Amtech Systems, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2011. The company supplies thermal processing and related equipment, consumables and services, primarily to solar and semiconductor manufacturers. Unless otherwise noted, financial amounts below are in millions of dollars.
Financial performance
| Metric | Three months ended June 30, 2011 | Prior-year quarter | Nine months ended June 30, 2011 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $71.9 | $43.1 | $186.8 | $74.6 |
| Gross profit / margin | $26.1 / 36% | $15.8 / 37% | $70.4 / 38% | $25.1 / 34% |
| Operating income / margin | $12.1 / 17% | $6.4 / 15% | $33.0 / 18% | $7.0 / 9% |
| Net income attributable to Amtech | $7.3 | $3.9 | $19.8 | $4.2 |
| Diluted EPS | $0.74 | $0.42 | $2.03 | $0.45 |
| Operating cash flow | Not presented by quarter | $5.4 | $5.9 |
Quarterly revenue grew 67%; nine-month revenue grew 150%, principally on higher solar-equipment shipments. Solar revenue was $60.7 million for the quarter and $159.7 million for the nine months. Quarterly gross margin slipped one percentage point, reflecting higher field-service and material costs; nine-month margin improved with greater capacity utilization. Nine-month R&D expense, net of grants, rose to $3.7 million from $1.3 million.
Financial position and liquidity
- At June 30, cash and cash equivalents were $60.2 million and restricted cash was $13.0 million, versus $56.8 million and $6.2 million, respectively, at September 30, 2010.
- Working capital was $88.4 million; the current ratio was 1.9:1, down from 2.3:1 at September 30, 2010. The company attributed the decline to working-capital growth as it built inventory for backlog.
- Nine-month cash from operations of $5.4 million was offset by $5.6 million of investing cash outflow, including $4.5 million of capital expenditures and $1.1 million of acquisition cash consideration. Financing provided $2.0 million; exchange-rate movements added $1.7 million to cash.
- The balance sheet does not present a conventional long-term borrowing balance. It reports $2.1 million of long-term income taxes payable. Acquisition-related notes, escrow funding and other commitments are described below.
Material changes and significant items
- Backlog reached $140.5 million, up from $81.1 million a year earlier, including $130.0 million from solar customers. However, quarterly new orders fell to $13.5 million from $44.7 million; nine-month orders rose to $223.0 million from $138.0 million. Management said the order pipeline had recently slowed amid solar-cell production overcapacity and fluctuating government subsidies. Backlog may be canceled or delayed and is not assurance of future sales or profit.
- In February 2011, Amtech acquired a 55% interest in Kingstone, which owns a Shanghai-based ion-implant technology business. Consideration was $9.3 million; the company recorded $8.4 million of goodwill, $3.2 million of acquired intangible assets and $6.7 million of noncontrolling interest. Acquisition costs of $0.9 million were expensed.
- Amtech deposited $3.7 million into escrow in connection with the Kingstone stock purchase note and $4.0 million into escrow for a planned Solar Tool development loan. Further payment or funding obligations may be relieved if specified development milestones or termination events occur. Restricted cash also includes $5.9 million related to Kingstone.
- Purchase obligations were $66.4 million, up from $40.1 million at September 30, 2010, largely reflecting orders and inventory requirements. The company reported no off-balance-sheet arrangements.
Outlook, risks and contingencies
No specific revenue or earnings guidance was provided. Management expected solar-tool development to significantly increase R&D spending over the next two years and said liquidity was believed sufficient to support operations. The business is exposed to cyclical solar and semiconductor markets, technological change, product acceptance and customer order cancellations. Solar overcapacity and variable subsidy policies were cited as pressures on the order pipeline. Solar customers accounted for most sales, and China represented 65% of nine-month revenue.
Three customers individually represented 19%, 18% and 16% of quarterly revenue; three customers accounted for 22%, 17% and 11% of backlog. Three customers represented 19%, 15% and 10% of trade receivables. Foreign-exchange exposure includes a $95.4 million net investment in foreign operations; management estimated a 10% currency move could produce an approximately $9.5 million translation adjustment. The company was under IRS examination for fiscal 2009 and reported $2.1 million of unrecognized tax benefits. Management said ordinary-course litigation was not expected to materially affect results or financial condition. Disclosure controls were assessed as effective, with no material change in internal controls reported.
Important facts for investors to verify
- Whether the sharp quarterly order slowdown persists and how cancellations or delays affect backlog conversion.
- Whether customer acceptance, installation timing and deferred profit (which rose to $26.2 million) affect reported revenue and cash collection.
- Progress, funding requirements and milestone terms for Kingstone and the Solar Tool, including the preliminary purchase-price valuation.
- Inventory, receivables and restricted-cash growth, alongside operating cash flow that was slightly below the prior-year period.
- Customer concentration, foreign-exchange sensitivity, tax exposures and the effect of anticipated higher R&D spending on margins.