Q3 2019 Earnings Call

Good afternoon.

Welcome.

So amtech systems third quarter 2000, <unk> earnings conference call.

All participants will be in listen only mode.

Should you need assistance, please call for specialist, especially the starchy followed by zero.

After todays presentation, there will be opportunity to ask questions.

Throughout the course in your press Star then one on your Touchtone phone. So whats. Your question. Please press Star then too.

Please note today's event is being recorded.

I would now like turn the conference over to Lisa Gibbs Chief Financial Officer. Please go ahead ma'am.

Good afternoon, and thank you for joining us for Amtech systems third quarter fiscal year 2019 results conference call.

With me on the call today are G.S., Wayne <unk> Executive Chairman and Chief Executive Officer.

Robert Hot Amtrak's Executive Vice President and Michael Wang Our Chief operating Officer.

After the close of trading today Amtech released its financial results for the third quarter ending June Thirtyth 2019.

That earnings release will be posted on the company's website at amtech systems Dot com.

During today's call management will make forward looking statements all such forward looking statements are based on information available to us as of this date and we assume no obligation to update any such forward looking statements.

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

Among the important factors, which could cause actual results to differ materially from those in the forward looking statements are changes in the technologies used by our customers and competitors change it and voluntarily volatility and the demand for our products.

The effect of changing worldwide political and economic conditions, including trade sanction.

The effect of overall market conditions, including the equity and credit markets and market acceptance risks.

Other risk factors are detailed in our Securities Exchange Commission filings, including our Form 10-K and Form 10-Q .

I will now turn the call over to JF Swain, our executive Chairman and Chief Executive Officer to begin the discussion yet.

Centrally so.

Thank your for joining our call today.

That's who we shift our focus foam.

The solo business to semiconductor.

We continue to work on.

The initiatives.

Within our plan.

Two more fully optimized.

Oh global opportunities.

In the evolving and growing semiconductor market.

Or do we have a very.

Positive outlook for the long term.

From a new perspective.

We all feeling the impact of all.

The weakening semiconductor market.

Rich.

Continue to be.

Impact either by.

You extend the.

Trade and targets.

Uncertainties.

Oh level.

We like.

Well fundamentals.

And again, we are focused on.

The long.

Wolf opportunities and.

Continue to invest.

To be well positioned to participate.

And the next semi growth cycle.

The currency.

In Bull.

The silicon and Silicon carbide, the poet CIL circuit was.

This business is so.

Sorry could occur.

What the driver was all done.

Our long term performance pension clearly.

The poll devices market.

Play so critical ward.

And all the components because evolution and.

It's a future where did the human body.

Multiple factors.

Well it is.

Moving to the T.

Speed and data driven warrant.

Please G.

I will too.

Hi.

Especially.

The continuously expanding use all.

Silicon carbide power chips.

Yes.

Well the Motiva industry.

The board was too.

Electric vehicles.

Assisted driving and eventually.

Oh animals, driving and industrial applications.

Undoubtedly.

Technology is evolving and increasing.

Keep it there.

Oh, well keep prices Oh.

Since one home decisions.

What do you expect.

These factors.

Well to create.

Increased the demand for.

Our products and services.

And.

We want to position ourselves to.

Well according to participate in.

Neil and go with some growth opportunities.

I will now turn the corner to.

Oh sure.

Operating voltage so.

Mike what or when.

He wrote a discourse or continuing.

Operations.

Mike.

Thank you Jay yes.

Given the market environment and our efforts to encourage we're in constant communications with our customers and suppliers.

Although visibility of an upturn is limited at this time.

All signs lead to a recovery in this calendar 2020.

We will continue to closely monitor our cost while ensuring that we can be responsive to our customers.

Even if we see a quick rapid activity, that's a nice growth cycle.

[noise], well being very prudent with our investment dollars, we recently announced plans to move our PR Hoffman business.

So much needed larger facility.

We need to be on schedule with our plan to begin operations.

Really.

Early calendar 2020.

Not only will this move and to the capacity that we.

There were also changes being made to improve our operational capability efficiency.

Customer responsiveness.

Investments are being planned and me to enable our syndication.

In growth areas of the industry.

And to assure that we operate from a position of competitive advantage.

Next upcycle sustain that position over time.

Additionally, we just announced that are subsidiaries Bruce technologies.

See a significant new order for 300 millimeter hard kind of skews the furnace on top tier power semi customer.

This order, which is expected to ship in fiscal Q1 2020.

Establishes another top tier 300 millimeter powerchip customer relationship.

Strengthening our currently large 300 millimeter installed base and will expand our three I don't know better technology and opportunity.

Youre validates our second strategy to further our position.

As a market leader in fast growing high end power market.

We believe the long term outlook for the industry remains positive.

And we'll be ready to capitalize on a return to growth in the market.

I will now turn over the call to lease up from New York to report for National.

I'm sorry.

Thank you Michael lets now review, our third quarter fiscal year 2019 financial result.

Net revenue for the third quarter of fiscal 2019, with $21 million compared to $20.6 million in the preceding quarter and $28.7 million in the third quarter of fiscal 2018.

We continue to see weaker demand, primarily due to the economic conditions, resulting from the trade dispute.

Sequentially semiconductor revenue increased by approximately $8.2 million and silicon carbide Levy revenue decreased by approximately $20 million.

Compared to prior year semi net revenue decreased by approximately $7.2 million.

Silicon carbide L.E.D. revenues decreased by approximately $2.5 million due primarily to the timing of machine shipments.

I must start to cash and cash equivalents at our continuing operation at June Thirtyth, 2019, or $49.1 million compared to $45.9 million at September Thirtyth 2018.

At June 30 of 2019, our total backlog was $17.2 million compared to total backlog of $22 million at March 31st 2019.

Backlog since its customer orders that are expected to ship within the next 12 months.

Gross margin in the third quarter of fiscal 2019, with 37% compared to 38% the preceding quarter and 35% in the third quarter of fiscal 2018.

Compared to prior year gross margin increased primarily due to product mix, most notably stronger sales of our higher margin machine.

Selling general and administrative expenses were S. DNA in the third quarter of fiscal 2019 with $5.7 million compared to $5.8 million in the preceding quarter and $6.8 million in the third quarter of fiscal 2018.

Sequentially as DNA decreased slightly due to lower stock compensation expense.

Compared to prior year ESS, you need decreased primarily due to lower headcount lower employee related expenses and lower commissions on lower revenue.

Income tax expense in the third quarter of fiscal 2000 $19.7 million compared to $8.3 million in the preceding quarter and $1.4 million in the third quarter of fiscal 2018.

We realized an income tax benefit in our discontinued operations for the third quarter of fiscal 2019, due primarily to the sale of fully intact.

Income from continuing operations net of tax for the third quarter of fiscal 2000 $19.9 million or six cents per share compared to $5 million or 33 cents per share for the third quarter of fiscal 2018, and $1 million or seven cents per share in the preceding quarter.

Now turning to our outlook.

For the third quarter, ending September 30 for the quarter ending September Thirtyth 2019, the company expects continuing softness in the semiconductor equipment industry to result in revenue to be in the range of $18 million to $20 million.

Gross margin for the quarter ending September Thirtyth 2019 is expected to be in the mid to upper 30% range with operating margin slightly positive.

The outlook assumes continued weakness in demand given the soft as business conditions due to the ongoing trade disputes and excludes the impact of any potential restructuring actions.

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

Additionally, operating results can be significantly impacted positively or negatively negatively by the timing of orders.

System shipments and the financial results and semiconductor manufacturers.

A portion of amtech for adults are denominated in RMB.

The outlook provided in this press release 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.

And now I will turn it to Robert Haas, Our executive Vice President to discuss discontinued operations.

Thank you Lisa.

At the end of the third quarter, we announced the sale of our solely tech business and the continued expectation does so our tempers business. The sale of solely Tech is a key first step in our efforts to divest our solar business and focus our energy and resources on our semiconductor in silicon carbide business.

We continue to be actively engaged with our advisors in the Netherlands on the sale of Tempress, who are making good progress and engaging in discussions with interested parties, including both private equity in strategic investors.

Looking at our fiscal.

Q3, 2019 results income from discontinued operations for the quarter.

Ended June Thirtyth, 2019 was $1.2 million, which included a gain on the sale of slowly tick of 1.6 million.

An income tax benefit of 1.3 million, partially offset by an operating loss of 1.7 million.

We continue to focus on how we can reduce the losses from our discontinued operations until purposes. So.

There can be no assurance of finding a buyer for recovering the carrying value of the subsidiary.

With one of the two solar Division was divested we're moving in the right direction Wizard vis your plan and more importantly, we are devoting our resources and investments tour profitable semiconductor and fast growing this I see only de segments.

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

Operator, thank you.

We will now begin the question and answer session.

To answer your question in your press Star then one on your Touchtone phone.

If you are using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then too.

At this time, we'll pause momentarily to assemble our roster.

And today's first question comes from Jeff Osborne of Cowen and company. Please go ahead.

Okay. Great I was wondering if you could give us an update on where Tempur stands are you in negotiations with multiple parties and all I can say.

Sorry, what was the accounting treatment.

Thank you Jeff for the question.

So we have.

Several parties under.

India case and.

We're sharing information with them.

A few of them have already expressed an interest.

In temperatures.

Oh.

But we'll see.

See how those negotiations go as we progress.

So I'd say you know were maybe mid way through the process.

But as you know the due diligence timing and final negotiations can extend and really cannot be predicted with accuracy.

As far as the accounting treatment.

With the accounting treatment would just be normal gain or loss.

On sale.

Those assets net of liabilities held for.

Signal.

Got it and then you mentioned the PR Hoffman expansion can you just talk about are you in discussions with any sort of framework agreements with people over like a multi quarter or multi year rollout just I guess what gives you the visibility that you need that added capacity.

All right John can you repeat that question again please.

Yeah, I was asking about the PR Hoffman expansion and why.

While you're doing that Alan such a weak macro do you have any type of longer term discussions with people about.

Multi quarter multi year needs that they might have for that capacity.

You know were.

We're in close contact with with our customers regardless of their planning and such and.

And right now even during the down cycle, we have to make some select strategic investments in our capacity.

To participate in the in the upturn that we all expect.

Got it. Thanks, that's all I have thank you.

Oh, that's wasn't where it comes from Craig Irwin of Roth Capital Partners. Please go ahead.

Hi, good evening and thanks for taking my questions. So first question I wanted to ask is about the the order you press release yesterday, the <unk> millimeter XI arc furnace.

There's a few fabs that are in the process of being being built a few new fabs and a couple of expansions going on.

Can you maybe give us a little bit of color is this maybe one in.

Oh sure, let's just say southern Europe that that the chatter is that it's a little bit further along and then some of the others or is it potentially let's see a couple in North America that so that's in the process of.

Booking equipment.

Well.

Well, Craig you know, we've we've always been tight lipped.

About our customers, particularly new customers.

This this is one of the major players.

And the power semiconductor space.

And and we are very excited.

For this order and we see.

Great great opportunities.

Ahead of us.

So new customer can you tell us whether or not its going into a new fab.

A pre standing fab, where we're maybe looking at expanding into silicon carbide ER.

MOSFET production capabilities from Silicon or you know is this.

Yeah somewhat someone someone with a light legacy business and new business I mean, any color you can give us it would be this this won't be silicon carbide, because as 300 millimeter. So so it is a silicon powerchip customer.

In terms of where exactly.

This expansion will occur.

Unfortunately, I'm not at Liberty to divulge that right now.

Okay understood understood.

In the quarter, you're on your polishing business was.

Little bit weak you know you've made multiple references in the prepared remarks to the macro yeah I understand that there are different segments that that shows obviously it serves only the it's sort of silicon carbide and some other.

Other.

Polishing applications.

Can you maybe give us a little bit more color specifically on the silicon carbide side of the business have you seen customers pull back from the market or do you continue to see the same amount of momentum with the you know handful of customers that have been leading the charge.

So in terms of our silicon carbide customers, we have not seen any pullback right. There's.

There are still a lot of momentum going forward, we've seen announcements of deals being made downstream.

Then that will be the catalyst for the upstream value chain.

To also prepare for becoming expansion. So so we still feel good we're still very positive about the future outlook for silicon carbide power devices overall, but you know this is an evolving industry is still relatively immature compared to silicon. So so every every part of the value chain they are getting ready.

There are some factors what the macro uncertainties that that has some way and also we see some seasonal inventory adjustments I'm from the prior years, where we saw a large order volumes.

Okay understood and then if we could talk a little bit about the gross margin progression into the Ah the fourth quarter.

How much of your your margin guidance really is the the factoring of the weak macro versus some of the.

More favorable.

Margin actually be sort of the products that are becoming a a slightly larger piece of the mix.

Craig I think that you know, it's a combination of the weak macro as well as some of the product mix, which can certainly affect our gross margin on the on terms that.

The next the other machines versus consumables that has an impact as well so it's a combination of those factors.

Okay excellent and.

They actually stood up in Ah Mark for disposal. When would you expect the final large transaction to potentially be completed there is this something that it'll be done by the end of the year or is it something where there's a little bit more uncertainty than that.

I would say there's more uncertainty than that then that of course.

We are targeting as near term as possible but.

There's a lot of uncertainty as to how quickly that can be achieved.

Great. Thanks, again for taking my questions.

Thank you Craig.

And ladies and gentlemen, once more.

I have a question. Please press Star then one at this time.

Today's next question comes from Mark Miller of the Benchmark Company. Please go ahead.

[noise] your bookings in all three segments for del <unk> double digit sequential and year over year.

Was it linear in the quarter or was it stronger or weaker at the beginning of the quarter.

Terms your bookings.

I think it's it's fairly linear you know spend a lot of it is this macro environment. Some of it is the timing of some of our large furnace orders as well.

So we're seeing that combination there.

Thank you.

And ladies and gentlemen. This concludes your question answer session I would like to turn the conference back over to the management team for any final remarks.

[noise]. Thank you for your time today and for your interest in Amtech. This concludes today's call.

Thank you ma'am.

This conference has now concluded we thank you all for attending today's presentation. You may now disconnect your lines and live a wonderful day.