Amtech Systems, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2017. Unless otherwise noted, amounts are in U.S. dollars. The company manufactures capital equipment and related products for solar, semiconductor, and polishing markets.
Financial results and position
| Metric | Q1 FY2018 | Q1 FY2017 |
|---|---|---|
| Revenue | $73.6 million | $29.1 million |
| Gross profit / margin | $20.3 million / 28% | $8.4 million / 29% |
| Operating income (loss) | $7.8 million | $(0.2) million |
| Net income (loss) attributable to Amtech | $6.5 million; $0.44 basic EPS, $0.42 diluted EPS | $(0.1) million; approximately $(0.00) per share |
| Operating cash flow | $0.3 million | $(3.5) million |
- Revenue increased 153% year over year. Solar revenue rose 331% to $49.2 million, semiconductor revenue rose 33% to $20.9 million, and polishing revenue rose 75% to $3.5 million.
- Gross margin eased to 28% from 29%. Solar gross margin improved to 23% from 14%; semiconductor margin declined to 36% from 39%; polishing margin improved to 44% from 37%.
- Cash and cash equivalents were $52.7 million at December 31, 2017, versus $51.1 million at September 30, 2017. Restricted cash was $9.9 million, down from $24.6 million. Working capital was $79.7 million and the current ratio was 2.3:1.
- Total debt was $8.6 million, comprising $0.4 million current maturities and $8.2 million long-term debt, compared with $8.5 million at September 30, 2017.
- Total assets were $173.1 million and total liabilities were $74.2 million at quarter-end. The company reported no material off-balance-sheet arrangements.
Material changes and operating developments
- The increase in revenue was primarily driven by shipments for Phase II of a large solar turnkey project; those systems shipped during the quarter. Management noted results are sensitive to the timing of large system orders and customer acceptance.
- One customer represented 50% of quarterly revenue. Two customers represented 36% and 12% of accounts receivable at quarter-end. China accounted for 71% of revenue, up from 26% a year earlier.
- Backlog was $65.9 million, up 28% from $51.5 million a year earlier. Quarterly new orders were $37.3 million, versus $34.7 million; Solar orders were $7.3 million, versus $15.9 million.
- Operating cash flow was modest despite net income: working-capital movements included a $29.0 million decrease in customer deposits and accrued liabilities, partly offset by a $14.9 million release of restricted cash. Management said cash was generated by earnings but affected by the turnkey project’s deferred revenue and restricted customer payments.
- Unrecorded purchase obligations were $26.4 million, down from $34.4 million at September 30, 2017, primarily as commitments declined while the first two solar project phases were completed.
Outlook, risks, and unusual items
- The filing gives no quantified revenue or earnings guidance. Management said it believes available liquidity is sufficient to support operations for at least the next 12 months, while noting growth depends partly on access to additional capital on satisfactory terms.
- Management described solar and semiconductor equipment markets as cyclical and volatile. Solar industry oversupply and competition from lower-priced Chinese equipment vendors may pressure pricing and limit expansion opportunities. Large-order timing, completion of turnkey projects, customer delays or cancellations, and final acceptance also affect results and cash collection.
- Gross profit of $2.1 million was deferred in the quarter; gross profit of $0.3 million previously deferred was recognized in the prior-year quarter. Revenue recognition for certain equipment depends on installation, acceptance, or other criteria.
- The Tax Cuts and Jobs Act was enacted during the quarter. The company recorded a minimal net tax-provision effect from remeasuring deferred tax items, but had not yet estimated the one-time foreign earnings repatriation tax. Related tax accounting remained provisional, with completion expected by the end of fiscal 2018.
- The quarter’s income tax provision was $1.2 million, an effective rate of 16.1%; it included $1.4 million of deferred tax assets realized as a discrete item. The company continued to maintain valuation allowances on substantially all net deferred tax assets in relevant jurisdictions.
- Other disclosed exposures include $4.3 million of unrecognized tax benefits and $2.7 million accrued for potential related interest and penalties. The company’s estimated EPA Superfund liability was less than $0.1 million, supported by a $0.2 million letter of credit. Management stated it believed provisions for probable and estimable legal losses were adequate, while noting litigation outcomes could affect results or liquidity.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter. No material changes to previously reported risk factors were identified apart from the U.S. tax-law risk and matters discussed in the overview.
Important facts for investors to verify
- Whether the large solar turnkey project is completed and accepted as scheduled, and how remaining deferred revenue, deferred profit, and restricted cash convert into recognized sales and available cash.
- Whether the $65.9 million backlog converts to shipments and profitable revenue; backlog orders may be delayed or canceled and do not assure future sales or profit.
- How customer concentration, particularly the customer representing 50% of quarterly revenue, affects collections, receivables, and future results.
- The final accounting and cash-tax effects of the Tax Cuts and Jobs Act, including the still-unestimated foreign earnings transition tax.
- Whether operating cash generation improves as customer deposits and project-related working-capital balances change, and whether liquidity remains adequate for planned growth and commitments.