relates to the phase 3 order, I thought I heard you say on the -- in the prepared remarks that it could be coming in the next month?

Or perhaps you were saying over the next months.

Yes, there was an S at the end, yes.

Okay, got it.

And kind of expanding on Jeff's question there.

And I think we've talked about this in the past, but I want to confirm.

In the past, you've said that operations of the results and the success of phase 1 was not required for the phase 3 purchase.

But on -- that was on a prior call.

In today's call, it seems like the success of the phase 1 launch and ramp-up and so forth may actually influence the phase 3 order and the timing.

Is that a fair thing to say?

And if so, would they want to run that phase 1 plant for a period of time to ensure that it's running smoothly?

And it looks like phase 3 could be in the next few months, but is there a chance that it could be delayed?

How real of a chance that it could be delayed 6 months or even a year because they simply just want to operate phase 1 and phase 2?

Well, the last part is not something that I expect.

We are expecting to be in the next months, with an S, so it could be -- the last time, I said a few.

And sometimes, when you're looking forward to something then a few is always longer than you'd like, right?

But it's not something where we expect it to be a longer period to wait and running those lines.

The reality is if you want to do a cause-effect of solar, with just a few hundred megawatts, you're not getting there.

So you have to go in for the full.

That's number one.

Number two, of course, this line is easy to modify to higher efficiencies.

So if you start up a new line, it's already a big challenge to get all of your supply chain going and all your people sufficiently trained.

And so that is the first part, which is important for them now, but then later on also go to higher efficiencies, and this technology lends itself very well for that.

So now I do not think and we do not expect that it's going to delay very long, a month or 2 in a public company where you have to perform every quarter, that always sounds long, but still, it's what it looks like at this very moment.

Okay.

And then, again, on phase 1, should we know by the next quarter how the phase 1 ramp up is going?

In other words, are you hitting the efficiency targets and the cost structure that -- cost structure targets that you guys laid out?

Should we know by August when you report the next quarter if that's running relatively well?

I'm pretty sure about that because everything is going really smooth, and the cooperation with the customer is extremely good.

And we're getting all the support we need from our friends.

So everything is going very, very well and efficient there.

And maybe next time, I can tell a little bit more, hopefully, then I'll be able to announce the next phase and maybe we can talk a little bit more about the type of the customer and so on.

Okay.

And then we've seen -- again, I think Jeff talked about the potential activity out there.

But it sounds like beyond this one customer, it still might be a little bit quiet as it relates to maybe another meaningful order of this kind of magnitude, maybe 1 gigawatt or 0.5 gigawatt.

What -- competitively, what do you think you guys need to do to change that?

What's holding back the activity as it relates to your n-type and even PERC tools and other tools?

Is it -- is the comp -- has the comp -- competitive landscape or offerings, have they kind of caught up a little bit?

Or is it typically a price question?

What is -- what can you guys do -- or what are the bottlenecks, if you will, that can -- that are -- that's holding you back but ultimately that you can address to try to get greater flow of business?

Yes.

Well, first of all, pricing, of course, is a big issue, especially with local.

And there's no secret, we are working in outsourcing in China to get our prices more in line with what local competition does.

That's number one.

And then we'll take a little bit of time, but we will take care of that part.

If you look at PERC, for example, there's quick changes there.

It used to be all go to in-line PECVD and now a lot goes apparently to using the batch ALD tools.

Well, so we will have to find a good way to counter that way the market is going.

And I'm sure we will be able to -- I didn't specifically mention that in this call, but maybe we'll do that next time.

So that -- we have to counter that one.

So in the PERC, it is also a bit more difficult at the moment.

What will make a difference for turnkey -- well, first of all, turnkey is, of course, not something that comes along every day.

We are one of the few who really do it, and I think the high-volume production capability for the TopGun type of technology with the poly -- passivated emitter, we are doing a lot of work on that one.

And of course, a lot of customers do that, too.

And I think that will help us in a couple of quarters from now to make sure that, that is an area where we also can offer higher efficiencies, which is an add-on to the present offering, but that makes it more competitive to mainstream p-type PERC technology.

So that's what our main focus is on the development.

But it all combines with the lower cost in the future and having all the equipment at high throughput.

So there's still a lot of work to be done for us to catch up with local in the combination of our cost and technology and the throughput, but we're taking care of all 3 of them.

So I'm quite convinced that we will be able to manage that.

(Operator Instructions) Being there are no further questions, this concludes our question-and-answer session.

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

This concludes our call for today.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.