Bradley Anderson - Executive Vice President, Finance, Chief Financial Officer, Treasurer and Secretary Jong Whang - Executive Chairman Fokko Pentinga - President and Chief Executive Officer.

Sven Eenmaa - Stifel Jeff Osborne - Cowen & Company Mark Miller - Benchmark Company Mark Jordan - Noble Financial Paul Strigler - Esplanade.

Good day and welcome to the Amtech Systems reports fourth quarter fiscal 2015 results conference call. [Operator Instructions] I would now like to turn the conference over to Brad Anderson, Chief Financial Officer. Please go ahead..

Thank you. Good afternoon, and thank you for joining us for Amtech Systems fiscal year 2015 fourth quarter and yearend 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 fiscal year 2015, which ended September 30, 2015. 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 or changes in the technologies used by our customers and competitors; change in volatility and demand for our products; the effective change in worldwide political and economic conditions, including government funded solar initiatives and trade sanctions; the effective 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. So I'll now turn the call over to J.S. Whang, our Executive Chairman, to begin the discussion.

J.S.?.

Thank you, Brad. Welcome to our discussion today. We appreciate your interest in Amtech Systems. Much progress was made in our fiscal 2015. About this time last year, we announced the planned acquisition of BTU International. We then closed the acquisition in the second quarter.

And today, we are pleased to report the full integration process went according to our plan. This BTU acquisition is providing us with better planned and better balanced business portfolio between solar and non-solar.

We also acquired SoLayTec, which expanded our technology portfolio for higher efficiency solar cell solutions, including PERC, SoLayTec's atomic layer deposition. ALD system is currently being used by several customers in production and in R&D.

We are now in the process of making further improvements to our ALD systems in order to more completely prepare us for PERC opportunities.

The combination of our acquisitions further diversifies our businesses, talent and technologies, better positioning us to deliver more stable performance through cycles and advances our technology strength and forward capabilities.

Solar technologies are increasingly efficient, the total cost of ownership is improving and global pro-solar sentiment is expected to continue to expand, resulting in continued solar growth.

Our objective is to continue to invest in our technologies, industry-leading innovation and new product development, which achieve the constant goal of higher efficiency, while reducing the cost of our solar solutions, as the old moves to capitalize on solar as a power of the future energy solutions.

We ended fiscal 2015 with a 79% year-over-year bookings increase. We believe solar capacity and demand equilibrium is finally in favor of capital spending and we see a stronger momentum gathering in our marketplace. I will now turn the call over to our CEO, Fokko.

Fokko?.

Thank you, J.S. Fiscal 2015 was a year of continued investment and strengthening of our technology leadership through execution of our internal and external growth strategies. We made significant progress, penetrating the global solar market with our next-generation high-density diffusion system.

The state-of-the-art system significantly improves our customers' operating performance and we have installed 1.2 gigawatt of capacity by now. We also made significant progresses on our PECVD system, which is fully production ready and operating well in several very-demanding high and operating environments.

With the acquisition of SoLayTec, we strengthened our solar technology and broadened our end-market with the acquisition of BTU. Also with the restructuring of our Kingstone investment, we are strengthening our financial position to support our strategic growth and investment plans.

Even though we continue to operate in soft order environment today, the discussion activity is robust. The mounting of quoting activity continues to grow and we see greater depth and breadth in the number and type of customers. Financing of these growth plans appear solid.

And all combined, we are confident that the very key discussions we are having and good quoting activity that is in process, will convert to orders. Conclusively, we are under brink of the changing and growing market for solar with many multi-gigawatt extension plans being announced.

We are in discussion with multiple prospective customers on some major technology turnkey projects, establishing complete cell production lines. We have the broad technology portfolio needed to participate in these projects, including our anti-technology.

And although these decisions take time, with now much larger project plans being worked through, we are confident that we will see major moves forward in 2016. Our market position is strong, our technologies are highly respected and we work diligently with our customers to advance solar technology solutions.

And we made significant progress in development of our market leading technologies in the last year. There are areas where we still need to do some work.

We are working through some improvements on our ALD machine and believe that upon successful completion of that work, we should be ready to bring a next-gen product to market in the first part of calendar 2016. We are pleased to have just announced that Amtech was selected for a cooperative award, totaling almost $1 million from the U.S.

Department of Energy to SunShot Initiative. This supports Amtech's ongoing focus on advancements of crystalline silicon solar cell technology, particularly in key specialized areas as doping and surface passivation technologies.

And regarding our non-solar business, at the beginning of fiscal 2015, we announced planned acquisition of BTU International and closed on the transaction in January. The integration of BTU was quite successful. There is always more to be done and we are confident we will also execute well on those next steps.

The semiconductor industry was under pressure in 2015 and adjusted forecast down throughout the year. This downturn dampened BTU's revenue and operating results and drove some additional restructuring activities in the months of July. We have for the most part completed those initiatives.

In line with industry forecast, we expected second half of fiscal 2016 to be stronger than the first half. The March quarter is expected to be in line with normal seasonality, and therefore we currently expect strengths to be weighted in the later half of the year.

For the long-term, we are confident our acquisition of BTU and strategy to further diversify our revenue and earnings will prove to be beneficial to our overall performance and provide support for investment in solid growth opportunities. And now, Brad will go over the fourth quarter and fiscal year 2015 financial results.

Brad?.

Thank you, Fokko. Net revenue for the fourth quarter of fiscal 2015 was $28.2 million, a decrease of 30% compared to $40 million in the preceding quarter and an increase of 42% compared to $19.8 million in the fourth quarter of fiscal 2014.

The sequential decrease is due primarily to lower volume in our solar segment, following a strong volume in our fiscal third quarter. The increase from the fourth quarter of fiscal 2014 is due to increased demand in our solar segment and the inclusion of BTU revenues.

Total customer orders in the fourth quarter of fiscal 2015 were $18.8 million, of which $2.8 million were solar. This compares to $30.2 million in the preceding quarter, which had $13 million of solar. In the fourth quarter of fiscal 2014, orders totaled $11.2 million, including $4.9 million of solar.

At September 30, 2015, our order backlog was $34.6 million compared to a backlog of $46.9 million at June 30 and $28.5 million at the end of fiscal 2014. Backlog at September 30, 2015, includes $19.6 million in solar orders and deferred revenue compared to a solar backlog of $32.4 million at June 30 and $20.9 million a year ago.

Foreign exchange caused a $300,000 increase in our backlog in the September quarter, due to the strengthening of the euro versus the U.S. dollar. And as a reminder, our 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 2015 was 23% compared to 25% in the previous quarter and 13% in the fourth quarter of fiscal 2014. The lower margin sequentially resulted primarily from lower volumes in our solar polishing businesses, offset by a slight improvement due to semiconductor product mix.

Compared to the same quarter of fiscal 2014, gross margins improved primarily as a result of higher volumes in our solar business and was supplemented by the inclusion of BTU in the fiscal 2015 results.

Our SG&A expenses in the fourth quarter of fiscal 2015 were $9.1 million compared to $10.1 million in the preceding quarter and $4.9 million in the fourth quarter of fiscal 2014. Sequentially, the decrease results primarily from lower shipping and commission expense on lower sales volume.

Year-over-year, the increase results primarily from inclusion of BTU's SG&A since January 30, 2015, and higher selling expenses related to overall higher revenues.

Research, development and engineering or RD&E expense was $3 million in the fourth quarter of fiscal 2015 compared to $1.3 million in the preceding quarter and $1.8 million in the fourth quarter of fiscal 2014. The sequential increase in RD&E expense was primarily due to lower recognition of government grant funding.

Compared to the same quarter in fiscal 2014, RD&E expense increased due primarily to the inclusion of RD&E expense of BTU and SoLayTec. In September 2015, we recognized a pre-tax gain of approximately $8.8 million resulting from the previously announced Kingstone transaction.

The gain was the result of a sale of shares and fair value of the company's remaining interest in Kingstone. The transaction resulted in effective beneficial ownership in the Shanghai operating entity of approximately 10%. As a result, Kingstone was deconsolidated.

Depreciation and amortization in the fourth quarter of fiscal 2015 was $869,000 compared to $847,000 in the preceding quarter and $613,000 in the fourth quarter of fiscal 2014. The increase compared to the same quarter of fiscal 2014 is primarily due to the acquisitions of BTU and SoLayTec.

Included in the fourth quarter of fiscal 2015 results is $299,000 of stock option expense compared to $296,000 in the preceding quarter and $192,000 in the fiscal fourth quarter a year ago. Income tax expense in the fourth quarter of fiscal 2015 was $1.3 million compared to $0.3 million in the preceding quarter.

The sequential increase is due primarily to tax on the Kingstone gain. We had an income tax benefit in the fourth quarter of fiscal 2014 of $645,000.

All told, net income for the fourth quarter of fiscal 2015 was $1.3 million or $0.10 per share compared to a net loss of $1.6 million or $0.12 per share in the preceding quarter, and a net loss for the fourth quarter of fiscal 2014 of $3.2 million or $0.33 loss per share.

Total revenue by geographic region for the fiscal fourth quarter was the Americas region at 26%, Asia-Pacific at 60% and Europe at 14%. Our financial position remains strong with total unrestricted cash and cash equivalents of $25.9 million compared to $23.7 million at June 30.

The increase in cash is primarily due to strong fiscal year and cash collections and partial proceeds from the sale of a portion of our Kingstone investment. At September 30, 2015, we had working capital of approximately $46.3 million. Let me turn to our outlook.

We expect revenues for the quarter ending December 31, 2015, to be in the range of $22 million to $24 million. Gross margin for the quarter ending December 31 is expected to be in mid-20% range, with operating margin negative due primarily to lower shipment volumes.

Operating results could be impacted by the timing of system shipments, the net impact of revenue deferral on those shipments and recognition of revenue based on customer acceptances, all of which can have a significant effect on operating results.

Operating results could also be significantly impacted by the timing of recognition of government grant revenue related to research and development projects in China, the Netherlands and now in the U.S. A substantial portion of our revenues are denominated in euros.

The revenue outlook provided in this press release is based on an assumed exchange rate between the dollar and the euro. A significant decrease in the value of the euro in relation to the dollar could cause actual revenues to be lower than anticipated. This concludes prepared remarks portion of our conference call.

Operator, please open up the call to questions..

[Operator Instructions] The first question comes from Sven Eenmaa of Stifel..

Last quarter you mentioned also improved quoting activity levels.

Could you also provide a little more color in terms of how the market appetite, their equipment investment, has changed or what do you see the timing being? Obviously, from a number of publicly listed module in those, we have seen substantial capacity announcements recently? And would be interested in your perspective on when do you see that transferring into or transitioning into actual orders and revenues?.

Let me answer that one. Well, that's always a difficult one to predict it, Sven. But indeed, if we compare it to previous quarter, we only see a major growth in this quoting activity. And we also see a growth in more people expanding and expanding bigger.

Now, as I also mentioned, it's still relatively slow and this could be a little before the storm, but its hard to say when they actually will mature into orders.

Hopefully, it will be before Chinese New Year, but we cannot be sure of that at all, because the market in general is pretty good, but there is quite a bit of uncertainty in general in the market, not specifically solar, but by their economic situation. And maybe people are waiting a little bit for what comes out of the COP21.

And so the exact timing is still hard to predict, but we are definitely getting closer..

In terms of the technology roadmaps you are seeing currently in the market.

Do you see that the market share shifts in terms of the PERC technology deployments, which are not necessarily favoring or are you confident in your ability to maintain market share?.

I think it's certain, but PERC is what many people are doing and at this moment we are not participating as much in there as I really would like. On the other side, PERC is still adding cost and not every area in the world is willing to pay the extra cost on that.

And so I think with the PERC technology that we have, but actively can presume more sometime next year. But especially on the N-type there is still a lot of technology capability that we have that can help us. On the other side there is a lot of the new activity, new planned expansions.

They're still a lot of the standard technology with the option to add some steps like PERC. And so if you don't have PERC there is no future, it's definitely not like that. But we have PERC for the future and we have N-type, which very few people do have today. So I'm quite confident in our technology position..

If I may add something to that to Fokko, I think it's related to any PERC opportunity. If they're putting new lines and they still need the POCl diffusion, and we still see us maintaining our market share as it relates to our key solar product..

On a different area, in terms of your OpEx levels, are you now at the OpEx run rate lows you expect going forward or are there any additional kind of savings you expect? And finally, on Kingstone transaction, have you received all the cash that you expect to receive or is there more to be received?.

Let me take the last question first on the Kingstone transaction. There was a partial amount that came in as of September 30. The majority of the funds have come in subsequent to September 30..

And what is the amount, the majority, what you have received? It would just be good to know?.

Call it around $7 million. There is some withholding tax coming out of China, so a little over $7 million..

And my last question was on OpEx side..

On OpEx?.

Yes..

I think if you look at OpEx, which looking at it holistically of both SG&A and our R&D expense, you see that running a little bit high here in the fourth quarter. But overall, we see that more in about $9.5 million to $10 million range a quarter..

The next question comes from Jeff Osborne of Cowen & Company..

Just a follow-up on that Kingstone question Brad.

Is the $7 million the aggregate cash amount? Like could you be more specific how much cash did you get this quarter? I'm just trying to get a sense of what the burn rate is?.

We got about $700,000 in the September quarter and the rest of it is subsequent to September 30..

So the $6.3 million to total $7 million, and that's the tax adjusted number with the tax in China you mentioned?.

The way those funds work is some of them you have to write out, you have to withhold taxes at the China level. And so we've received, I mean just to clarify a little bit, we received $700,000. The subsequent amount coming in after September 30 is about $7 million.

So we have two sevens in there, so $700,000 before September 30, and the double in after September 30..

And you're going to have to withhold a portion of the $7 million that you received after September 30 for the Chinese tax authorities or is that net of that withholding?.

There is about $1 million, $1.3 million of that $7 million that's going to be withheld for tax purposes or paid in U.S. tax..

And that will show up on the income statement as a tax payment, so the tax rate will be pretty high in the December quarter?.

From the standpoint, if you look at our P&L, we have a gain that we've recorded, that $8.8 million gain on Kingstone, so an increase in the taxes. That tax really has already been accrued for from a GAAP standpoint.

From a cash flow standpoint, some of that will be paid immediately in withholding and some will be delayed for maybe even up to a year before we have to pay it..

A couple of other good quick questions here. Fokko, you mentioned within the quoting commentary that you were quoting turnkey lines. I haven't heard about anyone being interested in turnkey lines in probably five years.

Can you just maybe expand on that? Are these new people that don't have a historical precedent in the market?.

Well, there are some countries that do want to build up the large solar production capacity and India is one of them. And Middle East is another example where they do not want to have other companies, one of the big European or Chinese to do that. They want to have it themselves.

And then it's a lot easier to do this with either a full turnkey or a technology turnkey. And so there is a whole range between different types of turnkey. We've done at Mission Solar together with some colleagues. So something like that you can think of.

And so there are different areas that have interest in that type of turnkey setup, so they can have a full support rather than trying at on their own, especially when the technology is a little bit more advanced and just stand at B-types. So particularly for N-type it's what you really would want to have somebody to help you to get a full line in.

And one of the reasons why we are so interesting for that type of customer is that the technology that we've been able to workout together with ECN in the past and have it at Yingli, it's also with Mission Solar.

And although, not always everything goes perfect, but it's a technology that can be built on in our nut styling always 20, but it can be build on to higher efficiencies.

And if you're building a factory now and you're just starting with old technology, which is the standard B-type by the time you build it and you're up and running, then you're already outdated. So with N-type you have a long future and further enhancements, which we of course in our total plans, we have a good plan on how to improve that technology.

So that gets it along way forward in order to not be stuck in technology..

Just two quick questions for you Brad. The $1 million DOE grant, congratulations on getting that, but just from a financial perspective.

Is that an offset to R&D similar to the Dutch grants that you get or is that actually revenue that gross margin neutral? Just how do we think about that? I know it's a small number, but in particular if it offsets R&D, it's something we should probably factor in, as that starts..

Right. And it will offset R&D. Technically it's a cost sharing program. So I just am clear on that. But yes, it would offset some of the expense that we incur in our RD&E line. And we expect most of this all to occur, most of it to occur in this fiscal year 2016..

And you've had some lumpiness on the Dutch grants, where do we stand on those? Have those been reinstated or?.

The lumpiness was more on the China grant recognition. So that's really kind of gone away now that we've deconsolidated Kingstone. So I think you'll see a little more consistency. I think we just reported what we have for RD&E about $3 million in the quarter. That's going to go down quite a bit into the December quarter.

And then we'll be running that kind of at lower rate on a quarterly basis..

Is 1.5 to 2 a better run rate for that, as you think about the next four to six quarters, just a ballpark number?.

That's a reasonable number..

And the last question I had, just, Fokko, based on the quoting activity that you're talking about the past six months or so.

When you look at the pricing expectations from your customers or potential customers, do you think that as the next cycle plays out, assuming that that at some point next year, as you're alluding to, do you think there's a path to Amtech being a mid-30s gross margin company again or is this more of a high-20s, low-30s cycle? I'm just trying to get a sense of your cost structure with the new product portfolio that you've had relative to the pricing environment in countries like India and other places?.

Well, first, let's start with the new product. Of course, you have to have a very attractive product to offer in order to get a good price. That means your throughput needs to be a lot higher and your cost should not equally go up. So we have to have a better offering. But we believe we have.

But before you really get into the higher margins, you also need better volume. And so that means the first part maybe a little bit more difficult. You cannot charge extremely high prices, because then you never get a volume.

But with the higher throughput in that respect a better cost per wafer and cost of ownership is a lot better, we can be very competitive. And then also our margins will grow again as soon as we pickup a bit more volume..

The next question comes from Mark Miller of Benchmark Company..

That was a rather large, I think it was $670,000 from non-controlling interest or income from non-controlling entity.

Can you give us a little color what happened there?.

We have two companies in there. We have both what's part of Kingstone before we deconsolidated, and then we have the SoLayTec acquisition. So those were both entities where basically we had consolidated, but then you have to back out the minority interest.

So that net income that came in that reduced the net loss that reduced the income for that quarter, it was coming from those two divisions. So it's SoLayTec and Kingstone. On a go-forward basis, it will only be SoLayTec..

And I was just wondering in terms of your Semi Reflow business.

Is that more service by DRAM? What type chips dominate that, because there seems to be a difference in the market between DRAM memory and logic? Is it more DRAM that's being used for your Semi Reflow?.

I don't think specifically DRAM at all. It is more any type of product, whether it's for computer boards. But in the DRAM, there's a lot of it on there, but I don't think that it's specifically related to that. It's more that all kinds of consumer products or even automotive, it's a whole spectrum of all of the printed circuit boards..

The next question comes from Mark Jordan of Noble Financial..

Brad, just a clarification, what was the after-tax impact of the Kingstone gain? What was the absolute level of that after-tax?.

Well, first of all, it's a little complicated, because we're dealing in multi jurisdictions and with NOLs and different jurisdictions. So trying to just squeeze that out. But the after-tax gain was probably somewhere in that $5.5 million to $6 million range..

You had spoken about quoting activity for turnkey projects.

How long from the time of which you might receive an award? What would be the expected time in terms of the shipment? And although what timeframe would those revenues to be realized on the P&L?.

Well, also with the turnkey, there are very different versions of that. And some people already have built buildings and land and worked on permits. And then by the time you get the order, it's relatively short, because they want to have it as quick as possible. So then it could be nine months, six to nine months or something like that.

It's the ones that really still need to start from scratch. Meaning, they have maybe defined a piece of land, but not to build anything nor have they designed the building, then it was definitely a year longer. So it stretches out from less than nine months, before you can ship -- a fairly year-and-a-half before you can ship.

So that's really a wide range, but reality is we are working on quite a number, so it could be anything in between..

That's all revenue will be booked upon shipment or is there some percent complete?.

There is always a mix. One hopes to get sufficient down payments, that's number one, because without it, it's very difficult these days to do these type of projects.

But I think the recognition of the equipment would be comparable to a normal equipment sale, except the holdback might be a little bit higher, because there are different stages after shipment and after installation, and then running the machines and then running process, and then run process and volume. So holdback might be a little bit more.

But not so much more than we've seen in the past, because all of the equipment now is standard equipment, and so good comparable I think over the last year versus last few years, when we have some more new types of equipments that were in the revenues and we had relatively high holdbacks on those..

Sort of a similar question. Obviously, your BTU business is a different one.

What is the cycle time with regards to between order and delivery typically at BTU?.

Well, if you take the reflow, it can be very short, because that could be just three months or something like that in some cases..

Sometimes even weeks for us. If you take the larger high temperature equipment that is being built in Billerica, that could be an almost six months lead time, but somewhere between three and six. So that depends a little bit..

If I may add to that, BTU, that business is typically on the roof, solid reflow side more of a bucket shift within a quarter at business..

The next question comes from Paul Strigler of Esplanade..

Just a question on some recent stuff in the news, on a company called Tongwei out of China. They claim to be building a 5 gigawatt plant. Obviously, it will probably be staged over several years.

But any indication from you guys that they'll be using Chinese equipment or western equipment and sort of the timeline to deploy that?.

Well, of course, we would dare like pretty much everybody else. So, yes, that's a little bit hard to say. It depends on what equipment. And I also read a story and I think it was PV-Tech, where they stated, local equipment will take some more. And yes, it could very well be in certain cases, because I think Tongwei will be more for the local markets.

But it all depends, that does not mean that European or American equipment would not have a chance anymore, but still we all see that local equipment is taking a bit of market. And the other side, the technology that is provided by Amtech, I think it's still quite superior, so that means there are still good opportunities there.

But they still need to have a lot of work. It was a groundbreaking and it was a big event. But groundbreaking is only the first step, still a lot of work they need to do, what also we need to do..

So is it fair to say, they haven't placed equipment orders yet?.

For these larger projects, not to my knowledge..

And we've heard a lot of announcements from Canadian solar Jinko, I'm sure next week Trina will announce an expansion, JASO announced an expansion.

Can you sort of share any thoughts on what geography their equipment will be coming from? Obviously, it will be a mix, but how you do you guys factor into that or how does western equipment in general factor into that?.

We have to look at also what they've done in the last few quarters. I mean in Malaysia there were several new fabs being built and at least two of the three we were a part of. And for now, I don't see a good reason why we could not have a good chance again for the next phase, but we do not get a part.

In general, not all of the import equipment will be European or American. So I don't see a big change there compared to the investments they did in the previous new capacity expansions in those areas..

This concludes our question-and-answer session. I would like to turn the conference back over to Brad Anderson for any closing remarks. End of Q&A.

Thank you for your time today, and really appreciate your interest in Amtech. This concludes today's call..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..