Amtech Systems, Inc. (NASDAQ:ASYS) Q3 2022 Earnings Conference Call August 15, 2022 5:00 PM ET
Company Participants
Erica Mannion – Sapphire IR
Mike Whang – CEO
Paul Lancaster – VP of Sales and Customer Service
Lisa Gibbs – VP, CFO, Secretary and Director
Conference Call Participants
Mark Miller – The Benchmark Company
Operator
Good day and welcome to the Amtech Systems Fiscal Third Quarter 2022 Earning Conference Call. Please note that this event is being recorded.
I would now like to turn the call over to Erica Mannion of Sapphire Investor Relations.
Erica Mannion
Good afternoon and thank you for joining us for Amtech Systems fiscal third quarter 2022 conference call. With me on the call today are Michael Whang, Chief Executive Officer; Lisa Gibbs, Chief Financial Officer, and Paul Lancaster, Vice President of Sales and Customer Service.
After close of market today, Amtech released its financial results for the fiscal third quarter of 2022. The earnings 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 our webcast. Some of the comments to be made during today’s call today 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 the forward-looking statements are changes in the technologies used by customers and competitors; change in volatility and 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; ongoing logistics, supply chain and labor challenges; capital allocation plans; and the worldwide COVID-19 pandemic. Other risk factors are detailed in the company’s SEC filings, including its Form 10-K and Forms 10-Q.
I will now turn the call over to Mike Whang, Chief Executive Officer.
Mike Whang
Thank you, Erica, and everyone else for joining us today. I’ll start off by thanking the Shanghai team for their extraordinary efforts and reopening our factory. As an organization, we have turned the unparallel challenges the past couple of years into an opportunity to increase our resilience and commitment towards our stakeholders.
The robust demand for our products continued from the third quarter with bookings of $30.1 million, representing our sixth straight quarter of bookings over $30 million. Revenue was $20 million down 14% year-over-year due to the impact of the Shanghai lockdown in the third quarter. As we’ve discussed on our last call, the Chinese Government mandated COVID lockdown, closed our manufacturing operations in the region from the end of March, through the beginning of June, removing two months worth of production.
Once our facility reopened fully, we are able to ramp manufacturing quickly to begin clearing backlog, in turn, enabling us deliver revenue above the high end of our guidance range. As of today, we have successfully rent capacity beyond pre shutdown levels, allowing us to more quickly serve the large backlog of advanced packaging and SMT products in the fourth quarter. While we are pleased to see our facility ramp back so quickly, challenge us with were they supply chain and logistics still exist.
From a macro perspective, we remain excited about the health of demand we are seeing and both our reporting segments. Within semiconductor, following nearly six straight quarters of strong demand for our Advanced Packaging products, we are beginning to see a flattening as customer digest the capacity they already have in place. Offsetting this, we are experiencing a ramp in demand for a custom high bulk furnaces driven by the strength in the automotive market and more specifically electric vehicles.
Within the materials and substrate market whilst still early, our confidence around the long-awaited silicon carbide wafer ramp is building with consumable revenues for these applications more than doubling over the last two quarters. As we have set in the past, this will be a multi-year capacity expansion cycle with ebbs and flows as individual customers ramp wafer capacity, then digest that ramp again.
Fortunately, unlike the equipment business where sales grow and contract along with the market, our consumables business exhibits, a growth and plateau behavior, allowing us to deliver stable revenue even when customers are digesting capacity. Beyond the industry-wide challenges, we have been forced to navigate in the near term, we strongly believe our leadership in select growth markets with exposure to several secular tailwinds create significant opportunity to drive increased profitability and shareholder value as demand accelerates and we realize the operating leverage built into our current business model.
I will now turn the call over to Paul to go into more details of the end markets.
Paul Lancaster
Thank you, Michael. Expanding further on the demand environment within the semiconductor business, we continue to see healthy interests across geographies and serve markets in the third quarter. As Michael mentioned, we have started to see signs of softening a new order activity in Advanced Packaging market. However, this is as expected, given the cyclical nature of the industry.
Offsetting this, we are seeing growth in other end markets, such as automotive, where we see strong orders for our height temp belt furnace with backlog extending well into fiscal 2023.
Moving on to our material and substrate segment, in the third quarter, we saw bookings increase 40% year over year and gross margin for this segment remain healthy at 48%, driven by increasing strength in our consumable products as our customers continue to expand manufacturing capacity.
Within the Silicon carbide wafer market specifically, we continue to see increases in consumable demand as our customers began to execute capacity to expansion plans in earnest. Going forward, we would expect this portion of our business to grow at or above the industry as a whole, given our position within the market. With the long history of quality and service and the significant cost of ownership benefits of our consumable products, we are into the process of record for leading wafer manufacturers in the market. This is significant as changing process steps as often cumbersome requiring requalification, which manufacturers strive to avoid. It also provides us with another advantage, namely with new vendors, looking to enter this market.
Given the manufacturing complexities for Silicon carbide, these vendors typically prefer to use well-established improvement processes, which include Amtech consumables. Related to capital equipment, we continue to have good dialogue with both existing and potential new customers executing initial phases of wafer capacity expansion plans.
I’ll now turn a call over to Lisa.
Lisa Gibbs
Thank you, Paul. Net revenues decreased 28% sequentially and 14% from the third quarter of fiscal 2021, primarily attributable to lower shipments of our advanced packaging equipment due to our Shanghai facility closure, partially offset by increased shipments of our consumables products in our material and substrate segment.
As Michael mentioned, the decrease in production from the Shanghai facility was caused by the government mandated closure relating to its COVID policies, which closed our facility for approximately two months during fiscal Q3, 2022. Gross margin decreased sequentially, and compared to the same period last year, primarily due to the above-mentioned closure of our Shanghai manufacturing facility. Disclosure resulted in decreased utilization during the period as we continue to pay our employees while seeing production entirely for the first two months of the quarter.
Selling, general and administrative or SG&A expenses increased $392,000 on a sequential basis with lower commissions on lower sales offset by higher legal expenses related to the sale lease back transaction and increased consulting expenses. SG&A decreased $124,000 compared to the prior year period as lower commissions on lower sales were offset by increased employee-related expenses and higher legal fees in the current year period.
On June 23, 2022, our subsidiary BQ International Inc., completed the sale and leased back of BTU’s building in Billerica, Massachusetts. The sale price was $20.6 million. Simultaneously with the sale closing BTU entered into a two-year lease back of the property.
The lease terms include base rent of $1.5 million per year in an absolute triple net lease. In connection with the sale BTU recognized a gain of $12.5 million. This sale leads back transaction resulted in a net cash inflow of approximately $14.9 million after repayment of the existing mortgage and settlement of related sale expenses. Operating income was $9.6 million compared to operating income of $2.6 million in the second quarter of fiscal 2022 and operating income of $1.2 million in the same prior year period.
Income tax provision was $20,000 for the three months ended June 30, 2022, compared to a provision of $700,000 in both the preceding quarter and the same prior year period. Net income for the third quarter of fiscal 2022 was $10.2 million or $0.73 per share. This comparison net income of $2 million or $0.14 per share for the preceding quarter and net income of $0.4 million or $0.03 per share for the third quarter of fiscal 2020. Unrestricted cash and cash equivalence at June 30, 2022 were $47.7 million compared to $27.9 million at March 31, 2022. Approximately 85% of our cash balance is held in the United States.
We are very pleased with the cash generation resulting from our sale lease back of the BTU building in Massachusetts. We are working closely with our board of directors on our capital allocation plans, which include further investments in our capacity, evaluating backup and alternative manufacturing sites, product development, management information systems, M&A and strategic share repurchases. Our capital allocation priority is to fuel Amtech’s growth both organically and through acquisition.
Now turning to our outlook; for the quarter ending September 30, 2022, our fiscal fourth quarter revenues are expected to be in the range of $30 million to $32 million with operating margin in the low double digits. The company’s outlook reflects the anticipated ongoing logistical impacts and the related delays for good shipped tourism in China. Additionally, the semiconductor equipment industries can be cyclical and inherently impacted by changes in market demand.
Operating results can be significantly impacted positively or negatively by the timing of orders, system shipments, increasing shipping and logistical costs and the financial results of semiconductor manufacturers. A portion of Amtech’s results is denominated in RMBs a Chinese currency. The outlook provided 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?
Question-and-Answer Session
Operator
[Operator instructions] We’ll now take our first question from Mark Miller of The Benchmark Company. Your line is open. Please have ahead.
Mark Miller
Thank you for the question. Just wondering if you can quantify the extent of revenue impact the Shanghai closure had on last quarter.
Lisa Gibbs
Great question, Mark. We haven’t put that out publicly. Certainly, it had an impact as you can see. I think, our results would’ve probably been more consistent with Q2, in the $28 million range had that not closed for the quarter for those couple of months during the quarter.
Mark Miller
Okay. Looks like margins are coming back next quarter from your guidance. In terms of your backlog, where’s the margin profile of your backlog? Is it similar — will be similar to what you expect for the next quarter?
Lisa Gibbs
We’ve talked about that our growth margins are affected by product mix, but our backlog contains a good product mix across all of our product offerings. So I think it would average out to what it’s been on average around 40%
Mark Miller
In terms of consumables; does that look like a growing trend over the next couple quarters consumable sales, because that’s up with your margins.
Paul Lancaster
Hi Mark. Yeah, definitely. We’re starting to see what we fill is the beginning of a definite ramp in that segment with our consumables.
Mark Miller
Okay. Thank you. I’ll jump back in the queue.
Operator
[Operator instructions] It appears there are no further questions at this time. Thank you. All this concludes today’s call. Thank you for your participation. Stay safe. You may now disconnect.
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