Amtech Systems Q2 2023 Earnings Call Transcript

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Provided by Quartr
May 10, 2023

There are 6 speakers on the call.

Operator

Good day, and welcome to the Amtech Systems Fiscal Second Quarter 2023 Earnings Conference Call. Please note that this event is being recorded.

Speaker 1

I would now like

Operator

to turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead.

Speaker 2

Good afternoon, and thank you for joining us for Amtech Systems' fiscal Q2 2023 conference call. With me today on the call are Michael Wang, Chief Executive Officer Lisa Gibbs, Chief Financial Officer and Paul Lancaster, excuse me, Vice President of Sales and Customer Service. After close of market today, Amtech released its results for the fiscal Q2 of 2023. The earnings release is posted on the company's website at www.amtek systems.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 our webcast.

Speaker 2

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 Investors section of our corporate Web 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 the 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 the effect of overall market conditions, including the equity and credit markets and market acceptance risks ongoing logistics, Supply chain and labor challenges, capital allocation plans, the worldwide COVID-nineteen pandemic and our ability to effectively integrate Our acquisition of Retropix, which we acquired in January 2023. Other risk factors are detailed in our SEC filings, including our Form 10 ks and Forms 10 Q.

Speaker 2

Additionally, in today's conference call, we'll be referring to non GAAP financial measures as we discuss the Q2 financial results. You'll find a reconciliation of these non GAAP measures to our actual GAAP results, including the press release issued earlier today. Now, I would like to turn the call over to Michael Wang, Chief Executive Officer.

Speaker 3

Thank you, Erica, and everyone for joining us today. In the 2nd quarter, we achieved $33,300,000 in revenue, representing a year over year increase 21%, inclusive of our recent acquisition of Entrepix. On an organic basis, Revenue was roughly flat as strong demand for our high temperature built furnaces for EV application and growth in our SiC consumables was offset by continued softness in the broader semi industry, impacting our advanced packaging and SMT contribution in the short term. Overall, we remain excited about the long term opportunities across all of our businesses. Within the semi division, while we are currently transitioning Through a downturn in the spending cycle for our semi products, our competitive position in the industry remains strong, which create an opportunity to capture additional upside in the next investment cycle.

Speaker 3

Fortunately, We continue to experience strong demand for our high temperature belt furnaces for EV applications. Moving on to the Materials and Substrate division, SiC remains a key demand driver as the industry gradually builds out wafering capacity to serve the immense opportunity ahead. Sorry about that. Fortunately, we continue to experience strong demand Let me I'm sorry, but let me back up. Within the Materials and Substrate division, SiC remains a key demand driver as the industry gradually builds out wafering capacity to serve the immense opportunity ahead.

Speaker 3

With the addition of Entropix and their focus on 200 millimeter and below CMP expertise and wafer cleaning tools, We continue to expand our exposure to the overall SiC processing market, which adds of the 2nd quarter represented Approximately 40% of the total material and substrate division revenue. The combination of our market share leadership Coupled with our acquisition of IDI, which has historically supplied chemicals and slurries into a wide range of markets, We believe the synergistic capabilities of these offerings will create a force multiplier to gain both market share across our individual solutions as well as Amtech's share in the overall SiC market. While only 1 quarter into the integration of Entropix, Thus far, we are tracking to plan and have seen very positive results with the collaborative efforts across our various SiC businesses. We are encouraged with the level of dialogue and engagement across both existing and new customers and the long term opportunities they represent. In summary, we are increasingly optimistic that our semi division reached an overall demand trough In the 1st fiscal quarter, while demand in our Materials and Substrate divisions remained strong, given the health of the SiC consumables and the broad based interest in Entreprix's cleaning equipment.

Speaker 3

We believe our strategy creates a strong and durable foundation for value creation in the coming years. I will now turn the call over to Paul to go into More detail on our end markets.

Speaker 4

Thank you, Michael. Expanding further on the demand environment, we continue to remain in this overall demand for our advanced packaging and SMT products. Offsetting this is continued higher demand for our high temp belt furnaces, primarily used in EV applications. While we have received additional new orders for advanced packaging equipment from a leading OSAT customer, We remain cautious about the timing of a demand rebound for these products given the uncertainty around the macroeconomic outlook, specifically within the semiconductor industry. Within our Materials and Substrate division, we continue to see a strong demand for our products.

Speaker 4

Specific to silicon carbide, demand for our consumable products continue to grow in line with estimates for overall industry wafer capacity. As a reminder, in this portion of the market Amtech has been a leader for many years with existing relationships across both industry leaders and newer entrants. Given the superior performance attributes of our consumables, which translates to a roughly 2x improvement in total cost of ownership, Customers tend to gravitate to our solutions, particularly as volumes increase. With that said, the pace of silicon carbide wafer capacity additions It's often longer than that of traditional silicon and it will take time for the wafer output of the industry to realize the robust growth in wafer starts that are currently As it relates to our cleaning tools, which were acquired as part of Intrepix, we continue to see strong demand in the silicon and continue to engage existing and new customers for future orders. Intrepix was an early mover into the silicon carbide Starting with the shipment of refurbished wafer cleaning systems into existing fabs.

Speaker 4

By leveraging the experience and know how developed servicing these legacy tools including CMP machines and Tropix developed a new OnTrak double sided scrubber which is ideally suited for compound semiconductor applications with configurations for 100 to 200 millimeter wafers. We believe the ongoing success of this new tool shows the strength of Intrepix's position in this important market segment. As we discussed last quarter, with the growing demand for North America manufactured products, namely our silicon carbide templates Consumables and High Temp Belt Furnaces, we have taken initial steps towards supply chain and manufacturing optimization to expand internal capacity, Strengthening our supply chain for greater resiliency and efficiency, including greater utilization of outsourced manufacturing partners. As an example of this, we began working with 3rd parties throughout North America to help service the growing backlog for our high tent belt furnaces. While these initiatives will take time to fully implement, our goal is to both ramp capacity to better serve our current backlog and reduce lead times for new orders while diversifying our geographic manufacturing footprint to ensure business continuity.

Speaker 4

The near term demand for our products, namely silicon carbide applications in high temp furnaces remains very robust. Well, over the mid to long term, we believe we are well positioned to participate in the growth of both silicon carbide and the semiconductor industries when the capacity investment cycles return. I'll now turn the call over to Lisa to review our financial results.

Speaker 5

Thank you, Paul. Net revenues for the quarter were $33,300,000 an increase of 55% And an increase of 21% from the Q2 of fiscal 2022. The increase is primarily attributable to additional revenue from Intrepix $6,300,000 and increased shipments of our high temperature belt furnaces. Gross margin increased sequentially due primarily to increased revenues driving Improved capacity utilization. Gross margin was relatively consistent when compared to the Q2 of fiscal 2022.

Speaker 5

Selling, general and administrative or SG and A expenses increased $2,200,000 on a sequential basis and $4,700,000 compared to the prior year period due primarily to $1,500,000 in acquisition costs, added Intrepix SG G and A expenses of $1,900,000 including $700,000 in amortization of intangible assets as well as increased consulting and ERP project expenses. Compared to the prior year period, the increase in SG and A is due primarily to $1,900,000 of added SG and A from Intrepix and $1,500,000 of transaction expenses related to the acquisition. Research, development and engineering increased $100,000 sequentially and decreased $300,000 compared to the same prior year period. GAAP operating income was $500,000 compared to GAAP operating loss of $2,700,000 in the Q1 of fiscal 2023 and GAAP operating income of $2,600,000 in the same prior year period. Company has incurred amortization of intangible assets Included in its GAAP financial statements related to the acquisition of Atropix.

Speaker 5

The amount of an acquisition's purchase price allocated to intangible assets and the term of its Related amortization can vary significantly and the amortization is non cash. The purchase price allocation reflected in our GAAP financial statements is preliminary. The company expects to incur amortization of acquired intangible assets relating to Intrepix of approximately $945,000 per quarter through December 31, 2023 and approximately $420,000 per quarter thereafter. Non GAAP operating income, which excludes certain adjustments for restructuring and severance, stock based compensation And acquired intangible amortization expense and transaction expenses related to our acquisition of Intrepix was $3,200,000 compared to non GAAP operating loss of $700,000 in the Q1 of fiscal 2023 and non GAAP operating income of $2,700,000 in the same prior year period. Income tax benefit was $2,900,000 for the 3 months ended March 31, 2023, compared to a benefit of less than $100,000 in the preceding quarter and expense of $700,000 in the same prior year period.

Speaker 5

The income tax benefit in the 3 months ended March 31, 2023 includes a one time benefit of $3,200,000 as a result of the release of a portion of our valuation allowance in connection with the deferred tax liability relating to the Intrepix acquisition, resulting in recognition of or $0.23 per share. This compares to GAAP net loss of $2,700,000 or $0.20 per share for the preceding quarter And GAAP net income of $2,000,000 or $0.14 per share for the Q2 of fiscal 2022. Non GAAP net income for the Q2 of fiscal Unrestricted cash and cash equivalents at March 31, 2023 were $17,700,000 compared to $44,500,000 at December 31, 2022, with the decrease primarily attributed to our acquisition of Intrepix. Approximately 67% of our cash balance as of March 31, 2023 is held in the United States. With the acquisition of Intrepix, our cash levels are lower, but we are comfortable that we have the capital available to fund our operations and fuel our future growth, including our access to a revolving line of credit of up to $8,000,000 To date, we have not borrowed any amounts under the revolver.

Speaker 5

Now turning to our outlook. 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. For the quarter ending June 30, 2023, our 3rd fiscal quarter, revenues are expected to be in the range of $31,000,000 to $33,000,000 with operating margins slightly A portion of Amtech's results is denominated in RMBs, a Chinese currency.

Speaker 5

The outlook provided is based on an assumed exchange rate between the United Now I will turn the call over to the operator for questions. Operator?

Operator

Thank you. We will now be conducting a question and answer session. Our first question is from Mark Millet of The Benchmark Company. Please go ahead.

Speaker 1

I'd like to give you my congratulations on your acquisition of Intrepid. I do have a couple of questions. Several of the semi firms I Talk to this quarter are believing that this is the trial quarter for semiconductor business, equipment business. Do you share those feelings or do you I'm just wondering where you feel we are in a cycle?

Speaker 3

Hi, Mark. Thanks for joining us today. From what we see and what we hear from our customers, we do feel we're at the bottom of the cycle. There are Little lights of hope, movement into a more upward direction, but given our visibility, it's Hard to say when that rebound will occur. So if you remember last quarter, we had that nice order from the OSATs.

Speaker 3

And that could lead into something later in the end of this year is what we're hoping based on what we're hearing.

Speaker 1

I'm looking at your material and substrate gross margins. They were down significantly year over year and also Is that related to the Intrepix acquisition or some other product mix?

Speaker 5

Mark, that is correct. Adding in Intrepix, who has more of the capital equipment in their product line is bringing that gross margin down As we've added them in this quarter.

Speaker 1

So your consumable margins are significantly higher than the equipment margin, is that correct?

Speaker 5

That is correct. And those are stable at this

Speaker 1

Okay. Could you just once more go over the amortization? I think you said $945,000 in another figure somewhat later, What's your schedule for amortization?

Speaker 5

So, yes, so the $945,000 is what we expect to incur through the end of this calendar year. Again, this is a preliminary these are preliminary numbers. We have And then after the end of this calendar year, we expect approximately 420,000 starting with calendar 2024.

Speaker 1

Thank you. You're welcome.

Operator

Thank you very much.

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Amtech Systems Q2 2023
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