Q2 2021 Amtech Systems Inc Earnings Call
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Please standby.
Good day and welcome to the Amtech systems second quarter 2021 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 fiscal second quarter 2001 conference call with me on the call today are Michael Whang, Chief Executive Officer, and Lisa Gibbs Chief Financial Officer also joining us is Paul Lancaster and.
<unk>, Vice President Vice President of sales and customer service.
After close of market today, Amtech Amtech released its financial results for the fiscal second quarter 2001 two.
2021, excuse me the earnings release is posted on the company's website.
And at Www Dot Amtech systems Dot com and 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 day and the company assumes no obligation to update any such forward looking statements.
These statements are not a guarantee of future performance and actual actual results may differ materially from current expectations.
Among the important factors, which could cause actual results to differ materially from those and the forward looking statements or changes and the technologies used by customers and competitors.
Change and volatility and the demand for products.
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 allocations plan 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 to continue to deliver strong momentum from the second quarter with revenues of $19 8 million coming in at the high end of our expectations.
Activity within the semi market continues at a strong pace with record bookings and with continued upside opportunities across our served markets.
And for our advanced packaging products market forecast continue to point to a strong outlook and towards 'twenty, one and we have seen this translate to continued order activity.
At this point, we are approaching near 100% capacity utilization at our Shanghai facility, given the increased business demand and have taken steps to both increase interim capacity as well as move to a larger facility later this summer.
Within the power semi market our customers have moved forward with their capacity expansion plans that were previously placed on hold due to the pandemic and the second quarter. We received orders for six 300 millimeter diffusion furnaces from one customer that pull their and their capacity expansion project.
And parts of a strong global demand a powered ships, particularly for automotive applications. These tools are scheduled to ship. The second half of calendar 2021, and addition to the dialog with our other customers remain very robust as they evaluate their multiyear expansion plans overall, we continue to be.
Pleased with the performance of our semi segment following a year of strong growth and advanced packaging applications and 2020, we are seeing demand continue into 2020 one.
And industries for just continued to accelerate capital expansion plans and.
Illustrating the strength and the second quarter, our book to Bill ratio for the semi segment grew to over one seven to one.
Since growth rates for our products tend to correlate with the overall semi capex spending we believe the strength and demand. We are experiencing will continue in line with the broader industry.
Moving onto our silicon carbide, and <unk> segment, and the second quarter, we completed the acquisition of a small technology tuck in to bolster our offering and the substrate consumable space and incorporate wafer process and coolants and chemicals to our existing consumable and machine product lines.
While early from a product development standpoint, we believe that over the mid to long term there is great opportunity to expand our Sam and generate meaningful synergies for both the integration of product Roadmaps and cross selling with existing customers by leveraging amtech and <unk> strong customer relationships and products.
And believe we can introduce differentiated consumable solutions and to the silicon and optics and ceramics market and increased both our share of wallet as well as the value we deliver to customers. We expect <unk> to contribute approximately 400000 to 500000 of revenue per quarter as it continued to sell to existing.
New products.
As I develop additional products and take advantage of synergies and joint product Roadmaps that number will grow which we anticipate will be early and our fiscal year 2020 two.
And as part of this expansion of our product offering we have realigned our silicon carbide and Leds segment now call material and substrate to better reflect the opportunities. We are targeting moving forward as part of this change we have recently for motor Jordan laser to leave that new material substrates segment George began his career.
And our gear systems focused on wafer, Inc, and silicone materials and after a long and tender courier transitioned to sales leadership roles and several high technology companies, including those focused on processing tools for silicon carbide applications.
Georges combination deep technical experience within the wafer processing industry as well as his proven track record of building and leading highly effective organizations that we believe.
Make him a great fit to drive growth and this segment going forward.
Related to near term customer demand dynamics within the material and subsidized segment discussions with customers remain active customer orders for equipment have begun to roll into backlog with an expectation of shipments and the next six months and it's important to note that these orders are not directly relate to silicon carbide.
Rather our a resumption of demand from other industries, such as silicon and optics and ceramics. During the pandemic. These customers were greatly impacted as new machine purchases decreased significantly for all of 2020. We are encouraged to see this portion of our business return as it signals a broad based recovery gets us.
Your way across many of our served markets helps absorb the incremental fixed costs and our PR Hoffman facility as we await the ramp of silicon carbide as.
As it relates to the larger multiyear capacity expansion plans of Silicon carbide wafer producers, we've continued to maintain a healthy dialogue with our customers and await the finalization of their plans to increase wafer output as a reminder, the lead times for our products are often shorter and those of device manufacturing equipment and as such we will ask for.
To see an uptick in demand once new production volume wafer and capacity is brought online to service the needs of new device manufacturing facilities, given our market, leading position and consumables roadmap for new machine platforms, and recently completed capacity expansion and investments for silicon carbide manufacturing operations.
We remain as excited as ever.
About the mid to long term opportunities in front of us.
Believe and our leadership and the market segments with exposure to several secular tailwind creates significant opportunity to drive increased profitability and shareholder value as demand accelerates and we realize the operating leverage built into our current business model.
Before turning the call over to Lisa to discuss our second quarter financial results.
I would like to take a moment to address the recent cyber security event, we experienced as we previously announced on forms 8-K on April 12, we detected a data incident, which attackers acquired data and disable some of those technology systems used by one of our subsidiaries.
And learning of the incident, we engaged external counsel retained a team of third party forensics incident response and security professionals to investigate and determined the full scope of this incident.
And also alerted law enforcement previously disabled technology systems are back up and running and our network is safe and secure despite this disruption production continued and our facilities I would like to take this moment to thank our employees and our team of professionals, who worked tirelessly during the recovery operations.
And continuing to serve our customers and a safe and secure way with that I'll now turn over the call to Elisa.
Thank you Michael.
Net revenues increased 10% sequentially and increased 37% from the second quarter and fiscal 2020 with the sequential increase primarily attributed to strong shipments of SMT equipment.
At the same prior year period was affected by the COVID-19 pandemic.
Gross margin decreased and the second quarter and fiscal 2021 on a sequential basis, primarily due to product mix with increased multi unit sales and lower margins and increased mix of lower margin SMT sales growth.
This margin increase and the second quarter of fiscal 2021 compared to the same per year period due to increased capacity utilization.
Selling general and administrative or SG&A expenses increased $5 million sequentially and $3 million compared to the same prior year period, due primarily to increased freight M&A consulting and legal fees.
Research and development increased $6 million sequentially and $1 million compared to the same per year period, and some of our engineers completed specific customer design work and shifted two strategic R&D projects.
Operating income and the second quarter and fiscal 2021 was <unk> $2 million compared to operating income of $1 $1 million and the first quarter of fiscal 2021, and operating loss of $1 million from the same prior year period and.
Income tax provision was $5 million for the three months ended March 31 2021.
Impaired for a provision of $1 million and the preceding quarter, which included a tax benefit of $3 million related to the reversal of previously recorded uncertain tax positions and <unk> 2 million and the same prior year period.
Our effective tax rate continues to be higher than the statutory rate due to higher income and foreign jurisdictions.
Loss from continuing operations net of tax for the second quarter and fiscal 2021, with <unk> 2 million or <unk> <unk> per share.
This compares to loss from continuing operations of $5 million or for per share for the second quarter and fiscal 2020 and income of <unk> 7 million or <unk> <unk> per share and the preceding quarter.
As I just walk through fiscal Q2 results were affected by many different variables ranging from a less favorable product mix compared to fiscal Q1, 2021 increased SG&A due to a number of factors some of which we will continue to deal with such as freight and logistics costs and.
Others like the M&A cost for unique to this quarter. As we stated previously we are focused on profitable revenue growth and our cost structure and we are also making investments and new product development and next generation platforms of our existing products. We believe these investments are important and necessary for longer term sustained growth.
With new orders of $32 $5 million and a consolidated book to Bill of one six to one this quarter, we see tremendous opportunities and our future.
Turning to cash and restricted cash and cash equivalents at our continuing operations at March 31, 2021 were $40 4 million compared to $45 $6 million at December 31, 2020. This.
This decrease is primarily due to the acquisition of <unk> during the quarter.
Approximately 86% of our cash balance is held in the United States.
Now turning to our outlet.
For the quarter ending June 32021, our fiscal third quarter revenues are expected to be and the range of 21 million to $23 million.
Gross margin for the fiscal third quarter is expected to be approximately 40% with operating margin breakeven to slightly positive inclusive of approximately $1 million of one time costs relating to our cyber security incident account.
Accounting rules require us to expense these costs as incurred without accruing for potential insurance reimbursement, we will have a gain and a future quarter. Once our insurance claim has been approved and paid for.
The semiconductor equipment industry is cyclical and inherently impacted by changes in market demand and the recent semiconductor shortages may also have impacts on our customers and supply chain. Our outlook reflects the anticipated ongoing logistical impacts and related delays for goods shipped to and from China and expenses relating to our subsidiaries cyber secure.
<unk> incident actual results may differ materially in the weeks and months ahead Adil.
Additionally, operating results can be significantly impacted positively or negatively negatively by the timing of orders systems shipments and the financial results of semiconductor manufacturers.
A portion of <unk> results are denominated in RMB and Chinese currency. The outlook provided in this 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 signal with questions. Please press star one on your Touchtone telephone if you're joining us today using a speaker phone. Please make sure your new function is turned off to why your signal to reach our equipment again that is star one if you would like to signal with questions Star one.
Our first question will come from Craig Irwin with Roth Capital Partners.
Hi, good evening and and thanks for taking my questions.
Lisa I really appreciate you breaking out the expense from the cyber security incident can you maybe provide us a little bit more color on the M&A.
M&A fee in the quarter your your.
For other impacts on SG&A traditionally you've done a very very good job keeping the spending they're tight.
We'd like to get to sort of and operating number.
Understand and Craig and I would say that we had probably a couple of hundred thousand on M&A.
And maybe 100000 and clinical team.
And then a couple hundred thousand and freight and logistics, but that we expect to be kind of ongoing.
Understood understood so all in and it looks like you're probably.
Yeah.
And tracking very well I would say.
That's true.
Generally yes, we are keeping our focus on it and I also would remind everyone that part of that SG&A is variable with our commissions on higher sales as well.
Understood understood. So then.
The contribution from your acquisition over the next couple of quarters, usually there is some expense for integration.
Can you maybe.
Sort of talk about the component of your revenue guidance from this new.
This new property.
And then.
Are there some some restructuring or integration expenses that youre going to incur over the next few quarters and.
And do you expect it to be accretive.
And in 'twenty two.
And any color there is helpful.
Sure.
And as Mike indicated right now we expect a revenue of topline contribution and the range of 400 to $500000 per quarter and very good gross margins as consumable and consistent with consumables.
And the modest modest operating margin at this point not any significant integration or restructuring costs.
But we will not be looking to.
Realize those synergies, we talked about and and see some growth there at the top line and better contribution to operating margin.
And our fiscal 2022.
Understood understood so moving over to PR Hoffman and you guys have done a lot of work there to prepare for the growth that's coming in the Silicon Carbide wafer Inc.
History.
Can you maybe talk a little bit about.
Whether or not you are shipping any presets, and and I don't know from using the correct direction, there, but any any templates for cassettes for.
For eight inch wafers, yes.
Have you been sampling these products, there's quite a lot of enthusiasm out there for what commercial adoption of eight inch can do for the finished cost of not just for wafers, but the and devices and the rate of adoption and the end market.
Hi, Craig This is Mike what I can say that we have been.
We have been sampling Ada and consumables with our customers.
Currently.
And so sampling, okay, excellent and sit and to move to commercial production, you're tooled up and it would really just be a demand pull from your customers at this point.
Yes.
Okay, Okay and then.
This question is your yours, obviously tea business has been doing great over the last couple of quarters. It seems like that momentum is.
Continuing is there an opportunity for you to increase capacity and you and your Chinese facility is that something you would consider or.
Demand exceeds what you can produce and that facility would you be more likely to maybe use outsource.
Suppliers are assemblers and to help you deliver the volumes, but I think the market demands.
Sure.
Moving to a new facility later this summer and Thats in progress right. Now we're very excited it will have increased capacity for us, but we're already doing creative things right now to increase our capacity at our existing location some of it may be outsourcing or.
Adding a little bit of space and the next store location and a lot of different creative thought going into how we can.
And our customer demand at this time, but certainly by you know by the end of this summer.
We will.
We will have that increase and just selling capacity and and it would be a great problem to have if we start to even out for that.
Okay, and then last question if I may R&D was quite a bit higher and this quarter then than it has been actually for the last couple of years.
About $1 9 million can you maybe break out for us what's.
What's driving the higher expense I mean is there is there a slate of new products that youre looking to bring to market or.
Are there specific initiatives and you can call out there.
0.2.
Future products that would broaden the.
The revenue funnel.
Sure absolutely.
Absolutely right and and I think you you will know that these businesses traditionally did not get a lot of R&D investment and and.
And previous solar years, so some of it is catching up there but.
Hope that and the next couple of quarters, we can talk more to you about the things that we're working on it's very exciting some of it is new products to serve them.
New markets that we're excited about some of it is next generation platforms are upgrades to certain things certain areas of our existing equipment. So.
We don't expect this to be sustained for.
And for the longer term, but definitely necessary and part investment for our longer term revenue growth and we hope for all the talk to you about them and the and the next few quarters.
A similar run rate for the next couple of quarters is that fair.
And it was higher this quarter I hope it will dip a little bit and the next couple of quarters, but not significantly it will stay at this range for the next few quarters.
Great. Thank you so much for taking my questions. Congratulations on the strong revenue growth.
Thank you Craig Thanks harder for you.
Okay.
And our next question will come from Jeff Osborne with Cowen and company.
Hey, Michael.
Lisa good too good to speak with you a couple of questions on my end.
Housekeeping the million dollar ish insurance charge, where would that show up and the P&L.
It'll show up and SG&A.
Okay and.
And then the six units and backlog.
The 300 millimeter.
Units for the second half.
Well given it's a multi unit order do you and you flagged multi unit orders this quarter dragging down gross margin sequentially I'm, just trying to think about.
The September and December quarter as the ship.
Would it be a little bit touch below 40, maybe and the high thirty's or how do we think about that I.
I think Thats, a fair statement, yes.
Okay and <unk>.
And maybe it's been sometime since you chip those and volume just given COVID-19 those ballpark or what about 152 million Bucks a piece.
Is that a reasonable assumption.
Oh, that's a slightly less for a little bit lower than that range.
Lower okay.
And then can you Mike will give us a sense of the urgency with your customers just given everything that's going on with on the demand for the auto side.
Expanding.
I'm trying to get a sense of what level of energy your sales team has.
In terms of engagement, certainly seeing and and the book to Bill, but I'm just trying to get a sense of how much momentum there is over the coming quarters.
Well I can say is a R.
Sales team is very active.
More and more so than they have been and.
And the past few quarters and there is a sense of urgency.
Among our top tier customers.
Quickly expand their capacity.
And so.
So things things are clicking right now and in terms of.
Opportunities you know all of these engagements are.
Pass are turning into orders.
So there's a lot of.
Strong hands.
Momentum going forward right now.
That's great to hear and then I just had a few follow ups on <unk> first of all where are they located can you give us a sense of how many folks are on board there.
They're located in Connecticut.
For the small operation less than 10 employees.
Got it.
And then is there any.
Current overlap with your existing customer base or is this all new incremental customers that you're capturing.
Sure.
There is a good amount of overlap with our existing customer base and the.
And the new material and.
<unk> segment, and we're excited about that.
One other goals is to is to align our our product roadmap and and capture the natural synergies that we have with this acquisition. So from definitely excited about the future potential.
Team that we brought on although it was a small tuck in acquisition.
And the they are well known and the.
And what chemicals.
Industry.
Got it and then my last question Michael is just the the gross margin profile, what was formerly known as a silicon carbide alloy segment. The past three quarters has been somewhat more depressed relative to historic.
And how much of that is attributable to the expansion of PR Hoffman and sort of the underutilization of that new facility or the.
The lower revenue or is there pricing I'm, just trying to get a sense of what other variables driving.
The losses in that segment currently.
Jeff It really is kind of the first two primarily that you mentioned so you know we added capacity and increased annual rent expense. We added some new equipment to increase depreciation and polishing machine sales through 2020 has been very very low so its a combination of.
And both of those.
I think.
The increased equipment orders that Mike referenced we're seeing increased order activity even in April here and.
And I expect to see that improve.
It's going to be a stepped improvement each quarter and so I think it's going to be a few quarters out before we see them return to normalized ranges, but we expect improvement over the next few quarters with better revenues.
Makes sense Lisa I appreciate your thoughts.
Okay. Thanks.
Thanks, Jeff stuff.
And our next question will come from Mark Miller with the benchmark company.
Congratulations on your orders and.
And improvement in the backlog.
Wanted to talk about you said the diffusion furnaces would be roughly high 30 margin what about the remainder of your backlog as a whole in terms and the margin profile and are there.
It will be similar to recent margins are below or above what you have been posting for margins in terms of what's in the backlog currently.
Hi.
I think that the backlog will be probably similar to slightly lower than what our margins have been and we have seen an uptick and these multi unit orders and.
And you know that does that does drive a little bit of a lower margin profile.
Okay, you mentioned high D. I will have good margins, but those margins be above the corporate average.
Yes, they should be absolutely the consumables have great margin profile and as they grow and.
Yeah that will be that will be a really nice addition for us.
Okay.
Do you expect that to be immediately accretive.
Well, yes.
400 to 500000 of revenue per quarter strong consumable type gross margins.
And with modest contribution to operating margin at this point.
Any help on the taxes going forward this year would be appreciated for modeling.
Well.
We continue to have a high tax provision each corner as we have a lot of our income generated from foreign jurisdictions, where we don't have.
Net operating losses to utilize and so I think you know the range as of this quarter certainly was high.
I would like to bring that down a little bit, but it will continue to run at that.
Somewhat of this clip for for a while until some of our U S income returns, we do have some nols to use there.
Is that similar in terms of dollar amount for similar in terms of percentage of revenues.
I think it probably similar in terms of little bit lower ideally a little bit lower in terms of dollar amount I would say.
Thank you.
Okay. Thanks, Mark Thank you Mark.
Okay.
Thank you and that does conclude the question and answer session and today's conference call. We do thank you for your participation have and excellent day.
Okay.
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