Amtech Systems, Inc. — Q2 FY2014 Form 10-Q
Reporting period: Three and six months ended March 31, 2014; balance-sheet comparisons are with September 30, 2013. Amtech designs and sells capital equipment and related products for solar, semiconductor, wafer, and polishing markets.
Financial performance and position
| Metric | Q2 FY2014 | Q2 FY2013 | Six months FY2014 | Six months FY2013 |
|---|---|---|---|---|
| Revenue | $12.7 million | $8.1 million | $27.5 million | $17.5 million |
| Gross profit / margin | $2.9 million / 23% | $2.5 million / 30% | $7.4 million / 27% | $3.8 million / 22% |
| Operating loss | $4.5 million | $3.5 million | $5.0 million | $8.2 million |
| Net loss attributable to Amtech | $3.8 million | $2.1 million | $4.5 million | $6.3 million |
| Loss per share | $0.39 | $0.22 | $0.47 | $0.66 |
- Q2 revenue increased 57% year over year, led by solar and semiconductor equipment (+66%); polishing supplies revenue rose 26%. First-half revenue also increased 57%.
- Q2 gross margin fell to 23% from 30%, partly because the prior-year quarter included substantially more recognition of previously deferred profit. First-half margin improved to 27% from 22%, reflecting higher utilization, cost controls, use of previously written-down inventory, and improved polishing-segment performance.
- Cash and cash equivalents were $36.7 million, versus $37.2 million at September 30; restricted cash was $2.3 million, versus $5.1 million. Working capital was $40.4 million, and the current ratio was 2.2:1.
- Operating cash use was $1.9 million in the first half, compared with $7.8 million used a year earlier. Investing cash use was $0.2 million; financing provided $1.2 million, principally from stock-option exercises. Cash declined $0.5 million overall.
- Total liabilities were $38.0 million. The balance sheet does not separately identify interest-bearing debt; the filing does not provide a clear debt figure. Purchase obligations were $13.6 million.
Material changes and operating developments
- Solar and semiconductor equipment revenue rose with improved demand, a large shipment of n-type cell technology, and an upturn in semiconductor customers’ capital-equipment purchases. Solar-market sales were $6.1 million for Q2 and $12.7 million for the first half.
- Polishing supplies growth reflected demand for polishing templates, supported by demand for sapphire substrates used in LED lighting and mobile devices.
- First-half order backlog more than doubled year over year to $31.0 million; quarterly bookings were $21.5 million, more than twice the prior-year quarter. Backlog includes deferred revenue and can be canceled or delayed; it is not assurance of future sales or profit.
- SG&A rose 33% in Q2 and 14% for the first half. A $1.4 million bad-debt expense related to customers experiencing financial difficulties was a key driver; collection and service negotiations were ongoing. The allowance for doubtful accounts increased to $3.2 million from $0.6 million.
- Deferred profit increased to $5.4 million from $3.1 million. Revenue recognition depends on shipment, installation, and customer acceptance; revenue for PECVD equipment was deferred under the company’s new-technology policy.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance was provided. Management said it expects available liquidity to support operations for at least the next twelve months.
- Management cautioned that solar-market supply/demand imbalance and global economic conditions continue to pressure sales and have led customers to slow or postpone capacity expansions; timing of market recovery is difficult to predict. The industries served are cyclical.
- Ion-implant development may increase R&D spending. A joint project with ECN includes a planned $1.4 million equipment sale and a $1.4 million Tempress contribution over the project period; acceptance was expected in the second half of FY2014. Amtech stated it had no obligation or plan to fund Kingstone’s separate China project commitments.
- Amtech reported that disclosure controls were ineffective because of a material weakness involving misapplication of its revenue-recognition policy to a non-standard sales contract. The filing describes planned training, revised checklists and forms, and additional review procedures, but does not quantify the financial impact of the identified weakness.
- Tax valuation allowance increased by $1.2 million for losses in China and the Netherlands. Unrecognized tax benefits were approximately $1.6 million, with accrued interest and penalties of approximately $1.4 million.
- Management said ordinary-course litigation was not expected to have a material impact. Foreign-currency movements pose exposure; a 10% currency change could affect other comprehensive income or loss by approximately $3.9 million based on foreign net investment.
Important facts for investors to verify
- The nature, accounting treatment, and any eventual correction or quantified effect of the non-standard sales-contract revenue-recognition control weakness.
- Whether the $31.0 million backlog converts to shipments, customer acceptance, recognized revenue, and profitable orders, given cancellation and delay rights.
- Recoverability of receivables and the adequacy of the $3.2 million doubtful-account allowance, including outcomes of customer collection efforts.
- Timing and economics of deferred revenue and profit, especially PECVD and other new-technology installations and customer acceptances.
- Cash conversion and working-capital trends, including receivables, customer deposits, tax refunds/payments, and the $13.6 million of purchase obligations.
- Progress and funding requirements for ion-implant development, and whether solar and semiconductor demand improves as management expects.