Q3 2021 Amtech Systems Inc Earnings Call

Please standby.

Good day and welcome to the Amtech systems fiscal third quarter 2021 earnings Conference call. Please note that this event is being recorded.

Now I'll turn the call over the Erica Mannion of Sapphire Investor Relations.

Good afternoon, and thank you for joining us for Amtech systems fiscal third quarter 2021 conference call with me today on the call are Michael Whang, Chief Executive Officer, and Lisa Gibbs Chief Financial Officer also joining us today as part of Lancaster, Amtech, Vice president of sales and customer.

Surface.

After close of market today Amtech released its financial results for the fiscal third quarter 2021. The earnings release is posted on the company's website 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 the state and the company assumes no obligation to update any such forward looking statements the.

These statements are not a 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 and the forward looking statements or changes and the technologies used by customers and competitors change and volatility and the demand for products the effect of changing worldwide political and economic conditions.

<unk> excuse me, including trade sanctions the effect of overall market conditions, including the equity and credit credit markets and market acceptance for us.

Capital allocation plans and the worldwide COVID-19 pandemic.

Other risk factors are detailed on the company's SEC filings, including its form 10-K and form 10-Q, now I will turn the call over to Michael Whang, Chief Executive Officer.

Thank you Erica.

Amtech and freedom to deliver strong momentum and the third quarter of wood revenues of $23.1 million.

And at the high end of our expectations of note. This marks our third straight quarter of double digit sequential growth.

Following the demand softness we experienced during the pandemic.

On it.

The activity within the semi market continues on a strong pace.

The record bookings and continued upside opportunities across our served markets for.

And our advanced packaging products, we are seeing strong momentum from both robust and market growth as well as increase the adoption of our Nextgen paramax true flat product across both new and existing customers. As you may recall, our true flight product serves the needs of the best packaging customers for very simple.

C based substrates and delivering both increased yields and throughput.

For products targeted at the SMT market demand of strengthening across all geographic all geographies excuse me as customers gained confidence and the economic outlook and <unk>.

And the investments for both capacity expansion initiatives as well as ongoing replacement cycles, which were placed on hold during the pandemic as a result market demand for our products has surpassed the capacity of our Shanghai facility, Craig the need to temporarily increase of insurance capacity.

Serve our customers. Unfortunately, the timing of this end market strength of aligns with our plan to move to a larger production facility later this month.

Within the power of semi market, we continue to have strong engagement with our customers as they move forward with their capacity expansion plans to meet growing demand for power chips driven in part by the automotive sector. And addition to the orders we received last quarter for 6.300 millimeter H T articulates for furnaces and quoting activity is.

And previous with both existing and potential new customers beyond the near term.

Topline benefit as the existing orders gradually roll for the backlog to revenue over the next few quarters the <unk>.

Increase of dialogues signals, a broader transition to 300 millimeter manufacturing processes for the power of semi market.

And our leadership position as a tool of record for nearly all of the current power chip manufacturers are already producing on 300 millimeter. We believe we are well positioned to capture of additional opportunities as they emerge.

Overall, we continue to be pleased with the performance of our some of these segments strength and demand is continuing and across our served markets as customers grow and increasingly confident about their own demand outlook and in terms of begin to accelerate capital expansion plans illustrating the strength of the third quarter, our book to Bill ratio for the SME segment.

It was 1 point for the 1 following a strong 1 for 7 to 1 and the prior quarter.

And as demand for our product tends to correlate with overall semi cap ex spending we believe the strength of demand. We are experiencing will continue and in line with the broader industry moving on to our material and substrate segment and the third quarter and equipment purposes, what sort of meaningfully impacted by the pandemic continued to build with early orders for all of them.

And from backlog to revenue similar to our semi business. We are seeing the start of a broad based demand the industry, such as silicon and optics and ceramics as customers gain confidence and the global outlook at least as these products contribute to revenue or has the added benefit of incremental fixed cost absorption and our.

PR Hoffman facility as we await the ramp of Silicon carbide.

Evidence of this can be seen the segment's third quarter gross margin, which improved 17 point sequentially to 41 per cent.

As it relates to larger bulk of your capacity expansion plans for silicon carbide wafer producers.

Many of the maintain a healthy dialogue with customers and the way the finalization of the plans to increase wafer output as a reminder of the lead times for our products are off for sure and those of the device manufacturing equipment and.

As such we would expect to see an uptick in demand once new production of ball and wafer and capacity is brought on line to service the needs of new device manufacturing facilities, given our market, leading position and consumables roadmap for new machine platforms, and recently completed the capacity expansion of investments for Silicon carbide and manufacturing operations, we remain excited.

And as ever for the mid to long term opportunities in front of us. While we are encouraged by the strengthening of demand across all of our served markets. We remain cautious about the ongoing market uncertainties, which we do not directly control industry wide challenges such as supply chain constraints.

Placement and significant increases to freight and look to fix cost require ongoing management and vigilance. Thus far we have been successful and navigating the challenges. However, the risk remains low to ourselves as well as our supply chain partners and customers.

That said looking beyond these near term uncertainties, we strongly believe our leadership and market segments with exposure to several secular tailwind for.

Create a significant opportunity to drive increased profitability and shareholder value as demand accelerates the move.

Realize the operating leverage built into our current business model with that I will now turn over the call to Lisa.

Thank you Michael.

Net revenues came in at the high end of guidance at $23.1 million and increase of 17% sequentially and 52% from the third quarter of fiscal 2020. The sequential increase is primarily attributed to strong shipments of our advanced packaging and SMT equipment and increased shipments of our policy machines.

The same prior year period was affected by the COVID-19 pandemic.

Gross margin increased and the third quarter of fiscal 2021 sequentially and compared to prior year due to product mix and increased capacity utilization, partially offset by rising labor and material costs.

Selling general and administrative expenses increased $1.6 million sequentially and $2.5 million compared to the same prior year period, due primarily to approximately $1.1 million and expenses related to our cyber incident and April 2021, as well as increased commissions on higher sales and we will.

File a claim with the type of insurer and fiscal Q4 of 2021.

Additionally, the prior year quarter benefited from approximately <unk> $3 million and Covid payroll tax credits and had lower travel and trade show expenses due to COVID-19.

Research and develop and development decreased $3 million sequentially and increased $6 million compared to the same prior year period, due primarily to the timing of materials used in our strategic R&D projects.

<unk> income in fiscal Q3, 2021, it was $1.2 million compared to operating income of $2 million and the second quarter of fiscal 2021, and operating income of less and point of $1 million and the same prior year period.

Adjusting for the $1.1 million of 1 time costs related to our cyber security incident, our operating income for the quarter would've been $2.3 million for 98% of revenue demonstrating the operating leverage built into our model.

The income tax provision was <unk> $7 million for the 3 months ended June 30th 2021, compared to a provision of <unk> $5 million and the preceding quarter and point $1 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.

Income from continuing operations net of cash for the third quarter of fiscal 2020 'twenty, 1 was <unk> $4 million or 3 cents per share. This compares to loss from continuing operations of point of $1 million of 1 cent per share for the third quarter of fiscal 'twenty, and 'twenty and lots of point of $2 million or 2 sets of per share of the preceding quarter.

Turning to cash unrestricted cash and cash equivalents at June 30th 'twenty 'twenty 1.

$37 million compared to $44 million at March 31, 2021.

This decrease is primarily due to cash used to support our working capital needs due to our strong order flow, which includes increasing inventory and preparation for upcoming shipments scheduled and the fourth quarter of fiscal 2020, 1 and the first quarter of fiscal 2020 to.

Approximately 82% of our cash balance is held in the United States.

Now turning to our outlet.

For the quarter ending September 30 of 2021 or fiscal fourth quarter revenues are expected to be and the range of $25 million to $27 million gross margin for the fiscal fourth quarter is expected to be and the upper 30 per cent range due to a shift and product mix with a positive operating margin and the mid to upper single digits.

The semiconductor 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 and packs and related to delays for goods shipped to and from China and production risks associated with our Shanghai building move expected to occur in fiscal Q4, 'twenty 'twenty 1.

Actual results may differ materially in the weeks and months ahead. Additionally, operating results can be significantly impacted positively or negatively by the timing of orders systems shipments and the financial results of semiconductor manufacturers.

A portion of Amtech results is denominated in RMB is a Chinese currency. The outlook provided in this press release is based on an 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.

To ask a question please signal by pressing star 1 on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off till the arsenal treat dry equipment again press star 1 to ask the question and I'll pause for a moment of all of it when and opportunity to signal for questions.

And we do have a question from Jeff Osborne with Cowen and company.

Hey, good afternoon.

Couple of questions on my mind, Michael If you don't mind can you touch on did you forego revenue because of the Shanghai move.

What you have seen more strength this quarter and that's providing some visibility into the next next quarter or no.

No no we.

Maintained and incredibly strong.

Weekly production process and the move and the planning has been actually quite incredible by our team so and we.

We're moving within the smiles and production and will slow down just a bit during that time.

And so we accounted for that and our Q4 outlook, but things remain very strong and robust we're quite confident and the team.

Got it and then.

Wait to hear about the on the.

And the PR Hoffman side, some new polishing machines being shipped.

Are those 2 new customers for the amtech umbrella or those are for existing people that already has the silicon carbide.

Spansion and I'll, just just 1 clarification, Jeff these are non silicon carbide machine orders strong our traditional silicon.

The ceramic.

And other substrates like like Sapphire, if some of them.

Mix of both current and new customers.

And specifically the silicon carbide, what are you seeing on that front.

So in terms of quoting and Roger said.

Beautiful mysteries right now so far we have not seen any any <expletive> Ashland 2 words from our customers, we still anticipate the expansion to occur.

No no sooner or later than all of the end of this year or early next year.

To reiterate and example cream as mentioned several times.

And once they bring the New York Fab.

Up and running.

And they will then divert attention and focus to their materials expansion plan. So so that's 1 barometer and credit is definitely like and early adopter of market leader.

And in terms of ex we actual claims and the current footprint right now.

So of being.

The best thing that we can do and we are doing and is preparing.

And we've made investments and there are capacity and and we'll be ready and when that over cycle occurs.

Got it and then just 1 more I think on my side on the 300 millimeter <unk> side, certainly infineon and it's made a lot of movement in that direction can you just talk about maybe keeping the sports analogy going if this were of baseball game.

You look at the broader scope of people and the power electronics space, whether it's the Kris the.

Little fuses the.

Ftes, the Infineon and for the World what inning are we and moving from 200 to 300 millimeter as part of any of the question and.

And B, what do you think the Tam is over the next 3 years in terms of high temperature furnaces that need to be acquired is this a couple of tens of millions or is this you know north of 100 million that needs to be put in place to address some of the mega trends that you're going after.

And we're we're probably looking at the more of the tens of billions across the next next 3 years, we are just.

We do serve just 1 process and the entire processing of the process steps can vary from a few dozen and for several where with the.

They are for a number of different process equipment.

In terms of the bidding.

And we're still early on right definitely the economics of moving to 300 millimeter is there right just based on raw surface area from 200 millimeter to 300 millimeter.

However, it requires massive capital investments that.

A majority of the mid tier of power.

The device players would be challenge to meet right. So we're looking at.

And mainly the tier 1.

Power and power device manufacturers.

Got it that's all I had I appreciate the detail.

Alright, Thanks, Jeff Thank you Jeff.

And that will conclude today's question and answer session and today's call. We thank you for your participation you may now disconnect.

Yeah.

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