Amtech Systems, Inc. — Q2 FY2019 Form 10-Q
Reporting period: Three and six months ended March 31, 2019. Fiscal year ends September 30. Unless noted, amounts are in U.S. dollars; financial statement amounts below are in millions.
Business context and reporting period
Amtech manufactures thermal-processing and wafer-handling equipment and related consumables for semiconductor, SiC/LED, automation and solar markets. Effective March 28, 2019, the company adopted a plan to sell substantially all of its Solar business, including Tempress and SoLayTec. Solar results are presented as discontinued operations and its assets and liabilities as held for sale; comparative periods were reclassified accordingly.
Financial performance and liquidity
| Metric | Q2 FY2019 | Q2 FY2018 | Six months FY2019 | Six months FY2018 |
|---|---|---|---|---|
| Continuing-operations revenue | $20.6 | $21.1 | $43.9 | $48.2 |
| Gross profit / margin | $7.9 / 38% | $8.6 / 41% | $16.9 / 39% | $18.5 / 38% |
| Operating income | $1.2 | $1.5 | $1.9 | $4.3 |
| Continuing-operations net income | $1.0 | $1.1 | $1.3 | $2.8 |
| Net income (loss), including discontinued operations | $(5.6) | $2.8 | $(8.0) | $9.3 |
| Net income (loss) per diluted share | $(0.40) | $0.19 | $(0.56) | $0.61 |
- Solar discontinued operations reported a Q2 net loss of $6.6 million and a six-month net loss of $9.3 million. Q2 Solar revenue was $8.2 million, versus $11.7 million a year earlier.
- For the six months, operating cash flow was negative $3.1 million, compared with negative $17.5 million in the prior-year period. Investing cash use was $0.2 million; financing cash use was $0.1 million. The prior-year cash-flow comparison reflects retrospective adoption of restricted-cash guidance.
- Cash and cash equivalents were $47.9 million, with restricted cash of $0.5 million, at March 31. The cash-flow statement’s $58.1 million ending total also includes cash within held-for-sale assets. Working capital was $74.6 million; the current ratio was 2.9, or 5.3 excluding held-for-sale assets and liabilities.
- Continuing-operations debt included $0.4 million of current maturities and $5.4 million of long-term debt. Held-for-sale liabilities separately included $2.4 million of long-term debt.
Material changes versus prior comparable periods
- Continuing revenue fell 2% in Q2 and 9% for the six months. Semiconductor revenue declined 3% and 7%, respectively; SiC/LED declined 9% and 12%. Automation rose 41% in Q2 but fell 29% for the six months.
- Q2 gross margin declined to 38% from 41%, reflecting product mix in Semiconductor and SiC/LED; six-month gross margin was 39% versus 38%. Operating income decreased in both periods, including restructuring charges of $0.2 million in Q2 and $1.0 million year to date.
- Orders weakened: Q2 new orders fell 15% year over year and six-month orders fell 26%. Backlog at March 31 was $22.0 million, down 28% from a year earlier; Semiconductor backlog was down 34%.
- The Solar exit drove the consolidated net loss. Solar held-for-sale net assets were $4.0 million at March 31, compared with $13.5 million at September 30, 2018.
Outlook, management commentary, risks and unusual items
- Management cited a possible cyclical peak in semiconductor demand in FY2018 and weakness in China’s consumer market, partly offset by stronger North American demand. It expects technology advances, including SiC power devices, to support longer-term performance.
- The company plans to sell its Solar operations on or before March 31, 2020. Estimated one-time sale costs are approximately $0.75 million, potentially higher depending on timing or price targets. Management gave no assurance that a buyer can be found or that a sale will occur on favorable terms; a disposal loss is possible.
- Management said it does not intend to further invest in or fund Tempress or SoLayTec beyond amounts reflected in held-for-sale assets. It warned that failure to find a buyer could lead to other alternatives, including an auction, winding down operations or bankruptcy.
- R2D Automation, which is not included in discontinued operations, faces lower sales to Solar divisions and semiconductor-market weakness. The company is evaluating its strategic fit; an alternative disposition could result in a non-cash loss.
- Liquidity sources were stated to be sufficient to support operations for at least the next 12 months. The company cautioned that additional capital for growth may not be available on satisfactory terms. Solar losses contributed to full valuation allowances on specified deferred tax assets.
- Other notable items: former CEO Fokko Pentinga’s separation agreement included $864,000 severance and $458,500 for other amounts due; a $4 million share-repurchase authorization remained unused during the quarter. A terminated turnkey Phase II contract was under settlement discussions, with remaining work removed from backlog and no material financial-statement impact reported.
Important facts for investors to verify
- Progress, timing, sale price and potential costs or losses associated with the Solar divestiture; assess the impact of accumulated foreign-currency translation balances on any disposal result.
- Whether Semiconductor orders, backlog and demand stabilize, particularly in China, and whether the backlog converts to revenue and profit.
- Cash consumption and funding needs in Solar and the strategic outcome for R2D Automation.
- Potential additional restructuring, severance, contract-settlement or tax impacts; the filing reports $6.0 million of unrecorded continuing-operations purchase obligations.
- Continuing-operations performance separately from discontinued Solar results, given that consolidated net losses were primarily driven by Solar.