Q2 2022 Amtech Systems Inc Earnings Call
Okay.
Please standby.
Good day and welcome to the Amtech Systems' second quarter 2022 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 2022 conference call with me on the call today 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 second quarter of 2022.
Earnings release is posted on the company's website at Www Dot Amtech Systems' dot com in the investors section.
Before we begin I'd like to remind everyone that the safe Harbor disclaimer in our public filings covers this call and our webcast.
Some of the comments to be made during the call today will contain forward looking statements and assumptions that are subject to risks and uncertainties, including but not limited to those contained in our SEC filings all of which are posted within the investor section of our corporate website.
The company assumes no obligation to update any such forward looking statements you are cautioned not to place undue reliance on forward looking statements, which speak only as of today.
These statements are not a guarantee of future performance and actual results could differ materially from current expectations.
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 demand for our products the effect of changing worldwide political and economic conditions, including trade sanctions the effect of overall market conditions, including the <unk>.
Equity and credit markets and market acceptance risks ongoing logistics supply chain and labor challenges capital allocation plans and the worldwide COVID-19 pandemic.
Other risk factors are detailed in the Companys SEC filings, including its Form 10-K and forms 10-Q.
I will now turn the call over to Mike Wang Chief Executive Officer.
Thank you Erica and everyone else for joining us today.
I would like to start off by thanking our global team.
Extra ordinary efforts.
<unk> through several challenges on our unparalleled scale the past couple of years.
No doubt the experience has increase our resiliency.
Further our commitment to all of our stakeholders.
I want to let all of our Shanghai employees know that our thoughts are with them and their families.
We will overcome this challenge together as we have prior stores very strong moving on the robust demand for our products continued in the second quarter with bookings of $33 $7 million up 4% over a strong second quarter in 2021.
Backlog of $53 6 million.
102% year over year.
Revenue of $28 6 million.
Up 44% year over year, representing yet another record over the past three years.
As many of you are aware at the end of the second quarter.
The Chinese government mandated COVID-19 lockdown throughout the Shanghai area.
All of this lockdown had limited impact on our second quarter results.
The robust overall demand environment, our manufacturing operation in Shanghai has remained closed.
Mandated closure.
Which in effect will have an impact on our third quarter results.
Our Shanghai factory, producing our advanced packaging and SMT products.
This represented approximately half of our revenues depending on product mix over the past four quarters.
I'll make that.
With support from our key customers.
I've received notice that we have been cleared by the Chinese government for reopening.
There are several steps and submissions require before being permitted to reopen and we won't be limited the number of workers allowed into our factory upon such reopening as of today, we could have the factory reopened in the next few weeks with the government, allowing an approximately 10% to 15% of our.
Workforce to return.
We continue to expect limited shipments out of Shanghai in fiscal Q3.
Staffing shipping and supply chain limitations and the possibility of rolling closures.
Covid numbers increase.
Unfortunately due to.
The extraordinary nature of the situation.
Certainty of both the timing of the full reopening of our facility and the reopening of our customers and suppliers disruptions are likely to last beyond the third quarter.
Once our factory fully reopens and the local supply chain returns to normal we will take advantage of our larger capacity to quickly ramp up production to serve the growing backlog.
Despite this closure demand in the market, including from our Chinese customers remains strong our customers understand we are not alone in this situation and our larger strategic customers wrote letters of support our application to reopening.
Good day.
No customers have canceled orders in fact, we continue to receive sizable new orders even during the closure.
Beyond these near term uncertainties, we strongly believe our leadership in select growth markets with exposure to several secular tailwind creates significant opportunities to drive increased profitability and shareholder value as demand a southern rates and when you realize the operating leverage built into our current business model.
I will now turn the call over to Paul.
Into more details on our end markets.
Thank you Michael expanding further on the demand environment, we continue to see strong interest in the market for capacity expansion initiatives, both for advanced packaging as well as SMT applications.
In the second quarter for example, we booked a $4 $7 million order for advanced packaging products as we mentioned last quarter and to place this level of demand in context and prior buying cycles, our backlog for the semiconductor segment was typically fulfilled over one to two quarters with the combination of higher demand and longer.
Lead times from our suppliers, our current backlog is extending into the second fiscal quarter of 2023.
Moving onto our material substrate segment in the second quarter, we saw bookings increased nearly 100% year over year and gross margin for this segment improved to 48%.
Driven by increasing strength in our consumable products as our customers continue to expand manufacturing capacity.
Within the Silicon carbide wafer market, specifically, we are seeing increases in consumable demand, which aligns with the broader market commentary related to rising device output well.
While still early in the long awaited multiyear ramp of wafer manufacturing capacity industry demand continues to strengthen driven by increasing awareness of the benefits of silicon carbide over traditional silicon and applications, including electric vehicles renewable energy communication and high voltage industrial.
Applications.
With the sheer magnitude of potential end market demand in the coming years interest as the market continues to increase with several newer entrants looking to qualify manufacturing processes, including our specialized templates and products.
Given our long history in the market and the significant cost of ownership benefits of our consumable products. We are seeing a broadening of discussions with players throughout the industry.
Related to capital equipment, we continue to have good dialogue with both existing and potential new customers executing and initial phases of wafer capacity expansion, however component shortages or extending lead times across the industry for <unk> equipment providers for complementary wafer manufacturing steps are.
Currently quoting lead times of up to 18 months, which may limit the pace of new capacity expansion and timing of orders for our products.
But that said 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 high end demand across all of our served markets. We remain cautious about the ongoing market uncertainties, such as the Shanghai locked out which are difficult to predict.
Beyond this specific headwind impacting the third quarter industry wide challenges such as supply chain constraints inflation increases in freight cost and availability coupled with rising labor costs continue to impact our business and require ongoing management and vigilance.
Now I'll turn the call over to Lisa.
Thank you Paul net revenues increased 5% sequentially and 44% from the second quarter of fiscal 2021 with the sequential increase primarily attributable to strong shipments of our advanced packaging equipment and the increase from the prior year quarter due to higher shipments across all of our product lines.
Gross margin increased sequentially and from the second quarter of fiscal 2021, primarily due to a more favorable product mix.
General and administrative SG&A expenses decreased $2 million on a sequential basis, primarily due to lower shipping and logistics costs, partially offset by increased employee related expenses.
SG&A increased $2 1 million compared to the prior year period, due primarily to $2 $6 million and higher commissions on higher sales.
$6 million and employee related expenses for.
$4 million and higher shipping expenses, driven by higher revenues and increased shipping rate and $2 million and added SG&A from our acquisition of inner surface dynamics in March 2021.
<unk> income was $2 $6 million compared to operating income of $1 2 million in the first quarter of fiscal 2022, and operating income of $2 million in the same prior year period.
Income tax provision was $7 million for the three months ended March 31, 2022, compared to <unk> $2 million in the preceding quarter and $5 million in the same prior year period.
Net income for the second quarter of fiscal 2022 with $2 million or 14 per share. This compares to net income of $1 million or <unk> <unk> per share for the preceding quarter and net loss of $2 million or <unk> <unk>.
Per share for the second quarter of fiscal 2021.
Unrestricted cash and cash equivalents at March 31, 2022, or $27 $9 million compared to $32 $2 million at December 31, 2021.
Approximately 77% of our cash is held in the United States, we used $1 $4 million during the quarter for the repurchase of 143430 shares of our common stock.
$3 $6 million remains available for repurchases under our current authorization.
Turning to the sale leaseback agreement that we announced in 8-K on April 28, 2022, our subsidiary Btu International entered into a purchase and sale agreement with a third party for the sale of their headquarters in Billerica, Massachusetts. The sale price for the property is $21 $5 million $500 500.
Dollars of which was paid as a nonrefundable deposit with the remainder due at closing.
We expect to close in June and closing is subject to the execution of a lease back of the premises.
Or at least back are expected to include a base rent of $1 $5 million per year, and an absolute triple net lease for a two year term.
The Billerica building did not suit our needs and was the agent energy inefficient during the leaseback period, we will conduct a search and eventually relocate to another building that better suits, our billerica operations.
Assuming a June closing, we expect to recognize a gain on this transaction in our fiscal third quarter ending June 32022 of approximately $11 million to $12 million net of tax. We believe we will be able to utilize our net operating losses from a tax perspective subject to an 80% Federal limitation addition.
We expect our net net cash inflow of approximately $15 million to $16 million after settling the outstanding mortgage and related sales expenses.
With this transaction we are very pleased to take advantage of a strong real estate market to unlock valuable capital in our business as we have stated in the past we have an objective to grow our revenue and expand our operations through strategic acquisitions, while at the same time pursuing organic growth.
With the enhanced financial flexibility generated by this transaction management and our board of directors will continue to evaluate various capital allocation priority, including M&A operational and other opportunities that will drive long term value creation for our shareholders.
Now turning to our outlet.
Due to the uncertainties surrounding the local governments policies on Covid shutdowns, we are assuming a slow ramp to reopen our factory in Shanghai, which is represented approximately half our revenues depending on product mix over the past four quarters.
Therefore, this outlook assumes very few shipments out of Shanghai through June 32022.
For the quarter ending June 32022, our fiscal third quarter revenues are expected to be in the range of $14 million to $16 million gross margin for the quarter ending June 32022 is expected to be in the upper 20% range with a negative operating margin.
This outlook excludes the gain that will be recognized from the sale leaseback transaction transaction, which is expected to close in June .
The company's outlook reflects the anticipated ongoing closure of our Shanghai factory and logistical impacts and the related delays for goods shipped to and from China. Actual results may differ materially in the weeks and months ahead. Additionally, the semiconductor equipment industries can be cyclical and inherently impacted by changes in market demand.
Operating results can be significantly impacted positively or negatively negatively by the timing of orders system shipments, increasing shipping and logistical costs and the financial results of semiconductor manufacturers.
A portion of <unk> results is denominated in RMB is a Chinese currency. The outlet 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.
We'd 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 mute function is turned off to allow your signal to reach our equipment again that will be star. One if you would like to signal with questions.
First question today comes from Craig Irwin with Roth Capital Partners.
Good afternoon. This is Andrew on for Greg and Thanks for taking my questions.
A two parter here you guys had really strong gross margins in the quarter.
Ahead of where you guided to so can you provide a little bit more color on the puts and takes in each line of business and secondly, kind of talk to you.
Any initiatives you guys have taken to combat the supply chain issues, whether it be through sourcing or shipping out in products and Thats all from me. Thanks.
Yeah.
And your line is open. Please. Please go ahead with your response.
And again speakers, perhaps you just perhaps you just placed your line on mute. Please go ahead with your response.
Okay.
Please continue.
Hi, Andrew for Ross I was in the middle of answering your question I think we got cut off are you still there.
I am. Thank you okay. So I believe your question was around the stronger gross margin performance.
It really is attributable to product mix and that is exactly the reason that we talk about quite a bit we saw some very strong performance from our material substrates segment in our consumables area, which drives a higher gross margin profile.
That was a big contributor.
And we'll go ahead and take our next question from Jeff Osborne with Cowen and company.
Okay great.
Andrew also had a second part of his question on the.
What youre doing around logistics and sourcing so I don't know if you want to answer that first or.
Several as well.
I think we missed that entire question. So if you recall it I'd love for you to repeat a job.
Yes, I think the rough analyst and he can hop back in the queue, but I think he was trying to.
I understand what youre doing around logistics for inbound and outbound freight and handling the supply chain shortages.
Hey, Jeff This is Paul Lancaster I'll answer that question for Ross.
Yes, so that's a little challenging right now with just in general supply chain I mean, we're really focused.
Pretty diligent about trying to secure.
And get away from sole source supply chain issues, there as it relates to Shanghai.
Once we do open we really don't know what thats going to look like I mean, the quarters congested, we're working closely with our customers that was sweet prioritize shipments.
And in a lot of times. We include terms was such that the customers need to arrange that freight so.
All we're doing is we're planning as best as we can given the unknown circumstances of how this is going to proceed once the reopening does occur.
Got it and maybe because of line of questioning along that same topic. That's why I brought it up as well, but remind me on the revenue recognition do you record when it shows up at the quarter or does it need to be accepted upon delivery, it's wherever it Scott.
It's one of the title transfers so once the once the title transfers ownership goes to the customer in terms of like ex works then we recognize revenue at that point.
Hi, guys.
And then typically how much of the you mentioned, 50% of revenue had come from this facility there.
How much of that output stays in China versus the exported to other locations.
Hey, Jeff This is Mike ballpark.
How are you doing Jeff.
That varies.
Depending on season, it also product mix, we see more.
The Shanghai Metro products ship outside of China.
She was a stronger okay.
Our goods.
<unk> and <unk>.
Yes.
Got it.
And then maybe the last question for me on the shipping or sorry on Shanghai is.
Productive realistically can timna, 15% of the staff.
And then b.
What.
Levels of assurance do you have that.
People that have been marked down for a month or longer we will come back.
There's also an opportunity like you've seen another look at yes go ahead.
I'll start off on that one Joe.
<unk>.
What I've seen over the years is that our Shanghai, China based team.
Just absolutely tremendous.
I don't have to worry about them not.
Not wanting to work internationally.
To get the bits right now a little bit as being sort of crazy being locked in their apartments.
High rise apartments for more than a month.
That is not a concern.
In one fashion or another.
Now in terms of productivity if it all depends on.
We can't get yes of course, if we get.
I'm being a little humorous here.
Those are so office workers and we'd be able to ship stuff.
I would not be as productive, but we do have.
Our list and that list is being embedded and we have a good deal of confidence that the initial vanguard of employees who come in.
So can stage or the reopening of the factories.
Jeff I'll, just add as well.
The tariff environment and Covid and all of those factors have had a dramatic impact on our business and we've managed through all of that clearly this was another extraordinary event.
Obviously.
Is bringing to the forefront having.
Your alternative manufacturing locations and that's something that we have been looking at and obviously urgently.
Continue to look at the supply chain in China is so strong and it's difficult to find other locations that have that similar supply chain, but it's apparent to us and I think many other companies that have.
Having this alternative locations is quite important in our business. So that's absolutely on our radar.
Absolutely that makes a lot of sense, Lisa maybe we could switch gears to the silicon carbide side, the order strength that $5 7 million up nicely both year on year and sequentially.
That all your prepared remarks, where I think more rearward looking as it related to the strength in the quarter on both margin and revenue on consumables, but on the order side is there any portion of that or a majority of it new tool sets or is that all consumables as well.
Hey, Joe Paul No. There was primarily driven by the consumable side of the business.
So we're starting to see is a pretty strong demand cycle thats fairly continuous.
For our template business, which was one of our primary consumables.
Some of the carrier businesses as well. So we're just seeing a just an elevation of across the board of that demand for those consumables.
Got it Thats helpful.
Paul you mentioned.
In the prepared remarks, new entrants into the space.
Or maybe I misheard that but what were you referring to there around quoting activities in the pipeline.
Just a follow up.
New entrants into the compound semiconductor space so.
With the <unk>.
<unk> forecast, obviously being where they are it is attracting.
New manufacturers trying to ramp up and expand their silicon carbide, specifically manufacturing wafers capacity.
Got it and then you alluded to some other tools in the sort of wafer supply chain.
That are ancillary to U R.
On the <unk> so to speak that you don't provide that have longer lead times and that then is impacting you or is that more on the crystal growth side or is there. Some other tool set maybe just expand upon that that was my final question, Yes, I mean, it would still be for tool sets are just ahead of our tool sets like wire saws and things of that nature edge grinding tools things that are used once the.
Pool is produced and they've got an edge grind. It then they've got a slice it so some of those complementary steps or tools used in those complementary steps are extended out in some cases 18 months.
Got it makes sense, that's all I had thank you.
Thanks, Jeff Thanks, Jeff Thank you Jeff.
Once again, if you would like to signal with questions. Please press star one on your Touchtone telephone.
It is star one if you would like to signal with questions.
And our next question will come from Mark Miller with the benchmark company.
Gradual congrats on your results I was just wondering if you could kind of chronic quantify.
In terms of higher costs for components or an ability to ship tools you thought you could ship the impact of the component supply constraints.
Okay.
Well, we're certainly seeing.
Rising material costs in our business are rising labor cost where possible, we're trying to pass those costs onto our customers that's not always possible.
So we're looking for other areas in our business, where we can.
Have some offsetting cost decreases but it is certainly a challenging environment.
Clearly, having robust consumable business this quarter.
Tremendously. So we'll continue to look for that diversified product mix to.
To help our profitability.
I think you indicated that.
Some of the you gotten clearance to reopen but it's a gradual reopening.
New restrictions allow 15% of employees a while back.
Any idea on when you'll be allowed to have 100% of your police back into European hubs.
We don't have any visibility to that at this point.
Certainly.
We can listen to our employees and things that are hurt out there, but the reality is that within the walls of the Chinese government. The local government and we don't have visibility to that right now.
With the sale.
Quarters of Btu International.
The resulting cash inflow when Youre building, a nice cash position what is your capital allocation, especially at these higher cash position what is your focus.
Our focus continues to be growth. That's our strategy is to grow both with our own organically with with product development driving our products into markets, Paul talked about new entrants.
Organic growth growth through acquisition we.
We did a small acquisition about a year ago, a tuck in auto we continue to look for good opportunities to augment our business and fueled that growth that's a very key priority for us.
We'll continue to look at capacity and share repurchases, we've been doing that as well thats all part of a broader plan that we discussed with our board quite frequently.
Any thoughts of relocating some of the business out of China.
China is such a great location for us we have a tremendous workforce there they moved last year into their new building during peak production and never missed a beat it's really is a great facility and a great employee base for us but clearly.
With what's happening here in this environment, we've dealt with tariffs and Covid and all this disclosure.
Have to look at our.
Our business continuity plans and alternative sites and that is something that that we are urgently reviewing at this time.
Thank you.
Thanks Mark.
And our next question will go back to Jeff Osborne with Cowen and company.
Sorry for the follow up question, but just in the history that you folks have been in consumables for Silicon carbide I'm curious.
Strength this quarter I assume is because of the ramp up in wafer starts and yield improvement.
Should we think of this as sort of a new run rate obviously, the order strength was there, but I'm just curious.
Is there any seasonality or lumpiness, where people would buy this and put it on the shelves for inventory.
On the consumable side or is it more.
<unk>, one hand to the other systematically and this is sort of a new run rate that youll be at for a while.
Yes that seems like a loaded question.
Yes.
<unk>.
No.
Well I can neither confirm nor deny but.
Humira side.
This most certainly it could be a new norm for us.
Have a very unique highly.
Highly competitive.
Lucian.
In our consumables that addresses the silicon carbide.
Steve.
And.
It took a while to do.
Gain traction and we've seen over the past few months.
Now, it's getting a lot more attention from our established customers and also some new entrants.
These these consumables are.
Higher ASP.
Higher margins at our standard consumables.
And.
For demand.
Seems to be opening up now so we are finally realizing.
Sure Bonnie.
Realizing the fruits of our labors on that front.
That's helpful and maybe just very quickly as wafer diameters get larger does that play into your hands at all from a competitive stance or not necessarily.
Hi.
Certainly.
Whatever future wafer size will be we can definitely adapt to that.
We've also tested some.
From eight inch wafers.
On this new important.
Not new.
The competitive specific.
Sure.
Got it that's all I had thanks, so much I appreciate you taking the clients. Thanks Beth.
Yes.
Thank you and that does conclude the question and answer session can conclude today's conference. We do thank you for your participation have an excellent day.
Okay.
Yeah.
Thank you.
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