AMTECH SYSTEMS INC annual report, FY2013

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Amtech Systems, Inc. — FY2013 Form 10-K

Reporting period: Fiscal year ended September 30, 2013. The filing also reports fourth-quarter results. Amounts are in U.S. dollars; financial figures are in millions unless noted.

Business context

Amtech supplies thermal-processing, automation and PECVD equipment to solar and semiconductor manufacturers, and lapping and polishing machinery and consumables. It operates solar and semiconductor equipment and polishing supplies segments. Results are highly cyclical and equipment revenue is affected by customer acceptance and deferred-revenue timing.

Financial performance and liquidity

  • Revenue: $34.8, down 57% from $81.5 in FY2012. Solar revenue fell 61% to $17.4. Equipment-segment revenue decreased 64% to $26.4; polishing supplies revenue was essentially flat at $8.4.
  • Profitability: Gross profit was $4.3 versus $9.2; gross margin was 12.4% versus 11.3%. Amtech-attributable net loss was $20.1 ($2.11 per diluted share), compared with a $23.0 loss ($2.43 per share) in FY2012. Operating loss was $20.0 versus $33.0.
  • Fourth quarter: Revenue was $6.9, gross profit was $3.2, and Amtech-attributable net loss was $1.7, or $0.18 per share.
  • Cash flow: Operating cash use was $10.0, compared with $12.4 in FY2012. Investing cash use was $0.2 and financing cash use was $0.2. Cash and cash equivalents declined to $37.2 from $46.7.
  • Liquidity and obligations: Working capital was $42.9, down from $58.8; the current ratio was 2.0x versus 2.4x. Restricted cash was $5.1. The company described its balance sheet as having no debt; it reported $2.8 of long-term income-tax payables. Contractual obligations included $12.3 of purchase obligations, all due within one year, and $2.9 of operating leases.
  • Backlog: $26.8 at year-end versus $18.7 a year earlier. New orders were $43.6 versus $40.9. Two customers represented 53% and 13% of backlog.

Changes, unusual items and management outlook

  • The severe solar-market supply/demand imbalance and a semiconductor equipment downturn reduced sales and factory utilization. Management expected the solar imbalance and downturn to continue into 2014.
  • FY2013 included $3.7 of inventory write-downs and $0.9 of restructuring charges, principally severance. FY2012 included $12.8 of inventory write-downs and purchase-commitment losses and $5.4 of impairment charges. FY2013 had no impairment charge.
  • Lower SG&A and research spending reflected cost-control measures and reduced solar R&D activity. Net R&D expense was $6.6, down from $13.7. Management noted that a Chinese non-solar ion-implant development project could increase R&D spending; Kingstone had a $6.1 funding commitment, but Amtech said it had no obligation or plan to fund it.
  • Management said current cash and other liquidity sources were adequate for at least the next 12 months. The order pipeline remained slow apart from a recent large order for n-type cell technology and PECVD equipment. Backlog may be delayed or canceled and is not assurance of future sales or profit.
  • The tax provision was $1.9 despite a pretax loss, primarily reflecting valuation allowances on deferred tax assets in the Netherlands and China. Cash tax payments were $8.7.

Risks and other disclosures

  • Revenue is concentrated: Yingli represented 20% of FY2013 revenue; two customers accounted for 18% and 13% of receivables. A customer accounted for 20% of revenue in FY2013.
  • Key risks include industry cyclicality and solar overcapacity, dependence on government solar incentives, customer concentration and acceptance delays, competition (including lower-cost Asian suppliers), technology shifts, inventory obsolescence, supplier constraints, foreign-exchange exposure and reliance on key personnel.
  • The Netherlands multiemployer pension plan’s coverage ratio was 101.5%, below the 104.3% threshold cited in the filing; benefits had been reduced and employer contributions increased under a recovery plan.
  • The company reported no material pending legal proceedings. The auditor issued an unqualified opinion on the financial statements; management concluded disclosure controls and internal control over financial reporting were effective as of year-end.

Important facts for investors to verify

  • Whether FY2014 orders, shipments and customer acceptance convert the higher backlog into recognized revenue and cash, given cancellation risk and customer concentration.
  • Whether the solar market recovery and n-type/PECVD order activity offset continued weakness in conventional solar and semiconductor equipment demand.
  • Whether gross margins improve as inventory write-downs, low capacity utilization and deferred-profit timing change.
  • Cash burn, restricted-cash availability, near-term purchase obligations, customer collections and the adequacy of liquidity if losses persist.
  • Potential further tax valuation allowances, pension-plan changes, and the funding and cost implications of Kingstone’s development project.