Amtech Systems, Inc. — Q2 FY2018 Form 10-Q
Reporting period: Three and six months ended March 31, 2018. Amtech manufactures capital equipment and related products for solar, semiconductor, and polishing markets. Figures below are in U.S. dollars; “Q2” refers to the three-month period.
Financial performance
| Metric | Q2 FY2018 | Six months FY2018 |
|---|---|---|
| Revenue | $32.8 million, down less than 1% year over year | $106.4 million, up 71% |
| Gross profit / margin | $11.7 million / 36%, versus $8.4 million / 25% | $32.1 million / 30%, versus $16.8 million / 27% |
| Operating income (loss) | $0.1 million, versus a $1.4 million loss | $7.8 million, versus a $1.6 million loss |
| Net income attributable to Amtech | $2.8 million; diluted EPS $0.19 | $9.3 million; diluted EPS $0.61 |
| Operating cash flow | Not reported separately | $(1.8) million, versus $11.6 million provided |
Q2 segment revenue was $12.6 million Solar (down 24%), $16.6 million Semiconductor (up 23%), and $3.6 million Polishing (up 22%). For the first six months, Solar revenue rose 121% to $61.8 million, principally reflecting shipments under the Phase II solar turnkey order; Semiconductor rose 29% to $37.5 million and Polishing rose 44% to $7.1 million.
Balance sheet and liquidity
- At March 31, 2018, cash and cash equivalents were $50.5 million and restricted cash was $9.7 million. Working capital was $79.8 million and the current ratio was 2.4:1.
- Total debt was $8.6 million, including $0.4 million current maturities. Total liabilities were $68.1 million.
- Cash and cash equivalents declined $0.6 million from September 30, 2017. Operating cash use reflected working-capital movements, including lower customer deposits and cash tied to the turnkey project; restricted cash declined as project milestones released restrictions.
- Management said available liquidity was sufficient to support operations for at least the next twelve months. Unrecorded purchase obligations were $19.3 million, down from $34.4 million at September 30, 2017.
Changes, outlook, and risks
- Six-month revenue and profitability improved substantially year over year, primarily with Phase II solar shipments and stronger Semiconductor and Polishing demand. Q2 revenue was nearly flat as lower Solar shipments offset growth in the other segments.
- Q2 tax benefit was $2.8 million, including reversal of $3.1 million of accrued tax, interest, and penalties after resolving an uncertain tax position in one jurisdiction. The benefit materially contributed to reported net income; operating income was only $0.1 million.
- Backlog was $63.1 million, down 28% year over year, including approximately $35.0 million from Solar versus $66.9 million a year earlier. Q2 bookings were $28.8 million versus $68.2 million a year earlier. Management cautioned that orders can be delayed or canceled and backlog does not assure sales or profit.
- No specific revenue or earnings guidance was provided. Management described solar and semiconductor markets as cyclical and volatile, citing Chinese competitors’ lower prices and liberal payment terms. The company is considering outsourcing some solar products to China to reduce costs and improve market presence.
- Customer concentration is significant: one customer represented 38% of six-month revenue and 41% of accounts receivable at quarter-end. China accounted for 64% of six-month revenue.
- The company had not completed its analysis of the Tax Cuts and Jobs Act’s one-time foreign earnings transition tax; estimates remained provisional, with completion expected by fiscal year-end. It also identified potential risks from changes to international trade agreements and tax rules.
- The Board authorized a share repurchase program of up to $4 million over one year beginning April 2, 2018; no shares had been repurchased during the reported quarter. The filing reported no material changes to previously disclosed risk factors beyond those described.
Important facts for investors to verify
- Whether turnkey project acceptance and integration milestones convert deferred revenue and restricted cash into recognized revenue and available cash as expected.
- Whether new orders and backlog can replace completed solar turnkey shipments amid pricing pressure and the year-over-year decline in bookings.
- The sustainability of margins and earnings absent the $3.1 million tax-position reversal, and the eventual tax impact of the foreign earnings transition tax.
- Exposure to the major customer and China concentration, including collection risk; one customer represented 41% of receivables.
- Cash generation and working-capital trends, given six-month operating cash outflow despite reported net income.