Amtech Systems, Inc. — Q3 FY2014 Form 10-Q
Reporting period: Quarter and nine months ended June 30, 2014. Amtech designs and sells equipment and consumables for solar, semiconductor, wafer and polishing markets. Its two segments are solar and semiconductor equipment, and polishing supplies and equipment. The company describes its markets as cyclical; solar-sector supply/demand imbalances continued to weigh on demand.
Financial results
| Metric | Q3 FY2014 | Q3 FY2013 | Nine months FY2014 | Nine months FY2013 |
|---|---|---|---|---|
| Revenue | $9.2 million | $10.4 million | $36.7 million | $27.9 million |
| Gross profit (loss) | $1.6 million | ($2.7 million) | $9.1 million | $1.2 million |
| Gross margin | 18% | (26%) | 24% | 4% |
| Operating loss | ($3.9 million) | ($10.2 million) | ($8.9 million) | ($18.5 million) |
| Net loss | ($5.2 million) | ($12.7 million) | ($10.6 million) | ($19.6 million) |
| Net loss per diluted share | ($0.53) | ($1.27) | ($1.01) | ($1.93) |
Nine-month revenue rose 32%, primarily with increased semiconductor equipment sales; Q3 revenue declined 12%, mainly due to equipment revenue deferrals. Solar and semiconductor equipment revenue was $6.8 million in Q3, down 20%, while polishing segment revenue rose 23% to $2.4 million. For nine months, segment revenue was $29.6 million (up 37%) and $7.1 million (up 13%), respectively. The solar and semiconductor segment remained loss-making; polishing supplies and equipment reported operating income of $0.7 million for Q3 and $1.6 million for nine months.
Gross-profit improvement versus 2013 partly reflects the prior-year $4.4 million Q3 inventory write-down. Nine-month 2014 gross margin also benefited from use of $2.2 million of previously written-down inventory and $1.0 million of revenue from a canceled sales order. The company deferred $1.9 million of profit in Q3 and $6.2 million for nine months, versus net recognition of previously deferred profit of $0.8 million and $6.1 million in the comparable periods.
Cash, liquidity and obligations
- Cash and cash equivalents were $31.6 million at June 30, 2014, down $5.6 million from September 30, 2013; restricted cash was $3.1 million. Working capital was $36.0 million and the current ratio was 2.0:1.
- Nine-month operating cash use was $6.8 million; investing cash use was $0.2 million, primarily capital expenditures. Financing provided $1.2 million, mainly from stock-option exercises.
- Total liabilities were $38.1 million. The balance sheet does not separately report borrowings or an interest-bearing debt balance. Current income taxes payable were $6.0 million, with expected U.S. tax payment in FY2015.
- Purchase obligations were $9.3 million at June 30, 2014. Management stated that available liquidity was sufficient to support operations for at least the next 12 months.
Outlook, risks and notable items
- No specific revenue or earnings guidance was provided. Management said solar customers had slowed or postponed capacity expansion and that the timing of a broader market recovery was difficult to predict. Backlog was $39.4 million, up 59% year over year, but is subject to customer cancellation or delay and includes shipped orders with deferred revenue. Quarterly bookings were $17.9 million, compared with $20.7 million a year earlier; two customers represented 20% and 19% of backlog.
- New PECVD and ion-implant systems are treated as new technology for revenue recognition; revenue is deferred until customer acceptance criteria are met. The company is developing ion-implant technology, with research spending partly offset by government grants. Grant timing may cause R&D expense fluctuations.
- SG&A included a $1.3 million nine-month bad-debt expense associated with customers experiencing financial difficulties; collection efforts and service negotiations were ongoing. The allowance for doubtful accounts was $3.0 million, versus $0.6 million at September 30, 2013. Two customers represented 24% and 19% of accounts receivable.
- The tax valuation allowance increased by $3.0 million during the nine months, primarily for losses in China, the Netherlands and France. Income-tax expense was $1.9 million despite the consolidated pretax loss; no tax benefit was recognized for certain loss jurisdictions.
- Tempress agreed to contribute $1.4 million over four years to a joint R&D project with the Energy Research Centre of the Netherlands. Management said it had no obligation or plan to fund Kingstone’s separate project commitments in China.
- Management reported no material changes to previously disclosed risk factors and no material expected impact from ordinary-course litigation. Disclosure controls were deemed effective; the company described added training, checklists and review procedures for revenue recognition.
Important facts for investors to verify
- Whether deferred new-technology revenue and profit convert to recognized sales after installation and customer acceptance.
- Whether backlog ships on schedule and is profitable, given cancellation rights, customer concentration and deferred orders.
- Customer credit quality, collections, and the adequacy of the increased doubtful-account allowance.
- Cash burn, the timing of the $6.0 million tax payment, and the ability to maintain liquidity while funding development and contractual commitments.
- Progress and economics of ion-implant development, including grant funding, acceptance milestones and any resulting R&D volatility.