Q1 2022 Amtech Systems Inc Earnings Call

Yes.

Good day and welcome to the Amtech systems first quarter 2022 earnings Conference call. Please note that this event is being recorded I would now like to turn the call over to Eric.

N of Sapphire Investor Relations.

Good afternoon, and thank you for joining us for Amtech Systems' fiscal first quarter 2022 conference call.

With me today on the call are Michael Whang, Chief Executive Officer, Lisa Gibbs, Chief Financial Officer, and Paul Lancaster, Amtech, Vice President of sales and customer service.

After close of market today Amtech released its financial results for the fiscal first quarter of 2021. The 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 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.

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 <unk>.

Sector 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 ongoing logistics supply chain and labor challenges capital allocation plans and the worldwide.

COVID-19 pandemic.

The risk factors are detailed in the company's Securities and Exchange Commission 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.

The strong demand for our products continued in the first quarter with bookings of.

$31 6 million.

Up 77% year over year.

Backlog of $48 5 million up 250% year over year and revenue of $27 3 million.

Up 52% year over year, representing yet another record over the past three years.

Ongoing logistical challenges primarily related to domestic shipments from our China facility, along with rising costs.

And extended lead times.

The impact our operations as an example in the first quarter, we had a number of shipments going from the Portland, Shanghai to the Americas, where our team navigated the shipping container shortages.

Port bottlenecks to get our unit yourself, but.

The higher shipping costs added almost $1 billion to our operating expenses, creating a 320 basis point reduction of operating margins.

As another example of some of our customers our rigs are on freight only two experienced days and weeks of delays earnings and pick up at our warehouse, our logistics and supply chain teams are actively addressing these issues.

And we are including shipping surcharges, where we can to help mitigate the impact. However, we would expect these trends as well as constraints on our supply chain to continue in the coming quarters until conditions normalize.

These record bookings and backlog within the semi market are beginning to provide more visibility into coming quarters as it relates to our top line performance.

To place this in context in prior buying cycles, our backlog for this segment was typically fulfilled over one to two quarters.

With a combination of higher demand and longer lead times from our suppliers. Our current backlog is extending into the first fiscal year of 2023.

We are seeing indications that customers are accelerating their purchase timeline in order to accommodate the constrained supply chain.

With the expansion of our manufacturing footprint in Shanghai.

We are operating at near capacity, given our current supply chain labor logistics and pandemic related challenges. Once these challenges began to normalize we will have the ability to increase throughput to even higher levels.

I will now turn the call over to Paul Lancaster, VP of sales and customer service Paul. Thank you Mike within the power semiconductor market. We continue to have strong engagement with our customers as they move forward with their capacity expansion plant.

Underlying demand in the markets remains robust and we are seeing continuing demand not only in our leading 300 millimeter horizontal diffusion furnace systems, but also our 200 millimeter systems as manufacturers look to add capacity, where they can to service end market demand as these and other manufacturers continue to build out.

Capacity, we continue to believe we are well positioned to capture additional opportunities as they emerge.

Moving onto our material is substrate segment in Q1, we saw unexpected mix shift towards consumables as customers bring previous capacity expansions online.

Within the Silicon carbide wafer market discussions with customers continue to strengthen.

With capital budget is now approved for the initial phase of wafer capacity expansion quoting activity has begun to solidify with customers looking to place equipment orders this year.

It is worth noting purchasing activity for these capacity expansions generally began with machine orders.

Given the three to four quarter lead times involved followed by ramping consumables once those machines are delivered and commissioned.

With the scale of the industry as planned fab expansion initiatives currently underway to address the burgeoning electric vehicle industrial and communication demand forecasts in the years ahead.

It is our understanding these will be large multiyear capacity expansion plans, which would be expected to roll out in phases over the next several years.

Given our established market leading position in consumables, two new machine platforms to expand our existing machine product line and.

Recently completed capacity expansion investments.

We remain as excited as ever as the mid to long term opportunities in front of us come into focus.

While we are encouraged by the high end demand across all of our served markets as we mentioned last quarter, we remain cautious about the ongoing market uncertainties, which we do not control.

Industrywide challenges such as supply chain constraints inflation significant increases to freight costs and availability coupled with rising labor costs in combination with labor shortages require ongoing management and diligence. These.

These challenges along with continuing uncertainty surrounding the global pandemic affect not only us, but our customers and suppliers.

Looking beyond these near term uncertainties, we strongly believe our leadership in 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.

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

Thank you Paul.

Revenues increased 12% sequentially and 52% from the first quarter of fiscal 2021 with the sequential increase primarily attributable to strong shipments of our advanced packaging and SMT equipment and increase it increased shipments of our horizontal diffusion furnace.

Prior year period was more heavily affected by uncertainty in the global economy because of the COVID-19 pandemic.

Relative to last quarter, our gross margin increased in the first quarter of fiscal 2022, primarily due to a more favorable product mix.

Margin in the first quarter of fiscal 2020 to decrease compared to prior year, primarily due to product mix with increased shipments of our horizontal diffusion furnaces in our high temperature furnaces.

Selling general and administrative expenses SG&A increased one $4 million on a sequential basis.

Testing for the parcel insurance reimbursement for the cyber incident of $4 million in the fourth fiscal quarter of 2021, SG&A increased sequentially by $1 million due primarily to increased shipping and logistics costs, driven by higher revenues as well as higher shipping rates for our product shipped from our Shanghai factory.

SG&A increased $2 $7 million compared to prior year period, due primarily to $1 $1 million and increased shipping and logistics costs, driven by higher revenues and increased shipping rate <unk> four.

$4 million and higher commissions on higher sales.

$3 million and added SG&A from our acquisition of Interservice dynamics in March 'twenty, 'twenty, one as well as $4 million for it and ERP consulting legal and increased travel.

Research development, and engineering increased $2 million sequentially and $3 million compared to the same prior year period, due primarily to the timing of materials used in our strategic R&D projects are.

Our current R&D spend at approximately 6% of revenues is higher than our historical average with a focus on offering our customers newer technologies as well as new products.

Operating income was $1 $2 million compared to operating income of $1 $3 million in the fourth quarter of fiscal 2021, and operating income of $1 $1 million in the same prior year period.

Income tax provision was $2 million for the three months ended December 31, 2021, compared to a provision of <unk> $7 million in the preceding quarter and $1 million in the same prior year period.

Net income for the first quarter of fiscal 2022 was $1 million or <unk> <unk> per share. This compares to net income of <unk> 7 million or <unk> <unk> per share for both the first quarter of fiscal 2021 and the preceding quarter.

Turning to cash unrestricted cash and cash equivalents at December 31, 2021 were $32 $2 million compared to $32 8 million at September 32021.

Approximately 84% of our cash balance is held in the United States.

In December we repurchased 291383 shares of stock for a total of $2 $7 million, we continue to evaluate capital allocation priorities with our board of directors and these priorities include investing in our organic and inorganic growth.

Proving our management information systems, and returning capital to our shareholders today.

Today, we announced our board of Directors has approved a new repurchase plan in the amount of $5 million details of which can be found in today's 8-K filing.

Now turning to our outlook.

For the quarter ending March 31, 2022, our fiscal second quarter revenues are expected to be in the range of $26 million to $28 million.

Gross margin for the quarter ending March 31, 2022 is expected to be approximately 40% with operating margin in the upper single digits.

The company's outlook reflects the anticipated ongoing logistical impacts and the related delays for goods shipped to and from China.

Our results may differ materially in the weeks and months ahead.

The semiconductor equipment industries can be cyclical and inherently impacted by changes in market demand.

Operating results can be significantly impacted positively or negatively by the timing of orders system shipments, increasing shipping and logistical costs and the financial results of semiconductor manufacturers.

A portion of Ametek's results is denominated in RMB is a Chinese currency.

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

Thank you.

You would like to ask a question. Please press star one on your telephone keypad and if you are using speaker phone. Please make sure mute function is turned off to allow your signal to reach our equipment.

It is star one for questions.

And we'll pause for just a moment to allow everyone an opportunity to signal for questions.

And we will go first to Jeff Osborne of Cowen and company.

Hey, good afternoon, a couple questions on my end I was wondering if we could just touch on Michael you made some comments about capacity.

Some of the logistics issues in Shanghai in particular.

Assuming some of the Covid related delays go on for a couple quarters here or is it safe to say that your revenue range is sort of boxed in.

We are now sort of sub $30 million and then as we look out maybe six to 12 months things should start improving especially given you mentioned on the polishing side lead times are three to four quarters I'm just trying to understand what the moving pieces of your three segments, assuming lead times are elongated.

Btu related equipment is somewhat constrained.

At current levels.

Hey, Jeff good to hear from you.

The issue is a little more nuanced than that are our main challenges from our Shanghai manufacturing site is labor and then the limitations of of transoceanic shifting.

We do.

Hope and see signs of a labor situation will improve over time.

As far as the transoceanic shipments shipping limitations.

No I can't even start.

Right now when that will get.

Better probably in a few quarters.

You got to also remember that would be to you also manufacturers out of both Shanghai.

In Billerica, so theres a lot of revenue coming out of billerica as well for the high Tech products.

So I would I.

I wouldn't say, there's any real major constraints in terms of our capacity, it's more outside factors that that we're navigating through right now.

Yeah, and Jeff I would just add you know.

I don't think we're necessarily boxed into this type of number I think there is a chance we could be higher than that we are continuing to see some shifting of revenue quarter to quarter and if we reach a quarter, where some of that starts to clear there's definite upside there.

It's really just a lot of moving parts right now.

Makes sense I appreciate the detail there was a 40.

48, 5 million of backlog, which is great to see is it safe to say the majority of that is b to you or are you starting to see more horizontal diffusion furnace backlog growth that maybe you haven't put out press releases on.

There's definitely a large portion of that is horizontal diffusion furnaces, along with the rest of our products on the SME segment, primarily.

Okay.

As that flows through over a few quarters with the margin trajectory would be similar to what you reported this quarter I'm just trying to see because you've had a couple of hundred basis points swing.

Backlog flows through to revenue how that plays out.

Yes, I think that's a fair statement, 40% is still what we're targeting and then the mix of higher horizontal furnaces and some of our other products. The heightened furnaces could put that a little bit below but we continue to try to keep it right around that 40% range.

Got it and two other quick ones.

Some of your historic customers I guess have already started procuring equipment and rolling that out as he see wafer starts on the silicon carbide side growing so I just wanted to get your perspective on what you think market share is on the equipment side relative to the polishing side sorry the.

Consumable side, you highlighted the opportunity as the industry grows on the consumables, but I just wanted to understand in terms of the initial equipment in particular wafer polishing. If you could touch on what you think the past 18 months have shown in terms of market share trends.

Hey, Jeff This is Paul Lancaster I'll take that question.

Well as we said right now what we're seeing is that you know the budgets have been more formalized and there is quoting activity. There has begun for us and the consumables right now represents a greater mix still and we're still you know talking and engage with these customers on the machine side, but the lead times.

Again or three to four quarters out so we probably won't see those bookings until towards the end of the year.

It's safe to say you don't think you've lost any share of initial equipment that maybe its been put in or would your argument would be that the equivalent hasnt been put in and people are just still formulating the budgets and it's more to two three or four quarters away I'm just trying to understand the timing yeah. I know what you said the latter part of your statement is correct, we don't feel like.

We've lost any market share with the consumable business, we are talking to these customers on a very regular basis.

And are very much involved with their planning.

As you know what the supply chain lead times tend to be a little volatile right. Now so we have to be engaged with them to be sure that we are going to be in time for the projected ramp times.

Got it and the last question I had is in your 10-K, you mentioned reference to a new single sided batch Polisher can you just give us an update on some of the new tools I believe in your prepared remarks, Paul you mentioned two new tools I was only aware of one but maybe you could just run through those at high level.

Okay, Yeah. So you know.

We've been working as you know we've invested heavily into R&D as you can tell.

PR Hoffman came out with a new single site Polisher, we call it the SSP 619.

Primarily geared towards the compound semiconductor segment with our various options and features that.

We research with a different customer interactions and what they required as that ramps. The second tool is just a larger double sided polisher called 7600 again with feature sets that are relevant for the compound semiconductor processing market for the initial double sided stock polished so those have been.

Released.

<unk> been running demos as we speak and the interest has been pretty good at this point.

Great. That's all I had I appreciate the detail.

Thank you Jeff. Thank you thanks, Jeff.

And as a reminder, it is star one if you do have a question at this time.

And we'll go next to Mark Miller with the benchmark company.

Thank you for the questions.

Two new tools you just mentioned are there margins above corporate average currently we're at corporate our corporate.

Corporate average.

Well mark to be fair, we haven't.

Announced any booked orders for those yet so yeah, we would certainly expect to margin profiles in line with with our averages that we have today.

In terms of existing backlog is it more of a back end loaded.

And something in the order backlog was extended into the first quarter next year.

I wouldn't say backend loaded we're definitely booking, especially for some of our our horizontal furnaces in our high Tech belt furnaces bucking that out further on.

But I don't think necessarily backend loaded would be shifting the nature of these shifts that that is happening, it's a little bit hard to predict.

Your tax rate has been jumping all over the place can you give us any guidance about the rest of this year.

Corporate tax rate would be.

It certainly has we were glad to see this quarter, a lower effective tax rate as we had more income generated out of the U S where we have some of our net operating losses as you can imagine it's difficult to give you that number but.

You know I think if we settled on a range of 25% to 30% is an average and that that would be my recommendation.

Thank you.

Thanks Mark.

And with no other questions in the queue.

That does conclude today's call we would like to thank everyone for your participation you may now disconnect.

[music].

Oh.

Okay.

Okay.

[music].

Okay.

Yeah.

Okay.

[music].

[music].

[music].