Amtech Systems, Inc. (ASYS) Q4 2014 Earnings Report, Transcript and Summary

Good day. Welcome to the Amtech Systems Fiscal Year 2014 Fourth Quarter Results Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Brad Anderson, Amtech's Chief Financial Officer. Mr. Anderson, the floor is yours, sir.

Good afternoon. Thank you for joining us for Amtech Systems' fiscal year 2014 and fourth quarter results conference call. On the call today are J.S. Whang, Amtech's Executive Chairman; Fokko Pentinga, our President and Chief Executive Officer; and myself, Brad Anderson, Chief Financial Officer. After the close of trading today, Amtech released its financial results for the fourth quarter and fiscal year ending September 30, 2014. 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 guarantees 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 government-funded solar initiatives and trade sanctions; the effect of overall market conditions, including the equity and credit markets and market acceptance risks. Other risk factors are detailed in our Securities and Exchange Commission filings, including our Form 10-K and Forms 10-Q. J.S. Whang, will start our discussion today. Fokko Pentinga, will update you on progress made in our fiscal year and fourth quarter. I will then discuss the financial results. I will now turn the call over to J.S. Whang, our Executive Chairman, to begin the discussion. Thank you, Brad. Thank you for joining us today. In fiscal year 2014, we advanced our solar technology solutions and further strengthened our position in what we see as a large global solar growth opportunity. In 2014, we have introduced new next-gen technology and products, and we have successfully expanded our customer base and it is good to see year-over-year business progress, particularly the 41% improvement on order bookings. Our CEO, Fokko will discuss some of the strategic highlights shortly. As we look to the future, we are excited about the October 22nd announcement of our intent to acquire BTU International. We have done our due diligence and strongly believe the combination of two companies strengthens our near and longer term growth platform. The addition of BTU International supports our business model of growth through strategic acquisition and innovation, and it provides greater scale, operating efficiency and end market diversifications. We look forward to capitalizing on our proven technologies and products as well as pursuing new market opportunities. Now, Fokko will talk about progress made in fiscal 2014 and also our Q4. Fokko?

Thank you, J.S. Looking back over fiscal 2014, I feel very good about the progress made despite the continued constraints in the market. Although, there are still limitations based on current demand, we continue to see 2014 as a precursor to a broader upturn. At this time, we continue to talk with customers, discuss their needs and can confirm that they have high level have interest in our next-generation technology solutions. Let's review some of the progress points in 2014. In the first quarter, we entered into a contract to place our ion implant system at ECN. We installed it in the third quarter and our joint research and development is underway. In fiscal 2014, we also received our first production order for our IonSolar implant system. Additionally, during the year, we shipped our high density, high throughput diffusion systems to a customer in Taiwan, and our PECVD systems to Korea. At Mission Solar Energy, in San Antonio, Texas, we installed our N-type cell line and have received the second of two field acceptances for our PECVD production tool. We have clearly diversified our customer mix and geographic reach and we see that has progressed relative to our longstanding goals. As it relates to Mission Solar Energy, we are pleased to announce the multi-million dollar repeat order for our world-class production systems. The order includes our PECVD systems and important strategic product developed during the solar down cycle to aggressively support the solar growth opportunity during the next recovery cycle and provide us the opportunity to double the size of our served available market. As we look forward into 2015, we are not able as yet to see clearly the anticipated recovery that all market participants are expecting. However, we expect there will be an improvement in selective technology and capacity expansion opportunities and we intend to fully participate in those opportunities. Now, let me touch on our interest in BTU International. Today, we are seeing a consolidating marketplace across the industries, where companies are joining force to strengthen the global market position and opportunities for profitable growth. As J.S. commented, we announced our intent to buy BTU International on October 22nd after going through a through due diligence process. We agree there are many benefits in combining BTU and Amtech. The combination of the two companies, diversify our businesses and project adjacencies, strong talent and distinctive technologies. With BTU, we gain exposure to new and [ph] profitable markets, including reflow for semiconductor and printed circuit board assembly markets, plus we look forward to stable and predictable cash flows, which support our strategic objective to invest in a next-generation solar solutions, drive profitable growth and long-term value. We expect to close the transaction in the first quarter of calendar 2015. Let me turn for a moment to the other markets we serve, including semiconductor and LED markets. For fiscal 2014, we had significant growth in these non-solar markets comparable to our solar growth. Our products and services are well respected in the marketplace. As we look to the future, we anticipate continued solid contributions from these served markets. I will now turn the call over to, Brad, to discuss our fiscal fourth quarter results. Brad.

Thank you, Fokko. Let us now review our fourth quarter and fiscal 2014 financial results. Net revenue for the fourth quarter of fiscal 2014 was $19.8 million compared to $9.2 million in the previous quarter and $6.9 million in the fourth quarter of fiscal 2013. The sequential increase is primarily due to favorable recognition of previously deferred revenue resulting from increased customer acceptances. Partially offsetting the sequential increase were lower shipments during the fourth quarter of fiscal 2014. Increase compared to the same quarter in fiscal 2013 resulted from higher shipments as well as higher recognition of previously deferred revenue. Total customer orders were $11.2 million of which $4.9 million were solar in the fourth quarter of fiscal 2014, overall a 34% increase compared to total orders of $8.4 million the same period a year ago. At September 30, 2014, our order backlog was $28.5 million, down 28% compared to total backlog of $39.4 million at June 30, 2014. Total backlog at September 30, 2014, include solar backlog of $20.9 million. Foreign exchange caused a $2.3 million decrease in back backlog in the September quarter due to the weakening of the euro. As a reminder, backlog includes deferred revenue and customer orders that are expected to ship within the next 12 months. Gross margin in the fourth quarter of fiscal 2014 was 13%, compared to 18% in the previous quarter and 46% in the fourth quarter of fiscal 2013. The lower margins sequentially resulted primarily from the recognition of lower margin revenue as well as lower shipment volume. Gross margin in the fourth quarter of fiscal 2013, reflected a high percentage of net revenue resulting from recognition of previously deferred revenue. Our SG&A expenses in the fourth quarter of fiscal 2014 were $4.9 million compared to $4.1 million in the preceding quarter, a 20% increase, due primarily to expenses related to the pending merger with BTU International. Our research and development expense was $1.8 million in the fourth quarter compared to $1.4 million in preceding quarter. Expenses were higher primarily due to lower recognition of grant funding during the fourth quarter of fiscal 2014. Depreciation and amortization was $613,000 in the quarter compared to $590,000, sequentially. Included in the fourth quarter of fiscal 2014 results is $192,000 of stock expense compared to $160,000 in the fiscal fourth quarter year ago and $230,000 in the third quarter 2014. Net loss for the fourth quarter of fiscal 2014 was $3.2 million or $0.33 per share, compared to a net loss of $5.3 million or $0.53 per share, in the preceding quarter and a net loss of $1.7 million or $0.18 per share in the fourth quarter of fiscal 2013. Total revenue by geographic region for the fiscal fourth quarter was the Asia-Pacific region at 44%, Europe at 44% and North America at 12%. For the fiscal year 2014, in total, revenues were up 62% from a year ago and bookings were up 41%. Our financial position remained strong with essentially no debt and total unrestricted cash and cash equivalents of $27.4 million. At September 30, 2014, we had working capital of approximately $32.3 million. This concludes the prepared remarks portion of our conference call. Operator, would you please open the call to questions.

Yes, sir. We will now begin the question and answer session. [Operator Instructions] The first question we have comes from Sven Eenmaa of Stifel.

Yes. Good evening. Congratulations on the new Mission Solar order you received. I wanted to ask a couple of questions in terms of the margin profile here. Could you quantify what was the margin in the quarter on the shipment side? I understand that there was a deferred rev recognized [ph] in the quarter, but what was the margin on the shipment side?

Yes. We don't get that granular on our disclosures as it relates to shipment margin versus deferred profit margin, but most of that decreased margin was due to basically very little to no margin on some of the PECVD that we recognized.

Got it. How should we think about kind of the shipments going forward to Mission Solar? Are they going to be more in line with the corporate average margin profile or how do you see that kind of playing out?

Yes. This wasn't necessarily due to let's say just MSC, there were other shipments of PECVD. I think going forward, you would see, I think, shipments being more in our historical averages.

Great. Just last question on the Mission Solar side, the timing now that you have recognized some of the units kind of working on the field and you will be shipping them in the next six months. When would you expect revenue recognition on them?

They are considered what we technically call proven technology, so they would be treated just like we do our diffusion furnaces, so pre-standard about recognizing a good portion of the revenue upon shipment and on the terms and contingency payments, but we would not be deferring 100% of cost net revenues like we did this past year.

Got it. The last question I have is in terms of kind of the broader demand environment. There is obviously, it looks like some of the Chinese Tier-1 vendors are still looking to leverage Tier-2 and Tier-3 capacity, but at the same time you see new orders coming in our product side. How do you think about next year's demand environment and what will be driving volumes for you?

Let me answer that one. Markets for next year are mostly driven by, on one side technology-wise and also predominantly for new expansions outside China. As there is still uncertainty about the import duties in the near future, that takes a little bit of time for that to mature to know what that will be and there are discussions between Chinese and the U.S. officials to come to some sort of arrangement, we hope, and that is quite important that there is clarity about that, so there will be expansions within Asia, but also very important are the ones that are outside China, and that will take a little bit of time before it becomes clear what the new import duties will be. That is still to be seen.

I will just add to that real quick is that, while that recovery is still a little bit unclear, timing of that, we do expect to see in 2015 an improvement in those selected technology capacity expansion opportunities, and we believe with the technology and products that we have that we will be able to fully participate in those opportunities.

Got it. Thank you.

Next, we have Jeff Osborne of Cowen & Company.

Thank you. Congratulations again on the order there. Fokko, I was wondering if you could talk about the messaging [ph] as it relates to various different countries in terms of capacity. Could you quantify or get some color on the discussions in Korea, China versus Taiwan in terms of capacity expansions that you are having? In particular, is there any one of the three countries that is more interested in N-type?

Let me do the last one first. For N-type, we see more companies that are starting in some smaller volumes maybe, but are starting to win production for N-type. We see that happening in Taiwan for example, where export to Japan get some advantage if they go to the higher efficiency N-type cells. As to the areas, we see capacity expansions in Japan and in Korea, but at the same time also in China and very interesting in the U.S. Mission Solar being one. There are various companies that are discussing and planning for some new capacity inside the United States, that would be really good, because then they can serve this market which is a very important market especially if you don't have to pay the high import duty, so that makes it profitable for them. On one side, I would like the import duties to go away, but on the other side if they stay in, it gives us capacity expansion here in the U.S. it also has a good size, so both sides will be okay for us as long as there is a decision and our customers know what to do.

Very good. Then, the next two questions I had I think were more for Brad, but the tax credit this quarter obviously - any sense over the next couple of quarters, how we should be modeling your tax expense and maybe just a bit more [indiscernible].

Sure. Jeff, it sounds like just kind of cut out just a little bit there in the end, but looking forward, backwards first 2014, the tax credit for the quarter is really just looking to get to the full year. You have been making estimates and you are basically truing up all your assumptions, so we actually are able to record for the first time in a while the tax benefit on a loss in the quarter. If you look at the details and you get into the details of our notes to the financials, if you look at the tax, but now we had to record substantial what we call valuation allowances on our deferred tax assets, which have negatively impacted our tax rate that we recorded. In the future, we shouldn't have that burden. Going forward, we should be able to utilize. We have NOLs to utilize, so on an ongoing basis, when we get to, I think, more normal quarterly revenues it should be able to see some benefit from a tax standpoint on the effective rate. How soon that is, we haven't really put some specific numbers to, but we should expect to be able to see that in the future.

Very good. Then the last question I had is just in terms of how do you - the BTU, so closing by the end of March 30, would you be able to consolidate the revenue if you are able to close it before that? Just trying to work out the specifics, you would hate to have the full quarter of BTU's revenue in there and then have you missed the March quarter's results might be the later date or two, so would you provide the analysts for BTU kind of results or - put those in June.

Well, they are continuing as a public company, so there is two different numbers to it to combine there. Expectation is sometimes in the mid part of the March quarter to be able to close a transaction, so expectations are that they would definitely be part of Amtech by the end of March, but this all still requires a shareholder vote on both sides, but expectations are we would have it done before the quarter end.

Perfect. I appreciate it. Thank you.

Thanks.

Next, we have Mark Miller of Noble Financial Capital Markets.

You mentioned you were expecting, that you saw capacity expansion opportunities for next year, but visibility still seem to be limited. In term of linearity, either interest or orders, did you see a pick up in the quarter or was it kind of steady throughout the quarter?

For the quarter overall, first of all, orders from quarter-to-quarter, as everyone knows, with us and within the capital equipment industry for solar is lumpy, so it can have a nice big - nice quarter then you can be down one quarter. As an analyst myself, I would much rather see linear numbers to be able to predict, but overall I would say it was pretty consistent. The timing of when orders get closed and the purchase order gets issued as we are closer to the end of a quarter has an effect quarter-to-quarter, Overall if you look, I mean, bookings were up 41% from 2013, and we got this repeat order early in the quarter here for the December quarter, so I think, as we said, we continue to think there is improvement in those opportunities as we go forward into 2015.

In the semiconductor segment, I don't think it is having any impact and I just wanted to check. A lot of people are having inability to forecast because some of the transitions, technology transition specifically the 3D type chips, but that is not really a factor for you guys. Is that correct?

Yes. Remember, we are primarily in the analog side of the business. While there is some cyclicality there, it is not quite the same as the real, call it, high end. There is constant demand, because you are still dealing with power chips and a lot of analog technology still going into a lot of consumer products too.

Finally for me, could you provide CapEx for the fourth quarter and cash consumed by operations?

I don't have that number in front of me, but we do give a year-end cash flow statement and we do have the 10-Q, which is nine months ended June 30, so there is a delta right there. I just don't have that in front of me.

Okay. Thank you.

Thanks, Mark.

[Operator Instructions] Next, we have Gordon Johnson of Axiom Capital Management.

Hey, guys. This is James Bardowski in for Gordon.

Hi, James.

On the order today, I guess, just a couple of follow-up question. I guess, for SG&A first. I know you mentioned that some of the cost for BTU acquisition I think there, should we expect them to roll off first quarter coming up? After that, is there any type of run rate expected?

Yes. We did not announce the acquisition until October, the merger agreement signed October 22nd, so no, you should expect cost coming through in the December quarter. Then we haven't given any guidance as to ongoing run rate.

Okay. Great. Then, I guess, I know there was some talk the last couple of quarters regarding essentially pent up demand, which clearly is slower to come to fruition, but I guess what is the thought amongst some of your customers [indiscernible] Do you find that they are waiting for more visibility or they can't afford to jump in or what do you hear?

Well, there is not one simple answer to that. Some are that are in the process of planning expansions outside of Asia, outside of China and Japan. It would help them to make decisions if there would be a bit more clarity on the import duties, whereas others that especially the ones that have some higher efficiency technologies. They see very good demand for their product. Mission Solar may be one of those, where you see that those companies might have a bit more possibility to look ahead and just go forward with their expansions and this is just a few examples, so it is depending on technology and depending on how that specific customer is positioned in the market, so it is still a bit of a mix. Therefore, general - aftermarket, that is a little bit less clear, whereas the specific ones on technology and as Brad already said, those specific buyers that - we are in a very good position there and this next year to fully participate.

I guess, looking again at the BTU acquisition, and aside from diversification of - what other type of synergies were? Are you looking to achieve and does this market shift from the legacy business?

As far as synergies are concerned, of course, there are always some immediate gains that come from the combination of two public companies, so we expect to see that plus other cost synergies that are being developed as we move forward with a comprehensive integration plan. Then, as we mentioned and I think the conference call and materials associated with the conference call, announcing the merger of the companies, was the reflow business that they have in addition to their other product line. I think, BTU has a strong brand and a great recognition in the marketplace for delivery quality product and quality service that we just continue to expect to build upon that.

Final question, what was the book-to-bill ratio in the quarter?

Book-to-bill was essentially one-to-one.

Okay. Great. Excellent.

to 1

Thank you very much gentlemen. I look forward to [ph] in coming months.

Thank you.

Well, at this time, we are showing now further questions. We will go ahead and conclude our question and answer session. I would now like to turn the conference back over to management for any closing remarks. Gentlemen?

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