Q4 2020 Amtech Systems Inc Earnings Call

Good day and welcome to the Amtech systems fourth quarter and fiscal year 2020 earnings Conference call. Please note. The this event is being recorded I would now like the 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, and the call and Michael Wang Chief Executive Officer, and we should get Chief Financial Officer.

After close of market today Amtech released its financial results for the fourth quarter in fiscal year 2020.

And our news release is posted on the company's website at Www Dot amtech.

Systems Dot com 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 the state and the company assumes no obligation to what the any such forward looking statements.

Statements are not of 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 forward looking statements or changes and the technology technologies used by customers and competitors changes and volatility and the demand for products.

The effect of changing worldwide political and economic conditions, including trade sanctions the effect of overall and market conditions, including the equity and credit markets and market acceptance risks.

Capital allocation plans and the worldwide COVID-19 pandemic.

Oh, the risk factors are detailed in the company's FCC filings, including its form 10-K and forms 10-Q.

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

Thank you Erica.

I want to at the moment to reflect on our business has performed over the last 12 months.

After a very strong demand environment in 2018, and a lot of in 2019 due to the start of the trade war and Youre, saying in China.

The other 2020 expecting and industrial rebound and the spin.

Operating cycle, which was reflected in the $20 million Q1.

Unfortunately, the anticipated growth and 20, and 20 was halted and the second quarter.

First of all spread and the cold attend.

Asia Pacific region.

Operating significant supply chain disruptions as.

As well less and market demand and certainty.

On the part of our customers.

As the year progressed, almost all geographies were impacted true.

The more volatility and uncertainty to the global economy.

The total growth catalyst. Despite this backdrop, including the natural volatility of the capital of the markets we serve.

Were successful and mitigating the disruptions to our business, while limiting operating losses to nominal levels.

That said and Wanna personally thank the entire team and amtech, our supply chain partners.

And our customers for their hard work and the flexibility.

Of the getting both the pen and.

The trading volume and challenges placed and so one of us roster.

<unk> this year.

What the diligent efforts, we successfully and are the worst of the pandemic impact.

Maintaining the high levels of service on customers acquire and expect from us.

As we look ahead of uncertainty remains at varying levels based on geography.

And then the Asia Pacific region, which has historically been our largest market demand remains strong and these economies were the first to reopen after the pen dynamic.

Allowing customers to resume capital expansion plans.

While demand remains muted levels relative to the years past, we believe portions of the Asia Pacific market, such as so much the from packaging of returned to normalized levels and others, such as automotive modules and sub systems are beginning to show signs of improvement.

The results remain optimistic regarding the continued strength in the quarter ahead.

Outside of the Asia Pacific region, both the U.S. and European markets continue to lag.

Customers gain confidence and the strength of near term and mid term and market demand.

Conversations and.

And the two improve off the second and third quarter loans, However, progress from cold and antibody 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.

The leave or customers are gradually returning to the business as usual.

When evaluating of business by end market. The long term silicon carbide opportunity remains very strong as demand from devices continues to outstrip supply.

The celebration of new electric vehicle platform announcements and many of which leverage silicon carbide should the performance attributes to improve the efficiency, while the decrease in size and weight and lead times from Paal devices are reaching an all time high.

As such the industry as a whole should be focused on rapidly increasing device capacity.

To meet this growing need.

Also requires increased EPS I see wafer capacity.

That said, it's important to note that your manufacturing of Silicon carbide devices, and certainly broken down into two distinct segments.

Creation of the Silicon carbide wafers themselves, which are tools and consumable products and trust.

And the subsequent processing of silicon carbide devices on those wafers.

Specific to wafer fabrication, and we believe many customers or the certainly adding incremental capacity by improving their efficiencies.

And the process, including the proven yields and continuing the transition from four inch to six inch wafers and it is.

As our expectation that wall of these actions are effective and creating additional capacity and the short term the.

The sheer volume associated with the increased of man and the 2021 and beyond.

Required large scale increases in wafer capacity overtime.

Given our market, leading position and consumables roadmap for New York and platforms and recently completed the capacity expansion investments for a silicon carbide manufacturing operations.

We are well positioned to capture the this opportunity when it emerges.

Well, then power semiconductors, the magnitude of the overall opportunity remains large support of by both the increasing needs of automotive platforms as.

And as well as the proliferation of new applications, such as Fiveg, the and the telecom market.

Automation and.

Hi, OTI and industrial markets.

Two of Silicon carbide market. That's featured the man outpaces the existing supply power, so much and dr. manufacturers will be wrapping up their capacity of investments.

For these market leaders and the space capacity increases typically include the transition from 200 millimeter to 300 millimeter wafers.

Due to the economic advantages of the larger diameter of provide the.

And this will then the specific market share amtech is particularly well positioned.

Well there are some and compliance cluster of 300 millimeter horizontal to do the furnaces.

Unlike traditional so what some of the semiconductor manufacturing, which utilizes vertical for US is of 300 millimeter. The unique characteristics of power devices require horizontal first is the salt and yield loss issues.

Associated with the from Boeing and canceling defects and high temperatures normally you love and hundred degrees C and the bugs having.

Having partnered with the industry pioneer and the transition from 200 millimeter the three of them to the minutes of power devices.

Amtech is in a great position of having a multi year and leads and this particular segment of the industry.

Created the only by having the largest and install base and.

And the market today, but also the tool of record for three leading power semiconductor manufacturers.

With the addition of one new customer and one follow on order and Tony Tony Despite the market uncertainty the.

We believe this is a clear signal of not only the robustness of long term growth drivers from power suddenly devices.

But also the willingness of customers from expand capacity to serve the growing market.

Given our track record of performance and market leadership, we believe we are well positioned to serve and.

Two new customer demand and orders and look to expand capacity and the 2021 and beyond.

Moving onto the Reflow over the market our served markets and certainly the broken down into two main applications new.

Namely semiconductor packaging and electronic systems, such as automotive sub systems and the vans printed Circuit Board Assembly.

And so much and Dr. packaging 2020 represented a record year from amtech the.

20% year of your growth driven largely by advanced packaging applications.

The performance requirements for events packs and processes, such as flip chip and stand out panel level package and what.

Today represents the majority of the overall the advanced packaging market.

Play directly into the strength of our products for example, as the industry moves the more complex processes and applications.

Gotcha, and Tenda and package for Fiveg devices, leading outsourced semiconductor assembly and test manufacturers are older assets.

And increasingly looking to us to provide the highest level of reflow position precision and uniformity of these processes require.

In addition to the direct benefit of the sales of these systems the.

Growth and semi packs and capacity serves as a leading indicator for the broader industry growth.

The markets served by our other products.

The typical to see leading edge older assets first and capacities from memory and logic and.

Follow up with capacity expansion for supporting components and.

And the looked and the electronic systems, such as the analog power and RF devices as well as I've answered the boards.

And looking ahead, we are encouraged both by the continuing strength, we are seeing and the semi packaging market as.

That's what was the increase and level of dialog with customers signaling and return of demand within the automotive market of the current and unit levels.

All in all as the stated previously remain excited as ever about mid to long term opportunities in front of us.

The near term growth catalyst for our business will continue to be tied to our customers confidence and the.

Economic outlook and demand growth and <unk>.

In order to support these opportunities.

We're continuing to execute on and strategic initiatives, namely new product development and drive organic revenue growth and.

The new is operational improvement.

In addition, we continue to evaluate strategic acquisition opportunities.

Expand our product and technology portfolio of some built upon our strengths in the areas that we believe will outperform the overall some of your markets.

As demonstrated in our financial performance throughout 222020.

Your four cents of have of business does well equipped and navigate times of of certainty like those we now find ourselves and.

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

And I now turn the call over to Lisa to review of fourth quarter of 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% kind of the fourth quarter of fiscal 2018.

And the conductor and Silicon carbide lead the revenue decrease compared to the fourth quarter of fiscal 2019, primarily due to the ongoing uncertainty and the global economy from the Cobi thinking virus and.

Septemberthirty of 2020, our total backlog was $13.9 million compared to the backlog of $15.2 million at June Thirtyth 2020, and.

The remainder of backlog includes customer orders that are expected to share within the next 12 months.

Gross margin declined and the fourth quarter of fiscal 2020, both sequentially and compared to the same and prior year period coming in at three three per site.

On a sequential basis gross margin decreased primarily due to product mix and non recurring expenses.

The fourth quarter of fiscal 2019 gross margin decreased primarily due to the lower revenue level and product mix.

What kind of car might lead the gross margins were negatively impacted and fiscal Q4 2020 due to a few factors.

Core revenue volumes and inventory reserve and leading to older product lines and new cost 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 and drive increased revenue volume.

I see any expense and the fourth quarter fiscal 20, $25.3 million compared to $4.8 million and the preceding quarter and $6.1 million and the fourth quarter fiscal 2019.

The point $5 million sequential increase was due primarily to payroll tax credits. The company was able to claim in fiscal Q3 2020, it's part of the could be 19 legislation passed by U.S. Congress securitized assets.

See any decreased the point $9 million compared to the same prior year period, due primarily to not having or for automation segment included in our results.

And lower travel and do you see the company, thanks and pandemic.

R&D expense and $4.9 million and the fourth quarter and fiscal 2020 flat quarter over quarter and point $1 million higher compared to the fourth quarter of fiscal 2019.

Operating loss for the quarter was $1.2 million compared to break even in the previous quarter and operating profit of $1.7 million and the same period last year.

And the fiscal fourth quarter of 2020, we recorded and income tax provision of $1.5 million compared to the point $1 million and the prior quarter and $1 million and the fiscal fourth quarter of 2019.

Loss from operations and net of tax for the fourth quarter of fiscal 2020 was $2 million or 14 cents per share.

This compares to a loss from operations of point $1 million or one cents per share of for the preceding corner and income of $1 million or seven cents per share and the fourth quarter of fiscal 2019.

Unrestricted cash and cash equivalents and our continuing operations at September Thirtyth, 2020, or $45.1 million compared to $46.4 million at June Thirtyth 2020.

Approximately 89% of our cash balances held and 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 per cent decrease.

Gross margin declined to 37% from 39% in the prior year.

Operating loss for the year was $8.5 million compared to operating income of $4.9 million in the prior year.

Loss from continuing operations and fiscal 2020 net of cash was $3.9 million or 28 cents per share, which increased the loss of $2.8 million on the sale of our automation business earlier and the here and.

It's compared to income of $3.1 million or 22 cents per share in fiscal 2019.

I would like the Echo Michael's earlier thought fiscal 2020 provided us with the significant challenges and disruptions. The we ended the year with essentially a breakeven operating margin and $1.7 million as cash used in operations and continuing to invest in R&D and our growth plans and.

Please the these results and appreciative of the hard work and effort 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.

Achieving our goals and capacity expansion product development and managing the information systems readiness for the next buying cycle.

Its important work will carry into fiscal 2021.

We expect our capital expenditures and fiscal 2021 to be at a similar level as our 2020 expenditures, we expect R&D expenditures and 2021 from increased 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 and.

The 19 tend to him and his presented challenges on the M&A from here, but it has also opened up opportunities.

Historically, we have grown our business primarily through acquisitions, including the businesses that currently comprise our Q operating segments and the semi conductor and silicon carbide lead the industry from technologies BQ International and PR Hoffman.

These business and have collectively provided us with over $50 million and profit in the last five years the substantial returns on our original investment.

Well, we continue to believe and inorganic growth strategy is the backbone of who amtech is if the company. We have also employed the complimentary strategy and pursuing organic growth, particularly during times, when we lack sufficient capital resources to pursue growth through acquisition.

With the divestiture of solar behind that and that's the impact and Koby 19, it's stabilizing within our industry and our customers. We have every new objective to grow our revenue and expand our operations through strategic acquisitions, while at the same time pursuing organic growth.

We are focused and driving our teams to achieve profitable organic revenue growth.

So 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've discussed we want to caution investors that we expect coke and 19 to continue to have an impact on our fiscal first quarter results.

Our outlook reflects the anticipated impact as we understand them today, however, given how fluid the situation is both from our own business as well is that for our customers and supply chain, we would like to remind investors and actual results may differ materially in the weeks and months ahead.

For the quarter ending December 31st 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 and the mid 30% range with the operating margin slightly negative.

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

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

The portion of Amtech results are denominated in RMBS and Chinese currency. The outlook provided in the press release is based on and assumed exchange rate between the United States dollar and the RMB.

Changes and 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 if you would like to ask the question. The please signal by pressing star one on your telephone keypad. If you were using the speaker phone. Please make sure your mute function and it's turned off to one of your signal to reach our equipment.

Again to ask the question. Please press star one.

We'll take our first question from Craig Irwin with Roth Capital Partners.

Hi, good evening and thanks for taking my questions.

Michael Your outlook statement in the press release, and then what Youve said in your prepared remarks actually seems to be a little bit of an inflection it seems to be.

Solid turned to the positive on the the interim outlook.

And can you maybe give us a little bit more color around the.

The the breadth of the conversations you're having with customers and are we talking several fabs that that could be taking product he incremental deliveries over the next 12 months is there any specific area of the product portfolio. That's that's likely to be a big contributor you didn't call out beach use success.

Cash with Paramount's the the retail outlets and then.

From the true flat re flow Robbins, but but can you maybe sketch out for us and a little bit more detail, what what looks like it's going.

And should to inflect upwards for you and that has you turned.

Much more constructive the new thing and wall.

Sure sure.

The we're seeing.

The only just the frequency of our customer contacts but.

All of them in terms of.

Sure Okay, that's fine.

Customers.

From the from starting with the two you.

And and also more constructive conversations of their customers.

The long term capacity expansions just across both.

Both segments.

Or or bookings or increasing they're more of our backlog is reader and vibrant.

The current level of backlog walk raises and the last quarter is the fog and doesn't tell the full picture.

Of what our prospects look like and be a true going forward. So so I'm excited and also when I My few more positive notes from our larger customers and whether there and the silicon space for the silicon carbide space that the actions reinforces I believe.

And my teams believe along with her.

And the level of conversations and through the course of process and also winning sort of win orders that we haven't seen and while that and that gives me.

Good.

Positivity and going forward.

The Dutch that's really good to hear that.

And 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 the revenue there does speak about I guess, maybe it does kind of point to depressed activity right now [noise].

And it does kind of the.

The flat maybe it definitely is progress of the over the prior quarter why your June quarter, you know the the margins rebounded quite nicely versus the stuff that there's there's a lot of room for continued improvement for you to get back to where you were a year ago.

And can you maybe help us with visibility about you know where this is likely to come from it's just 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 and potentially new customers are emerging customers that are likely to.

Harry the the business activity and therefore, the margins higher in the segment.

Well the.

The majority of momentum for our policy and.

I see I like the segment.

Income from our current core customers right.

Some of them, even though and.

There are sort of also good signs of new entrants that our interest is not only and our consumables and but also [noise].

However from them or conversations with our customers.

So in terms of trying to predict when the lords.

Capital and buying cycles of D.

All sort of still point towards like like the fall of 21, right, especially what the Pandemics and for US is and delayed everything by one year.

So starting out of this time last year, and we had good momentum going into or 2020 the fiscal year.

All of the major industry forecast for sure and growth and we were excited and also the of buying cycles of community.

So the carbide was supposed to start gaining traction right now and but now we're seeing the especially we lost the years everything sort of for us.

And by one year and the amount of.

The amount and the quality of dialogue from of Silicon carbide customers and that's that's still there that hasn't.

Slow down.

Still communicate and frequently with what their plans are these and you know wild and.

And cover the entire Komodo.

Our best guess was they were also in the wall being affected by the kinds of again and 2020 and.

And again as I read the right before.

No the quality of the engagements the starting to.

The better right the outlook looks better there's a lot of things that would be the do still to execute and we just we just sort of moving in.

And to expand capacity not only the consumables and also the machines.

And with the dust has settled and dozens over we're still putting a new tools and the factory and and were plugging away as well with the incremental improvements and our products that was better and for us or a customer of theirs. So I'm still very excited about what the future prospects the stuff that's true.

Becoming and and 2021.

[noise] excellent show and one of the things you said and they are kind of resonates with the Swiss My next question the outlook looks better shape of the guidance for your fourth fiscal quarter, the shape of the quarter of.

16 to 18 million of revenue is actually you know nicely above the fifteens read the consensus number out there.

You know it does speak to this accelerating activity that you. The you talked about can you maybe describe for us is there and individual customer and individual orders.

And that may be it 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 it for new orders and.

Oh, what what would what would you need to see the execute at the top of the range.

So the.

Where we're seeing really good recovery.

The suffered the most and.

And and 20 right. It was kind of the automotive driven demand right.

And now we're starting to see more activity with.

Out of related customer opportunities.

Yes.

Driving our outlook across both segments and and while walking and Tony was definitely a challenge.

We're also very pleased with the growth and.

And our semi packaging revenue.

That the far outstrip and everything else from a product standpoint.

And for US that is a typical leading indicator of the overall health of.

The semi industry.

And well you know.

We also announced anything new.

Or one of the 300 millimeter and four zone and for his from the tier one ease and Howard Hughes of manufacturer. So it's all signs right.

There and if I can pinpoint one industry, that's driving that is the.

Gradual and return the gradual confidence of the automotive industry.

Would you say automotives and in general or is it is it potentially he these and the automotive.

Yes. This is both the assist sort of automotive and general right and also easy itself has a factor and and I think the it so well the more of a factor and as we head later into the 2021 and.

And just.

So from what I know.

And within the next 12 months and they'll be at least dozens of new TV platforms released right. They they have announced the B. Riley.

At least at least 12.

And and 2022 Bucks and 20 and 22.

The the market, we'll we'll expect a couple of hundred and you see the platform so that way.

This is coming and I think what we're seeing is sort of.

Customers and confidence.

Across.

Silicon and also the silicon carbide and whatnot, so and concern will come from.

And then you know there they're looking at their own demands and from there and markets and and they seem to be.

The.

Moving to be ready right there, they're almost at the cost of.

Of.

Okay any of the confidence to expand capacity and make investments.

Excellent and then making investments and my last question is and get your Capex this quarter and point.

<unk> million and and it was the you know.

Quite substantially over the last year, where you only spent you know roughly 200 Grand total or even the June quarter of 500000, I'm guessing this might be Hoffman, but can you can you maybe talk as true where were you know where the cap ex money's being spent and what you're likely to spend over and over the course of fat physical 2021.

Sure Craig So, yes, you're correct, we as we completed our moving into our new Billy building for PR Hoffman and we also placed into service and.

The 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 that increase in capex looking forward into 2020 wine I expect it to be at a similar level, but the more spread across our businesses and not just the okay.

And silicon carbide only de segment.

Excellent thanks for that and congratulations on the progress you know, we look forward to a to.

The watching this progress continue thanks.

And Craig.

Thank you once again to ask the question. Please press star one well take our next question from Carsten simple with Cowen and company.

Hi, guys its cars and simple on for Jeff Osborne. Thanks for taking my questions on the first piece of about some some out of the commentary around trends on the power semiconductor equipment RFP is given the the sharp rebound and you'd be the man another power supply and markets that you just touched on.

Pretty standard.

He said of course and Carson.

Yes, the kind of going back to what you just touched on on the visa, but can you just provide some some high level of commentary around trends on the power semiconductor equipment RSP is given the sharp rebound and the auto sector.

Right so.

Well we are definitely.

The exposed for good or bad.

The market right.

They are the largest consumer of.

Overall, the power devices and.

Yes.

And so as I said earlier and.

We're starting to see not true.

And are amounts of of arc of dialogue, but that's our log turning into more slowly turning into orders right.

More in the pipeline and so it's definitely where we stand now our pipeline for for just automotive and general there's a lot healthier and robust compared to last couple of quarters.

Yeah, I think the and then just a quick modeling question here, how you touched on Capex, the second ago, but how should we think more generally belt and about the general op ex ramp from here.

Our sex and generally I think this coronary and 5.3 and I see any and it's probably you know the sound and memory will fluctuate and bad depending on some of the variability with with commissions and freight.

Right and our plan is to try to keep that keep our SG and eight.

It's flat if we can keep it without that but would that variability and the selling side.

Okay got it. Thank you that's all I had.

Okay. Thank you.

Thank you. This concludes todays question and answer session and like to turn it back to management for closing remarks.

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

Thank you ladies and gentlemen, you may now disconnect.

[music].