Amtech Systems Inc (ASYS) 2020 Q4 法說會逐字稿

Good day, and welcome to the Amtech Systems' Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. Please note that this event is being recorded.

I would now like to turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us for Amtech Systems' Fourth Quarter and Fiscal Year 2020 Conference Call. With me today on the call are Michael Whang, Chief Executive Officer; and Lisa Gibbs, Chief Financial Officer.

After close of market today, Amtech released its financial results for the fourth quarter and fiscal year 2020. That earnings release is posted on the company's website at www.amtechsystems.com in the Investors section.

During today's call, management will make forward-looking statements. All such forward-looking statements are based on information available as of this date, and the company assumes no obligation to update any such forward-looking statements. These statements are not a guarantee 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 that are in the forward-looking statements are: Changes in the technologies used by customers and competitors; changes in volatility and the demand for products; the effect of changing worldwide political and economic conditions, including trade sanctions, the effect of overall market conditions, including the equity and credit markets and market acceptance risks; capital allocation plans; and the worldwide COVID-19 pandemic. Other risk factors are detailed in the company's SEC filings, including its Form 10-K and Forms 10-Q.

I will now turn the call over to Michael Whang, Chief Executive Officer.

Thank you, Erica. I want to take a moment to reflect on how our business has performed over the last 12 months. After a very strong demand environment in 2018 and a lull in 2019 due to the start of the trade war between USA and China, we entered 2020 expecting an industry rebound in the spending cycle, which was reflected in the $20 million Q1.

Unfortunately, the anticipated growth in 2020 was halted in the second quarter by the initial spread of the COVID pandemic throughout Asia Pacific region, creating significant supply chain disruptions as well as end-market demand uncertainty on the part of our customers. As the year progressed, almost all geographies were impacted, creating more volatility and uncertainty to the global economy and potential growth catalysts. Despite this backdrop, including the natural volatility of the capital equipment markets we serve, we are successful in mitigating disruptions to our business while limiting operating losses to nominal levels.

That said, I want to personally thank the entire team at Amtech, our supply chain partners and our customers for their hard work and flexibility, navigating both the pandemic and the trade environment challenges placed in front of us throughout this year. With their diligent efforts, we successfully endured the worst of the pandemic impact while maintaining the high levels of service our customers require and expect from us.

As we look ahead, uncertainty remains at varying levels based on geography. Within the Asia Pacific region, which has historically been our largest market, demand remains strong as these economies were the first to reopen after the pandemic, allowing customers to resume capital expansion plans. While demand remains at muted levels relative to years past, we believe portions of the Asia Pacific market such as semiconductor packaging have returned to normalized levels, and others such as automotive module and subsystems are beginning to show signs of improvement. As a result, we remain optimistic regarding continued strength in the quarter ahead.

Outside of the Asia Pacific region, both the U.S. and European markets continue to lag. As our customers gain confidence in the strength of near-term and midterm end-market demand, new conversations continue to improve of the second and third quarter lows. However, progress from coating activity to purchase orders remain below pre-pandemic levels. While we remain cautious, particularly in light of the rising infection rates in both the United States and Europe and the possibility of additional shutdowns, we believe our customers are gradually returning to business as usual.

When evaluating our business by end market, the long-term silicon carbide opportunity remains very strong as demand for devices continue to outstrip supply. With the acceleration of new electric vehicle platform announcements, many of which leveraged silicon carbide's unique performance attributes to improve efficiency while decreasing size and weight and lead times for power devices, are reaching at an all-time high. As such, the industry as a whole should be focused on rapidly increasing device capacity to meet this growing need, which also requires increased SiC wafer capacity. With that said, it's important to note that the manufacturing of silicon carbide devices is certainly broken down into 2 distinct segments: creation of the silicon carbide wafers themselves, which are tools and consumable products address; and the subsequent processing of silicon carbide devices on those wafers.

Specific to wafer fabrication, we believe many customers are currently adding incremental capacity by improving their efficiencies in the process, including improving yields and continuing the transition from 4-inch to 6-inch wafers. It is our expectation that while these actions are effective in creating additional capacity in the short term, a share of volume associated with increased demand in 2021 and beyond will require large-scale increases in wafer capacity over time.

Given our market-leading position in consumables, road map for new equipment platforms and recently completed capacity expansion investments for our silicon carbide manufacturing operations, we are well positioned to capture this opportunity when it emerges.

Within power semiconductors, the magnitude of the overall opportunity remains large, supported by both the increasing needs of automotive platforms as well as the proliferation of new applications, such as 5G in the telecom market, automation and IoT in the industrial market. Similar to the silicon carbide market as future demand outpaces existing supply, power semiconductor manufacturers will be ramping up their capacity investments. For these market leaders in this space, capacity increases typically include a transition from 200-millimeter to 300-millimeter wafers due to the economic advantages the larger diameters provide. It is within a specific market shift where Amtech is particularly well positioned with our semi-compliant clustered 300-millimeter horizontal diffusion furnaces.

Unlike traditional silicon-based semiconductor manufacturing which utilizes vertical furnaces at 300-millimeter, the unique characteristics of power devices require horizontal furnaces to solve yield loss issues associated with wafer bowing and crystalline defects at high temperatures, normally 1,100 degrees C and above. Having partnered with industry pioneer in the transition from 200-millimeter to 300-millimeter for power devices, Amtech is in a great position of having a multiyear lead in this particular segment of the industry, created not only by having the largest installed base in the market today, but also a tool of record for 3 leading power semiconductor manufacturers.

With the addition of one new customer and one follow-on order in 2020 despite market uncertainty, we believe this is a clear signal of not only the robustness of long-term growth drivers for power semi devices, but also the willingness of customers to expand capacity to serve the growing market. Given our track record of performance and market leadership, we believe we are well positioned to serve, continuing customer demand and orders as we look to expand capacity in 2021 and beyond.

Moving on to the reflow of the market, our served markets can certainly be broken down into 2 main applications, namely semiconductor packaging and electronic systems, such as automotive subsystems and advanced printed circuit board assembly.

Within semiconductor packaging, 2020 represented a record year for Amtech, a 20% year-over-year growth driven largely by advanced packaging applications. The performance requirements for advanced packaging processes, such as flip chip and fan-out panel-level packaging, which today represents the majority of the overall advanced packaging market, play directly into the strengths of our products.

For example, as the industry moves to more complex processes and applications, such as antenna and package for 5G devices, leading outsourced semiconductor assembly and test manufacturers, or OSATs, are increasingly looking to us to provide the highest level of reflow precision and uniformity these processes require. In addition to the direct benefit of the sales of these systems, the growth in semi packaging capacity serves as a leading indicator for the broader industry growth, including markets served by our other products.

It is typical to see leading-edge OSATs first-add capacity for memory and logic and follow-up with capacity expansion for supporting components in electronic systems such as analog, power and RF devices as well as advanced circuit boards. As we look ahead, we are encouraged both by the continuing strength we are seeing in the semi packaging market as well as the increasing level of dialogue with customers, signaling a return of demand within the automotive market off the current unit levels.

All in all, as we stated previously, we remain excited as ever about mid- to long-term opportunities in front of us. The near-term growth catalysts for our business will continue to be tied to our customers' confidence in the economic outlook and demand growth. In order to support these opportunities, we are continuing to execute on our strategic initiatives, namely new product development to drive organic revenue growth and continuous operational improvement.

In addition, we continue to evaluate strategic acquisition opportunities to expand our product and technology portfolios to build upon our strengths in the areas that we believe will outperform the overall semi market. As demonstrated in our financial performance throughout 2020, we are fortunate to have a business that is well equipped to navigate times of uncertainty like those we now find ourselves in.

Looking out to 2021 and beyond, we remain excited about the opportunity to drive increased profitability and shareholder value as demand accelerates and we realize the operating leverage built into our current business model.

And I now turn the call over to Lisa to review our fourth quarter and full year financial results. Lisa?

Thank you, Michael. Starting with the fourth quarter, net revenues came in at $15.1 million, flat sequentially and decreasing 25% from the fourth quarter of fiscal 2019. Semiconductor and silicon carbide LED revenue decreased compared to the fourth quarter of fiscal 2019, primarily due to the ongoing uncertainty in the global economy from the COVID-19 virus. At September 30, 2020, our total backlog was $13.9 million compared to backlog of $15.2 million at June 30, 2020. As a reminder, backlog includes customer orders that are expected to ship within the next 12 months.

Gross margin declined in the fourth quarter of fiscal 2020, both sequentially and compared to the same prior year period, coming in at 33%. On a sequential basis, gross margin decreased, primarily due to product mix and nonrecurring expenses.

Compared to the fourth quarter of fiscal 2019, gross margin decreased primarily due to the lower revenue level and product mixed. Silicon carbide LED gross margins were negatively impacted in fiscal Q4 2020 due to a few factors: lower revenue volumes and inventory reserve relating to older product lines; and new costs associated with our capacity expansion, such as increased rent and depreciation. Independent of onetime charges, gross margin would have been in the mid-20% range. We expect a return to historical gross margin levels as customer capacity expansions drive increased revenue volume.

SG&A expense in the fourth quarter of fiscal 2020 was $5.3 million compared to $4.8 million in the preceding quarter and $6.1 million in the fourth quarter of fiscal 2019. The $0.5 million sequential increase was due primarily to payroll tax credits, the company was able to claim in fiscal Q3 2020 as part of the COVID-19 legislation passed by U.S. Congress, the CARES Act. SG&A decreased $0.9 million compared to the same prior year period, due primarily to not having our former automation segment included in our results and lower travel due to the COVID-19 pandemic.

R&D expenses were $0.9 million in the fourth quarter of fiscal 2020, flat quarter-over-quarter and $0.1 million higher compared to the fourth quarter of fiscal 2019. Operating loss for the quarter was $1.2 million compared to breakeven in the previous quarter and operating profit of $1.7 million in the same period last year.

In the fiscal fourth quarter of 2020, we recorded an income tax provision of $0.5 million compared to $0.1 million in the prior quarter and $1 million in the fiscal fourth quarter of 2019. Loss from operations net of tax for the fourth quarter of fiscal 2020 was $2 million or $0.14 per share. This compares to a loss from operations of $0.1 million or $0.01 per share for the preceding quarter, an income of $1 million or $0.07 per share in the fourth quarter of fiscal 2019.

Unrestricted cash and cash equivalents at our continuing operations at September 30, 2020, were $45.1 million compared to $46.4 million at June 30, 2020. Approximately 89% of our cash balance is held in the United States.

For the full year of fiscal 2020, revenues were $65.5 million compared to $85 million in fiscal 2019 or a 23% decrease. Gross margin declined to 37% from 39% in the prior year. Operating loss for the year was $0.5 million compared to operating income of $4.9 million in the prior year. Loss from continuing operations in fiscal 2020 net of tax was $3.9 million or $0.28 per share, which includes a loss of $2.8 million on the sale of our automation business earlier in the year. This compared to income of $3.1 million or $0.22 per share in fiscal 2019.

I would like to echo Michael's earlier thoughts. Fiscal 2020 provided us with significant challenges and disruptions, but we ended the year with essentially a breakeven operating margin and $1.7 million of cash used in operations while continuing to invest in R&D and our growth plans. I am pleased with these results, and I'm appreciative of the hard work and efforts from our Amtech team.

Turning to capital allocation, we continue to execute our capital allocation plans with the approval and oversight from our Board of Directors. We are achieving our goals in capacity expansion, product development and management information systems, readying us for the next buying cycle. This important work will carry into fiscal 2021. We expect our capital expenditures in fiscal 2021 to be at a similar level as our 2020 expenditures. We expect R&D expenditures in 2021 to increase from 2020 levels as we invest in our platforms across all businesses to maintain our competitive advantage.

We also continue to pursue strategic M&A opportunities. The COVID-19 pandemic has presented challenges on the M&A front, but it has also opened up opportunities. Historically, we have grown our business, primarily through acquisitions, including the businesses that currently comprise our 2 operating segments in the semiconductor and silicon carbide LED industries, Bruce Technologies, BTU International and PR Hoffman. These businesses have collectively provided us with over $50 million in profits in the last 5 years with substantial returns on our original investments.

While we continue to believe this inorganic growth strategy is the backbone of who Amtech is as a company, we have also employed the complementary strategy of pursuing organic growth, particularly during times when we lack sufficient capital resources to pursue growth through acquisitions. With the divestiture of Solar behind us and as the impact of COVID-19 is stabilizing within our industry and our customers, we have a renewed objective to grow our revenue and expand our operations through strategic acquisitions, while at the same time, pursuing organic growth. We are focused in driving our teams to achieve profitable organic revenue growth, while also focusing on acquisition targets that will provide for profitable growth and return on investment, both in the short term and the long term.

Now turning to our outlook. As we have discussed, we want to caution investors that we expect COVID-19 to continue to have an impact on our fiscal first quarter results. Our outlook reflects the anticipated impacts as we understand them today. However, given how fluid the situation is, both for our own business as well as that for our customers and supply chain, we would like to remind investors that actual results may differ materially in the weeks and months ahead.

For the quarter ending December 31, 2020, our first fiscal quarter, revenues are expected to be in the range of $16 million to $18 million. Gross margin for the first -- fiscal first quarter is expected to be in the mid-30% range, with operating margins slightly negative. The semiconductor equipment industry is 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 and the financial results of semiconductor manufacturers.

A portion of Amtech's results are denominated in RMBs, a Chinese currency. The outlook provided in the press release is based on an assumed exchange rate between the United States dollar and the RMB. Changes in the value of the RMB in relation to the United States dollar could cause actual results to differ from expectations.

Now let's turn the call over to the operator for questions. Operator?

(Operator Instructions) We'll take our first question from Craig Irwin with ROTH Capital Partners.

Michael, your outlook statement in the press release and then what you've said in your prepared remarks actually seems to be a little bit of an inflection. It seems to be a solid turn to the positive on the interim outlook. Can you maybe give us a little bit more color around the breadth of the conversations you're having with customers? Are we talking several fabs that could be taking product incremental deliveries over the next 12 months? Is there any specific area of the product portfolio that's likely to be a big contributor? You did call out BTU success with Pyramax, the reflow ovens, and then the TrueFlat reflow ovens. But can you maybe sketch out for us in a little bit more detail what looks like it's going to inflect upwards for you that has you turn much more constructive than you've been in a while?

Sure, sure. Definitely, we're seeing, not only just the frequency of our customer contacts, but real order momentums with our larger classified Tier 1 customers from starting with BTU and also more constructive conversations with our customers and the long-term capacity expansions just across both segments.

Our bookings are increasing. There -- our backlog is greater, but our current level of backlog, while greater than the last quarter is it's not -- it doesn't show the full picture of what our prospects look like in the interim going forward. So I'm excited, and also, when I hear more positive notes from our larger customers, whether they're in the silicon space or the silicon carbide space, that just reinforces my belief and my team's belief, along with our current level of conversations through the quoting process and also winning -- starting to win orders that we haven't seen in a while, that gives me good positivity going forward.

That's really good to hear. That's a notable change. So one of the things I wanted to ask about is the silicon carbide business, I guess, maybe the polishing business and Hoffman. The margins there and the revenue there does speak about, I guess, maybe it does kind of point to depressed activity right now, and it does kind of reflect maybe -- it definitely is progress over the prior quarter, right? Your June quarter, the margins have rebounded quite nicely versus that. But there's a lot of room for continued improvement for you to get back to where you were a year ago. Can you maybe help us with visibility about where this is likely to come from? Is this likely to come from core customers that are already doing business with you today and have done consistent business with you over the last couple of years? Or are there potentially new customers or emerging customers that are likely to carry the business activity, and therefore, the margin is higher in this segment?

So the majority of momentum for our polishing or SiC/LED segment, will come from our current core customers, right? Some of them you know. And there's also good signs of new entrants that are interested, not only in our consumables, but also our machines. However, from our conversations with our customers, in terms of trying to predict when that large capital equipment buying cycle will be, all signs still point towards like the fall of '21, right?

So actually, what the pandemic did for us is that delayed everything by one year. So starting out this time last year, we had good momentum going into our 2020 fiscal year. All the major industry forecasts were showing growth, and we were excited. And also, the buying cycle that we are expecting for silicon carbide was supposed to start gaining traction right now. But now we're seeing -- essentially, we lost a year, so everything shifted for us by one year.

The amount of -- the amount and the quality of dialogue from our silicon carbide customers, I mean, that's still there. That hasn't slowed down. We still communicate frequently with their plans, with their needs. And while they don't uncover their entire kimono, our best guess was they were also in a lull, being affected by the pandemic in 2020. And again, as I reiterated before, now the quality of the engagements is starting to be better, right? The outlook looks better. There's a lot of things that we need to do still to execute, right? We just finished moving in to expand capacity, not only in consumables but also the machines, but the dust hasn't settled on that endeavor. We're still putting in new tools in the factory, and then we're plugging away as well with incremental improvements in our products that would better address our customer demands. So I'm still very excited about the future prospects that should be coming in 2021.

Excellent. So one of the things you said in there kind of resonates with my next question. The outlook looks better. So your guidance for your fourth fiscal quarter, the December quarter, of $16 million to $18 million in revenue is actually nicely above the $15.3 million consensus number out there. It does speak to this accelerating activity that you talked about. Can you maybe describe for us, is there an individual customer or an individual order that maybe contributes to the high end of the range versus the low end of the range? How much of this is potentially at risk as far as the need for new orders? And what would you need to see to execute at the top of the range?

So where we're seeing really good recovery was where we suffered the most in '20, right? It was from the automotive-driven demand, right? Now we're starting to see more activity with automotive-related customer opportunities. That's driving our outlook across both segments. And while 2020 was definitely a challenge, we were also very pleased with the growth in our semi packaging revenue. That far outstrips everything else from a product standpoint. And for us, that is a typical leading indicator of the overall health of the semi industry.

And as well, we also announced a new order for the 300-millimeter horizontal diffusion furnace from a Tier 1 Asian power chip manufacturer. So all those signs, right, are there. And if I could pinpoint one industry that's driving that, it's the gradual return, the gradual confidence of the automotive industry.

Would you say automotive in general? Or is it potentially EVs and automotive?

It's both. It's just -- so it's automotive in general, right, but also EV itself has a factor, and I think EV itself will be more of a factor as we head later into 2021. Just from what I know, within the next 12 months, there will be at least a dozen new EV platforms released, right? They have announced to be released, at least 12.

And in 2022, the market will expect a couple hundred new EV platforms. So that wave is coming. And I think what we're seeing is, is our customers' confidence across silicon and also silicon carbide, but silicon side will come first. And then they're looking at their own demands from their end markets, and they seem to be ready, right? They're almost at the cusp of gaining that confidence to expand capacity and make investments.

Excellent. And then making investments, my last question is your CapEx this quarter, $1.8 million. That was up quite substantially over last year where you only spent roughly $200,000, or even the June quarter, $500,000. I'm guessing this might be Hoffman, but can you maybe talk us through where the CapEx money is being spent and what you're likely to spend over that course of fiscal 2021?

Sure, Craig. So you're correct. We -- as we completed our move into our new building for PR Hoffman, we also placed into service some new equipment to help build out that capacity and be ready for those expansions that are coming. So that's where the primary driver is there for that increase in CapEx. Looking forward into 2021, I expect it to be at a similar level, but more spread across our businesses and not just focused on silicon carbide/LED segment.

Excellent. Congratulations on the progress. We look forward to watching this progress continue.

Thank you, Craig.

Thank you, Craig.

(Operator Instructions) We'll take our next question from Carson Sippel with Cowen and Company.

This is Carson Sippel on for Jeff Osborne. First, can you just provide some high-level commentary around trends on power semiconductor equipment RFPs given the sharp rebound in EV demand and other power semi end markets that you just touched on?

Can you repeat that question, Carson?

Yes. So kind of going back to where you just touched on, on EVs, but can you just provide some high-level commentary around trends on the power semiconductor equipment RFPs given sharp rebound in the auto sector?

Right. So we are definitely exposed for good or bad with the automotive market, right? I believe they are the largest consumer of overall power devices and modules. So as I said earlier, we're starting to see not just a greater amount of RFQ dialogue, but that dialogue turning into -- or slowly turning into orders, right, with more in the pipeline. So it's definitely, where we stand now, our pipeline for just automotive in general is a lot healthier and robust compared to the last couple of quarters.

And then just a quick model question here. You touched on CapEx a second ago. But how should we think more generally about the general OpEx ramp from here?

OpEx, generally, I think this quarter's $5.3 million of SG&A is probably the sound number. It will fluctuate a bit depending on some of the variability with commissions and freight. But our plan is to try to keep that -- keep our SG&A as flat as we can keep it without that -- but without variability on the selling side.

This concludes today's question-and-answer session. I'd like to turn it back to management for closing remarks.

Thank you for your time today and for your interest in Amtech. This concludes today's call.

Thank you, ladies and gentlemen. You may now disconnect.