Amtech Systems Inc (ASYS) 2022 Q4 法說會逐字稿

Good day, and welcome to the Amtech Systems Fiscal Quarter and Fiscal Year 2022 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.

Good afternoon, and thank you for joining us for Amtech Systems' Fiscal Fourth Quarter and Full Year 2022 Conference Call. With me on the call today are Michael Whang, Chief Executive Officer; Lisa Gibbs, Chief Financial Officer; and Paul Lancaster, Vice President of Sales and Customer Service.

After close of market today, Amtech released its financial results for the fiscal fourth quarter and full year of 2022. The earnings release is posted on the company's website at www.amtechsystems.com in the Investors section.

Before we begin, I'd like to remind everyone that the safe harbor disclaimer in our public filings covers this call and our webcast. Some of the comments to be made during today's call will contain forward-looking statements and assumptions that are subject to risks and uncertainties, including, but not limited to, those contained in our SEC filings, all of which are posted within the Investor section of our corporate website. The company assumes no obligation to update any such forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of today. These statements are not a guarantee of future performance, and actual results may 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 technologies used by customers and competitors; change in volatility and the demand for products; the effect of changing worldwide political and economic conditions, including trade sections; the effect of overall market conditions, including the equity and credit markets and market acceptance risks; ongoing logistics, supply chain and labor challenges; 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 and everyone, for joining us today. Fiscal year '22 was a strong year for Amtech with over $114 million in bookings, $106 million in revenue and $51 million in backlog exiting the year. To place this in perspective, despite challenges during the year, including the Shanghai lockdown in fiscal Q3, revenue for the year grew 25% with backlog continuing to grow. Driving our backlog growth is a strengthening and diversification of EV-related demand across multiple product lines, primarily for our U.S. operations.

Q4 revenue was $32 million, up 33% year-over-year as we were able to service much of the advanced packaging and SMT demand built up during the Shanghai lockdown in Q3. Overall, we remain excited about the long-term opportunities across all of our businesses.

Within the semi business unit, following nearly 9 straight quarters of strong demand for our advanced packaging products, we have begun to see softening in new orders as customers digest existing capacity and evaluate capital spending projects in light of the changing market conditions. In addition, in high-volume SMT applications, we are seeing a shift in global strategy as our customers look to mitigate multifaceted risks. While this is causing delays and disruptions to order flow for now, we feel this redistribution of the customer base will present a great opportunity in the near future.

Also within the semi business unit, we have seen meaningful increases in demand for our high temperature-built furnaces, driven by multiple high-volume applications serving the EV market. These applications include thermal processing of EV sensors, battery cooling assemblies and power module substrates among others.

In the materials and substrate business unit, we continue to see strong demand for our consumable products, driven by the ramp in silicon carbide wafer capacity. As we have said in the past, this will be a multiyear capacity expansion cycle as individual customers ramp wafer capacity then digest then ramp again. As evidence of this, in the December quarter, we are seeing a stabilization of consumable demand, while existing wafer capacity is fully utilized and would expect to see a subsequent step-up in demand as the next phase of wafer capacity expansions are brought online.

In summary, while we are dealing with material disruption in customer demand, we are confident that our strategy to align our divisions to high-growth megatrend markets such as EV is taking hold. In fiscal year 2022, we saw a fourfold increase in bookings related to EV applications with participation expanded to multiple product lines across all of our business units. We believe this strategic alignment to megatrend growth at multiple intersection points creates a strong and more durable foundation for value creation in the coming years.

As we look ahead, we are confident we are well positioned in the growth markets with exposure to several secular tailwinds creates a significant opportunity to drive increased profitability and shareholder value as demand accelerates and we realize the operating leverage built into our current business model. I will now turn over the call to Paul Lancaster.

Thank you, Michael. Expanding further on the demand environment with our advanced packaging and SMT products, we continue to see healthy mid- to long-term interest. However, we have seen near-term softening given both the cyclical nature of the industry and macro semiconductor headwinds. Offsetting this, as Michael mentioned, we are seeing strong growth in products with exposure to electric vehicle applications. For example, last quarter, we received an initial $8 million order for our high-temp belt furnaces, growing backlog for these products to approximately 50% of the company's total.

Within the silicon carbide market, which at this stage is primarily focused on EV, we continue to see increases in consumable demand as our customers execute on their capacity expansion plans. As evidence of this, in the fourth fiscal quarter, we saw a 120% year-over-year revenue growth for these products. It is important to remember though that going forward, this will be a multiyear expansion effort and the pace of capacity additions is often longer than that of traditional silicon.

Taken together, the demand for these products, namely high-temp belt furnaces and silicon carbide consumables, remains very robust. At this stage, limiting our ability to readily service this demand is a combination of supply chain constraints and internal capacity. As these products are predominantly manufactured in the U.S., we are executing to further expand our manufacturing capacity and strengthen our supply chain to reduce lead times and risk.

While we are still early in the process, we are urgently moving forward to ensure we have the appropriate scale, capability and resiliency to more quickly convert backlog to revenue and capture the opportunity ahead.

I'll now turn the call over to Lisa.

Thank you, Paul. Net revenues increased 62% sequentially and 33% from the fourth quarter of fiscal 2021, with the sequential increase primarily attributable to increased shipments of our advanced packaging equipment and increases in polishing equipment and consumables.

As a reminder, during the third quarter of fiscal 2022, our Shanghai facility was closed for approximately 2 months due to the government-mandated closure relating to its COVID policies. The increase in net revenues from the fourth quarter of fiscal 2021 was primarily a result of increased shipments across all of our product lines.

[Gross margin] increased sequentially and from the fourth quarter of fiscal 2021 due primarily to increased utilization at all of our locations, partially offset by increasing material costs, primarily in our semiconductor segment.

Selling, general and administrative expenses increased $0.1 million on a sequential basis and $0.7 million compared to the prior year period. The increase from the fourth quarter of fiscal 2021 primarily relates to the timing of external and internal audit fees.

Research, development and engineering decreased $0.3 million sequentially and was relatively flat compared to the same prior year period. Operating income was $3.9 million compared to operating income of $9.6 million in the third quarter of fiscal 2022 and operating income of $1.3 million in the same prior year period.

Income tax provision was $0.6 million for the 3 months ended September 30, 2022, compared to a provision of $20,000 in the prior quarter and $0.7 million in the same prior year period.

Net income for the fourth quarter of fiscal 2022 was $4.2 million or $0.30 per share. This compares to net income of $10.2 million or $0.73 per share for the preceding quarter and net income of $0.7 million or $0.05 per share for the fourth quarter of fiscal 2021. Unrestricted cash and cash equivalents at September 30, 2022, were $46.9 million compared to $47.7 million at June 30, 2022. Approximately 84% of our cash balance is held in the United States.

As we conclude our 2022 fiscal year, we are pleased with our annual results of $106 million in revenue, an increase of 25% from fiscal 2021 and net income of $17.4 million or $1.22 per diluted share. The $12.5 million gain from the sale of our building in Massachusetts was an added benefit to our fiscal year 2022 results and resulted in a net cash inflow of approximately $14.9 million.

Looking ahead into our fiscal '23, we will continue to focus on our growth strategy, which includes product development to drive organic growth and pursuing strategic M&A opportunities. We are also evaluating capacity and labor investments to strengthen our capabilities and to ensure our readiness for the growth we see ahead in EV-related products and services across all of our business units and to help us accelerate the servicing of our backlog. Another key consideration for our capacity investments is mitigating business continuity risk.

Now turning to our outlook. As Paul discussed, supply chain constraints and disruptions in our U.S. business are impacting our near-term results, as is the softness in SMT and advanced packaging. For the quarter ending December 31, 2022, our fiscal first quarter, revenues are expected to be in the range of $21 million to $23 million with operating margin negative. The company's outlook reflects the ongoing logistical impacts and the related delays for goods shipped to and from China as well as the supply chain delays we are experiencing in our U.S. operations.

Actual results may differ materially in the weeks and months ahead. Additionally, the semiconductor equipment industries can be cyclical and inherently impacted by changes in market demand. Our 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 is denominated in RMBs, a Chinese currency. The outlook provided 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 I will turn the call over to the operator for questions. Operator?

(Operator Instructions) And our first question comes from the line of Craig Irwin with ROTH Capital.

So the first question I wanted to ask is about the $8 million order in the quarter. I believe you said it was for a belt furnace. Is this for an individual unit or multiple units? Can you maybe share whether or not this is to service a single site? And can you clarify for us if this is for a silicon or a silicon carbide fab application?

Craig, thanks for joining us. I'm going to have Paul answer that question and give you some additional details on that specific order.

Craig, this is for multiple units. These are our controlled atmosphere furnaces built out of our Billerica facility in Massachusetts. They are going to a single site factory located in Asia for -- it's a direct bond copper application used for making components directly related to electric vehicle electrification applications.

Okay. Excellent. Excellent. So this is -- it sounds like it's sort of downstream in the packaging market. Is that fair, sort of, for the module assembly?

Exactly.

To understand sort of where -- okay, okay. My next question is really about this supply chain issue in the United States, right? You guys are a little bit off cycle, so this is very informative for all the investors that follow this industry and are obviously listening carefully to what you say because we know that you manage the company very well.

Can you maybe give us a little bit more color on which components are seeing scarcity right now? And whether or not this has changed dramatically in the last couple of months or if this is sort of continuity, deterioration, improvement? Any color here that you could share would be useful.

Craig, I can take that one. So this is more of a continuation of the challenges that we've seen at the onset of COVID. As you know, there are shortages across the board amongst our peers and customers in electronics, especially at chips, as silly as that sounds, motors, drive units and even sheet metal. The volatility that we've seen in our supply chain pre-COVID is real. And as we try to shift away from that volatility source, we're also finding out that the new areas that we're looking into to shore up and strengthen our supply chain is not at a position that's comparable to, say, Asia, right?

I would say that it is -- overall, it is stabilizing. It's getting better as we navigate through different supplier options. And also based on the current macro disruptions logistically, geopolitically, it's imperative that we diversify away from our traditional supply chain base and strengthen that area. That's very key to servicing very quickly the growing backlog that we have. That, to my eyes, is not sustainable, and we are taking rapid steps at the moment to diversify and strengthen our supply chain.

Understood. That makes a lot of sense. Coming to the silicon carbide consumables, that's exciting growth to see that growing more than 100%. Can you maybe share with us a little bit more color? The market leaders are all looking for a multifold growth off of where they were last year, and things have been lagging for many of the producers.

Can you share whether or not this more than 100% growth you saw was dollar volume for Amtech? And whether or not it correlates to the numbers of square inch of wafers processed? Or if given the anticipated move to 8-inch wafers and some of the other changes in the market are causing sort of the opportunity per square inch to be slightly different for 8-inch versus 6-inch or 6-inch today versus what 6-inch was a year ago, 2 years ago?

Craig, this is Paul. I'll try to give you a little color there. To answer your first question, yes, that was revenue growth year-over-year. And it is -- we don't -- we can't go into great detail on sort of the configuration of our consumables because it's confidential, obviously. But it is tracking pretty well.

As we said previously, there's always been a lot of talk about expansions on the fab side as it relates to silicon carbide. But what we're seeing today is wafer capacity is starting to finally expand, and we're seeing this growth because of those public announcements where they are adding capacity on the wafering side, and that's the areas where our consumables are used.

We've said in the past that as they expand, we will see an increase and sort of a plateau. And then as they expand again, we'll see another step-level increase as well. So we anticipate this to continue. It's hard to speculate at what rate because a lot of these leaders are very, let's say, closed in terms of providing forecast and plans. But overall, the demand environment is very favorable. Obviously, it sounds like the demand will outstrip supply for the remainder of this decade. So we're well positioned. And as Lisa mentioned, we are continuing to invest in capacity. As Michael mentioned, the supply chain is being fortified to be sure that we're ready to service that and ramp when it does continue to happen.

And Craig, I will add.

One last -- sure. Sorry.

This is Mike. I will add, predominantly, the consumables are still on 6-inch.

That is exactly what I wanted to ask. So 8-inch is not yet material, and that's an opportunity for...

No, it is not material.

Is that fair?

Yes, that's fair. We are sampling 8-inch, but it's not anywhere near volume levels. So to my eyes, it's still like pilot line evaluation.

Understood. Understood. Congratulations on a well-executed quarter. We do understand supply chains are challenging for everyone, and look forward to that being resolved for you and the upward trajectory continuing the path you rode last year.

Thank you, Craig.

Thank you, Craig.

(Operator Instructions) Our next question comes from the line of Mark Miller with the Benchmark Company.

Let me add my congratulations on the strong quarter. Getting back to the $8 million order you just announced, what are the shipments are they going to be throughout fiscal '23 or the first half of the year?

I think it's -- we indicated in the press release, it's more the back half of our fiscal '23, Mark.

Okay. You're talking about changing customer base. Is that just more -- can I interpret that meaning you're just seeing growth in terms of the consumables versus other areas like AP?

Mark, this is Paul Lancaster. Yes, we indicated that there is a softness right now in our advanced packaging. And again, we did see some significant growth year-over-year on the consumables. But additionally, we saw some significant growth in the belt furnaces, the configured belt furnaces that are built out of our U.S. factory at our BTU division. A lot of that's being driven with end markets related to electric vehicle applications.

Mark, this is Mike. I will also add that there is a portion of our business right now that ebbs and flows with the broader semiconductor market, right? But what gives me great comfort and excitement is that a greater portion of our business, as evidenced by that recent order and approximately half of our backlog, is related to EV applications. We have more order flow, more demand in megatrend growth areas that could smooth out and counter the natural cyclicality in the semiconductor market.

Can you break out in terms of belt furnaces, what impact they were? What percentage of sales they were last quarter?

Unfortunately, we do not provide that breakout. I know it would be nice to have, but we've not provided that publicly, Mark.

Okay. Just one more. Any impact on the U.S. restrictions? I don't believe there should be an impact, but just won't have to -- is that -- with the new U.S. restriction, have they had any impact on your customers? That's more advanced logic and memory, I know that.

Yes, absolutely right, Mark. So far, there has been no to minimal impacts for us. The market segments we serve are not restricted from the current U.S. government restrictions.

Our next question comes from the line of Kevin Garrigan with WestPark Capital.

Let me echo my congrats on the strong execution. Just a few questions on my end. To start, this is a multipart question. You booked a large repeat order. You increased bookings related to EV by 4x. Electric vehicles are becoming increasingly significant. Can you kind of give us a sense of the dollar opportunity for Amtech when it comes to electric vehicles over the next few years? And has this number changed since last year 2020? And would you say that we're still full steam ahead? Or do you think you might see something slow next year?

Well, so Lisa is looking at me with a stern eye. So what I can say is there is sufficient momentum in EV growth that occurred in the last fiscal year, which, in the beginning, it was a nice surprise, but then it became more than a trend, right? And what we anticipate is going forward is that we will continue to capture more EV-related orders outside of our traditional materials and substrate business units. And this is very exciting, very heartening for us that across all of our business units now, they are fully participating in the EV demand growth cycle.

Okay. Got it. That makes a lot of sense. And then, Lisa, you've had a solid cash position. Can you kind of give us a sense of what your focus is in terms of capital allocation?

Sure. As we've talked about the challenges that we're facing in capacity and supply chain, we're looking very closely at what we need to do to build that up. So when I talk about capacity, that can range from finding some contract manufacturing partners to help us work that backlog as well as some possible shift additions into our current workforce so that we can start to bring that backlog down in a more meaningful, faster way. So that's part of it.

We've talked about product development, and we're going to have some exciting products on the horizon in the next year. And then M&A, it continues to be something that we're very focused and interested in. We'll see if this current environment might present better opportunities than we saw during some of the peak cycles. So all of that is very much on our radar. And then as we've done in the past, as we work through those priorities, we'll look at buybacks and other ways to return capital to our shareholders.

Okay. Perfect. And then just the last one. We just spoke about electric vehicles. As you look out to 2023, just at a high level, what are kind of the 1 or 2 opportunities that are -- that get you guys most excited about next year? And then what are the 1 or 2 things that you're most worried about or that keep you up at night?

I'll take the first swing at that. So what keeps me up at night is the continued uncertainty and volatility that we're all facing, especially around trade sanctions, logistical flows and supply chain. And I've made this comment earlier that -- so what we -- what we've all experienced since 2020 is that we built a very nice fair-weather global supply chain that couldn't stand up to the rigors of the current volatilities and the storms that we're facing.

And we're just now, I think, starting to adapt, but that adaptation takes time because we invested just globally. So much of our investments in the supply chain was in 1 geographic area. And now we need to kind of mitigate the risks around that system, right? So that's what keeps me up at night more than anything else. It's this ongoing supply chain and logistical issues.

What I'm excited about is -- are 2 parts. It fits under 1 narrative right now is that we have firmly latched on to the growth opportunities in electric vehicles, the vehicles themselves and the broader infrastructure. And unlike prior years where we only had 1 business unit participate, our materials and substrate, now that has swung across to our other business unit, and that's very exciting. So we have a play on the material side with silicon carbide for the EV growth. And then we also have a play more downstream in the assemblies and modules from our belt furnaces made in the U.S. And I do anticipate that to grow in the coming years.

Okay. Perfect. That's awesome. Yes, that was all I had. Appreciate the color, and congrats again.

Thank you, Kevin.

Thank you, Kevin.

And it looks like we have one more question from Mark Miller with The Benchmark Company.

Just wondering about the guidance. You had similar revenues in the June quarter of 2021, yet you had -- it looks like an operating profit. I'm just wondering what's different? Is it margins or OpEx? What's causing you to forecast operating -- a negative operating margin?

A lot of it is product mix. So right now, the softness that we're seeing in our advanced packaging and SMT, which is our products that ship out of our Shanghai facility, that's where we're having the most softness in our bookings. So we're relying more heavily on our U.S.-built products, which have a lower gross margin profile to product mix. We are seeing some material cost increases as well, which we're doing our best to counteract with some levels of price increases. We're trying to hold OpEx as steady as we can, but labor certainly is driving some increases as well.

And we have reached the end of our question-and-answer session. And this also concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.