Amtech Systems, Inc. — Q2 FY2017 Form 10-Q
Reporting period: Three and six months ended March 31, 2017. Amtech manufactures equipment and related products for solar, semiconductor, and polishing markets. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Financial performance
| Metric | Q2 FY2017 | Q2 FY2016 | Six months FY2017 | Six months FY2016 |
|---|---|---|---|---|
| Revenue | $32.9 | $22.5 | $62.1 | $44.6 |
| Gross profit / margin | $8.4 / 25% | $6.0 / 27% | $16.8 / 27% | $12.0 / 27% |
| Operating loss | $(1.4) | $(3.6) | $(1.6) | $(7.5) |
| Net loss attributable to Amtech | $(1.4) | $(1.5) | $(1.5) | $(5.5) |
| Loss per share attributable to Amtech | $(0.11) | $(0.11) | $(0.11) | $(0.42) |
- Q2 revenue grew 47%; six-month revenue grew 39%. All three segments increased revenue. Six-month segment revenue was Solar $28.0 million, Semiconductor $29.1 million, and Polishing $5.0 million.
- Q2 gross margin fell to 25% from 27%, principally because Solar profit was deferred rather than recognized; Semiconductor margin improved with volume, mix, and capacity utilization. Six-month margin was 27% in both periods.
- SG&A was $8.3 million in Q2 and $15.3 million for six months. Net R&D expense was $1.5 million and $3.2 million, respectively, down 29% for both comparable periods.
- The prior-year periods included a $2.6 million gain from selling Kingstone sales and service rights; FY2017 had no comparable gain. Six-month equity-method investment results shifted from $0.7 million income to a $0.1 million loss.
Cash flow, balance sheet, and debt
- Six-month operating cash flow was $11.6 million, versus $6.4 million used in the prior year. The main source was a large Solar customer deposit, partly offset by vendor advances and increased restricted cash. Investing cash use was $0.2 million; financing cash use was $0.1 million.
- Cash and cash equivalents were $38.9 million at March 31, 2017, up from $27.7 million at September 30, 2016; restricted cash was $2.6 million, up from $0.9 million. Working capital was $44.6 million versus $44.9 million; the current ratio was 1.8:1 versus 2.2:1.
- Total debt was approximately $10.1 million: $0.9 million current and $9.3 million long-term. Debt includes a $6.4 million mortgage at 4.11% through September 2021 and $3.8 million of SoLayTec debt with rates of 4.5%–12.5% and maturities from FY2017 to FY2021.
- Purchase obligations were $29.1 million, compared with $11.3 million at September 30, 2016; approximately $8.0 million had been prepaid as vendor advances. No off-balance-sheet arrangements were reported.
Orders, outlook, and risks
- Backlog was $87.4 million, up 30% year over year; Q2 orders were $68.2 million versus $45.0 million. One customer represented 51% of backlog. One customer accounted for 19% of six-month revenue, and two customers represented 13% and 11% of receivables.
- The January 2017 Solar turnkey Phase I order is expected to ship in FY2017 Q3 and Q4; a meaningful portion of revenue is expected to remain deferred until installation and acceptance in FY2018. The April 2017 Phase II order was not included in March 31 backlog and is expected to ship in the first half of FY2018, also with revenue deferrals.
- Management said solar manufacturers’ capacity expansions supported the large turnkey orders, while Chinese equipment suppliers’ lower prices and liberal payment terms increased competition. Management plans continued product development and cost reductions. Backlog may be canceled or delayed and is not assurance of future sales or profit. The filing gives no specific financial forecast or quantified guidance.
- Management stated that available liquidity should support operations for at least the next 12 months. Key risks include cyclical solar and semiconductor markets, turnkey project execution and cost overruns, customer acceptance delays, supplier constraints, foreign exchange exposure, and possible changes to trade agreements or international tax policy.
- Revenue recognition depends in some cases on installation or customer acceptance; delays can defer revenue and cash collection. At March 31, deferred profit was $5.0 million. A 10% currency move could change gross profit on foreign-currency sales commitments by approximately $1.5 million.
- The company maintained valuation allowances on substantially all net deferred tax assets. Unrecognized tax benefits were approximately $3.9 million, with accrued interest and penalties of approximately $2.5 million. Management reported disclosure controls as effective and no material changes in internal control.
Important facts for investors to verify
- Timing and customer acceptance of Phase I and Phase II turnkey orders, and the resulting revenue, margin, and cash-flow deferrals.
- Whether the $68.2 million quarterly order intake and $87.4 million backlog convert to shipments and profitable revenue, given customer concentration and cancellation risk.
- Execution against $29.1 million of purchase obligations and the extent to which customer deposits fund supplier commitments.
- Solar segment profitability and the sustainability of improved Semiconductor results as product mix, utilization, and market cycles change.
- Liquidity and tax-asset assumptions, including the valuation allowance, uncertain tax positions, and effects of foreign exchange movements.