AMTECH SYSTEMS INC quarterly report, Q3 FY2019

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Amtech Systems, Inc. — Form 10-Q Summary

Reporting period: Fiscal third quarter and nine months ended June 30, 2019. Amounts are in U.S. dollars; financial statement amounts are rounded to millions unless otherwise noted.

Business context

Amtech manufactures semiconductor and wafer-processing equipment, polishing machinery and consumables, and automation systems. Its continuing reportable segments are Semiconductor, SiC/LED and Automation. In fiscal Q2, the company began a plan to exit most of its Solar business; SoLayTec was sold on June 7, 2019, while Tempress remained held for sale.

Financial results and liquidity

  • Revenue: Continuing-segment revenue was $21.0 million in Q3, down 27% year over year, and $64.9 million for nine months, down 16%. Semiconductor revenue fell 31% in Q3 and 16% year to date; SiC/LED fell 14% and 13%, respectively.
  • Profitability: Q3 gross profit was $7.9 million (37% margin), versus $10.2 million (35%) a year earlier. Nine-month gross profit was $24.8 million (38%), versus $28.7 million (37%). Q3 operating income was $1.4 million, compared with $2.8 million; nine-month operating income was $3.3 million, compared with $7.2 million.
  • Net income and EPS: Q3 net income was $2.0 million, or $0.14 diluted per share, versus $5.0 million, or $0.33, in Q3 2018. Nine-month net loss was $6.0 million, or $0.42 per diluted share, versus net income of $14.3 million, or $0.94. Continuing-operations income was $0.9 million for Q3 and $2.2 million for nine months. Discontinued Solar operations contributed $1.2 million of Q3 income but a $8.1 million nine-month loss.
  • Cash flow: Operating cash flow was $0.4 million for nine months, compared with cash use of $20.6 million in 2018. Investing used $1.7 million and financing used $0.1 million. Cash, cash equivalents and restricted cash, including amounts in held-for-sale assets, totaled $59.7 million at period-end, down $2.8 million from fiscal year-end.
  • Liquidity and debt: Working capital was $76.3 million; the current ratio was 3.3:1, or 6.1:1 excluding held-for-sale balances. Continuing-operations current and long-term debt totaled approximately $5.6 million. Cash and cash equivalents on the balance sheet were $49.1 million, with $0.6 million restricted cash.
  • Orders and backlog: Q3 orders declined 26% to $16.3 million; nine-month orders declined 26% to $56.2 million. June 30 backlog was $17.2 million, down 26% year over year, including Semiconductor backlog down 33% and SiC/LED backlog up 95%.

Changes, outlook and risks

  • Management attributed weaker revenue primarily to semiconductor demand having peaked in fiscal 2018 and weakness in China, partly offset by stronger North American demand. The semiconductor market is cyclical; management cited SiC power devices and technology advances as longer-term opportunities.
  • Solar revenue was $5.3 million in Q3 versus $12.5 million a year earlier, and $19.6 million for nine months versus $70.6 million. The nine-month Solar loss included restructuring and disposal-related items. SoLayTec’s sale generated a reported gain of approximately $1.6 million; a $1.3 million tax benefit in discontinued operations also affected Q3 results.
  • Management was seeking a buyer for Tempress and estimated one-time sale costs of approximately $0.75 million, potentially higher depending on timing or price targets. It gave no assurance of a sale on acceptable terms and said failure to find a buyer could lead to other alternatives, including winding down or bankruptcy. The company did not intend to provide further funding to Tempress beyond amounts reflected in held-for-sale assets.
  • R2D Automation’s strategic fit remained under review; a disposal could result in a non-cash loss. The company stated that available liquidity should support operations for at least 12 months.
  • A customer terminated a turnkey Phase II contract and indicated an intention to pursue arbitration after settlement negotiations failed. Amtech removed the remaining work from backlog and reported no material financial-statement effect to date.
  • Other notable items include $2.991 million of inventory write-downs in the nine-month cash-flow reconciliation and $1.072 million of restructuring charges, primarily related to the former CEO’s departure and office consolidation. Q3 2018 comparisons included a $2.883 million gain on sale of other assets.
  • There was no formal financial guidance in the filing. Management cautioned that backlog can be cancelled or delayed and is not assurance of future sales or profit. It reported no material changes to previously disclosed risk factors other than the risk of not completing a Solar-assets sale. Disclosure controls were assessed as effective.

Important facts for investors to verify

  • Progress, terms, costs and timing of the Tempress sale, including any effect of accumulated other comprehensive loss on disposal results.
  • Whether semiconductor demand, China market weakness and lower orders continue, and how backlog converts into revenue.
  • Cash generation and liquidity after separating continuing operations from Solar assets and liabilities held for sale.
  • Potential outcome and financial exposure from the terminated Phase II contract arbitration.
  • Drivers of the nine-month Solar loss, inventory write-downs, tax benefits and other disposal-related items when assessing recurring earnings.