Q3 2020 Amtech Systems Inc Earnings Call

Please standby.

Good day and welcome to the Amtech systems, just schools third quarter 2020 conference call.

Please note. This event is being recorded I would now let's turn the conference over to Erica Mannion of Sapphire Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us for Amtech systems financial third quarter Conference call with me today on the call Michael Wang Chief Executive Officer, and we should get Chief Financial Officer.

After the close of market today Amtech released its financial results from third quarter fiscal 2020.

That earnings relationships posted on the company's website.

Yeah, I'm checks dot com.

During today's call management will make forward looking statements all such forward looking statements are based on information available added 50 in the company assumes no obligation to update any forward looking statements.

These statements are not a guarantee of future <unk> future performance in actual results could differ materially from current expectations.

Among the important factors that could cause actual results could differ materially from those are the forward looking statements or changes in the technology huge by customers in competitors.

Changing volatility on 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 in credit markets and market acceptance Russ capital allocation plans and the worldwide to cope with 19.

Pandemic.

Although it was risk factors are detailed in the company does he see filings included in form 10-K and forms 10-Q.

I will now I'll turn the call over the Michael Wang Chief Executive Officer.

Thank you go Oh, we sort of reviews, our third quarter results I'll like to provide an update in our business for <unk>.

Downturn critical RV global had done.

I'm pleased to report that all of our global body soccer solving surveyed open.

Thanks to that there wasn't a first of all supply chain team and I thought from partners.

Core salt minimal disruption for business.

<unk> impact of a pandemic such in your script challenges, but given the risks uncertainties surrounding potential or circumstances.

We remain vigilant.

React quickly additions.

Discover.

Shifting to end markets, we have completed the soonest stronger demand from those geography.

Her first impact as part of pandemic, namely in the Asia Pacific region.

But this one we're getting to see demand alike.

Okay. That's closer for example, those customers with a heavy exposure will be automotive industries are taking a more cautious approach to capital expansion initiatives.

Evaluates the true level at market demands in the coming quarters.

Mostly those costs workforce tend to have higher exposure to facile design cycle industries, such as consumer electronics or continuing to execute on plans for next generation products.

It's worth, noting however, even because customers aren't moving more cautious unusual as they evaluate the overall economic environment.

As a world shifts to focus to the timing of slow public potential economic recovery. We think that's important to provide investors back up demand drivers translates into August four products well then the power suddenly market for example event for our products as closely tied to the capacity expansion initiatives.

Customers place water is a few quarters ahead or maybe your capacity online.

Historically some of its customers happened cautious.

Please go ahead of realized increases.

The market demand that as such the current environment no that spectrum to remain cautious until there's greater visibility on a global economic outlook into there.

Our strong industry position remain close to your along with our customers.

I believe extraction plans are about or whether or not.

Well, then the silicon carbide power market demand for our products jobs for bulk equipment sales ahead of us fashion, that's rolled out consumables, what's our purpose as needed on a recurring basis.

Literally equipment somewhat to the power some of the market hallmark customers have historically been cautious.

Capacity ahead of market demand and the deficit as it relates to new products. There are certainly I call. The qualification cycle walk to one year before volume shipments began.

Our consumable parts, given our leading market share.

Welcome to bad tends to align with industry growth in wafer starts.

Well that said, we are starting to see green shoots activity that provide some momentum and growth support for power semiconductors. As an example, today, we announced a follow on order for Cemig comply fully automated high town.

On the millimeter he was a furnace well talk to your power southern customer not only does this order for her validate our market leadership.

Listen the 300 millimeter horizontal furnaces.

It also demonstrates the robustness of the long term growth drivers for power some devices and their willingness of customers to expand capacity to serve the broad market.

The increase in number of automotive manufacturers announcing plans for electric vehicle platforms in the years ahead.

Demand drivers such as Fiveg telecom market and automation I O C industrial market the back into a power centers opportunity, including the silicon carbide positive IFE system, both for the market as a whole and that's well less a product specifically.

James large.

While we remain excited as ever about them, but the long term opportunities the former plus the near term growth catalyst for our business lucky to be tied to our customers' confidence in the economic outlook and demand growth. Given this dynamic we feel fortunate to have a business that as well equipped to navigate times of assortment to like those we find ourselves.

Yes.

Now as we demonstrate third quarter, despite a 20% year over year a decrease in revenue, we again delivered gross margins and the high Thirtys will that nominal that loss.

The stability of these results and part comes from our diversified exposure across the suddenly industries manufacturing Shane as follows our well recognized brands distinguished technologies and best in class service capabilities.

Market, leading position in each of our end markets. This full back decades, we are in a strong position of having a solid foundation or what's your operator up business, while we wait for the flux enough which for growth drivers.

We are also contributing to take advantage of this car market environment by making the necessary investments to support our customers and capture the broker ahead.

In the third quarter. For example, we participated in to some extent of west workforce that which provided us an opportunity to stay engaged with their customers I showcase our getting that innovation in the power center, we have silicon carbide markets.

The whirlpools virtual we're pivoting within our own organization to ensure we remain aligned with the needs of our customers.

We likewise remain committed to our strategic initiatives, namely new product development to drive organic revenue growth and continuous operational improvement.

Recently, we continue to evaluate strategic acquisition opportunities to expand our products.

Project portfolios and build upon our strikes me areas that we believe will outgrow the overall 70 markets, where the actions. We're taking we believe there can emerge from these uncertain times in a position to outgrow the market.

Increased operating leverage the drive higher profits and maximize shareholder value in the years ahead.

The dollar to the although the lead sets or New York third quarter for that for results.

Thank you Michael net revenues increased 5% sequentially and decreased 20% kind of third quarter fiscal 2000 $19 million to $15.2 million.

Semiconductor and Silicon carbide L. easy revenue in fiscal Q3, 2020 increase sequentially due primarily to our same type facility returning to normal operations. After the extended Chinese new year in fiscal Q2, an increase consumable and machine shipments in our silicon carbide Leidy segment.

Conductor Silicon carbide leaky revenue decreased compared to the third quarter fiscal 2019.

Primarily due to global coping 19 impacts our customers.

At June Thirtyth 2020, our total backlog with $15.2 million compared to backlog of $19.6 million at March 31st 2020.

As a reminder, backlog includes customer orders that are expected to set within the next 12 months.

Gross margin increased and the third quarter fiscal 2020, both sequentially and compared to the the same prior year period, primarily due to favorable product mix.

Selling general and administrative expense or SGN aim in a third quarter fiscal 20, $24.8 million compared to $5.4 million and the preceding quarter and $5.7 million in a third quarter fiscal 2019.

Sequentially I see any decrease due primarily to payroll tax credits the company was able to clean as part of the Cobank team legislation passed by U.S. Congress the carriers that.

As to any decrease compared to the same prior year period, due primarily to the payroll tax credit not having our former automation segment included in our results and lower traveled due to the public thinking 10 Tonight.

Relocation in R&D expenses for our Silicon carbide L.C.D. segments that were expected in the quarter shifted into the fourth fourth quarter fiscal 2020, due to shut downs and delays, resulting from the cobot 19 pandemic.

Additionally, we evaluated staffing levels and cost structure that all of our locations and made staff reductions that are Massachusetts operations, resulting in restructuring charges of approximately $200000.

Operating results were breakeven primarily from lower SDN and the corner.

Parents, an operating loss of $1 million, a second quarter fiscal 20 $21.4 million operating income in the same prior year period.

Looking at income tax expense on a year to date basis, we had a provision for the nine months ending June Thirtyth 20, $25.3 million compared to $1.6 million and the same carried at fiscal 2019.

The provision for fiscal 2020 represents taxes, primarily in our foreign jurisdiction.

We were able to offset our U.S. federal income taxes due with the tax benefit received from our divestitures.

Loss from operations net of tax for the third quarter fiscal 20 $21.1 million or what effect per share it's compared to income from operations <unk> point $9 million or six cents per share the third quarter fiscal 2019, unlock that point $5 million or four cents per share in the preceding quarter.

Unrestricted cash and cash equivalents at our continued operation at June Thirtyth 2020.

Were $46.4 million compared to $49.3 million at March 31st 2020 Twain.

On June Thirtyth, 2020, approximately 11% of our unrestricted cash and cash equivalents, which held outside the United States, mostly in China.

We continue to review our capital allocation plans to drive profitable growth year to date for fiscal 2020, we have invested approximately 2.4 million in R&D and approximately $900000 and capital expenditures.

In light as it could be 19 challenges we are scrutinizing, our planned investments and have reviewed budget.

Hi, assumptions and timelines.

We will continue to invest in our business to support and fuel our future growth.

Just like some of our R&D spending less shipped into fiscal 2021 due to supply chain disruptions relating to Cook 19.

We do expect substantially higher Capex in Q4 actually placed previously purchased equipment for Silicon carbide LCV segment into service. However, we do not expect a material impact cash flows as the cash outflows the critical on purchase which was over the course of the past about that.

We believe we have the balance sheet strength to navigate the current environment support business operations and maintain key investments that will support future growth.

We will also continue to carefully manage our operating expenses.

Lastly, as we've stated previously they'll continue to pursue strategic M&A opportunities at the right price to enhance our technology product portfolio and capabilities to build upon our strengths and the high growth areas and tower assuming itself right.

Now turning to our outlet as we've discussed we do want to caution investors that we expect coping 19 continue to have an impact on our fourth quarter results.

Our outlook reflects the anticipated impacts as we understand them today. However, given how fluid situation is so for our own business as well to that of our customers and supply chain, we'd like to remind investors that actual results may differ materially in the weeks and months ahead.

For the quarter ending September 30, 2020, our fourth fiscal quarter revenues are expected to be in the range of $13 million to $15 million.

Gross margin for the quarter ending September 30 at 2020 is expected to be in the mid 30% range due to greater unreal utilization and anticipated defenses and product mix with negative operating margins, resulting from the shift in relocation costs and R&D first silicon carbide at least like less than a third the fourth quarter.

Semiconductor equipment industry is cyclical and inherently impacted by changes in market demand.

Additionally, operating results can be significantly impacted positively or negatively or the timing of orders systems system shipments and the financial result semiconductor manufacturers.

A portion of amtech for adults are denominated in R&D, a Chinese currency the outlook provided in this press release, just based on assumed exchange rate between the United States dollar in 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.

Thank you.

And if you like ask a question. Please take note by pressing star one on your telephone keypad.

If you're using a speaker phone. Please make sure I mean function is turned off to monitor signature reach our equipment.

Again, it is star one if you like to ask a question and we'll pause just for a moment a lot of everyone an opportunity to signal for questions.

[noise] it'll take our next question. Our first question from Jeff Osborne from Cowen and company. Please go ahead.

Hi, Good afternoon. Thanks for taking my question to a couple on my end Lisa I'm on the guidance I missed it when you were talking about the gross margin being in the mid Thirtys can you you mentioned something about mix and then something after that.

You are amplify termination.

The lower the lower volume system under utilization and then probably a change of product mix.

It is that within the semiconductor segment are both segments.

I think it's primarily within the semiconductor segment.

Got it.

And then does or where you can quantify what the government benefit was in the quarter or give us a an indication of what the right Opex run rate is.

[laughter] quarter.

Yeah, I mean I think that's.

You know, it's it's a little bit difficult right now because obviously travel was also lower because I'm covance I. I think that you know I hope at our normal actually in a is you know, it's probably closer to the Q2 number on somewhere in that range going forward about 5.4 million.

Okay and R&D is consistent.

No major changes there.

It will go up in Q4, that's built into our guidance as as we continue at some of those costs that were expecting in Q3 on shifted into Q4 of which is which is a driver of why we think we'll have you know a lot in Q4.

Got it and I know, there's no cash impact, but could you articulate what the Capex ramification dark.

Well you know, it's it's a new equipment that we've been purchasing over the last several months for our new building for our silicon carbide on El <unk> segment, and you know some of those suppliers were shut down and you know all of the different things that happened with with Cobot 19, but you know we're in that new building, replacing that into serve.

So you know I think that going into next year, we'll have some you know increased depreciation with that but again the cash has really already done outlaid over the last couple of months.

Got it and what was the cumulative.

First of all that equipment for the new facilities is or a way to those 2 million 5 million.

On the it's it's probably into the you know the million coming into half range got it. Okay. My last question for Michael was on the so obviously orders down and clearly Kobe do a lot of uncertainty.

Sure customers on and their customers in particular on auto as you said can you just talk about the constructive this of the conversations with your customers or is it sort of head in the sand or are they more responsive or less responsive now there were four or five six months into the kogut, depending on where you are in the world.

Alright, thanks for joining us.

I remain very optimistic based on be more recent friends, we're seeing more customer activities.

I would see in quantity of our discussions where customers have increased primarily in the study segment I'm. So bad that gives me.

Optimism, but there were just floors on because flow.

Potential momentum right your actual timing is a difficult.

She went that would be that's all dependent on or customers outflow needs, but I'm I'm definitely heartened by the fact that.

As I said earlier, the frequency and the quality of marked our laws that crossovers.

It has gotten much better compared to Q2.

In early Q group.

That's great there that's all I have thank you.

Extra stuff.

And as a reminder, it is star one if you would like to ask a question.

Well take our next question from Mark Miller from bench the benchmark company. Please go ahead.

What do you think about in terms of your tax your tax rate.

Going forward into next year, that's fiscal year.

I you know Mark I think it died on it's gonna be fairly similar to what it's been these last couple of quarters. There there are higher rates and some of our foreign locations. So you know we're paying taxes on that rate differential.

But in kind of generated in the U.S. on can be off site.

So I think it it's gonna look kind of like what it looks like this quarter in last quarter.

Certainly similarly I think.

And what was your capex, but even in the fourth quarter.

Yeah year to date, we spend about 900008 to 900000 in Capex.

North America Ultrabook true.

Alright, Thank you [noise].

Thank you Mark.

Right and we have no further questions. This concludes today's question and answer session I would now like hand, the call back over to lease up for any additional or closing remarks.

Thank you for your time today and for your interest and tax this concludes today's call.

[noise] and that does conclude today's call. Thank you for your participation you may now disconnect.

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