Amtech Systems Inc (ASYS) 2018 Q4 法說會逐字稿

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

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

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

Please go ahead.

Thank you.

Good afternoon, and thank you for joining us for Amtech Systems's Fourth Quarter and Fiscal Year 2018 Results Conference Call.

On the call today are J.S. Whang, Amtech's Executive Chairman; and Michael Whang, our Vice President of Global Operations and Chief Risk and Information Officer; and myself, Robert Hass, Amtech's Vice President and Chief Financial Officer.

Also participating today is Lisa Gibbs, Amtech's Vice President and Chief Accounting Officer.

After the close of today's trading, Amtech released its financial results for the fourth quarter and full year fiscal 2018 ending September 30, 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

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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-Qs.

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

J.S.?

Thank you for joining our call today.

By this time, I'm sure all of you have seen our SEC filing announcing the departure of our CEO, Fokko Pentinga.

I would like to start this call by thanking Fokko for his 24 years of service, leadership and dedication to Amtech.

We wish him the best in his future endeavors.

Now in addition to my role as a Chairman, I will assume the responsibilities of CEO.

Now let's come to our operating updates.

First, Michael Whang will discuss our semiconductor and silicon carbide industries.

Mike?

Thank you, J.S. Our thermal processing technology and equipment serving the semi market

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serving the events, lighting and semi markets delivered strong year-over-year growth and cash flow.

The strong results exceeded our original expectations for the year

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advances on the path to autonomous driving, consumer and industrial Internet of Things, advanced lighting applications, artificial intelligence and the upcoming 5G era, which will require additional semiconductors, such as silicon and silicon carbide power devices, MEMS and sensors.

Although demand may have reached its cyclical peak in our fiscal year ended September 30, we remain highly enthusiastic about the long-term performance of our semiconductor and LED/silicon carbide businesses and the cash flow they can generate.

We are well positioned for the long-term and fully expect a sustainable base level of participation in these markets through the cycles in the near and over the long term.

Tariffs continue to be a topic, creating some uncertainty in the marketplace.

And certain areas of our business are starting to be impacted.

However, we are working closely with our customers and suppliers to assess our supply chain

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as the impact as much as possible.

I will now turn the call back over to J.S., our Chairman, who will cover the solar side of business.

Thank you, Michael.

First, as I step into the role of a CEO, I want to point out that I am highly confident in the leadership team we have in place at all of our divisions.

We fully expect this transition from Fokko to me to be a seamless one.

As a CEO, my immediate focus will be on our solar operations and reassessing our strategy to profitably participate in the solar market through cycles.

As we discussed on our Q3 earnings call last August, the Chinese Government's 531 announcement had a significant impact on market demand.

We continue to experience the resulting slowdown in a number of our customer's near-term extension plans.

And in China, we continue to compete in a condition where local suppliers are able to offer equipment at lower average selling prices for mass production of solar cells.

Even with these challenges in the solar market, we see opportunity where Tempress has a distinctive technologies and experience developing

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in reliability and collaborating with the customers on new technologies we received through large orders in the Q4 fiscal 2018 for our high-efficiency n-type systems.

This combined value of these previously announced n-type orders is greater than $11 million.

Turning to our turnkey project in China.

This customer's plan was to quickly deploy their bi-facial modules for utility-scale projects within their local province.

That has not happened yet.

And although we do not know the precise reasons why, we do know that it is not an issue related to our equipment and its performance.

We have successfully completed Phase I projects and have conducted

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performance in line with our expectations and obtained final customer acceptance.

We will be ready for assisting with reaching high-volume productions once the customer is ready.

At this time, we are also waiting for Phase II installation to begin.

We have no firm time line on a start date, and we believe at this point that installation might not begin before the second half of 2019.

The timing and visibility of a Phase III order is still limited.

The current market environment requires a ready-to-move forward positioning for when the market turns up and capacity expansion time lines accelerate.

In the meantime, we will continue

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manage our cost within this segment, while ensuring we are ready to respond to customer demand.

Now Robert will review our Q4 financial performance.

Robert?

Thank you, J.S. Let's now review our fourth quarter fiscal year 2018 financial results.

Net revenue for the fourth quarter of fiscal 2018 was $28.8 million compared to $41.2 million in the preceding quarter and $54.7 million in the fourth quarter of fiscal 2017.

This sequential decrease is primarily due to decreased shipments of our solar and semiconductor equipment.

Compared to the prior year quarter, net revenue decreased due primarily to lower shipments of solar equipment for the turnkey project.

Our semiconductor shipments are experiencing quarter-to-quarter variability based on the timing of orders and preferred shipment schedules for 1 particular customer.

During fiscal year 2018, revenues were $176.4 million, a 7% increase over the previous fiscal year and the highest revenue since 2011.

Unrestricted cash and cash equivalents at September 30, 2018, were $58.3 million compared to $51.1 million at September 30, 2017.

Pursuant to our previously announced stock repurchase program during the quarter ended September 30, 2018, we completed our $4 million stock repurchase plan and repurchased 771,149 shares of our common stock.

All shares repurchased were retired on November 27, 2018.

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approved stock repurchase program pursuant to which the company may repurchase up to $4 million of its outstanding common stock par value $0.01 per share over a 1-year period.

At the end of fiscal 2018, our cash reserves were at the highest level since fiscal 2011, positioning us well to not only weather the cycles of our businesses, but also for possible future acquisitions, a key component of our long-term strategy.

At September 30, 2018, our total order backlog was $51.1 million, composed of semi and LED/silicon carbide segments, $23.7 million; and solar segment, $27.4 million; compared to the total backlog of $41.2 million, made up of semi and LED/silicon carbide segments of $22.3 million; and solar, $19 million at June 30, 2018.

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 2018 was 29%

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35% in the preceding quarter, and 36% in the fourth quarter of fiscal 2017.

Sequentially and compared to prior year, gross margin decreased primarily due to lower volumes and factory utilization and less recognition of previously deferred profit.

For fiscal year 2018, gross margins were 31%, only slightly lower than the 32% in fiscal 2017, as both years benefited from the sales volumes resulting from Phase I and Phase II of a large turnkey project.

Until we receive the next large expansion order, we will continue to experience lower volumes and a continuation of the pressure on gross margins our solar segment experienced in the fourth quarter.

Selling, general and administrative expenses, SG&A, in the fourth quarter of fiscal 2018 was $7.9 million compared to $9.5 million in the preceding quarter and $9.8 million in the fourth quarter of fiscal 2017.

Sequentially and compared to the prior year, SG&A decreased primarily due to lower commissions and freight resulting from the lower shipments.

Lower employee-related expenses in the fourth quarter of fiscal 2018 also contributed to the decrease in SG&A compared to prior year.

Excluding variable commissions and shipping costs, we are beginning to see the results of the reductions in our structural cost in our solar segment and continued cost management in our other segments.

As previously announced, due to the ongoing challenges we are experiencing in our solar segment, we implemented a restructuring plan to the -- during the fourth quarter of fiscal 2018.

We recorded approximately $900,000 of related costs in the fourth quarter

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the plan is to not only align our workforce with current needs of our business but also to enhance our competitive position for long-term success.

We expect the plan to be fully implemented by April 1, 2019, and reduce our solar workforce by approximately 35 to 40 employees and operating cost by approximately $3 million on an annualized basis in that and subsequent quarters.

We will continue to investigate opportunities to improve our operational efficiencies and effectiveness, including Greater China sourcing in order to improve the competitive position of our solar segment while pursuing continued technological advancements.

We also conducted our periodic assessment of long-lived assets in the fourth quarter of fiscal 2018.

The assessment resulted in a determination that goodwill of $5.7 million and intangible assets of $1.3 million of the solar segment were impaired due primarily to the decline in the expected performance of that segment.

Research, development and engineering expense was $1.5 million in the fourth quarter of fiscal 2018

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$2.1 million in the preceding quarter and $1.8 million in the fourth quarter of fiscal 2017.

Income tax in the fourth quarter of fiscal 2018 was an expense of $400,000 compared to $1.4 million in the preceding quarter and $0.5 million in the fourth quarter of fiscal 2017.

Net loss for the fourth quarter of fiscal 2018 was $9 million or $0.61 per diluted share compared to a net income of $7.3 million or $0.51 per diluted share for the fourth quarter of fiscal 2017 and net income of $5 million or $0.33 per diluted share in the preceding quarter.

The net loss in the fourth quarter of fiscal 2018 was primarily due to the $7 million noncash impairment in the solar segment.

Net income for the fiscal year 2018 was $5.3 million or $12.3 million before the noncash impairment charge in the fourth quarter compared to $9.1 million in fiscal 2017.

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

The company expects revenue for the quarter ending December 31, 2018, to be in the range of $27 million to $29 million.

Gross margin for the quarter ending December 31, 2018, is expected to be in the mid to upper 20% range, with operating margin negative.

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

Additionally, operating results can be significantly impacted positively or negatively by the timing of orders, system shipments,

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shipments, recognition of revenue based on customer acceptance and the financial results of solar and semiconductor manufacturers.

The results for the coming quarters will be significantly influenced by the timing of future orders of the 1-gigawatt turnkey project and the timing of meeting startup milestones of the turnkey production lines.

A substantial portion of the 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 U.S. dollar could cause actual revenues to be lower than anticipated.

I now would turn the call over to the operator to start the question-and-answer portion of our call Operator?

(Operator Instructions) And our first question today will come from Philip Shen with Roth Capital Partners.

Just talk thought the Fokko departure, was wondering if you could give us some more color as to why he left.

Was he part of the restructuring efforts?

Was it expected?

Or did he leave on his own accord?

Some additional color would be helpful.

I'll take that one.

So it was a mutual agreement with Fokko and the company.

It was certainly on good terms.

We certainly all agreed with the need to revamp our supply chain with lower cost components from China.

However, before making significant commitments to manufacturing in China, we will assess the potential profitability from doing that.

Okay.

And are there some other key people who have left as well?

I mean, is Jan-Marc still at the firm?

And I guess coming back to the question, was Fokko actually part of the restructuring?

It sounds like he may have been but I wanted to confirm.

Jan-Marc became President over Tempress.

So Jan-Marc is leading our solar divisions as we speak.

And as to Fokko, all good things come to an end.

And we will all face that someday, including myself, and this is -- this was the time for Fokko, and we have mutually agreed to part way, and -- but we will continue to maintain our relationship and moving forward that we did for 24 years.

So there's no sort of problem-related decisions.

Or -- it was just time to -- or for him to make that decisions.

Okay.

As it relates to demand, I know you guys probably may feel this much later, but we're starting to actually see some optimism come out of China ever so slightly with a potentially more than expected support for 2019 demand.

I'm guessing you have not experienced any -- I'm just wondering if you guys are hearing of any of this at all from any of your customers.

I'm guessing it's much too early as you're probably more late cycle, but I wanted to see if you have any color on the 2019 outlook for the overall market in general as it pertains from your perspective.

And so this is Mike.

As of right now, we have no additional color from our

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something.

I don't think they're ready to share that yet.

They're also just still adjusting to the latest news in the government.

But when it does happen, we will be ready to respond.

Okay.

And then as it relates to -- that makes sense.

As it relates to tariffs, there is news out, I believe yesterday, with China announcing a list of equipment that could be excluded from tariffs, I think that included PECVD, ALD and diffusion furnaces in those types of machines.

So was this a headwind for you guys at all?

I think the previous tariff was 8.8% starting from November 11.

So I was wondering if this is incrementally positive news for you guys, I imagine it is, but what's your view on that?

Yes, it can be an incrementally positive news for us.

We've been working diligently with our customers, our import, exporters and our legal team and to find ways to mitigate the impacts of the tariffs.

And we did see some openings for high-technology equipment to bypass some of those tariffs.

But the proof is in the pudding, we haven't yet seen the results of that.

We put it in the applications.

But as of right now, it -- when speaking of tariffs, it is putting some damper right now in the marketplace.

There's still a lot of uncertainty.

Hopefully, Trump and President Xi can close the loop and come to an agreement at the G20.

That's what we're hoping at a very high level.

So we certainly have some potential of benefiting on our semi side if our equipment is excluded.

Regarding PECVD and diffusion, those are manufactured in Europe, shipped primarily into China.

And there we really didn't see a tariff problem.

That makes sense.

So yes -- so if we get customers, if we see expansions in the U.S., then certainly that will help.

Okay.

Great.

And shifting to your backlog.

You guys secured a couple of orders this quarter.

Can you give -- can you talk about the pipeline for additional n-type solutions or equipment orders from customers?

Do you see some momentum of order flow in '19?

It sounds like from your prepared remarks that may not be the case.

But I wanted to check in just on the n-type demand that you might be seeing.

I will take that first.

Our quotation pipeline looks very healthy lately.

But how fast they can come down to lower pipeline where we can

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the timing of those are -- is still a bit too early to determine.

But we do -- we're encouraged by -- increased quotation activities.

Okay.

Good.

Well, we are sorry to see Fokko go.

And I'll pass it on from here.

Yes, thank you, Philip.

We'll greatly miss him, yes.

And our next question comes from Jeff Osborne with Cowen and Company.

A couple of questions on my end, maybe more modeling related, but is there any additional restructuring charges in the upcoming quarter?

Or was everything achieved in the most recent quarter?

So the charges for the current restructuring plan were taken all in the fourth quarter.

And so we don't expect much of any restructuring charges in the first quarter.

Of course, there are some severance connected with Mr. Pentinga's departure, and we will put that on the restructuring line.

But no, we don't expect any restructuring charges.

Got it.

And the $3 million of OpEx savings around -- the OpEx is down substantially about line items this quarter.

Is there a way to talk about how much was achieved in the current quarter?

Or maybe just break out what the run rate of SG&A and R&D should be if we were just to say that the revenue run rate that you just guided for were to stay the same for a few quarters?

Yes.

So as you know, we implemented the restructuring plan in the fourth quarter, we took the charge.

But in Europe, you need to give 4 months' notice to those employees that are leaving.

And that's the reason we're saying that we really won't see the full effect until the March quarter, and that's when it will be fully implemented and then we'll really see the full benefit starting in the -- April 1, 2019.

And so for Q1, I think you should model your expenses at comparable levels as what we saw in Q4, except -- yes.

Well, yes, let's leave it at that.

And then it included the -- I guess the $3 million of savings.

How much of that is an OpEx versus cost of goods was unclear to us.

Right.

I would say that it's probably about 50-50.

Got it.

And a few more, if you don't mind.

It looked like in the quarter that the gross margins in the LED and silicon carbide segments were down sequentially and lower than they've been in recent past.

Is that just as a mix of consumables versus machines?

Or what's going on there?

Yes.

It's mainly from the product mix, Jeff.

Okay, but no permanent pricing pressure or anything in that market?

,

Good old mix.

If you -- onetime.

Got it.

And then I think I know the answer to this, but the $11 million of n-type, is that just one customer right there?

And any sense on what the longer-term expansion plans are.

That was 2 separate customers.

Are these [idle] lines?

Or are they production lines that could expand to greater growth?

Last quarter was with Trina, that was in our press release, and that is for a production line.

More on -- yes, Jeff, that was more specifically Trina advanced n-type technology going into production for TopGun or the n-type technology.

And the other one is another -- a very attractive n-type technology, but we need to leave it at that.

Okay.

Two other really quick ones here.

One is just maybe for Robert, the $27 million in change of backlogs.

Can you just -- and maybe in the K, I haven't gone through in the detail, but the -- this -- how much of that is attributable to the turnkey customer, which it sounds like you have less near-term look in the demand?

I just wasn't sure if there was any potential rebookings or deferred revenue that might not roll through because of their actions?

Yes.

There is some deferred revenue involved there.

And I think it's about $2 million.

Okay.

Good.

That's 10% or so of the backlog.

That's fine.

And then maybe for J.S., last question here.

You mentioned the cash balance, a 2-part question.

One is what's the philosophy of the board on the buyback?

Obviously, you announced it several quarters ago, you announced it in the quarter and you announced another one here.

Do you intend -- the stocks on 15% after hours here, do you intend to be aggressive with that?

Or spread that out over time?

Any thoughts there?

And then also you alluded to an acquisition pipeline, which you've mentioned in the past, over the past 2 years on and off.

I just didn't know if you could flip the pipeline in the context as to, a, what the opportunity set is, not looking for what you're buying or who you're buying, but just more importantly, you've already put that in the past and do you intend to pull the trigger on something now that maybe valuations have reset?

Jeff.

So -- well, we always have a very careful, proven approach to our spending investment, including buyback.

We did one -- successfully completed a previous $4 million buyback, we felt that it was a good practice to put one more program in place.

And then we will determine if the opportunity is compelled to take action, and we will do that.

And it will give us the chance to take actions.

And so that was more the prevailing idea behind over new one.

As to the acquisitions, and so -- also -- so Amtech's history indicates we do always have an organic expansion program on hand, and we would go over a few.

I think that's probably as far as we can say at this point.

And our next question comes from Todd Felte with RHK Capital.

In your earnings release today when compared to the June quarter, you showed a substantial improvement in all segments in your book-to-bill ratio as well as substantial new order growth in all segments.

And that being said, I was surprised your estimate for revenue next quarter was only $27 million to $29 million.

Do you expect most of these orders to hit in your fiscal second, third and fourth quarters?

And can you add any color on this?

So there's a great deal of variability on the -- both the order intake and on the semi and the LED/SiC area.

Those orders turn over really rapidly.

And then on the solar side, those have longer lead times.

And so all those factors, including -- except the final acceptances affect the timing of the revenue.

So all of that has to be factored in to our guidance.

(Operator Instructions) And our next question comes from Mark Miller with Benchmark.

I believe you indicated that Phase II of the turnkey project now looks like it's second half of 2019 to begin the installation.

Is that later than what you thought 3 quarters or 3 months ago?

Yes.

Mark, J.S. Yes.

Certainly, it's later than what we expected earlier this year.

As I indicated, the custom to quickly deploy attractive bi-facial n-type product locally, but that hasn't happened.

So it is a customer-dependent time line; obviously, it's out of our control.

Once customer resolves their current margin deployment issue, we will be ready.

And as you know, the industry of ours is a very dynamic industry even with all the macro condition that we face, but things can -- happened sometimes quick.

And so that's why we are always ready to respond in case our customer comes with earlier decisions.

But at this point, our visibility is just that about the one -- second half of 2019 for Phase II installations.

And as to Phase III new order, our visibility is still limited.

Okay.

You mentioned the semi/silicon carbide/LED business, that's been doing fairly well.

But you're expecting those results to maybe have peaked last quarter, is that because the expected decline in semi is going to be offsetting the growth I guess 5G is just starting to ramp, especially for silicon carbide, so is what's going on at semi as the CapEx reductions are starting to -- will be greater than the expected growth next quarter, over the next couple of quarters for silicon carbide?

Mark, this is Mike.

Yes, yes, there's that factor.

And also the overhang from the existing tariffs between China and the U.S. It tapers a lot of

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for our semi customers in China.

And this will conclude our question-and-answer session.

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

Thank you, everybody, for participating in today's call.

This will conclude our call for today.

Thank you all.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.