Good day and welcome to the Amtech Systems Fiscal Second Quarter 2023 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..

Good afternoon and thank you for joining us for Amtech Systems’ fiscal second quarter 2023 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 second quarter of 2023. 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 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 technologies used by customers and competitors; change in volatility and the 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; the worldwide COVID-19 pandemic, and our ability to effectively integrate our acquisition of Entrepix Inc., which we acquired in January 2023.

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'll be referring to non-GAAP financial measures as we discuss the second quarter financial results.

You'll find a reconciliation of these non-GAAP measures to our actual GAAP results included in the press release issued earlier today. Now, I would like to turn the call over to Michael Wang, Chief Executive Officer..

Thank you, Erica, and everyone, for joining us today. In the second quarter, we achieved $33.3 million in revenue, representing a year-over-year increase of 21%, inclusive of our recent acquisition of Entrepix.

On an organic basis, revenue was roughly flat as strong demand for our high temperature built furnaces for EV application and growth in our SIC consumables was offset by continued softness in the broader semi industry, impacting our advanced packaging and SMT contribution in the short-term.

Overall, we remain excited about the long-term opportunities across all of our businesses.

Within the semi division, while we are currently transitioning through a downturn in the spending cycle for our semi products, our competitive position in the industry remains strong, which create an opportunity to capture additional upside in the next investment cycle.

Fortunately, we continue to experience strong demand for our high temperature belt furnaces for EV applications. Moving on to the Materials & Substrate division. SIC remains a key demand driver as the industry gradually builds out wafer and capacity to serve the immense opportunity ahead. Entrepix is cleaning equipment -- sorry about that.

Fortunately, we continue to experience strong demand. Let me -- I'm sorry, but let me back up. Within the Materials and substrate division, SiC remains a key demand driver as the industry gradually builds out wafering capacity to serve the immense opportunity ahead.

With the addition of Entrepix and their focus on 200-millimeter and below CMP expertise and wafer cleaning tools, we continue to expand our exposure to the overall SiC processing market, which as of the second quarter represented approximately 40% of the total material and substrate division revenue.

The combination of our market share leadership in SiC consumables with Entrepix's comprehensive CMP and wafer cleaning expertise creates a unique offering in the market, which has the potential to create meaningful value for our customers coupled with our acquisition of IDI, which has historically supplied chemicals and slurries into a wide range of markets, we believe these synergistic capabilities of these offerings will create a force multiplier to gain both market share across our individual solutions as well as Amtech share in the overall SiC market.

While only one quarter into the integration of Entrepix -- thus far, we are tracking to plan and have seen very positive results with the collaborative efforts across our various SiC businesses. We are encouraged with the level of dialogue and engagement across both existing and new customers and the long-term opportunities they represent.

In summary, we are increasingly optimistic that our semi division reached an overall demand trough in the first fiscal quarter while demand in our materials and substrate divisions remain strong given the health of the SiC consumables and the broad-based interest in Entrepix’s cleaning equipment.

We believe our strategy to align our divisions to high-growth megatrend markets continues to gain traction and the alignment of these growth areas across multiple product and customer touch points creates a strong and durable foundation for value creation in the coming years.

I will now turn the call over to Paul to go into more detail on our end markets..

Thank you, Michael. Expanding further on the demand environment, we continue to remain in this overall demand trough for advanced packaging in SMT products. Offsetting this is continued higher demand for our high-temp belt furnaces primarily used in EV applications.

While we have received additional new orders for advanced packaging equipment from a leading OSAT customer, we remain cautious about the timing of a demand rebound for these products, given the uncertainty around the macroeconomic outlook, specifically within the semiconductor industry.

Within our Materials and Substrate division, we continue to see a strong demand for our products. Specific to silicon carbide, demand for our consumable products continue to grow in line with estimates for overall industry wafer capacity.

As a reminder, in this portion of the market, Amtech has been a leader for many years with existing relationships across both industry leaders and newer entrants.

Given the superior performance attributes of our consumables, which translates to a roughly 2x improvement in total cost of ownership, customers tend to gravitate to our solutions, particularly as volumes increase.

With that said, the pace of silicon carbide wafer capacity additions is often longer than that of traditional silicon, and it will take time for the wafer output of the industry to realize the robust growth in wafer starts that are currently forecasted.

As it relates to our cleaning tools, which were acquired as part of Entrepix, we continue to see strong demand in the silicon carbide market as customers execute on their capacity expansion plans. We recently booked our 20th wafer cleaning system for silicon carbide customers and continue to engage existing and new customers for future orders.

And Entrepix was an early mover into the silicon carbide market, starting with the shipment of refurbished wafer cleaning systems into existing fabs.

By leveraging the experience and know-how to develop from servicing these legacy tools, including CMP machines and Entrepix developed a new on-track double-sided scrubber which is ideally suited for compound semiconductor applications with configurations for 100 to 200 millimeter wafers.

We believe the ongoing success of this new tool shows the strength of Entrepix position in this important market segment.

As we discussed last quarter, with the growing demand for North America manufactured products, namely our silicon carbide templates and consumables and high-temp belt furnaces we have taken initial steps towards supply chain and manufacturing optimization to expand internal capacity, strengthening our supply chain for greater resiliency and efficiency, including greater utilization of outsourced manufacturing partners.

As an example of this, we began working with third parties throughout North America that helps service the growing backlog for high tent bell furnaces.

While these initiatives will take time to fully implement, our goal is to both ramp capacity to better serve our current backlog and reduce lead times for new orders while diversifying our geographic manufacturing footprint to ensure business continuity.

The near-term demand for our products, namely silicon carbide applications and high temp furnaces remains very robust. While over the mid- to long term, we believe we are well positioned to participate in the growth of both silicon carbide and the semiconductor industries when a capacity investment cycles return.

I'll now turn the call over to Lisa to review our financial results..

Thank you, Paul. Net revenues for the quarter were $33.3 million, an increase of 55% sequentially and an increase of 21% from the second quarter of fiscal 2022. We -- the increase is primarily attributable to additional revenue from Entrepix of $6.3 million and increased shipments of our high-temperature belt furnaces.

Gross margin increased sequentially due primarily to increased revenues driving improved capacity utilization. Gross margin was relatively consistent when compared to the second quarter of fiscal 2022.

Selling, general and administrative, or SG&A expenses increased $2.2 million on a sequential basis and $4.7 million compared to the prior year period due primarily to $1.5 million in acquisition costs, added in Tropic SG&A expenses of $1.9 million, including $0.7 million in amortization of intangible assets as well as increased consulting and ERP project expenses.

Compared to the prior year period, the increase in SG&A is due primarily to $1.9 million of added SG&A from Entropic and $1.5 million of transaction expenses related to the acquisition. Research, development and engineering increased $0.1 million sequentially and decreased $0.3 million compared to the same prior year period.

GAAP operating income was $0.5 million compared to GAAP operating loss of $2.7 million in the first quarter of fiscal 2023 and GAAP operating income of $2.6 million in the same prior year period. Company has incurred amortization of intangible assets included in its GAAP financial statements related to the acquisition of Entrepix.

The amount of an acquisitions purchase price allocated to intangible assets and the term of its related amortization can vary significantly, and the amortization is non-cash. The purchase price allocation reflected in our GAAP financial statements is preliminary.

The company expects to incur amortization of acquired intangible assets relating to Entrepix of approximately $945,000 per quarter through December 31, 2023, and approximately $420,000 per quarter thereafter.

Non-GAAP operating income, which excludes certain adjustments for restructuring and severance, stock-based compensation and acquired intangible amortization expense and transaction expenses related to our acquisition of Entrepix was $3.2 million compared to non-GAAP operating loss of $0.7 million in the first quarter of fiscal 2023 and non-GAAP operating income of $2.7 million in the same prior year period.

Income tax benefit was $2.9 million for the three months ended March 31, 2023, compared to a benefit of less than $0.1 million in the preceding quarter and expense of $0.7 million in the same prior year period.

The income tax benefit in the three months ended March 31, 2023, includes a one-time benefit of $3.2 million as a result of the release of a portion of our valuation allowance in connection with the deferred tax liability relating to the Entrepix acquisition, resulting in recognition of previously recorded deferred tax assets.

GAAP net income for the second quarter of fiscal 2023 was $3.2 million or $0.23 per share. This compares to GAAP net loss of $2.7 million or $0.20 per share for the preceding quarter and GAAP net income of $2 million or $0.14 per share for the second quarter of fiscal 2022.

Non-GAAP net income for the second quarter of fiscal 2023 was $2.7 million or $0.19 per share. This compares to non-GAAP net loss of $0.7 million or $0.05 per share for the preceding quarter and non-GAAP net income of $2.1 million or $0.15 per share for the second quarter of fiscal 2022.

Unrestricted cash and cash equivalents at March 31, 2023, were $17.7 million compared to $44.5 million at December 31, 2022, with the decrease, primarily attributed to our acquisition of Entrepix. Approximately 67% of our cash balance as of March 31, 2023, is held in the United States.

With the acquisition of Entrepix, our cash levels are lower, but we are comfortable that we have the capital available to fund our operations and fuel our future growth, including our access to a revolving line of credit of up to $8 million. To date, we have not borrowed any amounts under the revolver. Now turning to our outlook.

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. So for the quarter ending June 30, 2023, our third fiscal quarter, revenues are expected to be in the range of $31 million to $33 million with operating margins slightly positive. 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 I will turn the call over to the operator for questions.

Operator?.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Mark Miller of The Benchmark Company. Please go ahead..

Thank you very much. Give you my congratulations on your acquisition Entrepix. I do have a couple of questions. Several semi firms, I talked to this quarter, are believing that this is the trial quarter for more semiconductor business -- equipment business.

Do you share those feeling of you? I'm just wondering where you feel you are in the cycle?.

Hi, Mark. Thanks for joining us today. From what we see and what we hear from our customers, we do feel we're at the bottom of the cycle. There are little lights of hope of movement into a more upward direction. But given our visibility, it’s hard to say when that rebound will occur. So -- if you remember last quarter, we had a nice order from the OSATs.

And that could lead into something later at the end of this year is what we're hoping based on what we're hearing..

I'm looking at your material on substrate gross margins. They were down significantly year-over-year and also sequentially.

Is that related to the Entrepix acquisition, just or some other product mix?.

Mark, that is correct. Adding an Entrepix, who has more of the capital equipment in their product line, is bringing that gross margin down as we've added them in this quarter..

But your consumable margins are significantly higher than the equipment margin.

Is that correct?.

That is correct. And those are stable at this point..

Okay. Could you just -- once more go over the amortization, I think you said $945,000 and another figure somewhat later, what's your schedule for amortization..

So yes, so the $945,000 is what we expect to incur through the end of this calendar year. Again, this is a preliminary -- these are preliminary numbers. We have some time, obviously, to finalize. And then after the end of this calendar year, we expect approximately $420,000 on starting with calendar 2024..

Thank you..

You're welcome..

Thank you very much. [Operator Instructions] Ladies and gentlemen, we have no further additions in the queue. That then concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation..