Q4 2019 Earnings Call

Good morning, and welcome to the Amtech systems fourth quarter and fiscal year 2019 conference call.

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Please note this event is being recorded.

I would now like to turn the conference over to Lisa gets Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining us for Amtech systems fourth quarter fiscal year 2019 results conference call with me on the call today, our chest weighing on tax executive Chairman and Chief Executive Officer, Michael Way, our Chief operating Officer, and Robert Hot Amtrak's Executive.

Hi, Chris.

Before the opening of trading today AMETEK released its financial results for the fourth quarter fiscal year ended Septemberthirty 2019, <unk> earnings release will be posted on the company's website at amtech systems Dot com.

During today's call management will make forward looking statements all such forward looking statements are based on information available to us as at the state and we assume no obligation to update any such forward looking statements.

These statements are not guarantee of future performance and actual results could differ materially current expectation.

On the important factors, which could cause actual results to differ materially from those in the forward looking statements.

Our changes in the technologies used by our customers and competitors change and volatility and the demand for our products.

The effective changing world wide political and economic conditions, including trade sanction.

The effect of overall market condition, including the equity and credit markets and market acceptance risks and our capital allocation plan.

There are risks 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 Robert Hot Executive Vice President to discuss discontinued operation.

Thank you Lisa and good morning.

As announced in our press release, we have entered into a management BYOD agreement with certain key management members of our two D or automation division in France. We've disclosed previously that we were evaluating how and whether or to the would fit into our our semi strategies.

Careful consideration, we determined that the disposition of ore to the is best ramped to its shareholders and employees and customers or Judy.

We expect recognize a loss on deposition disposition of or to be in fiscal Q1 2020.

Proximately $3 million.

We also continue our focus in efforts to divest tempers, our solar division in the Netherlands, and our advisors or in the final stages of the project.

The parties, who have emerged as potential buyers will require a cash infusion for mantech.

We're considering together with other deal terms, which are under negotiation.

We were hoping to announce a conclusion my calendar year end.

We remain confident these divestitures are the right decision for amtech, and our shareholders, allowing us to devote resources and investments to or unprofitable I mean tour profitable semiconductor and fast growing as I see leidy segments I will now turn the call over to jail.

Hi.

Executive Chairman and Chief Executive Officer, Yes.

Thank you Robert.

Thank you for joining our quarter this morning.

Yes, Oh, what intense airports to disposal.

Our solo business continues.

Moving forward.

What's the semi strategy.

Focusing our efforts and resources.

Our semiconductor and.

Silicon carbide.

Business and.

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Why at this time.

Ongoing macroeconomic issues previously.

On the line no income.

Cool Drybulk solved.

Our targeted markets.

40 intact.

You will fall.

As we begin our fiscal 2020.

We look to prudently.

Investing in Fourq.

Randy and.

New product development.

HM.

Oh offerings and accelerate our crew.

The emerging.

She industry.

And on the speedy recovery marketplace ensuring.

We are well positioned to so.

Our market leading customers.

When the semi industry tons around.

We are focused on.

Our plan to grow our business.

And have a dependable.

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As a semi industry recovers.

What's the semi business.

So sort of up business.

Good to be behind go balls.

We went.

Once if indeed, we also believe the growth industry, we saw office AWS.

Excellent acquisition.

Bomb and.

And we are confident that.

There would it be.

Opportunity in the coming news that.

Contribute to our cool.

And Profitabilities.

We are committed to profitable growth and.

We believe.

We had one exciting future.

They can provide increased value for our shareholders.

For the coming years.

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Besting the solar business and.

Getting behind the AWS kids.

A very important task force.

I wouldn't know tone decor too.

Mike or when all while she will fall.

To discuss all while continuing operations Mike.

Thank you Jay Us and good morning.

Although the semiconductor manufacturing environment has been soft our fourth quarter benefited from favorable product mix at BG, you and a strong mix of machine shipments a PR Hoffman.

Even with these positives in the fourth quarter, we still expect near term revenue to be adversely impacted by the ongoing paraffin environment and the continued economic and trade issues facing the industry.

The exact timing of a meaningful upturn in the market demand remains on certain although we believe the second half of 2020, well see growth return in the industry, especially will then silicon carbide devices.

And preparing for this significant opportunity and long term growth potential we are making select investments to expand and upgrade.

Our product offerings, our manufacturing facilities and I T systems to strengthen our position and prepare us to meet you expected upturn in demand.

As Jay as discussed we have developed a strategic plan to profitably grow as a semi industry recovers in the second half of 2020.

Currently and what the recovery, we had to following areas of focus.

Emerging opportunities in the S I see industry.

We are well positioned to take part in the significant growth area. We are working closely with our customers understand there that's how I see growth plans and opportunities.

We are investing in our capacity next generation product development and investing in our people.

We believe these investments investments.

Helped fuel our growth in the S I see industry.

Secondly, a 300 millimeter silicon horizontal thermal reactor we.

We have a highly successful and proven 300 millimeter solution for drawing power semiconductor applications. We have a strong foundation were the key customer and in the second half of fiscal 2019, we announced an order for another industry leading manufacturer.

We believe we have a strong opportunity to expand our customer base and future revenue growth in this area.

Lastly, as a major revenue contributor, beating you will continue to track the semi industry cycles for our semi packaging SMC products, we believe that through investments in product innovation became who has an opportunity to grow further.

Our long term outlook remains positive and that we see significant opportunities as customer shift from silicon to silicon carbide solutions for multiple next generation application.

The ship represents an exciting growth opportunity area, where we are all very well positioned.

We are confident that the long term outlook is compelling.

Demand for advanced power chips is expected to intensify year over year and now I'll turn the call to Lisa to review the fourth quarter in fiscal year financial results.

Thank you Michael net revenue for the fourth quarter fiscal 2019 was $20.2 million compared to $21 million in the preceding quarter and $23.1 million in the fourth quarter fiscal 2018.

Sequentially semiconductor revenue decreased by approximately $1.1 million and silicon carbide LNG de revenue increased by approximately $1.3 million compared to prior year semi net revenue decreased by approximately $4 million and silicon carbide Levy revenue increased by approximately 1.3 million dollar.

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And our semiconductor segment, we continue to see weaker demand primarily due to the economic conditions, resulting from the trade dispute.

Increase in revenue in our Silicon carbide LCV segment, both sequentially and compared to prior year was primarily due to the timing of machine shipments.

At September Thirtyth 2019, our total backlog was $17.3 million compared to total backlog of $17.2 million at June Thirtyth 2019.

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

Gross margin in the fourth quarter of fiscal 2019 was 42% compared to 37% in a preceding quarter and 36% in the fourth quarter of fiscal 2018.

Sequentially and compared to prior year gross margins increased primarily due to favorable product mix, most notably increased sales of parts and upgrade.

Selling general and administrative expense our S. DNA in the fourth quarter fiscal 2019 was $6.1 million compared to $5.7 million in the preceding quarter and $6.2 million in the fourth quarter fiscal 2018.

Sequentially SGN, they increased due primarily to increased employee related expenses.

Looking at income tax on a full year basis, we had a provision for fiscal 2019 for both continuing and discontinued operations at $1.4 million compared to point $2 million in fiscal 2018.

The provision for fiscal 2019 represents taxes, primarily in our foreign jurisdictions, we were able to oxide our U.S. federal income taxes due with the tax benefit received from the sale affiliate <unk>.

The lower tax provision in fiscal 2018 was primarily due to the resolution of an uncertain tax position.

Income from continuing operations net of tax for the fourth quarter fiscal 2019 was $1 million or seven cents per share. This is compared to a loss of $1.1 million or eight cents per share for the fourth quarter fiscal 2018, which included a goodwill impairment charge of $2.2 million and our automation segment.

An income of point $9 million or 66 cents per share the preceding quarter.

Turning to cash unrestricted cash and cash equivalents at our continuing operations at September Thirtyth, 2019 were $53 million compared to $45.9 million at September Thirtyth 2018.

As of September Thirtyth, 2019, approximately 21% of our unrestricted cash and cash equivalents at our continue operations was held outside the United States, mostly in China.

I would like to briefly discuss our capital allocation plan to drive profitable growth.

One key priority is to continue to invest organically SGS and Mike will discuss in product development our facilities people in IP systems.

We're pleased with the outlet for our product portfolio and new product development as we continue to collaborate with our customers with the objective to be very well positioned to participate in the next buying cycle.

We anticipate the required investments to achieve our profitable revenue growth targets will be in the range of $6 million to $8 million in research and development and capital expenditures per year.

Another key priority in our capital allocation plan is to continue to pursue a strategic M&A opportunities.

Elective acquisitions at the right price to enhance our technologies product portfolio and capabilities to build upon our strengths in the high growth areas and semi and silicon carbide.

We have the skill set and track record to identify strong acquisition targets and the semi and silicon carbide growth environment and to execute transactions and integrations to provide for accretive profitable growth in both the short term and the long term.

Let's see about priorities have been Matt we will evaluate the returning capital to shareholders as we have done in the past.

Now turning tip to our outlet for the quarter ending December 31st 2019, the company expects further softness due to countries continue trade tension and the semiconductor equipment industry down cycle, we expect revenue to be in the range as $16 million to $18 million and gross margin is expected to be in the mid to upper.

30% range with operating margin breakeven to slightly positive.

Again, the outlook assumes continued weakness in demand given the soft business conditions due to the ongoing trade dispute and excludes the impact if any potential restructuring actions.

The semiconductor equipment industry, it 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 and the financial results a semiconductor manufacturers.

A portion of and fixed results are denominated in RMBS.

Yeah, let provided US press release is based on assumed exchange rate between the United States dollar and the R&D.

Changes in the value of the R&D 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.

We will now begin the question and answer session.

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At this time, we will pause momentarily to assemble our roster.

And our first question comes from Jeff Osborne of Cowen and company. Please go ahead.

Hey, good morning, everyone. A couple of questions on my end I'm on on the our to TD Archie de side can you.

Can you give us any more detail on sort of what the historic revenue run rate was it that division just as we think about that possibly going away.

On an annual basis it has been since the solar downturn.

Clear on that since the downturn downturn the solar industry. The annual revenue rate in our Judy has been tuna have to $4 million.

Got it that's helpful. Robert and then if I heard you right I think at least those comments you took a 2.2 million impairment on that.

Yes that was at the end of last year last fiscal year.

Okay.

And then.

I think also Robert made reference to Tempress and the sale by year end, what what confused me was the I think there was referenced a cash infusion.

To the buyer is there any way to bracket you know how much cash you're willing to.

To to land I assume to the buyer or how the mechanics of that would work.

No I won't comment on that other than to say that.

In the script and in the financial statements. We show how much cash is in the continuing operations and that's what you should focus on the cash in the discontinued operations is in the assets held for sale.

Okay got it.

Yeah that's helpful.

How about on the a this strategic plan I'm that you shared and different speaker's remarks, but.

In terms of the 60 million for R&D in Capex leases are way to think about you know how much that is in opex versus capex.

Sure I would expect it's helped more heavily weighted towards R&D, probably you know in that two thirds range of what I gave.

Got it.

And I assume.

Robert on the Opex for our two D. is it was that meaningful as well or can you give us a sense of what the head count was for the unit in France.

So the the contribution to profit and loss has not been significant.

Scott is the number of employees.

It's around 35.

Okay. That's helpful. Maybe just the last one there was a lot of moving pieces lease on tax can you talk about what we should expect for this fiscal year.

Sure understandable I, we <unk>, we do expect to.

Achieve a tax benefit us through the divestiture of our two d. and through Tempress kind of like like what we did with Solaytec and so I think that will realize that benefit through this fiscal year and then after these divestitures yeah, we would expect the tax rate to resume to a normal range.

Great. That's all I had thank you.

Thank you Jeff.

Again, if you would like to ask your question. Please press Star then one.

Seeing no further questions. This will conclude our question and answer session I would like to turn the conference back over to Lisa Gibbs for any closing remarks.

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

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.