Q4 2023 Amtech Systems Inc Earnings Call

Presentation

Operator

Good day, and welcome to the Amtech Systems business update conference call. Please note that this event is being recorded.
I would now like to turn the call over to Michael Funari of Sapphire Investment Relations.

Good afternoon, and thank you for joining us for Amtech Systems business update conference call. With me on the call today are Bob Daigle, Chairman and Chief Executive Officer; Lisa Gibbs, Chief Financial Officer; and Paul Lancaster, Vice President, Sales and Customer Service.
After close of market today, Amtech released a summary of its revenue and business status as of September 30, 2023. The press release is posted on the company's website at www.amtechsystems.com in the Investors section.
Before we begin, I'd like to remind everyone that the Safe Harbor disclaimer in our public filings covers this call and are webcast. Some of the comments we made during today's call will contain forward-looking statements and assumptions that are subject to risks and uncertainties, including, but not limited to, those contained in our SEC filings, all of which are posted within the Investors section of our corporate website.
The company assumes no obligation to update any such forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of today. These statements are not a guarantee of future performance and actual results could differ materially from current expectations Among the important factors which could cause actual results to differ materially from those in forward-looking statements.
Are changes in the technologies used by customers and competitors, change in volatility and the demand for products, the effect of changing worldwide political and economic conditions, including trade sanctions, effective overall market conditions, including the equity and credit markets and market acceptance risks, ongoing logistics, supply chain and labor challenges, capital allocation plans, the COVID-19 pandemic and our ability to effectively integrate our acquisition of Traffix, Inc., which we acquired in January 2023. All the risk factors are detailed in our SEC filings, Form 10-K and Forms 10-Q.
I will now turn the call over to Amtech's Chief Executive Officer, Bob Daigle.

Thank you, Mike, and good afternoon, everyone, and thank you for joining our conference call. In today's call, we will provide business update, reporting of our full financial results will be delayed due to the complexity and judgment involved in the valuation and impairment analysis that's underway.
I'd like to share a few observations I've made about Amtech and speaking with both customers and stakeholders over the past four months and discuss the subsequent actions we are taking. Amtech is a company with well-recognized brands, great products and technologies, dedicated and talented employees, and best-in-class service capabilities, which support the diverse customer base.
Our Company has tremendous promise and is well positioned to capitalize on several secular trends that will drive demand for our equipment and consumables. The advanced mobility market, including electric vehicles, is expected to drive growth, not only for semiconductors and subsystems within the vehicles but also for battery cooling systems and a broad array of electric vehicle power modules, which our tools serve.
Within the broader semiconductor market, our tools are used for advanced packaging of processors for high-performance computing and artificial intelligence applications. And across the electronics industry as a whole, the pandemic and global tensions have made it abundantly clear that more resilient semiconductor and electronic assembly supply chains are needed. This will solve -- this will also expand the opportunities for our tools.
As we evaluate the strategic roadmap for Amtech, we are focusing on those areas where we have strong differentiation and are able to add significant value in the markets we serve and for our shareholders. As a part of this evaluation, we have come to three realizations: first, technology innovation and customer partnerships remain core to what sets Amtech apart in the industry. Often, the applications we target are amongst the most difficult in the industry requiring not only industry-leading performance and precision, but also a support organization well-equipped to assist customers as they refine their own manufacturing processes.
Second, as we dug in deeper into the product set Amtech currently offers, we have realized some products are not particularly well suited for the opportunities they target today. This includes products that have matured and provide limited profit opportunity as well as other products requiring significant investments to deliver capabilities that are not yet needed.
Third, the past three years have demonstrated to us the need to be nimble, both in our supply chains and manufacturing operations to have the ability to quickly adapt to rapid cyclical changes in the industries we serve.
Going forward, we will continue to invest in the products and customer support organizations within the semiconductor segment where Amtech has the strongest differentiation in the market. This includes equipment utilized for advanced packaging, electronic assembly, EV battery cooling systems, and power semiconductor substrates. While the advanced packaging and electronic assembly business has been meaningfully impacted by the slowdown in the semiconductor market, our tools continue to be very highly regarded.
We are confident that as markets recover, we will see orders rebound commensurate with our position with further opportunity to gain share as applications such as advanced packaging for artificial intelligence processors continue to gain greater traction.
Within the substrate and materials segment, we similarly see a very strong opportunity for consumables as well as our cleaning tools, chemical, mechanical polishing equipment upgrades, and our CMP foundry services. Related to each of these product sets, our goal going forward is to ensure that we are tightly aligned with our customers by understanding of the problems they are trying to solve and developing our own product roadmaps to address these needs, we will be well positioned for growth.
As we evaluated the products and the material and substrate portfolio, we came to the conclusion that our legacy polishing machines are no longer a strong fit for the marketplace. And while demand does exist, it is not large enough to justify continued investments. As a result we have notified customers that we will cease manufacturing of these products.
With regards to the latest version of these machines, which we have been testing with silicon carbide customers, we have realized that the market is not yet ready for the capabilities we offer. With many players still in the early stages of refining their own production processes, primarily with establishing repeatable, high-quality boule for wafer production, the market for high volume batch tools has not materialized along the timeline that we originally estimated.
Unlike our legacy polishing machines however, we are moving this technology to an traffics where we will continue to provide customer access for trials.
Operationally, as we discussed on prior calls, we have begun to qualified third-party contract manufacturers to add incremental capacity for select products where we have high demand and to optimize our cost structure. For example, in the fourth quarter, we shipped over a dozen high-temperature belt furnaces that leverage significant content content from manufacturing partners.
As we look ahead, our manufacturing operation will focus on large complex systems, and we will outsource simpler units and subassemblies, where practical. This will allow us to improve profitability and our ability to respond quickly to changes in demand. While we are exposed to several large market opportunities, which we believe will drive strong growth in the mid to long term, we also need to ensure that Amtech can generate sufficient profitability and cashflow even in downturn conditions like we are currently experiencing.
After taking time to evaluate the performance and opportunities for each of our businesses, I made the decision to take several actions to reduce fixed costs and expenses. These actions are expected to contribute over $4 million in annualized savings without jeopardizing the long-term growth opportunities for the company.
To provide investors with a framework on how we view the opportunity ahead, we are rolling out a long-term target model of $180 million in annual revenue with 18% EBITDA margins. Our top-line target is based on several factors, including a return to cyclical growth in our core markets, continued growth in emerging opportunities such as advanced mobility applications, and the potential for additional inorganic opportunities.
While today, we are inwardly focused on optimizing our existing operations, over time, inorganic investments will remain a part of our strategy. Related to the associated EBITDA margin at these levels, we believe leveraging an outsourcing model where appropriate will help us generate better margins while limiting volatility. We will scrutinize all investments to ensure that they generate strong returns on invested capital.
In closing, Amtech is a unique company with differentiated exposure to a number of high-growth markets. Our mission at this stage is to fully capitalize on these growth opportunities while addressing operational and supply chain issues to create meaningful shareholder value from this growth.
With that, I will turn it over to Lisa for further details on the fourth quarter.

Thank you, Bob. We closed fiscal 2023 with revenues of $113.3 million compared to $106.3 million in fiscal 2022. In a challenging demand environment, our acquisition of Entropic's completed in January of 2023 contributed to this increase in year-over-year revenues.
Turning to our quarterly results, net revenues decreased 10% sequentially and 14% from the fourth quarter of fiscal 2022. The decrease from prior year is primarily attributable to lower shipments from our Shanghai manufacturing facility, partially offset by an increase in shipments of our high temperature melt furnaces and the addition of Entropic's in fiscal 2023.
The sequential decrease is primarily due to a decrease in shipments across all of our business segments. We are experiencing lower bookings in multiple areas of our business due to the softness in the overall semiconductor market due to the prolonged downturn in general economic conditions in the semiconductor industry and delays in the adoption of NexTone polishing tools, we anticipate an intangible asset impairment charge in our material and substrate segment as of September 30, 2023.
Due to the complexity and judgment involved in the valuation and impairment analyses, we are working with our external auditors to finalize the audit procedures. When complete, the company will issue a press release with our fourth quarter and full year fiscal 2020 results as well as file our annual report on Form 10-K.
Unrestricted cash and cash equivalents at September 30, 2023 were $13.1 million compared to $14.3 million at June 30, 2023, approximately 56% of our cash balance as of September 30, 2023 is held in the United States.
We are clearly in a very challenging demand environment for our business. As we disclosed in the 8-K that was released on Monday, we have entered into a forbearance agreement with our bank. The purpose and intention of this agreement is to give us the runway we need and access to our revolving line of credit until demand picks up. We are making swift and decisive fixed cost reductions in our business with a goal to get to EBITDA breakeven as quickly as possible to give us the ability to weather this prolonged downturn and be ready when the growth returns.
For context, we estimate the actions we have already taken will decrease annual operating expenses by $4 million for the full fiscal year of 2024, and we will continue to evaluate opportunities for further cost savings. The timing of these actions occurred throughout this December quarter. Our first fiscal quarter of 2024. Therefore, we expect the full benefit of the savings to be realized in our second fiscal quarter of 2024. These steps will significantly improve results and enhance profitability through market cycles.
Now turning to our outlook. For the first quarter, the first fiscal quarter ending December 31, 2023, we expect revenues in the range of $21 million to $24 million with EBITDA and nominally negative. Although the near-term outlook for revenue and earnings is challenging, we remain confident that the long-term outlook is strong for both our consumables and equipment serving advanced mobility and advanced packaging applications. The expense actions I mentioned earlier will significantly improve results and enhance profitability through market cycles.
Operating results can be significantly impacted positively or negatively by the timing of orders, system shipments, logistical challenges and the financial results of semiconductor manufacturers. Additionally, the semiconductor equipment industries can be cyclical and inherently impacted by changes in market demand. Actual results may differ materially in the weeks and months ahead. A portion of Amtech's results is denominated in RMB as a Chinese currency. The outlook I provided is based on an assumed exchange rate between the USD and the RMB changes in the value of the RMB in relation to the United States dollar could cause actual results to differ from expectations.
I will now turn the call over to the operator for questions. Operator?

Question and Answer Session

Operator

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. (Operator Instructions) Mark Miller, Benchmark.

I'd like to ask a couple of questions about the recent forbearance agreement. It appears as you're reducing the size of your term loan and moving the balance to a larger revolver. Is that correct?

That is correct, Mark.

Now, why did you do this? Why didn't you do this before violating the covenant? I'm just curious.

We've been working with the bank and you know, the timing kind of worked out with our Q4 results to work through this, obviously take some time to work through on everything and you unfortunately weren't able to get it done before the Q4 results. But on the reason for that is it gives us the lower monthly term payments, which helps with our monthly cash flows as well as increased access to our revolver again. And part of it is that the revolver expired on January '24, and this extends it into January of '25.

Okay. It also appears to the -- will return balance on the revolver? Will mature maturities going from 2028 to 2025? Is that correct?

So the term loan is moving from 2028, 2029. And then the revolver was maturing in '24 and now it's in January '25.

Okay. I guess there's no real change in liquidities that's confirmed.

That is confirmed. We're working on getting to cash breakeven and managing and during this cycle, and I'm you will have access to that revolver as demand returns if we need access to working capital on. So we're going to just continue to to strive for that breakeven so that we can stay in this spot until things demand comes back.

And one final question. What does the margin paid on the floating rate and the new interest payment?

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

Okay. Just one other question, though. In terms of your backlog, do you -- have you or do you anticipate having to remove any of the or the orders from your backlog?

We've not had cancellations. We've had a couple of customer pushouts up at this point. We've not had cancellations, and we've talked about our backlog in the past and the importance of shipping it and bringing it down. So that's that's part of what we saw this quarter was with our contract manufacturing contract manufacturer partner, helping us get more units out the door.

Thank you.

Thanks, Matt.

Operator

(Operator Instructions) There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Yes. Does this Bob Daigle again, I'd just like to thank everyone for joining our conference call today, and we'll be happy to once we've once we file the 8-K. Happy to jump on calls with folks too to have more discussions.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.