Amtech Systems, Inc. — Q3 FY2013 Form 10-Q
Reporting period: Quarter and nine months ended June 30, 2013. Amounts below are U.S. dollars; financial statement figures are in millions unless otherwise noted.
Business context and results
Amtech supplies thermal-processing and related equipment, parts and services to solar, semiconductor, wafer and other markets, and manufactures polishing equipment and supplies. Its markets are cyclical. Management said solar-industry overcapacity and a semiconductor equipment downturn reduced demand.
| Metric | Q3 FY2013 | Q3 FY2012 | Nine months FY2013 | Nine months FY2012 |
|---|---|---|---|---|
| Revenue | $10.4 | $24.3 | $27.9 | $70.6 |
| Gross profit (loss) | $(2.7) | $4.8 | $1.2 | $16.1 |
| Gross margin | (26)% | 20% | 4% | 23% |
| Operating loss | $(10.2) | $(5.3) | $(18.5) | $(13.1) |
| Net loss attributable to Amtech | $(12.1) | $(3.0) | $(18.4) | $(8.9) |
| Basic and diluted loss per share | $(1.27) | $(0.31) | $(1.93) | $(0.94) |
Financial position, cash flow and liquidity
- At June 30, 2013, cash and cash equivalents were $38.8 million and restricted cash was $5.1 million, versus $46.7 million and $4.6 million, respectively, at September 30, 2012. Working capital was $44.4 million, down from $60.2 million; the current ratio was 2.3:1 versus 2.4:1.
- Total assets were $103.5 million and total liabilities $36.0 million. The balance sheet presents no borrowings as a separate debt line; the filing does not provide a clear debt total. Long-term income taxes payable were $2.4 million.
- Cash used in operating activities for the nine months was $8.0 million, compared with $17.5 million in the prior-year period. Investing cash use was $0.2 million; there were no financing cash flows. Cash declined by $7.9 million over the period.
- Purchase obligations were $7.5 million, down from $12.1 million at September 30, 2012. Management said liquidity sources were sufficient to support operations for at least 12 months.
Material changes and management commentary
- Revenue fell 57% in the quarter and 61% year to date, primarily because of lower equipment shipments to solar and semiconductor customers and reduced recognition of previously deferred revenue. Solar revenue was $6.5 million in the quarter versus $15.2 million a year earlier, and $14.6 million year to date versus $41.4 million.
- Quarterly gross margin turned negative. Management cited $4.4 million of quarterly inventory write-downs, lower solar furnace selling prices, underused manufacturing capacity and lower recognition of deferred profit. Cost-control efforts reduced SG&A and R&D, but did not offset the revenue and margin pressure.
- Backlog at June 30 was $24.8 million versus $35.6 million a year earlier. New orders in the quarter were $20.7 million versus $6.1 million. One customer represented 55% of backlog; backlog may be delayed or cancelled and is not assurance of future sales or profits.
- The filing reports inventory write-downs of $4.4 million for Q3 but $4.1 million for the nine-month period. The quarter amount exceeds the year-to-date amount; the filing text does not explain this apparent inconsistency.
Outlook, risks and unusual items
- No specific financial guidance is provided. Management expected the solar downturn and slow order pipeline to continue into fiscal 2014, citing industry overcapacity, weak module demand, possible lower subsidies and trade-related uncertainty. Semiconductor demand was also described as cyclical and weak.
- Amtech recorded income tax expense of $2.6 million for Q3 and $1.3 million year to date despite pre-tax losses. The filing attributes this primarily to valuation allowances on deferred tax assets, including a $4.7 million allowance related to the Netherlands; it also describes valuation allowances in China.
- In July 2013, the company paid approximately $8.7 million of Dutch taxes and interest and expected a refund of about $7.3 million by December 31, 2013. It also expected approximately $5.7 million of U.S. income tax payments in fiscal 2014 and reported receiving $6.8 million of customer deposits in July.
- Kingstone began a China development project for non-solar ion implanters and received $2.6 million in grant funds. It must have $6.1 million of its project commitment in place by July 2014. Amtech said it has no obligation or plan to fund the commitment, but Kingstone will need to explore capital sources and funding is not assured.
- Stock-option vesting changes and cancellations resulted in $1.2 million of additional unearned compensation expense in Q3. Nine-month restructuring charges were $0.9 million, primarily severance. Foreign-currency translation produced a $0.6 million gain year to date, compared with a $5.4 million loss in the prior-year period.
- Customer concentration is material: two customers represented 48% and 11% of Q3 revenue; two customers accounted for 44% of receivables. The filing reports no material changes to previously disclosed risk factors, no legal proceedings, and effective disclosure controls as of June 30.
Key facts for investors to verify
- Reconcile the reported Q3 inventory write-down of $4.4 million with the nine-month amount of $4.1 million.
- Assess whether the $24.8 million backlog—particularly the order comprising 55% of backlog—ships, remains in place and produces expected margins.
- Track cash use, working capital, tax payments and the expected Dutch tax refund, as well as the company’s stated 12-month liquidity outlook.
- Monitor Kingstone’s ability to secure its required project funding by July 2014 and the potential effect of development spending on Amtech.
- Evaluate whether demand, capacity utilization, selling prices and deferred-revenue recognition improve, and whether further inventory write-downs or tax valuation allowances are needed.