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Edited Transcript of ASYS earnings conference call or presentation 21-Nov-19 1:30pm GMT

Q4 2019 Amtech Systems Inc Earnings Call

Tempe Dec 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Amtech Systems Inc earnings conference call or presentation Thursday, November 21, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jong S. Whang

Amtech Systems, Inc. - Executive Chairman & CEO

* Lisa D. Gibbs

Amtech Systems, Inc. - VP & CFO

* Michael Whang

Amtech Systems, Inc. - VP & COO

* Robert T. Hass

Amtech Systems, Inc. - EVP

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Conference Call Participants

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* Jeffrey David Osborne

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Amtech Systems Fourth Quarter and Fiscal Year 2019 Conference Call. (Operator Instructions) Please note, this event is being recorded.

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

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Lisa D. Gibbs, Amtech Systems, Inc. - VP & CFO [2]

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Good morning, and thank you for joining us for Amtech Systems Fourth Quarter and Fiscal 2019 Results Conference Call. With me on the call today are J.S. Whang, Amtech's Executive Chairman and Chief Executive Officer; Michael Whang, our Chief Operating Officer; and Robert Hass, Amtech's Executive Vice President.

Before the opening of trading today, Amtech released its financial results for the fourth quarter and fiscal year ended September 30, 2019. That earnings release will be posted on the company's website at amtechsystems.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 in volatility and the demand for our products; the effect of changing worldwide political and economic conditions, including trade sanctions; the effect of overall market conditions, including the equity and credit markets and market acceptance risks; and our capital allocation plans. Other risk factors are detailed in our Securities and Exchange Commission filings, including our Form 10-K and Forms 10-Q.

I will now turn the call over to Robert Hass, Executive Vice President, to discuss discontinued operations.

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Robert T. Hass, Amtech Systems, Inc. - EVP [3]

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Thank you, Lisa, and good morning. As announced in our press release, we have entered into a management buyout agreement with certain key management members of R2D, our automation division in France. We've disclosed previously that we were evaluating how and whether R2D would fit into our power semi strategy. After careful consideration, we determined that the disposition of R2D is best for Amtech, its shareholders and the employees and customers of R2D. We expect to recognize a loss on deposition -- disposition of R2D in fiscal Q1 2020 of approximately $3 million.

We also continue our focus and efforts to divest Tempress, our solar division in the Netherlands, and our advisers are in the final stages of the project. The parties who have emerged as potential buyers will require a cash infusion from Amtech which we are considering, together with other deal terms which are under negotiation. We are hoping to announce a conclusion by calendar year-end.

We remain confident these divestitures are the right decision for Amtech and our shareholders, allowing us to devote our resources and investments to our -- I mean to our profitable semiconductor and fast-growing SiC and LED segments.

I will now turn the call over to J.S. Whang, our Executive Chairman and Chief Executive Officer. J.S.?

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Jong S. Whang, Amtech Systems, Inc. - Executive Chairman & CEO [4]

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Thank you, Robert. Thank you for joining our call this morning. As our intense effort to dispose of our solar business continues, we move forward with the semi strategy, focusing our efforts and resources on our semiconductor and silicon carbide business and the multiple growth opportunities they present. While at this time, ongoing macroeconomic issues prevail, the underlying long-term growth drivers of our targeted markets are fully intact.

Therefore, as we begin our fiscal year 2020, we look to prudently invest in both R&D and new product development to expand our offerings and accelerate our growth in the emerging SiC industry and anticipated recovering marketplace, ensuring we are well positioned to serve our market-leading customers when the semi industry turns around. We are focused on our plan to grow our business and have developed a strategic plan that calls for profitable revenue growth as the semi industry recovers.

With the semi business -- with the solar business soon to be behind of us, we will also believe -- we also believe the growth industry we serve offers us an excellent acquisition environment. And we are confident that there will be opportunity in the coming years that will contribute to our growth and profitabilities.

We are committed to profitable growth, and we believe we have an exciting future that can provide increased value for our shareholders over the coming years. Therefore, divesting the solar business and getting it behind us is a very important task of ours.

I will now turn the call to Michael Whang, our COO, to discuss our continuing operations. Mike?

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Michael Whang, Amtech Systems, Inc. - VP & COO [5]

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Thank you, J.S., and good morning. Although the semiconductor manufacturing environment has been soft, our fourth quarter benefited from favorable product mix at BTU and a strong mix of machine shipments at PR Hoffman. Even with these positives in the fourth quarter, we still expect near-term revenue to be adversely impacted by the ongoing tariff environment and the continued economic and trade issues facing the industry. The exact timing of a meaningful upturn in the market demand remains uncertain, although we believe the second half of 2020, we'll see growth return in the industry, especially within silicon carbide devices.

In preparing for this significant opportunity and long-term growth potential, we are making select investments to expand and upgrade our product offerings, our manufacturing facilities and IT systems to strengthen our position and prepare us to meet the expected upturn in demand.

As J.S. discussed, we have developed a strategic plan to profitably grow as the semi industry recovers in the second half of 2020. Currently, and with the recovery, we had the following areas of focus, emerging opportunities in the SiC industry. We are well positioned to take part in this significant growth area. We are working closely with our customers to understand their SiC growth plans and opportunities. We are investing in our capacity, next-generation product development and investing in our people. We believe these investments will help fuel our growth in the SiC industry.

Secondly, our 300-millimeter silicon horizontal thermal reactor. We have a highly successful and proven 300-millimeter solution for growing power semiconductor applications. We have a strong foundation with a key customer. And in the second half of fiscal 2019, we announced an order for another industry-leading manufacturer. We believe we have a strong opportunity to expand our customer base and future revenue growth in this area.

Lastly, as a major revenue contributor, BTU will continue to track the semi industry cycles for our semi packaging and SMT products. We believe that through investments in product innovation, BTU has an opportunity to grow further.

Our long-term outlook remains positive and that we see significant opportunities as customers shift from silicon to silicon carbide solutions for multiple next-generation applications. This shift represents an exciting growth opportunity in an area where we are all very well positioned. We are confident that the long-term outlook is compelling as demand for advanced power chips is expected to intensify year-over-year.

And now I will turn the call to Lisa to review the fourth quarter and fiscal year financial results.

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Lisa D. Gibbs, Amtech Systems, Inc. - VP & CFO [6]

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Thank you, Michael. Net revenue for the fourth quarter of fiscal 2019 was $20.2 million compared to $21 million in the preceding quarter and $23.1 million in the fourth quarter of fiscal 2018. Sequentially, semiconductor revenue decreased by approximately $1.1 million, and silicon carbide/LED revenue increased by approximately $1.3 million. Compared to prior year, semi net revenue decreased by approximately $4 million, and silicon carbide/LED revenue increased by approximately $1.3 million.

In our semiconductor segment, we continue to see weaker demand primarily due to the economic conditions resulting from the trade dispute. The increase in revenue in our silicon carbide/LED segment, both sequentially and compared to prior year, was primarily due to the timing of machine shipments.

At September 30, 2019, our total backlog was $17.3 million compared to total backlog of $17.2 million at June 30, 2019. [This backlog] includes customer orders that are expected to ship within the next 12 months.

Gross margin in the fourth quarter of fiscal 2019 was 42% compared to 37% in the preceding quarter and 36% in the fourth quarter of fiscal 2018. Sequentially and compared to prior year, gross margins increased primarily due to favorable product mix, most notably increased sales of parts and upgrades.

Selling, general and administrative expense, or SG&A, in the fourth quarter of fiscal 2019 was $6.1 million compared to $5.7 million in the preceding quarter and $6.2 million in the fourth quarter of fiscal 2018. Sequentially, SG&A increased due primarily to increased employee-related expenses.

Looking at income tax on a full year basis, we had a provision for fiscal 2019 for both continuing and discontinued operations of $1.4 million compared to $0.2 million in fiscal 2018. The provision for fiscal 2019 represents taxes primarily in our foreign jurisdictions. We were able to offset our U.S. federal income taxes due with the tax benefit received from the sale of SoLayTec. The lower tax provision in fiscal 2018 was primarily due to the resolution of an uncertain tax position.

Income from continuing operations, net of tax, for the fourth quarter of fiscal 2019 was $1 million or $0.07 per share. This is compared to a loss of $1.1 million or $0.08 per share for the fourth quarter of fiscal 2018, which included a goodwill impairment charge of $2.2 million in our Automation segment, and income of $0.9 million or $0.06 per share in the preceding quarter.

Turning to cash. Unrestricted cash and cash equivalents at our continuing operations at September 30, 2019, were $53 million compared to $45.9 million at September 30, 2018. As of September 30, 2019, approximately 21% of our unrestricted cash and cash equivalents at our continuing operations was held outside the United States, mostly in China.

I would like to briefly discuss our capital allocation plan to drive profitable growth. One key priority is to continue to invest organically, as J.S. and Michael discussed, in product development, our facilities, people and IT systems. We are pleased with the outlook for our product portfolio and new product development as we continue to collaborate with our customers with the objective to be very well positioned to participate in the next buying cycle. We anticipate the required investments to achieve our profitable revenue growth targets will be in the range of $6 million to $8 million in research and development and capital expenditures per year.

Another key priority in our capital allocation plan is to continue to pursue strategic M&A opportunities, selective acquisitions at the right price to enhance our technologies, product portfolio and capabilities to build upon our strengths in the high-growth areas in semi and silicon carbide. We have the skill set and track record to identify strong acquisition targets in the semi and silicon carbide growth environment and to execute transactions and integrations to provide for accretive profitable growth in both the short term and the long term. Once the above priorities have been met, we will evaluate the returning of capital to shareholders, as we have done in the past.

Now turning to our outlook. For the quarter ending December 31, 2019, the company expects further softness due to continued trade tensions and the semiconductor equipment industry down cycle. We expect revenue to be in the range of $16 million to $18 million, and gross margin is expected to be in the mid to upper 30% range with operating margin breakeven to slightly positive. Again, the outlook assumes continued weakness in demand given soft business conditions due to the ongoing trade dispute 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, by the timing of orders, system shipments and the financial results of semiconductor manufacturers.

A portion of Amtech's results are denominated in RMBs. 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.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Jeff Osborne of Cowen and Company.

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Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [2]

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A couple of questions on my end. On the R2D side, can you give us any more detail on sort of what the historic revenue run rate was of that division just as we think about that possibly going away?

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Robert T. Hass, Amtech Systems, Inc. - EVP [3]

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On an annual basis, it has been -- since the solar downturn, let's be clear on that, since the downturn in the solar industry, the annual revenue rate in R2D has been $2.5 million to $4 million.

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Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [4]

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Got it. That's helpful, Robert. And then if I heard you right, I think in Lisa's comments, you took a $2.2 million impairment on that?

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Lisa D. Gibbs, Amtech Systems, Inc. - VP & CFO [5]

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Yes, that was at the end of last year, last fiscal year.

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Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [6]

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Okay. And then I think also, Robert made reference to Tempress and the sale by year-end. What confused me was that I think there was reference to a cash infusion to the buyer. Is there any way to bracket how much cash you're willing to lend, I assume, to the buyer or how the mechanics of that would work?

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Robert T. Hass, Amtech Systems, Inc. - EVP [7]

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No, I won't comment on that other than to say that in the script and in the financial statements, we show how much cash is in the continuing operations, and that's what you should focus on. The cash in the discontinued operations is in the assets held for sale. Does that help?

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Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [8]

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Got it. Yes, that's helpful. How about on the strategic plan that you shared, and a different speaker's remarks, but in terms of the $6 million to $8 million for R&D and CapEx, Lisa, is there a way to think about how much of that is in OpEx versus CapEx?

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Lisa D. Gibbs, Amtech Systems, Inc. - VP & CFO [9]

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Sure. I would expect it's more heavily weighted towards R&D, probably in the 2/3 range of what I gave.

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Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [10]

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Got it. And I assume, Robert, on the OpEx for R2D, was that meaningful as well? Or can you give us a sense of what the head count was for that unit in France?

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Robert T. Hass, Amtech Systems, Inc. - EVP [11]

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So the contribution to profit and loss has not been significant. As far as the number of employees, I think it's around 35.

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Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [12]

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Okay. That's helpful. Maybe just the last one. There's a lot of moving pieces, Lisa, on tax. Can you talk about what we should expect for this fiscal year?

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Lisa D. Gibbs, Amtech Systems, Inc. - VP & CFO [13]

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Sure. Understandable. We do expect to achieve a tax benefit through the divestiture of R2D and through Tempress, kind of like what we did with SoLayTec. And so I think that we'll realize that benefit through this fiscal year. And then after these divestitures, we would expect the tax rate to resume to a normal range.

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Operator [14]

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(Operator Instructions) Seeing no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Lisa Gibbs for any closing remarks.

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Lisa D. Gibbs, Amtech Systems, Inc. - VP & CFO [15]

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

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Operator [16]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.