Good day, and welcome to the Amtech Systems Fiscal Third Quarter 2021 Earnings Conference Call. Please note that this event is being recorded. I'd now like to turn the call over to Erica Mannion of Sapphire Investor Relations..

Good afternoon, and thank you for joining us for Amtech Systems Fiscal Third Quarter 2021 Conference Call. With me today on the call are Michael Whang, Chief Executive Officer; and Lisa Gibbs, Chief Financial Officer. Also joining us today is Paul Lancaster, Amtech's Vice President of Sales and Customer Service.

After close of market today, Amtech released its financial results for the fiscal third quarter 2021. The earnings release is posted on the Company's website at www.amtechsystems.com in the Investors section. During today's call, management will make forward-looking statements.

All such forward-looking statements are based on information available as of this date, and the Company assumes no obligation to update any such forward-looking statements. 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.

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 Form 10-Q. Now I will turn the call over to Michael Whang, Chief Executive Officer..

Thank you, Erica. Amtech continued to deliver strong momentum in the third quarter with revenues of $23.1 billion, coming in at the high-end of our expectations. Of note, this marks our third straight quarter of double-digit sequential growth following the demand softness we experienced during the pandemic.

Activity within the semi market continues at a strong rate with record bookings and continued upside opportunities across our served markets.

For our advanced packaging products, we are seeing strong momentum from both robust end market growth as well as increasing adoption of our next-gen Pyramax TrueFlat product across both new and existing customers.

As you may recall, our TrueFlat product serves the needs of advanced packaging customers for very thin PCBs to substrate, delivering both increased yield and throughput.

For products targeted at the SMT market, demand is strengthening across all geographic -- all geographies, excuse me, as customers gain confidence in the economic outlook and restart investments in both capacity expansion initiatives as well as ongoing replacement cycle of split replace on hold throughout the background.

As a result, market demand for our products has surpassed the capacity of our Shanghai facility curating the need to temporarily increase interim capacity to serve our customers. Fortunately, the timing of this end market strength aligned with our plan to move to a larger production facility later this month.

Within the power semi market, we continue to have strong engagement with our customers as they move forward with their capacity expansion plans to meet growing demand for power chips, driven in part by the automotive sector.

In addition to the orders we received last quarter for six, 300-millimeter HTR diffusion furnaces, coating activity has increased with both existing and potential new customers.

Beyond the near-term top-line benefit as existing quarters gradually roll backlog to revenue over the next few quarters, the increase in dialogue signals a broader transition to 300-millimeter manufacturing processes for the power semi market.

Given our leadership position as a tool of record for nearly all of the current power chip manufacturers who are already producing on 300-millimeter, we believe we are well positioned to capture additional opportunities as they emerge. Overall, we continue to be pleased with the performance of our semi segment.

Strength in demand is continuing across our semi markets as customers grow increasingly confident about their own demand outlook, and in turn begin to accelerate capital expansion plans. Illustrating the strength, in the third quarter, our book-to-bill ratio for the semi segment was 1.4 to 1, following a strong 1.7 to 1 in the prior quarter.

As demand for our product tends to correlate with overall semi CapEx spending, we believe the strength and demand we are experiencing will continue in line with the broader industry. Moving on to our material and substrate segment.

In the third quarter equipment purchases, which were meaningfully impacted by the pandemic, continued to build with early orders rolling from backlog to revenue. Similar to our semi business, we are seeing the start of a broad-based demand in industries such as silicon, optics, and ceramics as customers gain confidence in the global outlook.

As these products contribute to revenue, there is the added benefit of incremental fixed cost absorption in our PR Hoffman facility as we await the ramp of silicon carbide. Evidence of this can be seen in the segment's third quarter gross margin, which improved 17 point sequentially to 41%.

As it relates to larger multi-year capacity expansion plans for silicon carbide wafer producers, we continue to maintain a healthy dialogue with our customers and wait the finalization of their plans to increase wafer output. As a reminder, the lead times for our products are often shorter than those of device manufacturing equipment.

And as such, we would expect to see an uptick in demand once new production volume of wafering capacity is brought online to service the needs of new device manufacturing facility.

Given our market-leading position in consumables, open ad for new machine platforms, and recently completed capacity expansion investments for silicon carbide manufacturing operations, we remain excited as ever for the mid to long-term opportunities in front of us.

While we are encouraged by the strengthening of demand across all of our served markets, we remain cautious about the ongoing market uncertainty, which we do not directly control. Industry-wide challenges, such as supply chain constraints, inflation, and significant increases to freight and logistics costs require ongoing management and vigilance.

Thus far, we have been successful in navigating these challenges. However, the risk remains, both to ourselves as well as our supply chain partners and customers.

That said, looking beyond these near-term uncertainties, we strongly believe our leadership and market segment with exposure to several secular tailwinds, create a significant opportunity to drive increased profitability and shareholder value as demand accelerates and we realize the operating leverage built into our current business model.

With that, I will now turn over the call to Lisa..

Thank you, Michael. Net revenues came in at the high-end of guidance at $23.1 million, an increase of 17% sequentially and 52% from the third quarter of fiscal 2020. The sequential increase is primarily attributed to strong shipments of our advanced packaging of SMT equipment and increased shipments of our polishing machines.

The same prior year period was affected by the COVID-19 pandemic. Gross margin increased in the third quarter of fiscal 2021 sequentially and compared to prior year due to product mix and increased capacity utilization, partially offset by rising labor and material costs.

Selling, general and administrative expenses increased $1.6 million sequentially and $2.5 million compared to the same prior year period due primarily to approximately $1.1 million in expenses related to our cyber incident in April 2021 as well as increased commissions on higher sales. We will file a claim with our cyber insurer in fiscal Q4 of 2021.

Additionally, the prior year quarter benefited from approximately $0.3 million in COVID payroll tax credits and had lower travel and trade show expenses due to COVID.

Research develop -- and development decreased $0.3 million sequentially, and increased $0.6 million compared to the same prior year period due primarily to the timing of materials used in our strategic R&D projects.

Operating income in fiscal Q3 2021 was $1.2 million compared to operating income of $0.2 million in the second quarter of fiscal 2021 and operating income of less than $0.1 million in the same prior year period.

Adjusting for the $1.1 million of one-time costs related to our cybersecurity incident, our operating income for the quarter would have been $2.3 million or 9.8% of revenue, demonstrating the operating leverage built into our model.

The income tax provision was $0.7 million for the three months ended June 30, 2021, compared to a provision of $0.5 million in the preceding quarter and $0.1 million in the same prior year period. Our effective tax rate continues to be higher than the statutory rate due to higher income in foreign jurisdictions.

Income from continuing operations net of tax for the third quarter of fiscal 2021 was $0.4 million or $0.03 per share. This compares to loss from continuing operations of $0.1 million or $0.01 per share for the third quarter of fiscal 2020 and loss of $0.2 million or $0.02 per share in the preceding quarter. Turning to cash.

Unrestricted cash and cash equivalents at June 30, 2021, were $37 million compared to $40.4 million at March 31, 2021.

This decrease is primarily due to cash used to support our working capital needs due to our strong order flow, which includes increasing inventory in preparation for upcoming shipments scheduled in the fourth quarter of fiscal 2021 and the first quarter of fiscal 2022. Approximately 82% of our cash balance is held in the United States.

Now turning to our outlook. For the quarter ending September 30, 2021, our fiscal fourth quarter, revenues are expected to be in the range of $25 million to $27 million. Gross margin for the fiscal fourth quarter is expected to be in the upper 30% range due to a shift in product mix with a positive operating margin in the mid to upper single-digits.

The semiconductor industry is cyclical and inherently impacted by changes in market demand, and the recent semiconductor shortages may also have impacts on our customers and supply chain.

Our outlook reflects the anticipated ongoing logistical impacts and related delays for goods ship to and from China, and production risks associated with our Shanghai building move expected to occur in fiscal Q4 2021. Actual results may differ materially in the weeks and months ahead.

Additionally, operating results can be significantly impacted positively or negatively by the timing of orders, system shipments and the financial results of semiconductor manufacturers. A portion of Amtech's results is denominated in RMBs, a Chinese currency.

The outlook provided in this press release is based on 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?.

[Operator Instructions] And we do have a question from Jeff Osborne with Cowen & Company..

A couple of questions on my end, Michael, if you don't mind.

Can you touch on -- did you forgo revenue because of the Shanghai move? Would you have seen more strength this quarter, and that's providing some visibility into next quarter or no?.

No, no. We've maintained an incredibly strong weekly production process and the move and the planning has been actually quite incredible by our team. So, we're moving within this month, and production will slow down just a bit during that time. So, we accounted for that in our Q4 outlook, but things remain very strong and robust.

We're quite confident in the team..

Got it. And it's great to hear about the -- on the PR Hoffman side, some new polishing machines being shipped.

Are those to new customers for the Amtech umbrella or are those for existing people that already have silicon carbide expansion under?.

Just one clarification, Jeff. These are non-silicon carbide machine orders. Serving our traditional silicon, optics, ceramic and other substrates like sapphire. It's a mix of both current and new customers..

And specifically to silicon carbide, what are you seeing on that front? In terms of coating..

No. It's just a beautiful mystery right now. So far, we have not seen any actual action to words from our customers. We still anticipate the expansion to occur no sooner or later than at the end of this year or early next year.

To reiterate an example, Cree has mentioned several times, once they bring their New York fab up and running, then they will then divert attention and focus to their materials expansion plan. So, that's one barometer, and Cree is definitely like an early adopter, a market leader in terms of expansion plans and their current footprint right now.

So, the best thing that we can do, and we are doing, is preparing. We've made investments in our capacity, and we'll be ready when that order cycle occurs..

Got it. And then just one more, I think, on my side. On the 300-millimeter HTR side, certainly, Infineon has made a lot of movement in that direction.

Can you just talk about maybe keeping the sports analogy going, if this were a baseball game, when you look at the broader scope of people in the power electronics space, whether it's the Crees, the little fuses, the STs, the Infineons of the world, what inning are we in, in moving from 200 to 300 millimeters, part A of the question? And then, B, what do you think the TAM is over the next three years in terms of high-temperature furnaces that need to be acquired? Is this a couple of tens of millions? Or is this north of $100 million that needs to be put in place to address some of the megatrends that you're going after?.

We're probably looking at more of the tens of millions across the next three years. We are just -- we do serve just one process in the entire process chain. The process depths can vary from a few dozen to several with a different number of different process equipment. In terms of the inning, we're still early on.

Definitely, the economics of moving to 300-millimeter is there. Just based on raw surface area from 200-millimeter to 300-millimeter. However, it requires massive capital investments that a majority of the mid-tier power device players would be challenged to be. So, we're looking at mainly the Tier 1 power device manufacturers..

And that will conclude today's question-and-answer session and today's call. We thank you for your participation. You may now disconnect..