Q4 2023 Amtech Systems Inc Earnings Call

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Good day and welcome to the Amtech systems business update conference call.

Please note that this event is being recorded.

Now I'd like to turn the call over to Michael Funari of Sapphire investment relations.

Good afternoon, and thank you for joining us for Amtech systems business update conference call with me on the call today are Bob Daigle, Chairman and Chief Executive Officer, Lisa Gibbs, Chief Financial Officer, and Paul Lancaster, Vice President sales and customer service.

After close of market today, Amtech released a summary of its revenue in business status as of September 32023.

Press 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 we made during 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 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.

Among the important factors, which could cause actual results to differ materially from those in 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.

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.

COVID-19, pandemic and our ability to effectively integrate our acquisition of <unk>, Inc, which we acquired in January 2023.

Other risk factors are detailed in our SEC filings Form 10-K and Form 10-Q.

I will now turn the call over to Amtech, Chief Executive Officer, Bob Daigle.

Thank you Mike Good afternoon, everyone and thank you for joining our conference call in today's call. We will provide a business update reporting of our full financial results will be delayed due to the complexity and judgment involved in evaluation and impairment analysis that's underway.

I'd like to share a few observations I've made about amtech and speaking with both customers and stakeholders over the past four months.

And discuss the subsequent actions we are taking.

Amtech is a company with well recognized brands, great products and technologies dedicated and talented employees and best in class service capabilities, which support a diverse customer base.

Our company has tremendous promise and is well positioned to capitalize on several secular trends that will drive demand for our equipment and consumables.

The advanced mobility market, including electric vehicles is expected to drive growth not only for semiconductors and subsystems within the vehicles, but also for battery cooling systems and a broad array of electric vehicle power modules, which are tools serve.

Okay.

Within the broader semiconductor market. Our tools are used for advanced packaging of processors for high performance computing and artificial intelligence applications.

And across the electric electronics industry as a whole the pandemic and global tensions have made it abundantly clear.

More resilient semiconductor and electronic assembly supply chains are needed.

This was all this will also expand the opportunities for our tools.

As we evaluate the strategic roadmap for Amtech, we are focusing on those areas, where we have strong differentiation and are able to add significant value in the markets, we serve and for our shareholders.

As a part of this evaluation, we have come to three realizations.

First technology innovation and customer partnerships remain core to what sets amtech apart in the industry.

Often the applications, we target are amongst the most difficult in the industry, requiring not only industry, leading performance and precision.

But also a support organization well equipped to assist customers as they refine their own manufacturing processes.

Second as we dug in deeper into the product.

Amtech currently offers we.

We have realized some products are not particularly well suited for the opportunities they target today.

This includes products that are matured and provide limited profit opportunity as well as other products requiring significant investments to deliver capabilities that are not yet needed.

Third.

The past three years have demonstrated to us the need to be nimble both in our supply chains and manufacturing operations to have the ability to quickly adapt to rapid cyclical changes in the industries we serve.

Going forward, we will continue to invest in our products and customer support organizations within the semiconductor segment, where amtech has the strongest differentiation in the market.

This includes equipment utilized for advanced packaging.

Electronic Assembly.

EV battery cooling systems and power semiconductor substrates.

While the advanced packaging and electronic Assembly business has been meaningfully impacted by the slowdown in the semiconductor market.

Our tools continue to be very highly regarded.

We are confident that as markets recover we will see orders rebound commensurate with our position.

With further opportunity to gain share as applications, such as advanced packaging for artificial intelligence processors continue to gain greater traction.

Within the substrate and materials segment.

We similarly see a very strong opportunity for consumables as well as our cleaning tools.

Michael mechanical polishing equipment upgrades and.

In our CMP foundry services.

Related to each of these product sets our goal going forward is to ensure that we are tightly aligned with our customers.

My understanding of the problems, they're trying to solve and developing our own product road maps to address these needs, we will be well positioned for growth.

As we evaluated the products in the material and substrate portfolio. We came to the conclusion that our legacy polishing machines are no longer a strong fit for the marketplace.

And while demand does exist it is not large enough to justify continued investment.

As a result, we have notified customers that we will cease manufacturing of these products.

With regards to the latest version of these machines, which we have been testing with silicon carbide customers.

We have realized that the market is not yet ready for the capabilities we offer.

With many players still in the early stages of refining their own production processes, primarily with establishing repeatable high quality Bull.

For wafer production.

The market for high volume batch tools has not materialized along the line.

<unk> line that we originally estimated.

Unlike our legacy polishing machines. However.

We are moving this technology to in tropics, where we will continue to provide customer access for trials.

Operationally as we discussed on prior calls we have begun to qualified third party contract manufacturers to add incremental capacity for select products, where we have high demand.

And to optimize our cost structure.

For example in the fourth quarter, we shipped over a dozen high temperature belt furnaces that leveraged significant content content from manufacturing partners.

As we look ahead, our manufacturing operation will focus on large complex systems.

And we will outsource simpler units and sub assemblies, where practical.

This will allow us to improve profitability and our ability to respond quickly to changes in demand.

While we are exposed to several large market opportunities, which we believe will drive strong growth in the mid to long term.

We also need to ensure that amtech can generate sufficient profitability and cash flow even in downturn downturn conditions like we are currently experiencing.

Okay.

After taking time to evaluate the performance and opportunities for each of our businesses.

I made the decision to take several actions to reduce fixed costs and expenses.

These actions are expected to contribute over $4 million in annualized savings without jeopardizing the long term growth opportunities for the company.

To provide investors with a framework on how we view the opportunity ahead.

We are rolling out a long term target model of.

$180 million in annual revenue with 18% EBITDA margins.

Our top line target is based on several factors, including a return to cyclical growth in our core markets.

Continued growth in emerging opportunities such as advanced mobility applications.

And the potential for additional inorganic opportunities.

While today, we are inwardly focused on optimizing our existing operations.

Overtime inorganic investments will remain a part of our strategy.

Related to the associated EBITDA margin at these levels.

We believe leveraging an outsourcing model, where appropriate we will help us generate better margins, while limiting volatility.

We will scrutinize all investments to ensure that they generate strong returns on invested capital.

In closing.

<unk> is a unique company with differentiated exposure to a number of high growth markets.

Our mission at this stage is to fully capitalize on these growth opportunities, while addressing operational and supply chain issues to create meaningful shareholder value from this growth.

Yeah.

With that I'll turn it over to Lisa for further details on the fourth quarter.

Thank you Bob we close fiscal 2023 with revenue of $113 $3 million compared to $106 $3 million in fiscal 2022.

In a challenging demand environment, our acquisition of <unk> completed in January of 2023 contributed to this increase in year over year revenues.

Turning to our quarterly results net revenues decreased 10% sequentially and 14% from the fourth quarter of fiscal 2022.

The decrease from prior year is primarily attributable to lower shipments from our Shanghai manufacturing facility, partially offset by an increase in shipments of our high temperature belt furnaces and the addition of <unk> in fiscal 'twenty to 'twenty three.

The sequential decrease is primarily due to a decrease in shipments across all of her bed business segments.

We are experiencing lower bookings in multiple areas of our business due to the softness in the overall semiconductor market.

Due to the prolonged downturn in general economic conditions in the semiconductor industry and delays in the adoption of Nextgen polishing tools, we anticipate an intangible asset impairment charge in our material and substrate segment as of September 30th 2023.

Due to the complexity and judgment involved in the valuation and impairment analyses, we are working with our external auditors to finalize the audit procedures.

When complete the company will issue a press release with our fourth quarter and full year fiscal 2023 results as well as file our annual report on Form 10-K.

Unrestricted cash and cash equivalents at September 30th 2023 were $13 $1 million compared to $14 $3 million at June 30th 2023.

Proximately, 56% of our cash balance as of September 30th 2023 is held in the United States.

We are clearly in a very challenging demand environment for our business.

As we disclosed in the 8-K that was released on Monday, we have entered into a forbearance agreement with our bank.

The purpose and intention of this agreement is to give us the runway we need an access to our revolving line of credit until demand picks up we.

We are making swift and decisive fixed cost reductions in our business with a goal to get to EBITDA breakeven as quickly as possible to give us the ability to weather this prolonged downturn and be ready when the growth returns.

For context, we estimate the actions we've already taken will decrease annual operating expenses by $4 million for the full fiscal year of 'twenty 'twenty four and we will continue to evaluate opportunities for further cost savings.

The timing of these actions occurred throughout this December quarter, our first fiscal quarter of 2024. Therefore, we expect the full benefit of the savings to be realized in our second fiscal quarter of 2020 for.

These steps will significantly improved results and enhance profitability through market cycles.

Now turning to our outlet for the first court the first fiscal quarter ending December 31, 'twenty two 'twenty three we expect revenues in the range of $21 million to $24 million with EBIT nominally negative.

Although the near term outlook for revenue and earnings is challenging we remain confident that the long term outlook is strong for both our consumables and equipment, serving advanced mobility and advanced packaging applications.

The expense actions I mentioned earlier will significantly improved result in enhanced profitability through market cycles.

Operating result can have significant be significantly impacted positively or negatively by the timing of orders system shipments logistical challenges in the financial results of semiconductor manufacturers.

Additionally, the semiconductor equipment industries can be cyclical and inherently impacted by changes in market demand.

Actual results may differ materially and the weeks and months ahead.

A portion of Amtech results is denominated in RMB is a Chinese currency.

The outlook I 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.

I will now turn the call over to the operator for questions operator.

Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.

If you'd like to ask a question you May press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

One moment, while we poll for questions.

Okay.

Okay.

Yeah.

Yeah.

Once again it is star one to ask a question.

We do have a question from the line of Mark Miller with benchmark. Please proceed with your question.

Just a couple of questions about the recent forbearance agreement.

It appears that you're you're reducing the size your term loan and moving the balance to a larger revolver is that correct.

That is correct mark.

Well why why did you do this why didn't you do this before borrowing to cover that I'm just curious.

Yeah.

And you know, we we've been working with the bank and I you know.

Did the timing kind of worked out with with our Q4 results to work through this obviously it takes some time to work through everything and you know Unfortunately, we weren't able to get it done before the Q4 results but.

That's the reason for that is it gives us the lower monthly term payments, which helps with our monthly cash flows.

As well as increased access to our revolver.

Again, a part of it is that that the revolver expired in January of 24, and this extended into January of 'twenty five.

Okay.

Also appears at it.

Moving turn balance on the revolver.

Mature maturity is going from 2028 to 2025 is that correct.

And so the term loan is moving from 2028 to 2029 and then the revolver was maturing in 'twenty four and now it's in January of 25, Okay.

Oh, there's no so I guess theres no real change in liquidity is confirmed.

That is confirmed we're working on you know getting to cash breakeven and managing and during this cycle.

And you will have access to that revolver as demand returns, if we need access to working capital.

So we're going to just continue to.

Strive for that breakeven so that we can stay in this the spot until things demand comes back.

One final question what is the margin paid on the floating rate and the new interest payment.

My estimate is the interest rate will be right around 10%.

Okay.

Just one other question in terms of your backlog do have you or do you anticipate having to remove any of the the orders from your backlog.

Yeah, we've not had cancellations that we've had a couple as customer push outs at this point, we've not had cancellations and we've talked about our backlog in the past and the importance of.

Of shipping it and bringing it down so that's part of what we saw this quarter was with our contract manufacturing.

Contract manufacturer partner, helping us get more units out the door.

Okay. Thank you.

Thanks Brent.

As a reminder, it is star one to ask a question.

Okay.

There are no further questions in the queue I would like to hand, the call back to management for closing remarks.

Yes, it does its Bob Daigle again, I'd just like to thank everyone for joining our conference call today, and we'll be happy to once we once we file the K happy to jump on calls with folks to to have more discussions.

Yeah.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation.

May disconnect your lines at this time and have.

A wonderful day.

Yeah.