ASYS - NASDAQ

Good day, and welcome to the Amtech Systems Fiscal First Quarter 2024 Earnings Conference Call. Please note that this call is being recorded. I would now like to turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead.

Good morning, and thank you for joining us for Amtech Systems' fiscal first quarter 2024 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 of Sales and Customer Service. After close of market Friday, Amtech released its financial results for the first quarter of 2024. 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 will contain forward-looking statements and assumptions that are risks -- 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 would 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 and the COVID-19 pandemic. Other risk factors are detailed in our SEC filings, including our Form 10-K and Forms 10-Q. Additionally, in today's conference call, we will be referring to non-GAAP financial measures as we discuss the first quarter financial results. You'll find a reconciliation of these non-GAAP measures to our actual GAAP results included in the press release issued on Friday. I will now turn the call over to Amtech's Chief Executive Officer, Bob Daigle.

Good morning, everyone. Thank you for joining Amtech's quarterly conference call. I'm pleased with the progress we're making to improve our cost structure and position the company for strong operating results as markets recover. We remain focused on operational optimization, having achieved over $6 million in annualized cost savings through actions implemented over the past four months. Revenue of $24.9 million exceeded the high end of our guidance range and more importantly, adjusted EBITDA of $0.2 million surpassed our expectations, marking a significant improvement from the $2.4 million adjusted EBITDA loss in the prior quarter. The macroeconomic landscape for our target end markets remains somewhat mixed, especially within the semiconductor market. In this fraud sector, we continue to experience softness in near-term demand for equipment used for most wafer fabrication and back-end packaging applications, as the industry digests existing capacity and evaluates expansion plans for the upcoming quarters. However, amidst this backdrop, we are seeing pockets of resilience, particularly in submarkets related to hybrid and electric vehicles. Demand has been improving for consumables used for silicon carbide semiconductor production, and we continue to experience strong demand for high end belt furnaces used to produce power semiconductor packaging materials and diffusion furnaces used for silicon and silicon carbide wafer production. While we await for the rebound in demand in the broader markets, our organization is dedicated to optimizing every aspect of our operations to drive improved financial performance. In the first quarter, we continued our efforts to enhance our cost structure and streamline operations. Building on the $4 million in annualized cost savings discussed on our last call, we identified an additional $2 million in opportunities which we implemented in the first quarter. The combination of these actions is expected to generate over $6 million in annualized savings starting in the second quarter of 2024 when compared to the same period last year. Our primary objective continues to be aligning the organization size with current market conditions to achieve near-term EBITDA profitability, while simultaneously positioning ourselves for significant operating leverage as market demand rebounds. Beyond these completed initiatives, we are actively exploring opportunities to optimize our manufacturing operations through strategic contract manufacturing partnerships. Our overarching goal is to focus our highly skilled workforce on production of large complex systems, while streamlining the manufacturing of simpler components and assemblies through outsourcing. We believe this approach will enhance our overall flexibility and throughput while optimizing our fixed cost structure. For example, building on the positive results from the initial outsourcing initiatives, we plan to expand these efforts in the third quarter by relocating one of our manufacturing facilities in the U.S. to a smaller, more cost-effective facility. This strategic move is anticipated to reduce fixed expenses while preserving and, in some instances, enhancing our production capabilities. In addition to our restructuring activities, during the first quarter, we took additional actions to refine our pricing strategy. Despite the inflationary conditions affecting input pricing over the last couple of years, we have not been as diligent in passing these increases on to our customers. With new objectives in place, we are seeing promising progress in quoting for new tools, to ensure that pricing aligns more closely with current input costs. We do anticipate a lag before the full impact of these adjustments flow through as we work through the existing backlog. Shifting to the balance sheet. We are pleased to report a notable increase of $4 million in cash during the quarter. This increase primarily comes from our focused approach to managing working capital, particularly in optimizing the timing of receivables and upfront payments. Looking ahead, we are committed to identifying additional opportunities, including inventory reduction to further enhance the strength of our balance sheet. In closing, while Amtech stands out as a unique company with differentiated exposure to several rapidly growing markets, our current focus is on optimizing operations to increase profitability. Our performance in the first quarter highlights the increase -- the initial success of these efforts with positive EBITDA and operating cash flow despite challenging market conditions. Looking ahead, we are confident that the major investments in an AI-related infrastructure and the investments that will be made to diversify global supply chains will result in strong demand for our back end equipment. We also believe our consumables business and semiconductor manufacturing equipment will greatly benefit from strong growth in silicon carbide wafer production. As our markets recover, I'm confident that the strategic actions we're taking today to improve operational efficiency and reduce working capital will generate meaningful shareholder value. With that, I'll turn it over to Lisa for further details on the first quarter.

Thank you, Bob. Net revenues decreased 10% sequentially and increased 16% from the first quarter of fiscal 2023. The sequential decrease is primarily due to a decrease in equipment shipments across our business segments. As Bob mentioned, we are experiencing lower bookings in multiple areas of our business due to the softness in the semiconductor market. The increase from prior year is primarily attributable to increases in our belt furnish shipments and the addition of Entrepix, partially offset by lower shipments of our reflow equipment. GAAP gross margin increased sequentially due primarily to the intangible asset impairment charge of $4.6 million that was recorded in fiscal Q4 2023. Compared to the prior year period, GAAP gross margin decreased primarily due to a less favorable product mix and an intangible asset impairment charge of $0.8 million recorded in Q1 2024. Non-GAAP gross margin increased sequentially due primarily to lower overhead expenses and a more favorable product mix. Non-GAAP gross margin in fiscal Q1 2024 was slightly lower compared to the same prior year period, due primarily to a less favorable product mix. Accounting guidance requires us to assess factors that could be considered a triggering event for impairment. And the material decline in our stock price below book value as of December 31, 2023, required us to perform this impairment assessment. Accordingly, we recorded a non-cash impairment charge totaling $7.6 million in our Material & Substrates segment, of which $0.8 million is recorded within gross profit, and the remainder is recorded within operating expenses. Selling, general and administrative expenses, or SG&A, decreased $2.5 million on a sequential basis and decreased $0.6 million compared to the same prior year period. That the sequential decrease is due to a number of expenses that were lower in Q1 2024, including intangible amortization, equity compensation, labor, consulting and audit fees. Compared to the prior year, the decrease is due primarily to $1.4 million of lower acquisition expenses as well as lower consulting fees, partially offset by added SG&A from the addition of Entrepix. Research, development and engineering expenses decreased $1 million sequentially, and increased $0.2 million compared to the same prior year period. The sequential decrease is associated with the reduction of investment in next-generation polishing tools at PR Hoffman that we referenced last quarter. GAAP operating loss was $8.9 million compared to GAAP operating loss of $11.7 million in the fourth quarter of fiscal 2023, and GAAP operating loss of $2.7 million in the same prior year period. Non-GAAP operating loss was $0.2 million compared to non-GAAP operating loss of $3 million in the fourth quarter of fiscal 2023, and non-GAAP operating loss of $2.7 million in the same prior year period. GAAP net loss for the first quarter of fiscal 2024 was $9.4 million or $0.66 per share. This compares to GAAP net loss of $12 million or $0.85 per share for the preceding quarter, and GAAP net loss of $2.7 million or $0.20 per share for the first quarter of fiscal 2023. Non-GAAP net loss for the first quarter of fiscal 2024 was $0.6 million or $0.04 per share. This compares to non-GAAP net loss of $2.5 million or $0.18 per share for the preceding quarter, and non-GAAP net loss of $0.7 million or $0.05 per share for the first quarter of fiscal 2023. Unrestricted cash and cash equivalents at December 31, 2023 were $17 million compared to $13.1 million at September 30, 2023. Approximately 80% of our cash balance as of December 31, 2023 is held in the United States. As Bob mentioned, we continue to focus on managing our working capital, and we had a very strong collections during the December quarter. In terms of our debt, as a reminder, we changed the structure of our debt in December and a portion of our term loan was moved over to our revolver, and our maximum borrowing capacity on the revolver was raised to $14 million. The amount that was transferred from our term loan to the revolver was $5.6 million, leaving a term loan balance of $4.4 million. In January, we paid $2 million towards the revolver, leaving us with an approximate balance of $3.6 million. To-date other than the balance transfer, we have not borrowed against the revolver. We continue to closely monitor our working capital and liquidity, and we'll evaluate the balance on our revolver and our cash needs in an effort to minimize interest expense. Our working capital needs may vary as we execute on our backlog of $50 million. And with BTUs moved to their smaller facility this summer, we will have capital expenditures in the coming months. Now turning to our outlook. For the second fiscal quarter ending March 31, 2024, we expect revenues in the range of $22 million to $25 million with EBITDA nominally negative to neutral. Although, the near term outlook for revenue and earnings remains challenging, we remain confident that the future prospects are strong for both our consumables and equipment, serving advanced mobility and advanced packaging applications. We took actions during the first quarter of fiscal 2024, which will reduce Amtech's structural costs by approximately $6 million annually and better align product pricing with value. These steps should 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 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. I will now turn the call over to the operator for questions. Operator?

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Craig Irwin with ROTH MKM. Please proceed with your question.

Hi. Good morning and thanks for taking my questions. First, I'd like to say congratulations on the positive execution in a difficult environment. I know that really takes a lot from not only just leadership, but the rest of the employees.

Thank you, Craig.

My question is this, right? Your backlog is very strong, if we look at the long-term history for Amtech Systems, right? It's a healthy book of business with a number of substantial customers and is diversified across markets that are driving things and product lines that you offer. Can you maybe highlight for us, not the backlog, but the pipeline, right? As you look out there, I can see several silicon carbide fabs that are on the drawing boards right now. There are also many other power semiconductor fabs out there and things in the more sort of typical mainline semis industry that are slated for construction probably over the next many years. But how would you characterize the broader book of potential business over the next number of years versus where you sat at different points in the cycle over the last few years?

Yes. I think yes, Craig, let me talk through the different parts of the business because I absolutely agree with you that there's some very strong tailwinds, especially in regards to, I'd say, the broader power electronics business. And even with all the news these days about a little bit of a slowdown, backing off a little bit on the EV market. It's -- there's still very strong growth projections and there's still an awful lot of investment going into the silicon carbide area. But more broadly than that, the shift more recently from, I think, a lot more emphasis on hybrid electric vehicles is also a very positive secular tailwind for power electronics business. And a lot of our backlog is really in relation to that. If you look at current backlog, a lot of it is really in the power semiconductor packaging area and in some cases, the actual wafer production for both IGBTs and silicon carbide. We're -- what I would expect to happen and as I mentioned during -- in our comments, we're starting to see, I think there was some digestion of some inventory, even in the power electronics area. We're starting to see some rebounds in the consumables market area. I would expect that to continue. And I would expect that some of the -- I would expect more activity in regards to silicon carbide manufacturing capital equipment in the coming -- as we look out in the next year or two as these fabs continue to expand. And at some point, we'll see a recovery in the back end. That's probably been -- I mean, that's been the softest part of our business has really been in the back end, the surface mount assembly, and even in the advanced packaging area of our business is really slowed significantly, but we would expect that to rebound nicely as the industry digests the existing capacity. So again, over the next -- it's easy to point to some very strong tailwinds in the next year or two for the business or predict exactly which -- when do we start to see that heavy activity on a quarterly basis.

Okay. Understood. So the $6 million in savings that you achieved this past few months, can you maybe help us understand how that materializes on the P&L ratably over time, right? Will that all be achieved by the end of this quarter or does it potentially lag into the next quarter, given the way the changes were made? And if you were to see a positive uptick in demand from what you're anticipating now, does this crimp in any way your ability to serve that demand, or does your restructuring just make you more profitable and better positioned to serve your markets?

Sure, Craig. I'll take that first part. I would say the $4 million annualized, we should see in the full quarter here, the additional two has a bit of a lag but not a lot, but definitely by the fiscal Q2, we should see the full impact of that savings. I'll let Bob answer the other part of that.

Yeah. And to your question, Craig, about have we done anything that would create issues as the market rebounds. Now we -- that's an area -- we've been very careful about that, in making sure that we maintain capability to scale. And part of that is really more of a strategic move to get some strategic partners in place for some of the contract manufacturing. By reducing some of the fixed costs, we really haven't jeopardize growth because we've aligned with partners which will help us scale and scale in a more cost-effective way than we have in the past. So again, I think we're ready for the rebound whenever it comes, and I don't think any of the actions we've taken really jeopardize any of that.

Excellent. Last question, if I may. Congrats on the positive cash movement in the quarter, right? I know that also takes some significant discipline. Do you see potential for further gains over the next number of months? Is there a potential need for working capital cash? And is there any other adjustments to the balance sheet? I mean you did your debt, right? Your debt is now in a much more secure position. But is there any other adjustment to the balance sheet that you would maybe want to highlight?

It was -- the team worked really hard this quarter on collections and managing working capital. And I think it will continue to kind of fluctuate. We've got this backlog to work down, as well as we're moving BTU into Massachusetts into a smaller building over the summer. So there will be some CapEx expenditures over the next couple of quarters. I think it will fluctuate, but we'll continue a very strong focus on working capital. Bob mentioned our partners will be working with them to see where we can leverage their buying power and let them consume some working capital instead of our balance sheet. So it will fluctuate a little bit, but we'll continue to have a very strong focus on it going forward.

Thank you so much. Hey, thanks for taking my questions and good luck.

Thank you, Craig.

Thank you. [Operator Instructions] Our next question comes from the line of Mark Miller with The Benchmark Company. Please proceed with your question.

Thank you for the question and congratulations on your progress on reducing cost. I was just wondering, where are you at right now with relation to some of your financial covenants with your lender?

So we revised those covenants with our lender. It's a quarterly EBITDA covenant, and we were in compliance with that well in excess of compliance with that covenant this quarter.

Okay. You mentioned you were implementing a pricing strategy and trying to pass along some increases you've seen. How is that -- could you give a little more color on that?

Yeah. I'll talk a little bit more about that, Mark. Yeah. And as I mentioned in the commentary, I think part of what was happening is, we were seeing a little bit of margin pressure because input costs were rising and we really weren't adjusting pricing accordingly. We've changed that and we've updated our pricing, our models and how we approach the market. And frankly, that's been received, okay. I mean customers are never happy about price increases. But in this case, I think it was expected, and we just lagged a little bit, I think, behind where we might have otherwise been. But it’s – we’ve done pretty well with those actions. And again, we’ve got – we have some backlog, which we’ll be working through, so it’s not all immediate. But as we build out our backlog and replace backlog, it’s going to come in at a better margin.

Okay. Thank you.

Thank you. Ladies and gentlemen, I see no other questions at this time. I’ll turn the floor back to Mr. Daigle for any final comments.

All right. Thank you. Thank you. Thank you again for joining our conference call, and I look forward to updating you on our progress in the months to come. Have a good day, everyone.