Amtech Systems, Inc. — Q3 FY2018 Form 10-Q
Business context and reporting period. Amtech manufactures capital equipment, automation and consumables for solar, semiconductor and polishing markets. This unaudited report covers the quarter and nine months ended June 30, 2018; the comparable periods are the three and nine months ended June 30, 2017. Amounts below are in U.S. dollars.
Key financial results
| Metric | Q3 FY2018 | Q3 FY2017 | Nine months FY2018 | Nine months FY2017 |
|---|---|---|---|---|
| Revenue | $41.2 million | $47.8 million | $147.6 million | $109.8 million |
| Gross profit / margin | $14.6 million / 35% | $15.5 million / 32% | $46.7 million / 32% | $32.3 million / 29% |
| Operating income | $2.9 million | $4.0 million | $10.8 million | $2.4 million |
| Net income attributable to Amtech | $5.0 million | $3.3 million | $14.3 million | $1.8 million |
| Diluted EPS attributable to Amtech | $0.33 | $0.25 | $0.94 | $0.14 |
| Operating cash flow | Not provided by quarter in the filing | $(2.6) million | $10.9 million |
Q3 net income included a $2.9 million gain from selling Amtech’s remaining investment in Kingstone Technology Hong Kong. Nine-month results also benefited from a $3.1 million reversal of accrued tax, interest and penalties after resolution of an uncertain tax position. These items affect comparison of reported earnings with underlying operations.
Financial position and liquidity
- At June 30, 2018, cash and cash equivalents were $48.7 million and restricted cash was $6.9 million, compared with $51.1 million and $24.6 million, respectively, at September 30, 2017. The filing attributes the restricted-cash reduction mainly to shipment and customer-acceptance milestones on the solar turnkey project.
- Working capital was $86.1 million; the current ratio was 2.9:1. Total debt was approximately $8.4 million, including $0.4 million current and $8.0 million long-term.
- Total assets were $162.4 million and total liabilities were $56.0 million at June 30, 2018. The filing reports no material off-balance-sheet arrangements.
- Operating cash flow was negative despite net income: working-capital movements, including lower customer deposits and accrued liabilities, more than offset earnings and non-cash adjustments. Investing activities used $0.8 million; financing activities provided $1.6 million, primarily from option exercises.
Material changes and operating trends
- Q3 revenue fell 14% year over year, primarily because Solar shipments were lower after the prior-year quarter’s Phase I turnkey shipments. Solar revenue declined 51%; Semiconductor revenue rose 47% and Polishing rose 27%.
- For the nine-month period, revenue increased 34%, led by Phase II turnkey shipments in Solar and stronger Semiconductor and Polishing demand. Solar revenue rose 33%, Semiconductor 35% and Polishing 38%.
- Q3 consolidated operating income declined to $2.9 million from $4.0 million. Solar posted a $0.1 million operating loss in the quarter; Semiconductor and Polishing reported operating income of $3.9 million and $0.9 million, respectively.
- Backlog was $41.2 million at June 30, down 67% from $125.7 million a year earlier; Solar backlog was $19.0 million versus $98.2 million. Q3 orders were $26.2 million, including $5.0 million Solar, compared with $79.9 million, including $54.2 million Solar, in Q3 FY2017. Management cautions that orders may be delayed or cancelled and backlog does not assure future sales or profit.
- Unrecorded purchase obligations fell to $14.6 million from $34.4 million at September 30, 2017, mainly as Phase II equipment shipments were completed.
Outlook, risks and unusual items
- In July 2018, after quarter-end, Amtech announced a Netherlands Solar restructuring targeting approximately $3.0 million of annualized cost savings. It expects to reduce the workforce by about 35–40 employees and incur $0.6–$0.8 million of one-time termination costs in Q4 FY2018; implementation is expected over six to eight months. The plan’s details remained under development.
- Management said available liquidity should support operations for at least the next twelve months, while noting that growth depends in part on access to additional capital on satisfactory terms. The filing gives no numerical revenue or earnings guidance.
- Management describes solar and semiconductor equipment markets as cyclical and volatile. Solar faces price and payment-term competition from Chinese manufacturers and difficulty securing large China expansion orders; results also depend on timing of large orders, shipments and customer acceptance.
- Customer concentration is notable: one customer represented 29% of nine-month revenue; two customers represented 23% and 14% of receivables at June 30. China accounted for 54% of nine-month revenue.
- Revenue timing and cash collection can be affected by installation, acceptance and deferred-revenue requirements. The company was implementing the new revenue-recognition standard for expected adoption in FY2019; it anticipated higher shipment-date revenue for some contracts, but the cumulative transition adjustment was still being estimated.
- Tax accounting under the Tax Cuts and Jobs Act remained partly provisional, including analysis of the one-time foreign earnings transition tax. The company also cited potential effects of changes to trade agreements and international tax provisions.
- The filing reports a Superfund-site liability below $0.1 million, supported by a $0.2 million letter of credit. It states that probable and estimable legal losses are provided for, but litigation outcomes can still adversely affect results.
Important facts for investors to verify
- Whether the $5.7 million Kingstone sale note due in August 2018 was collected as expected.
- Whether Solar restructuring savings, headcount reductions and costs track management’s estimates, and how Solar profitability develops after turnkey shipments.
- Subsequent order intake, backlog conversion and customer cancellations, especially in Solar, given the substantial year-over-year backlog decline.
- Operating cash generation and working-capital trends, including the timing of customer deposits, acceptance milestones and release of restricted cash.
- The final FY2019 revenue-standard transition adjustment and any resulting changes to reported revenue, deferred profit and retained earnings.
- Final tax-law accounting, including any transition-tax liability, and the impact of customer concentration and China-market exposure.
- Execution of the authorized $4 million share-repurchase program; no shares had been repurchased through June 30, 2018.