Amtech Systems, Inc.
Q4 2020 Earnings Call Transcript

Published: 19 Nov 2020

[Operator:]

Good day, and welcome to the Amtech Systems Fourth Quarter and Fiscal Year 2020 Earnings 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. Please go ahead.

[Erica Mannion:]

Good afternoon, and thank you for joining us for Amtech Systems fourth quarter and fiscal year 2020 conference call. With me today on the call are Michael Whang, Chief Executive Officer; and Lisa Gibbs, Chief Financial Officer. After the close of market today, Amtech released its financial results for the fourth quarter and fiscal year 2020. That earnings release is posted on the company’s website at www.amtechsystems.com in the Investors section.

[Michael Whang:]

Thank you, Erica. I want to take a moment to reflect on how our business has performed over the last 12 months. After a very strong demand environment in 2018 and a low in 2019 due to the start of the trade war between USA and China, we entered 2020 expecting an industry rebound in the spending cycle, which was reflected in a $20 million Q1. Unfortunately, the anticipated growth in 2020 was halted in the second quarter by the initial spread of the COVID pandemic throughout Asia Pacific region, creating significant supply chain disruptions, as well as end market demand uncertainty on the part of our customers. As the year progressed, almost all geographies were impacted, creating more volatility and uncertainty to the global economy and potential growth catalysts. Despite this backdrop, including the natural volatility of the capital equipment markets we serve, we were successful in mitigating disruptions to our business, while limiting operating losses to nominal levels. That said, I want to personally thank the entire team at Amtech, our supply chain partners and our customers for their hard work and flexibility navigating both the pandemic and the trade environment challenges placed in front of us brought this year. With their diligent efforts, we successfully endured the worst of the pandemic impact, while maintaining the high levels of service our customers require and expect from us. As we look ahead, uncertainty remains at varying levels based on geography. Within the Asia Pacific region, which has historically been our largest market, demand remains strong as these economies were the first to reopen after the pandemic allowing customer to resume capital expansion plans. While demand remains at muted levels relative to years past, we believe portions of the Asia Pacific market, such as semiconductor packaging have returned to normalize levels and other such as automotive modules and subsystems are beginning to show signs of improvement. As a result, we remain optimistic regarding continued strength in the quarter ahead.

[Lisa Gibbs:]

Thank you, Michael. Starting with the fourth quarter, net revenues came in at $15.1 million, flat sequentially and decreasing 25% from the fourth quarter of fiscal 2019. Semiconductor and silicon carbide LED revenue decreased compared to the fourth quarter of fiscal 2019, primarily due to the ongoing uncertainty in the global economy from the COVID-19 virus. At September 30, 2020, our total backlog was $13.9 million, compared to backlog of $15.2 million at June 30, 2020. As a reminder, backlog includes customer orders that are expected to ship within the next 12 months. Gross margin declined in the fourth quarter of fiscal 2020, both sequentially and compared to the same prior year period coming in at 33%. On a sequential basis, gross margin decreased primarily due to product mix and non-recurring expenses. Compared to the fourth quarter of fiscal 2019, gross margin decreased primarily due to the lower revenue level and product mix. Silicon carbide LED gross margins were negatively impacted in fiscal Q4 2020 due to a few factors

[Operator:]

Thank you. We’ll take our first question from Craig Irwin with ROTH Capital Partners.

[Craig Irwin:]

Hi, good evening and thanks for taking my questions. Michael, your outlook statement in the press release and then what you’ve said in your prepared remarks, actually seems to be a little bit of an inflection. It seems to be a solid turn to the positive on the interim outlook. Can you maybe, give us a little bit more color around the breadth of the conversations you’re having with customers? Are we talking several fabs that could be taking product incremental deliveries over the next 12 months? Is there any specific area of the product portfolio that’s likely to be a big contributor? You did call out BTU success with PYRAMAX, the reflow ovens and then the true flat reflow ovens. But can you maybe, sketch out for us in a little bit more detail? What looks like it’s going to inflect upwards for you and that has you turned much more constructive than you’ve been in a while?

[Michael Whang:]

Sure, sure. Definitely, we’re seeing not only just the frequency of our customer contacts, but the real order momentums with our larger classified Tier 1 customers from starting with BTU, and also more constructive conversations with our customers and their long-term capacity expansions just across both segments. Our bookings are increasing. our backlog is greater, but our current level of backlog was greater than the last quarter is not – it doesn’t show the full picture of what our prospects look like in the interim going forward. So, I’m excited. And also when I hear more positive notes from our larger customers, whether they’re in the silicon space or the silicon carbide space that just reinforces my belief and my team’s belief along with their current level of conversations on, through the quoting process and also winning – starting to win orders that we haven’t seen in awhile, that gives me good positivity going forward.

[Craig Irwin:]

That’s really good to hear. That’s a notable change. So, one of the things I wanted to ask about is the silicon carbide business, I guess maybe, the polishing business and Hoffman, the margins there and the revenue there does speak about, I guess maybe, it does kind of point to depressed activity right now. And it does kind of reflect, maybe it definitely, is progress over the prior quarter, right. Your June quarter, the margins have rebounded quite nicely versus that, but there’s a of room for continued improvement for you to get back to where you were a year ago. Can you maybe, help us with visibility about where this is likely to come from, is this likely to come from core customers that are already, doing business with you today, and have done consistent business with you over the last couple of years, or are there potentially new customers or emerging customers that are likely to carry the business activity and therefore the margins higher in the segment?

[Michael Whang:]

So, the majority of momentum for our polishing, our SiC/LED segment will come from our current core customers, right. Some of them you know. And there’s also good signs of new entrance that are interested not only in our consumables, but also on SiC. However, from our conversations with our customers, in terms of trying to predict when that large capital equipment buying cycle will be. all signs still point towards like the fall of 2021, right. Especially, what the pandemic did for us is that delayed everything by one year. So, starting out this time last year, we had good momentum going into our 2020 fiscal year all the major industry forecasts were showing growth, and we were excited and also the buying cycles that we were expecting for silicon carbide was supposed to start gaining traction right now. But now, we’re seeing essentially, we lost a year. So, everything shifted for us by one year. The amount and the quality of dialogue from our silicon carbide customers, I mean, that’s still there, that hasn’t slowed down. We still communicate frequently with their plans, with their needs, and while they don’t uncover their entire kimono, our best guess was they were also in a low being affected by the pandemic in 2020. And again, as I reiterated before, now the quality of the engagements is starting to keep better, right. The outlook looks better. There’s a lot of things that we needed to do still to execute, right. And we just finished moving in to expand capacity, not only in consumables, but also the machines. But the dust hasn’t settled on that endeavor. We’re still putting in new tools in the factory. And then we’re plugging away as well with incremental improvements in our products that would better address our customer demands. So, I’m still very excited about the future prospects that should be coming in 2021.

[Craig Irwin:]

Excellent. So, one of the things you said in there kind of resonates with my next question, the outlook looks better, you said your guidance for your fourth fiscal quarter, the December quarter of $16 million to $18 million in revenue is actually, nicely above the 15 free consensus number out there. It does speak to this accelerating activity that you talk about. Can you maybe, describe for us, is there an individual customer or an individual order that maybe contributes to the high end of the range versus the low end of the range? How much of this is potentially at risk as far as the need for new orders and what would you need to see to execute at the top of the range?

[Michael Whang:]

So, where we’re seeing really good recovery was where we suffered the most in 2020, right. It was from the automotive driven demand, right. now, we’re starting to see more activity with automotive related customer opportunities. That’s driving our outlook across both segments and while 2020 was definitely a challenge, we were also very pleased with the growth in our semi-packaging revenue. That far outstripped everything else from a product standpoint. And for us, that is a typical leading indicator of the overall health of the semi industry, as well. We also announced a new order for the 300-millimeter diffusion furnace from a Tier 1 Asian power chip manufacturer. So, all those signs, right, are there and if I could pinpoint one industry that’s driving that is the gradual return, a gradual confidence of the automotive industry.

[Craig Irwin:]

Would you say automotive, in general or is it potentially EVs and automotives?

[Michael Whang:]

It’s both. It’s just – so it’s automotive in general, right. But also EV itself has a factor and I think EV itself will be more of a factor as we head later into 2021. Just from what I know within the next 12 months, there’ll be at least a dozen new EV platforms released, right. They have been announced to be released at least 12. And then in 2022 – but in 2022, the market will expect a couple of hundred new EV platform, so that wave is coming. And I think what we’re seeing is our customers’ confidence across silica and also silicon carbide, but the silicon side will come first. And then they’re looking at their own demands from their end markets and they seem to be – they seem to be ready, right. They’re almost at the cusp of gaining that confidence to expand capacity and to make investments.

[Craig Irwin:]

Excellent. And then making investments – my last question is your CapEx this quarter, $1.8 million, it was up quite substantially over the last year, where you only spent roughly 200 grand or even the June quarter, 500,000, I’m guessing this might be Hoffman, but can you – can you maybe talk us through where the CapEx money is being spent and what you’re likely to spend over the course of fiscal 2021?

[Lisa Gibbs:]

Sure. Craig, so you’re correct. We – as we completed our move into our new building for PR Hoffman, we also placed into service the new equipment to help build out that capacity and be ready for those expansions that are coming. So that’s where the primary driver is there for that increase in CapEx. looking forward into 2021, I expect it to be at a similar level, but more spread across our businesses and not just focused on silicon carbide LED segment.

[Craig Irwin:]

Excellent. Thanks for that. Congratulations on the progress. we look forward to watching this progress continue. Thanks.

[Lisa Gibbs:]

Thank you, Craig.

[Operator:]

Thank you. We’ll take our next question from Carson Sippel with Cowen and Company.

[Carson Sippel:]

Hi, this is Carson Sippel on for Jeff Osborne. Thanks for taking my questions. first, can you just provide some high-level commentary around trends on power semiconductor equipment RFPs, given the sharp rebound and EV demand, and other power semi end markets that you just touched on?

[Michael Whang:]

Can you repeat that question, Carson?

[Carson Sippel:]

Yes. So, kind of going back to what you just touched on, on EVs, but can you just provide some high-level commentary around trends on the power semiconductor equipment RFPs, given the sharp rebound in the auto sector?

[Michael Whang:]

Right. So, we are definitely exposed for good or bad with the automotive market, right. I believe they are the largest consumer of overall power devices and modules. So, as I said earlier, we’re starting to see not just a greater amount of our acute dialogue, but that dialogue turning into – or slowly turning into orders, right with more in the pipeline. So definitely, where we stand now, our pipelines for just automotive in general, it’s a lot healthier and robust compared to the last couple of quarters.

[Carson Sippel:]

Thank you. And then just a quick model question, you touched on CapEx just a second ago, but how should we think more generally about the general OpEx ramp from here?

[Lisa Gibbs:]

OpEx generally, I think this quarter’s a 5.3 of SG&A is probably the sound number. It will fluctuate a bit depending on some of the variability with commissions and freight. But our plan is to try to keep that – keep our SG&A as flat as we can keep it without that – but without variability on the selling side.

[Carson Sippel:]

Okay. Got it. Thank you. That’s all I have.

[Lisa Gibbs:]

Okay. Thank you.

[Operator:]

Thank you. This concludes today’s question-and-answer session. I’d like to turn it back to management for closing remarks.

[Lisa Gibbs:]

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

[Operator:]

Thank you, ladies and gentlemen. You may now disconnect.