Amtech Systems, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2017. Financial amounts below are in U.S. dollars; figures are rounded to millions unless stated otherwise.
Business context
Amtech manufactures capital equipment, automation, and related products and services for solar-cell, semiconductor, and polishing markets. Its three reporting segments are Solar, Semiconductor, and Polishing. The company describes its end markets as cyclical and technologically fast-changing.
Financial performance
| Metric | Three months ended June 30, 2017 | Three months ended June 30, 2016 | Nine months ended June 30, 2017 | Nine months ended June 30, 2016 |
|---|---|---|---|---|
| Revenue | $47.8 million | $33.3 million | $109.8 million | $77.9 million |
| Gross profit / margin | $15.5 million / 32% | $9.6 million / 29% | $32.3 million / 29% | $21.6 million / 28% |
| Operating income (loss) | $4.0 million | $(0.6) million | $2.4 million | $(8.1) million |
| Net income (loss) attributable to Amtech | $3.3 million | $(1.2) million | $1.8 million | $(6.7) million |
| Basic and diluted EPS | $0.25 | $(0.09) | $0.14 | $(0.51) |
- Quarterly revenue rose 43% year over year; nine-month revenue rose 41%. All three segments grew. Solar revenue increased 53% for the quarter and 49% for the nine-month period, primarily reflecting turnkey project shipments. Semiconductor and Polishing also reported higher revenue.
- Quarterly operating results improved to profit, supported by higher revenue and gross margin. Nine-month operating income included a $2.6 million gain on asset sales in the prior-year period, with no comparable gain in 2017.
- For the nine-month period, consolidated net income was $0.8 million, while net income attributable to Amtech was $1.8 million because of losses attributable to noncontrolling interests.
- Income tax expense was $1.0 million for the quarter and $1.3 million for nine months. The quarter included a $1.4 million discrete benefit from realizing deferred tax assets previously covered by a valuation allowance.
Cash flow, balance sheet, and liquidity
- Nine-month operating cash flow was $10.9 million, compared with $9.6 million used in the prior-year period. The improvement was primarily associated with customer deposits and other current-liability increases, partly offset by higher receivables, restricted cash, and vendor advances.
- Cash and cash equivalents were $39.2 million at June 30, 2017, up from $27.7 million at September 30, 2016. Restricted cash was $4.7 million, up from $0.9 million, largely due to cash collateral for customer-related bank guarantees.
- Working capital was $50.3 million; the current ratio was 1.8:1, compared with 2.2:1 at September 30, 2016. Management said available liquidity was sufficient to support operations for at least the next 12 months.
- Total debt was approximately $10.5 million, comprising $0.8 million of current maturities and $9.7 million of long-term debt. Debt included a $6.3 million property mortgage and $4.2 million of SoLayTec debt. The mortgage rate was 4.11% through September 2021; SoLayTec loan rates ranged from 4.5% to 12.5%.
- Total assets were $148.4 million and total liabilities were $80.3 million at June 30, 2017. The filing reports no off-balance-sheet arrangements.
Orders, outlook, and material risks
- Backlog was $125.7 million at June 30, 2017, up 97% year over year; quarterly new orders were $79.9 million. Solar represented $98.2 million of backlog. One customer accounted for 53% of total backlog.
- The January 2017 turnkey project (Phase I) began shipping in the third quarter, with further shipments expected in the fourth quarter. A meaningful portion of its revenue is expected to be recognized upon installation and acceptance in fiscal 2018. The April 2017 follow-on project (Phase II) was expected to ship in the first half of fiscal 2018, with similar revenue deferral. These timing expectations are not a formal earnings forecast.
- Management cited competitive pressure from lower-priced Chinese equipment vendors and plans to pursue cost reductions while developing advanced products. Solar demand and revenue remain exposed to industry cyclicality, project timing, and customer acceptance.
- Turnkey execution risks include delays, cost overruns, supplier and subcontractor fulfillment, site readiness, regulatory conditions, and operational strain. Backlog may be canceled or delayed and does not assure revenue or profitability.
- Unrecorded purchase obligations were $44.5 million, versus $11.3 million at September 30, 2016; approximately $7.6 million had been prepaid as vendor advances. The company said actual payments could be lower if agreements are renegotiated, canceled, or terminated.
- Customer concentration is also evident in receivables: one customer represented 32% of accounts receivable at June 30. Two customers represented 18% and 11% of nine-month revenue.
- Foreign exchange exposure includes $15.5 million of sales commitments denominated in non-functional currencies; management estimated that a 10% exchange-rate move could change gross profit on those orders by about $1.6 million. A 10% move could also cause approximately $5.0 million of other comprehensive income or loss on the company’s foreign net investment and advances.
- Tax uncertainty remains: approximately $3.9 million of unrecognized tax benefits and $2.6 million of accrued interest and penalties were reported at June 30, 2017. The filing also cites possible adverse effects from changes to trade agreements or international tax provisions.
- Subsequent to quarter-end, Tempress agreed to acquire the minority owners’ SoLayTec shares for a nominal fee; the owners waived repayment of loans. Management expected the approximately $2.3 million principal balance to be recorded as a capital contribution, with no income-statement impact.
- The Delaware stockholder litigation relating to the BTU merger was settled and dismissed with prejudice in 2016. The company said it did not believe pending matters would materially affect its financial position, results, or liquidity.
Most important facts for investors to verify
- Progress, costs, shipment schedules, and customer acceptance for the Phase I and Phase II turnkey projects, including when deferred revenue and profit will be recognized.
- Whether backlog converts to revenue and cash as expected, given that one customer represented 53% of backlog and 32% of receivables.
- Operating cash generation after customer deposits are used to fulfill orders, and the extent to which deposits and restricted cash affect available liquidity.
- Whether improved segment margins and profitability are sustainable amid solar-market cyclicality and price competition.
- The accounting and completion of the SoLayTec ownership and loan-waiver transaction, as well as the impact of tax positions and foreign-exchange movements.