Q2 2024 Amtech Systems Inc Earnings Call

Operator: Good day, and welcome to the Amtech Systems fiscal second quarter 2024 earnings 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 day and welcome to the Amtech systems fiscal second quarter 2024 earnings call.

Erica L. Mannion: Please note this event is being recorded.

Operator: I would now like to turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead.

Erica L. Mannion: Good afternoon, and thank you for joining us for Amtech systems fiscal second quarter 2024 conference call.

Erica L. Mannion: Good afternoon, and thank you for joining us for Amtech Systems' fiscal second quarter 2024 conference call. With me today on the call are Bob Daigle, Chairman and Chief Executive Officer, and Lisa Gibbs, Financial Officer. After the close of market today, Amtech released its financial results for the fiscal second quarter of 2024. The earnings release is posted on the company's website at www.amtechsystems.com in the investors section.

Erica L. Mannion: With me today on the call are Bob Daigle, Chairman, and Chief Executive Officer, and Lisa Gibbs Financial Officer.

Erica L. Mannion: After close of market today Amtech released its financial results for the fiscal second quarter of 2024.

Erica L. Mannion: The earnings release is posted on the company's website at Www Dot Amtech Systems' dot com in the investors section.

Erica L. Mannion: 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 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 statement.

Erica L. Mannion: 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 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 <unk>.

Erica L. Mannion: Posted within the Investor section of our corporate website.

Erica L. Mannion: The company assumes no obligation to update any such forward looking statements.

Erica L. Mannion: 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 the forward-looking statements are changes in technologies used by customers and competitors, changes in volatility and demand for products, the effect of changes in 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, and capital allocation plans.

Erica L. Mannion: Youre cautioned not to place undue reliance on forward looking statements, which speak only as of today.

Erica L. Mannion: These statements are not a guarantee of future performance and actual results could differ materially from current expectations.

Erica L. Mannion: Among the important factors, which could cause actual results to differ materially from those in the forward looking statements are changes in technologies used by customers and competitors change in volatility and demand for products. The effective change in worldwide political and economic conditions, including trend trade sanctions the effect of overall market conditions.

Erica L. Mannion: <unk>, including the equity and credit markets and market acceptance risks ongoing logistics supply chain and labor challenges and capital allocation plans.

Erica L. Mannion: Other risk factors are detailed in our SEC filings, including our Form 10-K and forms 10-Q.

Erica L. Mannion: Other risk factors are detailed in our SEC filings, including our Form 10-K and Forms 10-Q. Additionally, in today's conference call, we will be referring to non-GAAP financial measures as we discuss the second quarter financial results. You'll find a reconciliation of these non-GAAP measures to our actual GAAP results included in the press release issued today. I will now turn the call over to Amtech's Chief Executive Officer, Bob Dai

Robert C. Daigle: Additionally, in today's conference call, we will be referring to non-GAAP financial measures as we discuss the second quarter financial results.

Robert C. Daigle: Youll find a reconciliation of these non-GAAP measures to our actual GAAP results included in the press release issued today.

Robert C. Daigle: I will now turn the call over to <unk>, Chief Executive Officer, Bob Daigle.

Robert C. Daigle: Thank you Erika so good afternoon, everyone and thank you for joining <unk> quarterly conference call.

Robert C. Daigle: Thank you, Erica. Good afternoon, everyone, and thank you for joining Amtech's quarterly conference call. I'm pleased with the progress we're making to improve our cost structure and position the company for strong operating results as markets recover. Revenue of $25.4 million exceeded the high end of our guidance range, and more importantly, we delivered adjusted EBITDA of $0.8 million with soft overall demand.

Robert C. Daigle: I'm pleased with the progress, we're making to improve our cost structure and position the company for strong operating results as markets recover.

Robert C. Daigle: Revenue of $25 4 million exceeded the high end of our guidance range and more importantly, we delivered adjusted EBITDA.

Robert C. Daigle: $8 million with soft overall demand.

Robert C. Daigle: The macroeconomic landscape for our target end markets remains mixed. Within the semiconductor industry, while we continue to experience softness and near-term demand for back-end packaging applications, we are seeing an uptick in near-shoring activities in North America and at Chinese OSATs as they add capacity. In the materials and substrates end market, we are seeing a similar balance in puts and takes.

Robert C. Daigle: The macroeconomic landscape for our target end markets remains mixed.

Robert C. Daigle: Within the semiconductor industry, while we continue to experience softness in near term demand for backend packaging applications.

Robert C. Daigle: We are seeing an uptick in near term near shoring activities in North America and.

Robert C. Daigle: Chinese out sets as they add capacity.

Robert C. Daigle: Within our materials and substrates and markets, we're seeing a similar balance and puts and takes.

Robert C. Daigle: Consumables demand, particularly for silicon carbide semiconductor production.

Robert C. Daigle: Consumables demand, particularly for silicon carbide semiconductor production, has been lumpy due to customer buying patterns and a softening in overall electric vehicle demand. However, we are seeing stronger demand for replacement parts and our foundry service. While we await the rebound in demand across broader markets, we continue to focus on optimizing our operations. Through the measures implemented over the past several quarters, we believe we have better aligned the size of our organization to support current market demand.

Robert C. Daigle: Been lumpy due to customer buying patterns and softening in overall electric vehicle demand.

Robert C. Daigle: However, we are seeing stronger demand for replacement parts and our foundry services.

Robert C. Daigle: While we await the rebound in demand across broader markets, we continue to focus on optimizing our operations.

Robert C. Daigle: Through the measures implemented over the past several quarters. We believe we have better aligned the size of our organization to support current market demand.

Robert C. Daigle: This has resulted in near-term adjusted EBITDA profitability and will help us deliver strong operating results once the broader semiconductor market rebounds. Moreover, we are actively leveraging contract manufacturing partnerships to further enhance our operational efficiencies and provide more flexibility. For example, we showcased our first reflow oven assembled by one of our North American partners at a recent industry trade show.

Robert C. Daigle: This has resulted in near term adjusted EBITDA profitability and will help us deliver strong operating results once the broader semiconductor market rebounds.

Robert C. Daigle: Moreover, we are actively leveraging contract manufacturing partnerships further enhance our operational efficiencies.

Robert C. Daigle: To provide more flexibility.

Robert C. Daigle: For example, we showcased our first re flow oven assembled by one of our North American partners at.

Robert C. Daigle: At a recent industry trade show.

Robert C. Daigle: This milestone underscores our goal of creating greater flexibility throughout our manufacturing operations from components and assemblies through complete solutions optimize our fixed cost structure.

Robert C. Daigle: This milestone underscores our goal of creating greater flexibility throughout our manufacturing operations, from components and assemblies through complete solutions, to optimize our fixed cost structure. And this positions us well to capitalize on the major investments being made in the semiconductor industry to expand regional manufacturing. We are also building on the actions taken last quarter to refine our pricing to address input cost inflation experienced in recent years. New tool pricing is now more closely aligned with prevailing costs, and we are beginning to see an improvement in the margin profile of our backlog.

Robert C. Daigle: And this positions us well to capitalize on the major investments being made in the semiconductor industry to expand regional manufacturing.

Robert C. Daigle: We are also building on the actions taken last quarter, we refined our pricing to address input cost inflation experienced in recent years.

Robert C. Daigle: Neutral pricing is now more closely aligned with prevailing costs and we are beginning to see the improvement in the margin profile of our backlog.

Robert C. Daigle: However, it will be several quarters before we see the full benefit due to existing backlog in parts of our business. In summary, we remain focused on optimizing the aspects of our business within our control, as we anticipate the next cyclical upturn in our target market. The success of our initiatives resulted in a second consecutive quarter of positive adjusted EBITDA and operating cash flow, despite the prevailing softness in the markets we serve.

Robert C. Daigle: However, it will be several quarters before we see the full benefit due to existing backlog and parts of our business.

Robert C. Daigle: In summary, we remain focused on optimizing the aspects of our business within our control.

Robert C. Daigle: As we anticipate the next cyclical upturn in our target markets.

Robert C. Daigle: The success of our initiatives have resulted in a second consecutive quarter of positive adjusted EBITDA and operating cash flow. Despite the prevailing softness in the markets we serve.

Robert C. Daigle: Looking ahead amtech remains well positioned to capitalize on several secular trends that will drive demand for our products.

Robert C. Daigle: Looking ahead, Amtech remains well-positioned to capitalize on several secular trends that will drive demand for our product. Despite near-term softness in the electric vehicle market, advanced mobility applications, which include both hybrid as well as full electric vehicles, are expected to remain a primary driver of growth for the industry. Within the broader semiconductor market, our tools play a critical role in the advanced packaging of processors used for advanced, High-Performance Computing, as well as artificial intelligence applications.

Robert C. Daigle: Despite near term softness in the electric vehicle market.

Robert C. Daigle: <unk> mobility applications, which include both hybrid as well as full electric vehicles are expected to remain a primary driver of growth for the industry.

Robert C. Daigle: Within the broader semiconductor market our tools play a critical role in the advanced packaging of processors used for an advanced.

Robert C. Daigle: High performance computing.

Robert C. Daigle: As well as artificial intelligence applications.

Robert C. Daigle: Also with the backdrop of the pandemic and global tensions sizable investments are being made by governments and industry to build more resilient and secure semiconductor and electronic assembly supply chains.

Robert C. Daigle: Also, with the backdrop of the pandemic and global tensions, sizable investments are being made by governments and industry to build more resilient and secure semiconductor and electronic assembly supply chains. This will create additional opportunities for our tools across the electronics industry. I'm confident that the strategic initiatives we are implementing to enhance operational efficiency and reduce working capital will generate significant shareholder value as our target markets regain momentum. And with that, I'll turn it over to Lisa for further details on the second quarter. Thank you, Bob.

Lisa: This will create additional opportunities for our tools across the electronics industry.

Lisa: I'm confident that the strategic initiatives, we are implementing to enhance operational efficiency and reduce working capital will generate significant shareholder value as our target markets regain momentum.

Robert C. Daigle: And with that I'll turn it over to Lisa for further details on the second quarter.

Lisa D. Gibbs: Thank you, Bob. Net revenues increased 2% sequentially and decreased 24% from the second quarter of fiscal 2023. The sequential increase is primarily due to increased consumable sales in our material and substrate segment as customers update their buying patterns and adjust inventory levels. The decrease from the prior year is primarily attributable to lower sales across most of our product portfolio due to a slowdown in the broader semiconductor market. We ended the quarter with $44.3 million in backlog, a decrease of $5.7 million from December 31, 2023. Our book to bill ratio as of March 31st, 2024 was 0.8 to 1. As we've commented previously, our lead times were too long.

Lisa: Thank you Bob.

Lisa D. Gibbs: Revenues increased 2% sequentially and decreased 24% from the second quarter of fiscal 2023.

Lisa D. Gibbs: The sequential increase is primarily due to increased consumable sales and our material and substrate segment as customers update their buying patterns and adjust inventory levels.

Lisa D. Gibbs: The decrease from prior year is primarily attributable to lower sales across most of our product portfolio due to a slowdown in the broader semiconductor market.

Lisa D. Gibbs: We ended the quarter with $44 $3 million in backlog a decrease of $5 7 million from December 31 2023.

Lisa D. Gibbs: <unk> ratio as of March 31, 2024, it was <unk> eight to one.

Lisa D. Gibbs: As we've commented previously our lead times were extending to arm and now with our contract manufacturers aren't lead times are improving we are shipping at least equipment that was booked in some cases several months to over a year ago, which.

Lisa D. Gibbs: And now, with our contract manufacturers, our lead times are improving. We are shipping out this equipment that was booked, in some cases, several months to over a year ago, which negatively impacted margins this quarter due to inflation over the past year. We have improved our lead times and our booking business with better margin profiles. We are also seeing margin improvements as a result of a product mix within our material and substrate segment, which had a one-to-one book to build this quarter. Gap growth margin was flat sequentially and decreased compared to the same prior year period.

Lisa D. Gibbs: Which negatively impacted margins this quarter due to inflation over the past year.

Lisa D. Gibbs: We've improved our lead times and our booking business with better margin profiles. We are also seeing margin improvements as a result of a product mix within our material and substrate segment.

Lisa D. Gibbs: One to one book to Bill this quarter.

Lisa D. Gibbs: GAAP gross margin was flat sequentially and decreased compared to the same prior year period.

Lisa D. Gibbs: In our semiconductor segment, gap growth margin was negatively affected by product mix and increased material costs, both primarily attributed to shipments of our horizontal diffusion furnaces. Gap growth margin in our material and substrate segment increased sequentially and compared to the same prior year period due primarily to a more favorable product mix with increased consumable sales partially offset by lower equipment sales. Selling, General, and Administrative (SG&A) expenses decreased $0.3 million on a sequential basis and decreased $3.2 million compared to the prior year period. The sequential decrease is due primarily to reductions in labor expenses, lower commissions, and shipping expenses.

Lisa D. Gibbs: Our semiconductor segment GAAP gross margin was negatively affected by product mix and increased material costs.

Lisa D. Gibbs: Primarily attributed to shipments of our horizontal diffusion furnaces.

Lisa D. Gibbs: GAAP gross margin in our material and fifth straight segment increased sequentially and compared to the same prior year period, due primarily to a more favorable product mix with increased consumable sales, partially offset by lower equipment sales.

Lisa D. Gibbs: Selling general and administrative or SG&A expenses decreased $3 million on a sequential basis and decreased $3 2 million compared to the prior year period. The sequential decrease is due primarily to reductions in labor expenses lower commissions and shipping expenses.

Lisa D. Gibbs: Compared to the same prior year period, the decrease is due primarily to $1.5 million of lower acquisition expenses, $.8 million of lower amortization expense, as well as reductions in labor expenses and lower commissions and shipping expenses. Research, development, and engineering expenses decreased $0.7 million sequentially and decreased $0.6 million compared to the same prior year period, due primarily to the timing of purchases related to specific projects in our semiconductor segment. As you saw in our press release during the second quarter of fiscal 2024, we sold our corporate headquarters building in Tempe, Arizona, for a gain of $2.2 million.

Lisa D. Gibbs: Compared to the same prior year period. The decrease is due primarily to $135 billion of lower acquisition expenses.

Lisa D. Gibbs: $8 million of lower amortization expense as well as reductions in labor expenses, and lower commissions and shipping expenses.

Lisa D. Gibbs: Research development, and engineering expenses decreased $7 million sequentially and decreased $6 million compared to the same prior year period, due primarily to the timing of purchases related to specific projects in our semiconductor segment.

Lisa D. Gibbs: As you saw in our press release during the second quarter of fiscal 2024, we sold our corporate headquarters building in Tempe, Arizona for a gain of $2 $2 million.

Lisa D. Gibbs: Gap net income for the second quarter of fiscal 2024 was $1 million, or 7 cents per share. This compares to GapNet losses of $9.4 million or $0.66 per share for the preceding quarter and GapNet income of $3.2 million or $0.23 per share for the second quarter of fiscal 2023. Non-GAAP net loss, which includes an adjustment to remove the gain on our building sale for the second quarter of fiscal 2024, was $0.2 million, or one cent per share.

Lisa D. Gibbs: GAAP net income for the second quarter of fiscal 2024 with $1 million or <unk> <unk> per share. This compares to GAAP net loss of $9 $4 million or <unk> 66 per share for the preceding quarter and GAAP net income of $3 $2 million or 23 per share in the second quarter of fiscal 2023.

Lisa D. Gibbs: non-GAAP net loss, which includes an adjustment to remove the gain on our building sale for the second quarter of fiscal 2024 was <unk> $2 million or <unk> <unk> per share.

Lisa D. Gibbs: This compares to a non-GapNet loss of $0.6 million, or 4 cents per share, for the preceding quarter, and non-GapNet income of $2.7 million, or 19 cents per share, for the second quarter of fiscal 2023. As a result of our building sale, we generated net cash proceeds of $2.5 million.

Lisa D. Gibbs: This compares to non-GAAP net loss of <unk> 6 million or <unk> <unk> per share for the preceding quarter and non-GAAP net income of $2 $7 million or <unk> 19 per share for the second quarter of fiscal 2023.

Lisa D. Gibbs: As a result of our building sale, we generated net cash proceeds with $2 $5 million.

Lisa D. Gibbs: We used these proceeds to fund approximately $1.2 million of CapEx during the quarter, primarily for the ongoing build-out of BTU's new smaller print building, which we expect to generate approximately $800,000 of annualized savings. The remaining proceeds, plus additional cash on hand, were used to pay down our revolving line of credit, which was paid in full as of March 31st, 2024. That payment during the three months ended March 31st, 2024 was $6.4 million.

Lisa D. Gibbs: We use these proceeds to fund approximately $1 $2 million of Capex during the quarter, primarily for the ongoing build out of beta use new smaller print building, which we expect to generate approximately $800000 of annualized savings. The remaining proceeds plus additional cash on hand were used to pay down.

Lisa D. Gibbs: Our revolving line of credit, which was paid in full as of March 31 2024.

Lisa D. Gibbs: Debt payments during the three months ended March 31, 2024, or $6 4 million.

Lisa D. Gibbs: Our only remaining data is our term loan with a balance of $4.2 million as of March 31, 2024. During the six months ended March 31st, 2024, we generated $5.3 million in cash provided by operating activities, primarily due to improvements in working capital. Unrestricted cash and cash equivalents at March 31st, 2024 were $13 million, compared to $17 million at December 31st, 2022. Net cash as of March 31st, 2024 was $8.8 million, compared to $7 million at December 31st, 2024.

Lisa D. Gibbs: Our only remaining debt as our term loan with a balance of $4 2 million as of March 31 2024 during.

Lisa D. Gibbs: During the six months ended March 31, 2024, we generated $5 $3 million in cash provided by operating activities, primarily due to improvements in working capital.

Lisa D. Gibbs: Unrestricted cash and cash equivalents at March 31, 2024 were $13 million.

Lisa D. Gibbs: <unk> to $17 million at December 31, 2023.

Lisa D. Gibbs: Net cash as of March 31, 2024 was $8 8 million compared to $7 million as of December 31, 2023.

Lisa D. Gibbs: Now turning to our outlook, for the third fiscal quarter ending June 30, 2024, we expect revenues in the range of $22 to $25 million, with adjusted EBITA nominally positive, which includes some expenses and production downtime associated with the ETU facility move. Although the near-term outlook for revenue and earnings remains challenging, we remain confident that the future prospects are strong for both our consumables and equipment serving advanced mobility and advanced packaging applications. We took actions during the first and second quarters of fiscal 2024, which will reduce Amtech's structural costs by approximately $6 million annually and better align product pricing with value.

Lisa D. Gibbs: Now turning to our outlook for the third fiscal quarter ending June 32024, we expect revenues in the range of $22 million to $25 million with adjusted EBIT of nominally positive which include some expenses and production downtime associated with the Btu facility move.

Lisa D. Gibbs: Although the near term outlook for revenue and earnings earnings remains challenging we remain confident that the future prospects are strong for both our consumables and equipment, serving advanced mobility and advanced packaging applications.

Lisa D. Gibbs: We took actions during the first and second quarters of fiscal 2024, which will reduce the amtech structural cost by approximately $6 million annually and better aligned product pricing with value.

Lisa D. Gibbs: These steps should significantly improve results and enhance profitability through market cycles. However, operating results can be significantly impacted positively or negatively by the timing of orders, system shipments, statistical challenges, and the financial results of semiconductor manufacturers. Additionally, the semiconductor equipment industries can be cyclical and inherently impacted by changes in market demand.

Lisa D. Gibbs: These steps should significantly improved results and enhance profitability through market cycles.

Lisa D. Gibbs: Operating results can be significantly impacted positively or negatively negatively by the timing of orders system shipments logistical challenges in the financial results of semiconductor manufacturers.

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

Lisa D. Gibbs: Actual results may differ materially in the weeks and months ahead. A portion of Amtech's results is denominated in RMB, 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 US dollar could cause actual results to differ from expectations.

Lisa D. Gibbs: Results may differ materially in the weeks and months ahead.

Lisa D. Gibbs: A portion of the <unk> result is denominated in RMB Chinese currency.

Lisa D. Gibbs: The outlook provided is based on an assumed exchange rate between the United States dollar and the RMB.

Lisa D. Gibbs: <unk> and the value of the RMB in relation to the United States dollar could cause actual results to differ from expectations.

Operator: I will now turn the call over to the operator for questions. Operator? Thank you. Ladies and gentlemen,

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

Speaker Change: Thank you.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star 1 on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be answered in the order they are received. If you would like to withdraw from the question queue, please press star 2. If you are using a speakerphone, please lift the handset before pressing any key. One moment, please, for your first question. The first question comes from Mark Miller of Benchmark. Your line is already open.

Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.

Mark S. Miller: If you have a question. Please press star one on your Touchtone phone.

Mark S. Miller: You will hear a three ton prompt acknowledging your request.

Mark S. Miller: And your questions will be pulled in the order they are received.

Mark S. Miller: If you would like to withdraw from the question queue.

Operator: Please press star two.

Mark S. Miller: If you are using a speaker phone please lift the handset before pressing any keys one moment. Please for your first question.

Mark S. Miller: Your first question.

Operator: It comes from Mark Miller of benchmark.

Mark S. Miller: Your line is already open.

Mark S. Miller: Just wanted to ask about are you seeing can you comment about quoting activity you've seen have you seen any pick up in quoting activity and if so where.

Mark S. Miller: Just wanted to ask you about, are you seeing, can you comment on quoting activities, have you seen any pick-up and quoting activity, and if so, where?

Robert C. Daigle: Good afternoon, Mark. We definitely have seen a very significant uptick in back-end processing, so basically the reflow equipment in particular, and I think one of the big changes versus when we provided the update last quarter is that you know, things were soft. We were seeing some surface mount applications, but we're now seeing a lot more in the advanced chip packaging area. We're also seeing quoting activity, which involves multiple units where things had softened to the point where they were usually, you know, single pieces of equipment.

Mark S. Miller: Oh, yes, good afternoon Mark.

Speaker Change: Yes, we definitely have seen a very significant uptick.

Robert C. Daigle: Back end processing, so basically re flow equipment in particular, and I think one of the big changes versus.

Robert C. Daigle: We provided the update last quarter is.

Robert C. Daigle: Things were soft we were seeing since surface Mount applications. We're now seeing a lot more in the advanced chip packaging area. We're also seeing quoting activity, which involves multiple units where things have softened to the point, where it was usually.

Robert C. Daigle: Single piece of equipment.

Robert C. Daigle: And as I mentioned during the comments, one thing that's been interesting is that some of the quoting activity now is involving, I would say, the localization of manufacturing. We've had some North American quoting in particular that seems tied to supply chain resiliency. That's on the back end. The other areas where we've seen some strength have been, I'd say, the parts and service side of the business as well, even at the front end, where we're now getting much higher activity than we would have seen three months ago. So it's still a mixed situation, Mark, but I think at least we're definitely seeing more signs of life than we were three months ago.

Robert C. Daigle: As I mentioned during the comments one thing Thats interesting is that.

Robert C. Daigle: Some of the quoting activity now.

Speaker Change: All right.

Robert C. Daigle: I would say the localization of manufacturing we've had some north.

Robert C. Daigle: In North American quoting in particular.

Robert C. Daigle: Teams tied to supply chain resiliency.

Robert C. Daigle: That's on the back end.

Robert C. Daigle: The other areas, where we've seen some strengths have been.

Robert C. Daigle: I'd say the parts and service side of.

Robert C. Daigle: The business as well.

Robert C. Daigle: And where we're now getting.

Robert C. Daigle: Much higher activity than we would've seen three months ago.

Robert C. Daigle: Still it's still a mixed situation mark, but I think.

Robert C. Daigle: So at least we're seeing definitely seen more signs of life than we were three months ago.

Lisa D. Gibbs: The Improvement in Consumable Sales. I assume that it impacted margins positively. Can you provide any estimate of how it aided margins? Well, it certainly did. I mean, certainly you

Robert C. Daigle: The improvement in consumable sales.

Lisa D. Gibbs: I assume the impact of margins positively can you can provide any estimates.

Lisa D. Gibbs: And margins.

Speaker Change: Well, yes, I mean, certainly you can see.

Lisa D. Gibbs: Well, it did. I mean, certainly, you can see, I guess on the non-GAAP gross margin line, it improved from about 43 to 45%. So it had a really nice impact, and that's a great business for us, right? That's what we were hoping to get to as we exited the polishing equipment business. Hello. Are you there, Mark?

Lisa D. Gibbs: I guess on the non-GAAP.

Speaker Change: Gross margin line.

Speaker Change: Improved for about 43% to 45% so it had a really nice.

Lisa D. Gibbs: And Thats the <unk>.

Lisa D. Gibbs: Thus for US right, that's what we were hoping to.

Speaker Change: Hit too as we exited the polishing equipment.

Lisa D. Gibbs: Sure.

Lisa D. Gibbs: Hello.

Speaker Change: Okay Alright.

Mark S. Miller: Yeah, I'm here. You just went out for a few seconds.

Mark: Yeah I'm here just went out for a few seconds.

Lisa D. Gibbs: Did you hear my answer, or do you want me to repeat it? No, I heard most of it.

Mark: Did you hear my answer or do you want me to repeat it I heard most of it so thanks okay.

Mark S. Miller: No, I heard most of it. So it's okay.

Mark: Alright, Thank you Mark.

Mark S. Miller: Your next question comes from Kevin Garrigan of West Park capital.

Operator: Your next question comes from Kevin Garrigan of West Park Capital. Your line is already open.

Kevin Garrigan: Line is already open.

Kevin Garrigan: Yeah, Hey, Deane, great speaking with you guys again.

Kevin Garrigan: Yeah, hey team, great speaking with you guys again. You know, regarding softness across the broader Robert Daigle, Erica Mannion, Lisa Gibbs, Michael Whang, Paul Lancaster, Kevin Garrigan, Craig Irwin, Amtech Systems Inc.

Kevin Garrigan: Regarding the softness across the broader the broader market are you seeing any light at the end of the tunnel and do you think.

Kevin Garrigan: The recovery would be a snapback in demand or is there kind of more of a U shape.

Kevin Garrigan: Yes.

Robert C. Daigle: Yeah, it's interesting, Kevin, in that, you know, again, we read the same things you're reading about the memory side of things, for example, bookings have been quite strong, and pricing has firmed up on the memory side of things, mostly related to AI. So I do think, at least in applications related to AI, we're likely to see that industry come back a little bit stronger towards the end of the year and early next year.

Kevin Garrigan: Interest and Kevin and that.

Robert C. Daigle: Again, we we.

Robert C. Daigle: We read the same things you are reading about.

Robert C. Daigle: Memory for example.

Robert C. Daigle: Bookings have been quite strong pricing has firmed up.

Robert C. Daigle: The memory side of things, mostly related to AI. So I do think.

Robert C. Daigle: At least in applications related to AI, we're likely to see.

Robert C. Daigle: That industry come back a little.

Robert C. Daigle: Stronger towards the end of the year early next year, it's always a little bit complicated for us is kind of on.

Robert C. Daigle: It's always a little bit complicated for us. It's kind of, you know, in the case of consumables, it tends to be a little bit more real-time in that, obviously, as volumes pick up, we tend to see that flow through pretty quickly. It's a little bit trickier with equipment because now you have to factor in utilization rates at the customer. And, you know, typically they need to trigger utilization rates, let's say, in the 80-plus percent range before they start to increase equipment orders. So I think timing is a little bit trickier to predict in those instances.

Robert C. Daigle: In the case of consumables.

Robert C. Daigle: It tends to be a little bit more real time and that obviously.

Robert C. Daigle: As volumes pick up.

Robert C. Daigle: And to see that flow through pretty quickly so a little bit trickier with equipment. Because now now you have to factor in the utilization rates at the customer end.

Robert C. Daigle: Typically they need to trigger utilization rates, let's say in the 80 plus percent range before they start to increase equipment orders. So.

Robert C. Daigle: I think timing timing is a little trickier to two.

Robert C. Daigle: Predict in both instances.

Speaker Change: Yes, no that makes a ton of sense.

Lisa D. Gibbs: Yeah, no, that makes a ton of sense. Okay, perfect. And then, just as a quick follow-up, Lisa, I think you said in your prepared remarks that lead times are improving. Can you just remind us, you know, what your ideal lead times are? And when do you kind of see them getting back to normal?

Lisa: Okay, Perfect and then just as a quick follow up.

Lisa D. Gibbs: I think you said in your prepared remarks that lead times are improving can you just remind us what your ideal lead times are and when you kind of see them getting back to normal.

Lisa: Sure. So it can vary by product.

Lisa D. Gibbs: Sure, so it can vary by product, you know, the fact that for the equipment that Bob was referencing, those lead times can be four to six weeks.

Lisa D. Gibbs: And equipment that Bob was referencing.

Lisa D. Gibbs: Lead times can be four to six weeks.

Lisa: Some of the equipment, we talked about this quarter that negatively impacted our margins like the horizontal diffusion furnace, we have lead times of over a year on that equipment.

Lisa D. Gibbs: Certainly brought that down.

Speaker Change: Our heightened alternatives I would say thats come down.

Lisa D. Gibbs: Two to a handful of months now and I'd say, even on horizontal diffusion furnaces with.

Lisa D. Gibbs: And I'd say even on horizontal diffusion furnaces with... Let's take four to six months, maybe closer to, say, five to six months if the backlog's at a reasonable level. But we're going to we're moving into a mode, frankly, with the things we've done from an operational standpoint, leveraging subcontractors, where, you know, our goal is really to drive our cycle. [inaudible] You know, the headwinds we had on some of this equipment came partly because, yeah, we quartered over a year ago. So we've got to get our cycle time cycle times down so that makes sure our pricing reflects current cost conditions more effectively.

Lisa D. Gibbs: Supply chain lead times, probably a more normalized timeframe would be.

Lisa D. Gibbs: Let's say four to six months.

Lisa D. Gibbs: Maybe closer to say.

Lisa D. Gibbs: Say five to six months.

Lisa D. Gibbs: Just the backlogs under a.

Lisa D. Gibbs: At a reasonable level.

Lisa D. Gibbs: But we're going to we're moving into a mode frankly with the things we've done from an operational standpoint, leveraging subcontractors, where our goal is really to drive our cycle.

Lisa D. Gibbs: Times down.

Lisa D. Gibbs: Minimum based on supply chain.

Lisa D. Gibbs: How long it takes to get in our components to manufacturer.

Lisa D. Gibbs: With the idea that part of the part of the margin.

Lisa D. Gibbs: Headwinds, we had on some of this equipment pain, partly because of yes quarter to over a year ago. So we've got to get our cycles time cycle times down so that.

Lisa D. Gibbs: To make sure our pricing reflects current cost conditions more effectively.

Speaker Change: Okay got it yeah that makes a ton of sense, okay perfect. Thank you.

Kevin Garrigan: Okay, got it. Yeah, that makes a ton of sense. Okay, perfect. Thank you.

Speaker Change: Thank you Kevin.

Speaker Change: Your next question.

Operator: Your next question comes from Craig Irwin of ROTH MKM. Your line is already open.

Craig Irwin: Comes from.

Operator: Craig Irwin of our Ot each MTM Youre line is already open.

Craig Irwin: Good afternoon, and thanks for taking my question. So, I was hoping you could maybe comment a little bit on...

Craig Irwin: Good afternoon, and thanks for taking my questions.

Craig Irwin: So I was hoping you could maybe comment a little bit about.

Craig Irwin: The Silicon Carbide Market, the wafers that are being produced today, there's a tremendous amount of interest in 8-inch wafers, but most of the production is really 6-inch today. Can you maybe tell us if there's an opportunity to offer a premium product on the Hoffman side serving the 8-inch market? [inaudible] on 6-inch, providing most of the cassettes that were used out there?

Craig Irwin: The silicon carbide market.

Craig Irwin: Wafers that are being produced today is a tremendous amount of interest in eight inch wafers.

Craig Irwin: Most of the production is really six inch today.

Craig Irwin: Can you maybe tell us if there is an opportunity to offer a premium product.

Craig Irwin: On the the Hoffman side, serving the eight inch market.

Craig Irwin: Is there.

Craig Irwin: Potentially another way to generate.

Craig Irwin: Additional incremental value for Hoffman out of this business.

Craig Irwin: Do you see yourself positioned.

Craig Irwin: Given your impeccable positioning.

Craig Irwin: On six inch.

Craig Irwin: Providing most of the cassettes that were used out there.

Robert C. Daigle: Yeah, so, and as you point out, most of the market is at 6-inch today. And again, I do think, and it depends on, it really does depend on the customer. There's not one generic answer to that, Craig, but again, we're trying to position ourselves so that, to the extent we can play an 8-inch, we can, where possible, get some incremental value, but it will very much depend on who, what the customer is, and what their base technology is in the CMP area.

Craig Irwin: Yes, so and as you pointed out most of the market is at six inch today.

Robert C. Daigle: And again I do think and it depends on it really does depend on the customer.

Robert C. Daigle: Theres not one generic answer to that Craig, but again, where we're trying to position ourselves so that to the extent we can play in eight inch.

Robert C. Daigle: That we can where possible get some incremental value, but it will very much depend on who the customer is and what they are what they are based technology is in the in the CMP area.

Speaker Change: Okay excellent and then on the on the on the furnace side I understand that there is.

Craig Irwin: Okay. Excellent.

Robert C. Daigle: And then on the furnished side, I understand that Bruce has a very unique product for not just traditional power semiconductor production but specifically for silicon carbide given the much higher temperatures that the processes are run at. Can you maybe give us a little bit of color on that product, and what the pipeline looks like? It seems that even though there's a bit of an air pocket in the market for EVs and some of the industrial equipment in China, there's still a pretty large amount of interest in facility construction. There are big plans, big facilities on the drawing board. Any color that you could share with us there about your potential activity? Yes.

Robert C. Daigle: Bruce has has a very unique product for.

Robert C. Daigle: Not just traditional power semiconductor production, but specifically for silicon carbide, given the much higher temperatures, but the processes are run at.

Robert C. Daigle: Can you maybe can you maybe give us a little bit of color on that product what the pipeline looks like.

Robert C. Daigle: It seems that even though there's a bit of an air pocket in the market with Evs.

Robert C. Daigle: Some of the industrial equipment in China.

Robert C. Daigle: That there is still.

Robert C. Daigle: <unk>.

Robert C. Daigle: Pretty large amount of interest in facility construction, there's big plans.

Robert C. Daigle: <unk> on the drawing board.

Robert C. Daigle: Any color that you could share with us there about your potential activity.

Robert C. Daigle: Yes, so, the, um... The demand requirements that we received from some key customers are fairly significant. There are some pretty large opportunities going forward. As you point out, timing may depend a bit on how much utilization there is in the industry. It's with a little bit of the... [inaudible] So I think...

Speaker Change: Yes, so the.

Robert C. Daigle: The demand requirements that we received from from some key customers.

Robert C. Daigle: Fairly significant.

Robert C. Daigle: <unk>.

Robert C. Daigle: There are some pretty large opportunities going forward.

Robert C. Daigle: As you point out timing timing may depend a bit on.

Robert C. Daigle: How much utilization there is in the industry.

Robert C. Daigle: With a little bit of the.

Robert C. Daigle: Frankly, the drop off in.

Robert C. Daigle: More so expectations of EV.

Robert C. Daigle: It may slow things down a little bit in the industry, but ultimately at least.

Robert C. Daigle: The view view I have is the industry is going to migrate it continue to migrate pretty aggressively towards silicon carbide because of <unk>.

Robert C. Daigle: The efficiency of the of the Inverters.

Robert C. Daigle: So I think.

Robert C. Daigle: Some of what's been going on in terms of a little bit of the slowdown and the EV market may affect timing, but I don't think it changes the trajectory we're on. I think the wild card is also because we do participate. We participate in the EV, but we also participate pretty significantly in the power electronics for hybrid electric vehicles. And in particular, I'd say the direct bond copper furnaces that are used for these silicon-based IGBTs are a fairly sizable part of our business at BTU. With this pivot, maybe a greater emphasis on HEV in the near term, that could present additional opportunities for us in the silicon base. Power Module Packaging

Robert C. Daigle: Some of what's been going on in terms of a little bit of a slowdown in EV market may affect timing, but I don't think it.

Robert C. Daigle: The changes the trajectory we're on.

Robert C. Daigle: I think the wildcard is also.

Robert C. Daigle: Because we do participate we participate in the EV, but we also participate pretty significantly in the power electronics for hybrid electric vehicles.

Robert C. Daigle: And in particular I'd say.

Robert C. Daigle: The direct bonded copper furnaces that are used for silicon.

Robert C. Daigle: Silicon based IGT Ts are fairly sizable part of our business at Btu.

Robert C. Daigle: With this pivot maybe a greater emphasis on HCV in the near term that could present additional opportunities for us in the.

Robert C. Daigle: Silicon based power module packaging.

Craig Irwin: Okay, understood. So you've been doing a really good job managing cash, right? Getting to a net cash position this quarter. Usually, when there's an air pocket, like we've seen sort of in the macro in Silicon Carbide, it's a good time to continue conversations around acquisitions. How active are you on the M&A side? You know, I know there are some very interesting properties out there, both on the materials and consumable side, that actually directly play into the silicon carbide and traditional power semiconductor markets. You know, how likely are we to see you step up and maybe grab something or consolidate something? Is this a priority today?

Robert C. Daigle: Yeah.

Speaker Change: Understood understood.

Craig Irwin: So <unk> been doing a really good job managing cash right getting to a net cash position this quarter.

Craig Irwin: Usually when there is an air pocket like we've seen sort of in the macro and silicon carbide. It's a good it's a good.

Craig Irwin: Good time to continue conversations around <unk>.

Craig Irwin: Acquisitions.

Craig Irwin: How active are you on the M&A side.

Craig Irwin: I know there is some very interesting properties out there.

Craig Irwin: Folks on the materials and consumables side.

Craig Irwin: It actually directly play into silicon carbide and traditional power semiconductor markets.

Craig Irwin: How likely are we to see you.

Craig Irwin: Step up and maybe grab something or consolidate something is this a priority today.

Robert C. Daigle: I'd say, you know, our near-term priority was obviously around... the goal of being cashflow positive with the current market realities and a sluggish industry, but ultimately, we are, you know, The Power Electronics Area, and in particular silicon carbide.

Speaker Change: I'd say I'd say.

Robert C. Daigle: Our near term priority was obviously around.

Robert C. Daigle: The goal of.

Robert C. Daigle: Being cash flow positive.

Robert C. Daigle: With the current market realities and sluggish industry.

Robert C. Daigle: But ultimately we're a growth company.

Robert C. Daigle: Ultimately we are.

Robert C. Daigle: Yes.

Robert C. Daigle: <unk> a tremendous opportunity in the power electronics area in particular silicon carbide. So.

Robert C. Daigle: So, it's an area we are spending time on. I can't really say too much, Craig, about what the timing might be, but in terms of it being... a strategic priority for us in terms of trying to bring more breadth, more exposure, more growth drivers into this area. It's definitely a priority for the company. Okay.

Robert C. Daigle: It's an area we are spending time I can't I can't really.

Robert C. Daigle: Too much Craig about what the timing might be but in terms of it being.

Robert C. Daigle: Strategic priority for us in terms of trying to bring more breadth more exposure.

Robert C. Daigle: More growth drivers in this area, it's definitely a priority for the company.

Craig Irwin: Okay, excellent, excellent. And then last question, if I may.

Robert C. Daigle: Okay excellent excellent.

Speaker Change: And then last question if I may.

Speaker Change: Did exceed your revenue guidance in the quarter.

Speaker Change: It seems that your visibility is pretty good at least in the short term.

Craig Irwin: Yes.

Speaker Change: Can you maybe comment about anything that's changing.

Robert C. Daigle: You know, you exceeded your revenue guidance in the quarter. It seems that, you know, your visibility is pretty good, at least in the short term. Can you maybe comment about anything that's changing materially for the back end of the year? Is there maybe a sentiment that investors might appreciate, a little color around that you could give us to help us understand sort of where this visibility reaches out to? Do you have visibility through December, and how will we see that play out?

Robert C. Daigle: Materially for.

Robert C. Daigle: The back end of the year is there.

Robert C. Daigle: Is there maybe.

Robert C. Daigle: Maybe a sentiment that.

Robert C. Daigle: Investors might.

Robert C. Daigle: Appreciate a little color around that that you could.

Robert C. Daigle: That you can give us to help us understand sort of where where this visibility.

Robert C. Daigle: Reaches out to <unk> do you have do you have visibility through through December and.

Robert C. Daigle: How would we see that play out.

Lisa D. Gibbs: Yes, so I think again we have to talk about the various segments. So if you look at the furnace area, whether it's a horizontal diffusion furnace or the ovens we're providing for things like direct bond copper applications, we're again that a high percentage of our backlog is in that area and takes us out through the December quarter. If you look at the consumables part of the business, that tends to book and ship even within the same quarter.

Speaker Change: Yes, so I think again, we have to talk about the various segments. So if you look at.

Lisa D. Gibbs: And the furnace area, whether it's horizontal diffusion furnace or.

Lisa D. Gibbs: The ovens, where we're providing for things like direct bond copper applications, where again thats a high percentage of our backlog is in that area and takes us out through the December quarter.

Lisa D. Gibbs: If you look at the consumables part of business that tends to book and ship even within the same quarter.

Lisa D. Gibbs: <unk>, a relatively short lead times and will tend to.

Lisa D. Gibbs: Get that all pretty quickly so there is not.

Lisa D. Gibbs: Relatively short lead times, and we'll tend to get that out pretty quickly, so there's not you know the visibility is tends to be more medium and long-term forecasts we get from our customer base, and again that's going to depend on, you know, ultimately market demand to drive that. And that's also true, frankly, for parts and service. We've seen quite a bit of a pickup in, you know, in recent weeks and months in terms of activity there, signs of life in the industry.

Lisa D. Gibbs: The visibility is tends to be more.

Lisa D. Gibbs: Medium long term forecast, we get from our customer base.

Lisa D. Gibbs: And again, that's going to depend on.

Lisa D. Gibbs: Ultimately market demand that drive that.

Lisa D. Gibbs: And Thats also true frankly, the parts and service, we've seen quite a bit of a pickup in.

Lisa D. Gibbs: In recent weeks and months in terms of activity there.

Lisa D. Gibbs: Signs of life in the industry, but it's not like we have great visibility beyond.

Lisa D. Gibbs: But it's not like we have great visibility beyond, you know, a month or two in that area because those tend to be pretty short lead times. And as Lisa mentioned earlier, even on the back end, packaging equipment, reflow, surface mount, as well as chip packaging, you know, our lead times are four to six weeks. So there's not really an incentive, frankly, for customers to book things out six, six, nine months ahead of time.

Lisa D. Gibbs: A month or two in that area because those tend to be pretty short lead time items and as Lisa mentioned earlier, even even on the back end packaging equipment re flow of surface, Mount and as well as chip packaging.

Lisa D. Gibbs: We're our lead times are four to six weeks. So there is not.

Lisa D. Gibbs: There is not really an incentive frankly for customers to book things out six six to nine months ahead of time, they don't need to they can get equipment pretty quickly from us. So it's really a mixed bag I would say, where we have the most visibility is really in this in the furnace area because of the long lead times, historically and Craig I would just add on the gross margin.

Lisa D. Gibbs: They don't need to. They can get equipment pretty quickly from us. So it's really a mixed bag. I'd say where we have the most visibility is really in the furnace area because of the long lead times historically.

Lisa D. Gibbs: And Craig, I would just add, you know, on the gross margin side, we expect a fairly similar product mix going into Q3, so I think we'll see some of these headwinds that we saw with material costs kind of repeat again in Q3. We do expect incremental improvements in Q4 and into fiscal Q1 as we ship out some of this older backlog and then begin to ship out, you know, the newer quoted backlog that has the higher margin quotes that we've been using.

Lisa D. Gibbs: <unk> side.

Lisa D. Gibbs: That's fairly similar product mix going into Q3, I think we'll see some of these headwinds that we saw with material costs.

Lisa D. Gibbs: Repeat again in Q3, we do expect incremental improvement in Q4.

Lisa D. Gibbs: Q1, as we're shipping out some of this older backlog and then beginning to ship out the newer quoted backlog that has a higher margin.

Lisa D. Gibbs: We've been using.

Craig Irwin: Thank you for that, Lisa. I'll take the rest of my questions offline. Congratulations on the revenue results. It's good to see you guys executing. Great, thank you.

Speaker Change: Thank you for that lease.

Craig Irwin: The rest of my questions offline congratulations on the <unk>.

Craig Irwin: Revenue result, it's good to see you guys executing.

Speaker Change: Great. Thank you <unk> you Craig.

Robert C. Daigle: Great, thank you, Craig.

Robert C. Daigle: There are no further questions at this time I would hand over the call to Bob Daigle CEO for closing comments. Please proceed.

Operator: There are no further questions at this time. I would hand over the call to Bob Daigle, CEO, for closing comments. Please proceed.

Robert C. Daigle: Well. Thank you again for joining our conference call and I look forward to updating.

Robert C. Daigle: Well, thank you again for joining our conference call, and I look forward to updating everybody on the progress we're making in the months ahead.

Robert C. Daigle: Everybody on the progress, we're making in the months to come.

Robert C. Daigle: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.