Q4 2021 Amtech Systems Inc Earnings Call

Good day and welcome to the Amtech systems fiscal fourth quarter and year end 2021 earnings Conference call. Please note that this conference is being recorded.

I would now like to turn the call over to Eric Companion of Sapphire Investor Relations.

Good afternoon, and thank you for joining us for Amtech Systems' fiscal fourth quarter and full year 2021 conference call.

With me on the call today are Mike Wang Chief Executive Officer, Lisa Gibbs Chief Financial Officer.

All Lancaster.

Vice president of sales and customer service.

After close of market today Amtech released its financial results for the fiscal fourth quarter and full year of 2021.

Earnings release is posted on the company's website at Www Dot Amtech Systems' dot com in the investors section.

During today's call management will management will make forward looking statements all such forward looking statements are based on information available as of this date and the company assumes no obligation to update any such forward looking statements.

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 in the forward looking statements or changes in the technologies used by customers and competitors change in volatility and the demand for products the effect of changing worldwide political and economic conditions, including trade sanctions.

The effective overall market conditions, including the equity and credit markets and market acceptance risks ongoing logistics and supply chain challenges capital allocation plans and the worldwide COVID-19 pandemic.

All 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 Mike Wang Chief Executive Officer.

Fiscal 2021.

It was a strong year for AMETEK with over $115 million in bookings.

$5 2 million in revenue.

$44 1 million in.

Backlog exiting the year representing year over year growth rate so 84%.

30%.

217% respectively.

Driving this performance during the year, we'll see acceleration of our advanced packaging spending which began in 2020, followed by a return of SMT and high temp furnace demand fall.

During the pandemic.

Exiting the year run rate demand for our products remains strong with Q4 reported bookings of $34 2 million.

Up 10% sequentially and nearly 150% year over year and revenues of $24 3 million a record over the past three years.

While we are encouraged to see this strength continuing into 2022 ongoing logistical challenges related to container availability and rising costs are impacting our ability to ship products.

Some Q4 revenue moving into the following quarter.

Our supply chain teams.

The need to actively work with the situation in many of those products with torque delayed have now shipped.

However, given the ongoing strength in demand.

Global logistical challenges.

It is likely similar in the quarter timing volatility will continue until conditions normalize.

As it relates to components and raw material supply while overall tightening continues.

Due to the global shortages and the ripple effects production outages on part of our suppliers. Thus far we are navigating the situation through a rigorous planning as such material supply has not yet severely impacted our ability to manufacture against orders received.

Fortunately as evidenced by our strong bookings and backlog be persistent component shortages.

Being filled globally in several cases translates to an increased need for amtech production equipment.

As we look to the drivers behind this robust demand.

Activity within the semi market continues at a strong pace with continued record bookings.

And further upside opportunities across our served markets for our advanced packaging products. The last 18 months have been characterized by very strong order rates driven by end market growth.

Strength in this market continued in Q4 and again into Q1.

With some orders extending to Q2 as our customers time shipments to align with our capital expansion needs.

For products targeted at some tea market demand remained strong across all geographies with an incremental emphasis on the automotive sector given the ongoing supply constraints.

As we mentioned last quarter to service the increase of orders in August we moved into a larger manufacturing facility in Shanghai.

I am pleased to report the transition went smoothly and we have returned to normalized production levels with the ability to increase as demand warrants.

Within the power semi market, we continue to have strong engagements with our customers as they move forward with their capacity expansion plans in some instances in addition to placing new orders and customers have asked us to accelerate delivery of prior orders.

Which has been difficult given the supply chain constraints I referenced earlier.

We view this as a strong signal both to the underlying demand in the market, but also in there is our leadership position as a tool of record for nearly all of the power chip manufacturers.

Our roadie producing on 300 millimeter as these and other manufacturers continued to build out capacity. We believe we are well positioned to capture additional opportunities as they emerge.

Moving onto our material substrate segment in Q4, we saw an improved mix in equipment shipments as customers. Once again began expanding capacity following the pandemic.

But then the silicon carbide wafer market would continue to have healthy discussions with our customers on an ongoing basis recently these have become more productive with discussions around production planning as capacity constraints begin to emerge.

Given our market leading position in consumables roadmap for new machine platforms, and recently completed capacity expansion investments, we remain as excited as ever about the mid to long term opportunities in front of us. While we are encouraged by heightened demand across all of our served markets as we mentioned last quarter, we remain cautious body.

Ongoing market, uncertainties, which do not directly control industry.

Industry wide challenges such as supply chain constraints.

Relation and significant increases to freight costs and availability.

<unk> ongoing management and vigilant looking.

Looking beyond these near term uncertainties, we strongly believe our leadership in the market segments with exposure to several secular tailwind creates a significant opportunity to drive increased profitability and shareholder value as demand accelerates and we realize the operating leverage built into our current business model.

With that I'll now turn the call over to Lisa.

Thank you Michael net revenues increased 5% sequentially and 61% in the fourth quarter of fiscal 2020 with the SEC.

The increase primarily attributable to strong shipments of our advanced packaging and SMT equipment and increased shipments of our polishing machine.

Prior year period was affected by the COVID-19 pandemic.

Relative to last quarter gross margin decreased in the fourth quarter of fiscal 2021, primarily due to a less favorable product mix and increased 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 SG&A decreased $7 million on a sequential basis.

Adjusting for cyber incident expenses at $1 $1 million in the third quarter of fiscal 2021, and the partial insurance reimbursement for this incident, a point $4 million in the fourth quarter of fiscal 2021 SG&A increased sequentially by $8 million due primarily to increased consulting shipping and logistics costs.

SG&A increased $1.3 million compared to the prior year period, due primarily to SG&A from the acquisition of inner surface dynamics as well as increased travel and consulting expenses.

Research development, and engineering decreased $2 million sequentially and increased $5 million compared to the same prior year period, due primarily to the timing of materials used in our strategic R&D projects.

Operating income was $1 $3 million compared to operating income of $1.2 million in the third quarter of fiscal 2021 and operating loss of $1.2 million in the same prior year period.

Income tax provision was <unk> $7 million for the three months ended September 32021, compared to a provision of $7 million in the preceding quarter and $5 million in the same prior year period.

Net income for the fourth quarter of fiscal 'twenty, and 'twenty, one with $7 million or five cents per share. This compares to net loss of $2 million or 14 cents per share for the fourth quarter of fiscal 2020, and net income of $4 million or three cents per share in the preceding quarter.

Turning to cash unrestricted cash and cash equivalents at September 30th 'twenty, 'twenty, one were $32 $8 million compared to $37 million at June 30 of 2021.

The decrease is primarily due to cash used to support our working capital needs due to our strong order flow, which includes increasing inventory in preparation for upcoming shipments scheduled in the first and second quarter of fiscal 2022.

Approximately 83% of our cash balance is held in the United States.

As we conclude our 2021 and fiscal year, we're very pleased with our annual results of $85 million in revenue an increase of 30% from fiscal 2020, and net income of $1 $5 million or 11 cents per share.

We also continue to be pleased with the performance of our semiconductor segment with our book to Bill ratio increasing to one five to one in the fourth quarter.

As Mike mentioned earlier, the logistics and supply chain challenges had a greater than anticipated impact on our fourth quarter results were without them. Our results would have compared quite favorably to our guidance for the fourth fiscal quarter.

Looking ahead as demand for our products tends to correlate with overall semi capex spending we believe the strength in demand. We are experiencing will continue in line with the broader industry.

Now turning to our outlook for the fourth quarter ending December 31, 2021 our fiscal first quarter revenues are expected to be in the range of 24 million to $27 million.

Margin for the fiscal first quarter is expected to be approximately 40% due to a shift in product mix with operating margin in the mid to upper single digits.

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 and packs and related delays for goods shipped to and from China actual results may differ materially.

The weeks and months ahead. Additionally, operating results can be significantly impacted positively or negatively by the timing of orders system shipments and the financial results of semiconductor manufacturers.

A portion of amtech for adults is denominated in RMB is a Chinese currency.

We've provided is based on an assumed exchange rate between the United States dollar and the RMB changes in the value of the RMB in relation to the United States dollar could cause actual results to differ from expectations now.

Now, let's turn the call over to the operator for questions operator.

Yeah.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you were using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

Press Star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.

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

Hi, This is Andrew on for Craig and I. Thank you for taking my questions.

I was wondering so you mentioned the supply chain constraints in your forward outlook, but can you maybe provide some more commentary on puts and takes on where you saw that impact in frictional costs and potentially revenues in the quarter.

Well certainly you know having you know a key production facility in China, we've seen a lot of impact from the ongoing container shortages.

But I think we read about almost every day.

That's very significant to us, but we're seeing logistical issues and other locations in Europe and here in the U S.

Well as rising costs, so it's affecting us throughout and so I would say that within this quarter. We certainly had anticipated continuing logistics issues with this container shortage, but having it spread into other parts of our geographies and you know it just it was a higher number than we anticipated.

Thanks for the color and then the second one for me is if you could maybe provide some commentary on how discussions have gone for customers with that.

Eight inch wafer consumables for our silicon carbide and whether you guys are ready for commercial production of one eight.

Eight inch.

Production ramps in EV adoption ramps.

Okay.

Sure. So we we've.

We've had.

A number of discussions with customers regarding.

Our capabilities on eight inch.

Even provided samples so.

So.

Relatively speaking.

In diameter.

Technology.

Those will be the same or there are some parameters.

Go to a larger diameter.

But we will be more than ready to go.

Comedy.

Great. Thank you great. That's all for me for now thank.

Thank you.

Thank you we'll take our next question from Jeff Osborne of Cowen and company.

Good afternoon. This is Jeff Rossetti on for Jeff Osborne.

For taking our questions.

That's first.

That's cool.

If I could just ask if you could provide some additional commentary on what youre seeing for backend packaging.

The supply catching up with demand or do you expect.

Capacity additions throughout next year.

Hi, Jeff This is Paul Lancaster I'll answer that question.

Right now, we're still seeing pretty good visibility in the advanced packaging.

Our customers primarily the offsets.

Are still fairly strongly predicting growth.

Across all those segments, we've actually expanded a little bit in that area with new customer additions this past quarter.

So what's.

What's going on also with the supply chains and things people are giving us a little bit more visibility as they plan for a potential disruptions.

We do have a pretty good line of sight on that.

Okay, Great and then just shifting back to them.

Silicon carbide.

Could you just give any more detail on like.

And how you maybe expect.

Seeing any market share shifts or any shifts from batch to batch given significant capacity expansions underway.

Yes.

I'll take that yes, so we're not.

At this moment, we're not seeing significant shifts.

In terms of the current market leaders and we are seeing.

<unk>.

<unk> insurance, we are seeing signs of that right. We are seeing signs of at the very least capacity expansion planning from a smaller all the way up to the larger wafer.

Wafer players.

So it's definitely a good signal.

One one reminders.

Fortunately, adding wafer capacity, it's a long drawn out process for silicon carbide.

We can't quite equate it to silicon wafer capacity expansions.

Mainly because of the.

The difficulties and the complexities of growing.

The crystals.

Definitely from our conversations with.

With current customers.

Customers there are a lot of activity being planned for for expansion.

Okay, great. Thanks, that's all I have.

Thank you Jeff.

Thank you we'll take our next question from Mark Miller with Benchmark company.

Ratchet patients on strong orders and the record backlog.

Talk about you're welcome I just wanted to talk about you said something feels might've been slipped into the 2022 early or are you expecting a front end loaded year of 2022 or is it too early to tell.

You know Mark I think that there's going to be.

Shifting.

Throughout probably the whole year and I don't expect that this is going to just suddenly pop in a quarter or two.

Monitoring it very closely and I don't have that crystal ball to say for certain but we're anticipating somewhat of a domino effect for a few quarters at least.

In terms of your existing backlog.

Margins were down last quarter, they're coming back up what you think the margins have the existing backlog or equivalent.

Equivalent to what you expect in the fourth quarter lower harder.

You know our backlog.

It's quite heavily comprised of of our Bds are our diffusion furnace, our horizontal diffusion furnaces, which which has a lower margin profile than some of our advanced packaging equipment. So if I were to characterize our backlog at this point I would lean more towards the gross margin in the fourth quarter.

Thank you.

Youre welcome.

Thank you. This concludes our question and answer session. At this time I'll turn it back to management for closing remarks.

Thank you for your time today and your interest in Amtech.

This concludes today's call. Thank you for your participation you may now disconnect.

Yeah.

Yes.

Okay.

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