Q1 2023 Amtech Systems Inc Earnings Call
Good day and welcome to the Amtech systems physical first quarter 2000 twenty-three earnings conference call.
Please note that this event is being recorded.
Oh now I'd like to turn the call over to Erika Minion of Sapphire Investor Relations.
Good afternoon, and thank you for joining us for Amtrak system. This fiscal first quarter of 2023 conference call.
Literally on the call today, Unlike away Chief Executive Officer, Lisa Gibbs, Chief Financial Officer, and Paul Lancaster, Vice President of sales and customer service.
After closing market today Amtech released its financial results for the physical first quarter of 2023. The earnings release, just posted on the company's website at Www Dot Amtech systems Dot com and the investors section.
Before we begin I'd like to remind everyone that the safe Harbor, a disclaimer in our public filings covers this call in our webcast.
Some of the comments to mean nature in today's call 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 industrial section of our corporate website.
The company's sandwich no obligation to update any such forward looking statements your cautions 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.
Among the important factors, which could cause actual results to differ materially from those in the forward looking statements are changes in technology is used by customers and competitors changing.
Changing volatility in the demand for our products, the effective changing worldwide political and economic conditions, including trade sanctions.
Overall market conditions, including the equity and credit markets and market acceptance rest ongoing logistics supply chain and labour challenges capital allocation plans.
Worldwide, COVID-19, pandemic and our ability to effectively integrate our acquisition oven tricks, Inc, which we acquired in January 2023.
Other risk factors are detailed in our SEC filings, including our Form 10-K informs 10-Q.
I will now turn the call over to Michael Wang Chief Executive Officer.
Thank you Erica and everyone for joining us today.
And the fourth quarter, you generated 21.6 million in revenue.
Representing a year over year decrease of 19%.
As we discussed last quarter driving this expect the decrease was a softening of demand and are both advanced packaging and S. M. Two products.
Following too strong years of capacity expansion.
And as customers are currently evaluating capital spending projects due to the changing market conditions.
Helping offset this will continue to see very strong demand.
For our high temperature belt furnaces or E V applications.
Overall.
You remain excited and steadfast about a long term opportunities across all of our businesses.
Then the semi division.
Well, we are currently transitioning through a downturn in the spending cycle for some of our products.
Competitive position in the industry remains strong.
Which creates an opportunity to capture additional upsides and the next is the best one cycle.
At least.
We are currently experiencing a record surge in demand for high temperature belt versus with easy applications as a driving force.
While still early repeat orders like the recent press release today make.
Makes us optimistic regarding the scale of the opportunity ahead.
Adding to this E V tailwind.
We continue to see strong demand for silicon carbide consumable products.
Industry undergoes this multiyear capacity expansion cycle.
Turning to our strategic growth initiatives three weeks ago.
Announced the acquisition of an tropics. It globally recognized expert in C M P and wait for cleaning.
With the addition of an tropics amtech now offers one of the industry's brought us such a substrate processing solutions, providing robust crossover opportunities across the combined customer basis.
To provide additional perspective.
I like to take a moment to discuss and tropics his business in greater detail.
Starting with the engineered products.
These are upgrades obsolescence and replacement parts develop pot and tropics for.
For the most popular 200 millimeter and below C M P systems and cleaners.
And together represents roughly half of the business on L. T M basis.
Utilizing and tropics is engineered products customers are able to maintain their existing C. M P and cleaning tool.
Sure they are operating at peak performance.
As the Oem's, where these legacy tools tend to focus on 300 millimeter platforms.
Often not well resorts support 200 millimeter envelope tools and high volume.
Tropics fulfills a need for customers and O M alike.
Fact, given the improved performance reliability and lower operating costs created by replacing legacy parts with a triplett says modernized engineered products. Many Oems have become both customers and a referral source.
But very large installed base of these tools in the market.
Placement and upright opportunities are very robust.
Drawing from these advancements in experience.
Fix has literally become the Oh, yeah and for the new Ontrack double sided scrubber.
Most cost effective way for cleaning system.
For away first from 100 to 200 millimeter, which is very well suited for many applications, including compounds semiconductor materials like silicon carbide in gallium nitride.
Given the way precise volumes of these applications relative to the scale and volume on a 300 millimeters silicon processes, they need cleaning tools on the market today are ill suited to meet the specific demands and needs of the compound semiconductor processes.
As a result.
What a strong demand in the market for a new on track double sided scrubber driven in large part by the the best months in Silicon and Silicon carbide front and manufacturing.
In addition to the equipment and engineered products and trucks also provides field service and training as well as C. M. P foundry services.
So you'll surface and trading enables in trucks to maintain indepth contact with customers.
Getting stickiness and promoting the sales of engineered products you on track double sided scrubbers and other products and services from the tropics.
C M. P foundry services in turn provides the tropics that unique perspective of being both the end user and supplier further enhancing the quality and efficacy of the CMP related products processes and services provided. Additionally, D. C. M. P foundry has been qualified by cell.
Leading I D M N.
And foundries to backfill their existing capacity.
As we look ahead to the opportunities for on tropics, that's part of Amtech group.
We see meaningful cinergy potential.
The customer front overlap with existing customers allows us to further cement our relationships and the substrate market, while expanding our process into the device manufacturing market.
Similarly in areas with no current customer overlap several cross selling opportunities exist.
Lastly, while the tropics has built a solid foundation in the U S.
International expansion has been an area of focus as a company scales.
Leveraging the footprint in channel and resources Amtech has established overseas, we believe in trucks and cost effectively accelerates these expansion efforts.
Our company's share a culture of typical leadership combined with deep domain expertise and unparalleled customer service <unk>.
Macro themes of EV adoption and Campise stomach conductor of proliferation are driving growth across the entire portfolio.
As existing and future customers make the necessary capacity investments 12th to address these opportunities.
We expect a strongly benefit in the years ahead, given a respect the position in the market.
And clothing, we are very confident that our strategy to align our divisions to high grew up to Megatron markets, such as E V and the greater pursuit of energy efficiency is gaining traction.
We believe that a strategic alignment to mega trend growth areas across multiple product and customer touchpoints creates a strong endurable foundation for value creation in the coming years.
I will now turn it over to call to Paul Lancaster go into more detail on our end markets.
Thank you Michael.
[noise] any further on the demand environment as anticipated.
And the first quarter, we experienced a softness in our orders for the advanced packaging and S. M T products, which is continuing into the second quarter.
Additionally, due to the timing of quarters Shitness at the end of the quarter a portion of revenue expected in Q1 moved to cute too. Please.
These products are essential and are reflected in our guidance we can't shoot.
Further deterioration in the macro environment, which may impact customer spending plans, we expect Q once represented the trough and new orders for these products.
At this stage however, it's difficult to predict the timing is shape of a recovery given the macro outlook as it relates to the impact changing market conditions may have on semiconductor demand.
That's sad we continue to see healthy mid to long term interests has industry moves further towards advanced packaging architectures and asked the complexity and sophistication of surface Mount process increases.
Ah such applications thermal uniformity and repeat ability is of paramount importance when choosing a re flow of it.
And we have demonstrated our paramax product line is capable of delivering against the strenuous requirements.
As a result, we have become the tool of rector for many of the leading no sides as well as leading fabs looking to incorporate advanced packaging capabilities.
Believe we're well positioned once capacity investment resumes since we're elaborate to the highest growth areas in the market.
As it relates to a high temp belt furnaces, which are manufactured here in the United States. We against saw strong demand this quarter from E V applications spit.
Specifically our customer in this market are leading automotive suppliers, which manufacturer components of sub assemblies for E V as such as sensors.
Battery cooling assemblies in power module substrates amongst others.
Similar to the S M T market.
As the complexity of these assemblies grow and due to the strict safety requirements for automotive applications consistent and uniform thermal processing is critical.
Evidence by the repeat orders, we continue to receive from existing customers.
As well as interests from in dialogue with potential new customers. We believe there remains a large opportunity ahead of us.
Additionally, we continue to see a robust forecasts for horizontal diffusion product life, Rybolt 200 millimeter and 300 millimeter applications.
Some of which are slated for supporting Silicon carbide production.
With their current and growing backlog of hyped up front of that says predominantly due to evening related demand. We are taking steps to improve our manufacturing operations to increase both capacity and profitability through greater efficiencies in operating leverage.
By utilizing outsource manufacturing for certain sub assemblies, and adjusting our supply chain to support this growth arc.
Goal was to ramp capacity on 2023 to better serve our current backlog and reduce lead time for new orders, while I'm proving the contribution margins of these products.
Within our material substrate segment, we continue to see health as demand for a consumable products, including those with silicon carbide applications.
As we discussed previously, but the silicon carbide portion of our consumable business up over 100 per cent your over a year, we anticipated stabilization of consumable demand as existing wafer capacity is fully utilised and before the next phase of wafer capacity expansion has brought on line.
This is progressing as expected with demand likely to remain a current levels until anticipated additional capacity is brought online towards the end of this calendar year.
Specific to silicon carbide consumables. It is important to note that Amp Tech has been a leader in this market for many years with existing relationships across both industry leaders and newer entrants as.
As a result girlfriends are mad for a consumable products tend to follow that of overall wafer capacity in the industry, which is undergoing a phase multi year expansion cycle.
While there are several companies looking into either girl existing capacity or enter the market. The pace a wafer capacity additions as often longer than that of a traditional sale again and it will take time for each of their contributions to grow the market as a whole.
Taken together the near term demand for our products, namely height, 10, Bell furnishes Silicon carbide consumables remains very robust while over the myths of long term, we believe we're well positioned to participate in the growth of silicon carbide and semiconductor industry is one capacity investment cycles retire.
Well now I'll turn the call over to Lisa to review our financial results.
Thank you Paul.
Net revenues were $21.6 million decreasing 33% sequentially and 19% from the first quarter of fiscal 2022.
Decrease it's primarily attributable to lower shipments of our semiconductor and polishing equipment, partially offset by an increase in consumer bullshit minutes compared to the prior year quarter.
Gross margin and our material substrate segment decreased primarily due to changes in product mix and a consolidated basis gross margin relatively consistent among period.
General and administrative expenses increased $1.9 million on a sequential basis and $2.1 million compared to the prior year period.
Primarily to $1.4 million and acquisition cost as well as higher consulting any European expenses.
Operating life with $2.7 million compared to operating income of $3.9 million in the fourth quarter of fiscal 2022, and operating income of $1.2 million in the same prior year period.
Not long after the first quarter of fiscal 2023 with $2.7 million or 20 cents per share. This compares to net income at $4.2 million or 30 cents per share for the preceding quarter and net income of $1 million or 70 cents per share for the first quarter at physical 2022.
Unrestricted cash and cash equivalents at December 31st 2022, or $44.5 million compared to $46.9 million at September 30th 2022.
Approximately 83 per cent of our cash balance as of December 31st 2022 is held in the United States.
Looking ahead, our cash balance.
Cash position will be materially lower with our acquisition of the topics. We used a turmoil of $12 million plus cash from our balance sheet to find the 35 million dollar purchase price.
Kelly, we now have access to an 8 million dollar about solving line of credit for working capital.
In the coming days weeks and months will be working within topics to leverage the synergies that are key to our success, which are focused on growth and customers.
Back at any cost synergies or protections that we identified will be reinvested back into the business.
Additionally, a within topics operating at two locations in Phoenix, and why not far from our corporate office, we will evaluate synergies and our real estate footprint, which could include making use of part of our corporate building for additional production or storage capacity or back office space.
As a reminder, and as indicated an art form 8-K filing on January 17th 2023.
Jericho financial statements and then Capex will be filed as an internet.
To the 8-K at April 3rd 2023.
As it relates to the rest of our pets as we continue to make focused in that sense, if you'll actually check whether.
It's called the Scots were making targeted investments and labor and capacity and are partnering with contract manufacturers.
Decreased hardly times and to improve our operating performance.
These investments to have a negative effect on operating margin in the near term, but we believe they're warranted to support the opportunity ahead.
Now turning to our outlet for the quarter ending March 31st 2023, our second fiscal quarter.
Which includes the contribution from an tropics.
The news or expect it to be in the range of $30 million to $32 million with the operating margin in the low single digit excluding approximately 1.1 million an acquisition related costs.
The company's outlook reflects the ongoing logistical impact and they're related to leave for good shipped to China as well as supply chain delays, we are experienced and I'm experiencing in our operation.
Actual results may differ materially in the weeks and months ahead. Additionally, the semiconductor equipment industry 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. So instead of shipments in the financial results semiconductor manufacturers.
It personally and text results, it's denominated in R. M. B is a Chinese currency.
Yeah look provided is based on an assumed exchange rate between the United States dollar and the RFP changes in the value of the RMB in relation to the United States dollar could cause the actual results to differ from expectation.
Now I will turn the call over to the operator for question operator.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask you. A question you May press star one on your telephone keypad.
A confirmation total indicate your line is there any question Q you.
You May press Star two if you would like to remove your question from the queue.
Four participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Krager Owen with Roth Capital Partners. Please proceed with your question.
Good evening. Thank you for taking my questions I wanted to start off with the the 8 million dollar.
Bookings that you guys had for a high volume several systems for for the easy supply chain.
Can you maybe talk about you know how many furnishes this might be and if this is for a certain carbide application or a silicon application kind of guessing that it is it's still can carbide, but you know and then if you could give us a geographic colors in North America.
Europe or or maybe Asia.
Hi, Greg.
Sure. Thanks for joining us and ask the question I'll lead off of that question.
Paul.
In terms of number of systems.
It's it's around eight and the application varies from Silicon carbide and also battery coolly modules and other substrate assembly. So so it was pretty broad spectrum.
Oh, Okay. So then this is multiple customers. This is not just one one individual mega facility. This this is probably you know a multiple multiple customers that are that are adopting you know cutting edge cutting edge <unk> I guess, Bruce this offerings from correct.
Yeah. So Craig. These are these are our high temp belt furnaces and they're across as you said several customers located not only in Asia, but also Europe in here in the U S or North America. So these are not Bruce horizontal diffusion furnaces, either cause some thermal inline furniture's use for.
You know he treating embracing application has direct bond copper applications.
All of these and applications for a power electronics supporting easy production Ah. So that's kind of gives you a flavor of what we're shipping Ah in that in those categories.
Thank you for that thank you for that so one of the one of the most exciting companies in the Silicon carbide space Finally announced a second Mega facility. This one is going to be built in Germany, and there there's wide expectation from investors that there's gonna be a third facility for that same company here in the U S.
Obviously several other companies have expressed that they will be in the silicon carbide market.
And in a similar way in future can you talked about the the the necessary lead times, if someone wants to have facility up and running in 2027 when would they be likely to to order equipment from you and you know do you see much in the way of competition for for Bush's offering it to the silicon carbide Mark.
There there are definitely competitors across all of our private lives Craig's list, but.
As you know and and are strong believers, we definitely hold leadership positions and.
Multiple product segments, whether bruce horizontal position purposes or to be to you in mind, though furnaces, then the hofmann consumables.
Typically.
Lead times will vary.
Depending on the actual products consumables can be a matter of weeks and then when you get into the actual two sets it could range anywhere from 12 months to 18 months some of them like some of our competitors is even longer.
So they will need to start placing tool side orders to start their their face testing and validation.
At least two years ahead to be safe if the current.
Supply chain condition that exist throughout the world continues, but we are seeing some signs of that improving little bit by little bit even for us and also as Paul mentioned and we are very cognizant of that and that is a risk for our growth.
Especially in the E V space and so we are definitely taking action, we sort of that last year.
And in order to reduce our lead times when also expand our capacity and improve our operating leverage.
Thank you thank you for that <unk>.
So the next thing I wanted to ask about isn't traffic's first I guess I should start with congratulations it looks like a really interesting acid to tuck into.
Your existing resources can you maybe described for us customer overlap and traffics with the traditional amtech customer base.
You know is there a minor amount of overlap or is this something where you know the salesforce knew many of the same customers that uhm, you're already calling on and you know do you do you see opportunities for synergy in the on the engineering side, given you know I I focus similar.
Just some of your other businesses, where you have not only capital equipment put services and engineered products that that I guess, Sir conceivable that that's sure yep different areas of of the same business.
Slowly craig's. So so we do see definitely large overlap of existing customers very familiar names right across silicon front man, but also our our silicon carbide substrates side of them on the market.
The names will be different but in terms of the actual customers, they're they're a strong overlap and was that there are very strong synergies across wavering and then also on the fab site.
Will definitely leverage.
And also explore new opportunities that we didn't have before so so I'm I'm very excited.
The internal strategies and also the greater depth.
Yeah.
And and products weeks and serve it suites. So we can offer in the near and long term.
Excellent excellent last question. If I may you guys have been really proactive in supply chain management and pretty transparent about some of the short term changes in I guess, what can be cyclical businesses.
Are there any updates maybe you can share with us about issues resolved over the last couple of months things that give you the confidence to give us the the solid guidance, but are you sure today.
Hi, Craig Yeah. So what we've done we announced that we hired look a lot O as a V. P of operations last year and at this time, we're implementing and adjusting our supply chain support this growth that we're seeing especially in our high 10 belt furnaces, which are manufactured here in the U S. You know.
I think the supply chain is somewhat fragile we saw that we have to make adjustments in some cases terminated certain suppliers, adding suppliers, where there was a single source issue.
And I think we're going to start to see that you know come to fruition here towards the end of this year, we will be able to you know turn that backlog at greater efficiency.
I understood understood well congratulations on the progress here and I'll put back in the queue. Thank you. Thanks, Craig Thank you Crazy.
Our next question comes from the line of Mark Miller with a benchmark company. Please proceed with your question.
I wanted to congratulate you on the order for the Bell purposes can can you give a little insight about the margin of these belt furniture or the above or below corporate recent corporate margins.
Hi, Mark Yeah, we we've talked to previously about you know product next and how it can affect our gross margins and and certainly our product next here with it's about fairness and a P. D F. As part of some of the improvements were trying to make it.
You know our our longer term results and so you know it when we don't mix and the products out of Shanghai, you see that in in our marriage I, that's where we're at Yale in.
The 30th and so yeah. These these products are around there and the 30th and we certainly would like to see some improvement as we work on these various initiatives that we discussed.
In terms of your overall backlog, how does that compare with your recent emergencies or emergency.
The backlog of the equipment and consumables.
I'm gonna be a an improvement or would it be kind of flattish.
Larger purpose at this point you know again with the the stock next we're seeing out of out of Shanghai in our factory. There I think flattish. It's just that it's a good estimate.
Opex and and in the second quarter, you're expecting flat hotbox or any increases or decreases.
You know we mentioned at night the guidance that the acquisition costs, so that certainly going to be an increase.
We're gonna have some other targeted increases based on you know some of the initiatives that we're undertaking like with contract manufacturing and and some other things. So we're we're also going to be looking at some expense control procedures and and some other things that we can do about it but I think we'll see some increase.
A couple of quarters.
You really say that there was some shifting.
Sales and do the second quarter can you quantify that.
[laughter].
You know off the top of my head honestly, Mark I don't have the exact number in front of me, but but you know we we guided yeah. We came in a little bit lower than we had anticipated an arc items I think we still hit right about consensus. So certainly we would have liked to have been on a higher range of our our guidance. There is 21.
23 million.
And finally did did you win the case you expect the second quarter to be the track order for the for this year.
Hi, Mark This is Paul Lancaster, Yeah, I did make that comment I mean, and that's related to her advanced package and an S. M. T products. You know we've seen a continued weakness there primarily in Asia steppes semiconductor demand has dropped off for us.
And so we consider this to sort of be at the bottom of where we're gonna see that business going.
Thank you.
Alright.
It was a reminder, storm wanted to ask you a question. Our next question comes from the line of Kevin Garrigan with West Park Capital. Please proceed with your question.
Hi, everyone, Great speaking with you again, and let me Echo my congrats on the <unk> acquisition, just a few quick questions on my end for the first one and it's kind of a multipart question. The <unk> acquisition does does the acquisition help with converting your backlog more quickly to capture E V revenues or does it.
More about expanding your product portfolio and revenue streams or is it a little bit of both and then secondly.
The inner surface dynamics was your last acquisition. So you know what lessons have you learned from that acquisition that you can apply to this one.
Okay. This is like thanks for joining us in her favorite questions. So the first part of your question your questions.
Interprets apposite acquisition will not help with the backlog that we have now made it too easy that will be.
Handled by the operational improvement.
Plans that we are undertaking right now and hopefully we'll start seeing some of the fruits of that towards the end of our fiscal year regarding a tropics and an I D. I N and the N. P. R. Often definitely there's there's always improving opportunities and.
And I view and tropics.
Has a a couple badly as it expands our market size. We can we can touch different segments of the market that we have not been able to since since we dispose of our European divisions, two years ago and also it provides or acts as a <unk>.
Force multiplier for existing pure Hoffman, and an idea divisions and traffic springs in.
More than a decade's worth a C M P.
Process and technology experience, they they know polishing very well, although it was more on front end, but C. M. P. In my eyes is very similar irregardless of the toolset and more importantly.
Due to their inherent capabilities from a C. M P foundry and also they're engineered products.
Those will also be a combination of a force multiplier and also provide.
Greater access to markets that we have not been able to touch before.
Okay, great that makes a lotta sense. Thank you for that and then just quickly Lisa I know you touched on in your prepared remarks in in a previous question and I I know I ask you this last quarter, but after acquiring and traffics and kind of checking off one of the boxes any change to your focus in terms of capital allocation and.
Can you kind of remind us what the focus is for 2023.
Great question like you know it it's it's involving obviously as we you know.
Took out a good chunk of cash off of our balance sheet, and and you know where where re fort Lee three four cats that are cash we're gonna be looking closely at how and when we'd want to eat you know tap into that resolving line of credit.
Renew our share repurchase program at our board meeting yesterday, we we continue to look at you know key investments in our business. So I I would say right now we're we're digesting you know the the loan facility in our cash flows and will continue to evaluate capital allocation on each of them.
Our board meetings discussing that thoroughly.
Okay, great. Thank you yeah. That's all from me I'll hop back in the queue. Thanks, everyone. Thank you. Thank you.
There are no further questions in the queue I'd like to hand, the call back over to Lisa Gibbs for closing remarks.
Thank you for your time today and thank you for your interest in an attack. This concludes today's call.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.