Amtech Systems, Inc. — Q2 FY2020 Form 10-Q
Reporting period: Three and six months ended March 31, 2020. Amounts are in U.S. dollars; financial statement amounts are in thousands unless stated otherwise. The company manufactures semiconductor thermal-processing equipment and SiC/LED polishing machinery and consumables. Its continuing operations comprise Semiconductor and SiC/LED; solar operations are reported as discontinued following divestitures.
Financial performance
| Metric | Three months ended March 31, 2020 | Three months ended March 31, 2019 | Six months ended March 31, 2020 | Six months ended March 31, 2019 |
|---|---|---|---|---|
| Revenue from continuing operations | $14.46 million | $20.63 million | $35.15 million | $43.86 million |
| Gross profit / margin | $5.36 million / 37% | $7.93 million / 38% | $13.53 million / 38% | $16.95 million / 39% |
| Operating income (loss) | $(0.97) million | $1.25 million | $0.67 million | $1.91 million |
| Continuing operations net income (loss) | $(0.54) million | $1.01 million | $(1.81) million | $1.26 million |
| Discontinued operations net loss | $(11.15) million | $(6.65) million | $(11.82) million | $(9.27) million |
| Net loss / loss per share | $(11.69) million / $(0.83) | $(5.64) million / $(0.40) | $(13.63) million / $(0.96) | $(8.01) million / $(0.56) |
- Second-quarter Semiconductor revenue fell 25% to $11.99 million; SiC/LED revenue fell 25% to $2.47 million. For the six-month period, the respective declines were 17% and 16%.
- Six-month operating cash flow was positive $1.28 million, versus cash use of $3.07 million a year earlier. Investing used $10.29 million, mainly reflecting cash disposed of in subsidiary sales; financing used $1.42 million, including $2.0 million of share repurchases.
- Cash and cash equivalents were $49.27 million at March 31, 2020, down from $52.98 million at September 30, 2019. Working capital was $71.9 million; the current ratio was 8.4:1.
- Debt totaled approximately $5.36 million: $0.37 million current and $4.99 million long-term. The company reported no material off-balance-sheet arrangements.
Changes versus prior comparable periods
- Revenue declined 30% in Q2 and 20% for the six months. Management attributed the quarter’s reduction primarily to COVID-19-related closure and disruption at the Shanghai facility, with U.S. slowdowns and trade tensions also affecting demand. Six-month Semiconductor results also reflected lower diffusion-furnace shipments.
- Gross margin decreased by one percentage point in both comparisons. Management cited product mix and lower capacity utilization.
- Continuing operations moved from Q2 operating income to an operating loss; six-month operating income remained positive but declined. SG&A decreased year over year, while quarterly research and development expense increased.
- Cash from operations improved from the prior-year six-month period. The cash balance nevertheless declined, principally due to divestitures and repurchases. The reported working-capital and current-ratio comparisons also reflect removal of held-for-sale solar assets and liabilities.
Outlook, commentary, risks and unusual items
- Amtech completed the SoLayTec sale in June 2019, the R2D automation sale in December 2019, and the Tempress sale on January 22, 2020. The Tempress transaction for nominal consideration generated a pretax loss of approximately $10.9 million, including $7.2 million of accumulated currency translation losses. Solar discontinued operations reported a six-month net loss of $11.82 million.
- In connection with the Tempress sale, Amtech provided a $2.25 million unsecured loan. It reported $0.5 million repaid and $0.5 million forgiven, and expected the remaining $1.25 million within 12 months.
- Management said its China facility had returned to near-capacity, while U.S. operations were constrained. It characterized COVID-19’s expected effect as potentially temporary but said duration and severity remained uncertain. The filing provides no formal revenue or earnings guidance.
- Management said cash and its balance sheet should support operations for at least 12 months, while noting that a slower recovery could require further adjustments. It was pursuing tax-related relief, reducing cash outlays, and had placed the remaining $2 million of its buyback authorization on hold.
- The company identified SiC growth, its 300 mm silicon horizontal thermal reactor, and BTU product innovation as strategic opportunities. Planned R&D and capital expenditure investment was projected at $6–$8 million, with possible deferrals due to COVID-19. A new SiC/LED building lease was expected to add about $5 million of lease assets and liabilities in Q3 FY2020.
- Unrecorded purchase obligations at continuing operations were $8.8 million, up from $4.4 million at September 30, 2019; management attributed the increase primarily to COVID-19-related closures. Deferred tax assets were substantially valuation-allowed. Management reported disclosure controls as effective and no material control changes during the quarter.
Important facts for investors to verify
- How COVID-19 affected subsequent-quarter orders, shipments, production capacity, supply availability, and customer demand, particularly in the United States.
- Whether the remaining $1.25 million Tempress loan is repaid as expected, and whether the reported divestiture losses and tax benefits have further cash or accounting effects.
- Whether backlog converts to revenue: March 31 backlog was $19.62 million, down 5% year over year, and management cautioned that orders may be canceled or delayed. Two Semiconductor customers represented 21% and 14% of backlog.
- How the $6–$8 million investment plan, building lease commitment, and $8.8 million of purchase obligations affect liquidity if the recovery is prolonged.
- Whether continuing-operations profitability improves, given the quarter’s operating loss, lower revenue, and discontinued-operation losses that heavily drove reported net loss.