Amtech Systems, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended September 30, 2018. The filing also reports fourth-quarter results; fiscal Q4 means the three months ended September 30, 2018. Amtech manufactures thermal-processing equipment, wafer-handling automation, and polishing products serving solar, semiconductor, and related markets.
Financial performance and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $176.4 million | $164.5 million |
| Gross profit / margin | $55.2 million / 31% | $51.9 million / 32% |
| Operating income | $1.9 million | $10.4 million |
| Net income attributable to Amtech | $5.3 million | $9.1 million |
| Diluted earnings per share | $0.35 | $0.68 |
| Cash provided by operating activities | $6.8 million | $11.8 million |
| Cash and cash equivalents at year-end | $58.3 million | $51.1 million |
| Working capital at year-end | $79.1 million | $71.1 million |
| Total debt at year-end | $8.3 million | $8.5 million |
Revenue increased 7%, but operating income fell substantially, reflecting lower Solar performance, a $7.0 million impairment charge, and $0.9 million in restructuring costs. Net income included a $2.9 million pretax gain from selling the remaining Kingstone investment and a $3.1 million benefit from resolving an uncertain tax position. Operating cash flow declined year over year. Investing activities provided $4.4 million, including $5.7 million of Kingstone sale proceeds; financing activities used $2.5 million, including $4.0 million of share repurchases.
Year-end restricted cash was $4.2 million, down from $24.6 million, primarily after restrictions on solar turnkey customer deposits were released. Total debt comprised $0.4 million current and $8.0 million long-term. The company stated that available liquidity was sufficient to support operations for at least the next twelve months. It reported no material off-balance-sheet arrangements.
Segments, period changes, and fourth quarter
- Solar: Revenue fell 5% to $82.5 million; segment operating loss was $7.1 million versus $6.1 million operating income in FY2017. The company recorded $5.7 million of goodwill impairment and $1.3 million of intangible-asset impairment in Solar.
- Semiconductor: Revenue rose 19% to $80.2 million; segment operating income increased to $11.8 million from $9.5 million.
- Polishing: Revenue rose 34% to $13.8 million; segment operating income increased to $3.7 million from $2.6 million.
- Orders and backlog: New orders declined 37% to $132.7 million, principally as Solar orders fell 72%. Backlog declined 50% to $51.1 million; Solar backlog fell 66% to $27.4 million. Backlog may be delayed or canceled and is not a guarantee of future sales or profit.
- Fiscal Q4: Revenue was $28.8 million, gross margin 29.5%, operating loss $8.8 million, and net loss attributable to Amtech $9.0 million, or $0.61 per diluted share. The quarter included the Solar impairments and restructuring charge.
Outlook, risks, and unusual items
- Management expects the Netherlands Solar restructuring, announced in July 2018, to reduce annualized operating costs by approximately $3.0 million after completion. The plan reduces the Solar workforce by approximately 35–40 employees, about 20%, and was expected to finish by the end of FY2019 Q3.
- Management described Solar as highly competitive, citing industry oversupply, price pressure, and lower-priced Chinese suppliers offering liberal payment terms and local service. It said significant Solar restructuring was needed to improve profitability and competitiveness, while emphasizing Semiconductor opportunities.
- The business is cyclical and depends on customer capital spending, capacity utilization, technology changes, and large system orders. Risks include turnkey project delays or overruns, order cancellations, customer acceptance and collection delays, supplier concentration, and inventory obsolescence.
- Exposure is concentrated geographically and by customer: China represented 53% of FY2018 revenue, and one customer represented 25% of revenue. One customer accounted for 23% of year-end accounts receivable.
- Amtech cited potential effects from international trade measures and tariffs, foreign currency movements, government support for solar, and changes in tax law. It expects to adopt the new revenue standard in FY2019; the affected non-routine equipment category represented less than 5% of FY2018 revenue, and the company anticipated that the change would generally increase revenue recognized at shipment. The adoption adjustment was still being evaluated.
- Subsequent events: CEO and President Fokko Pentinga stepped down effective December 6, 2018; Executive Chairman J.S. Whang became CEO. The separation agreement included an $864,000 severance payment, $458,500 for other amounts due, and accelerated vesting of 264,167 options. The board also approved a new share repurchase authorization of up to $4 million on November 27, 2018.
- The auditor issued an unqualified opinion on the financial statements and reported effective internal control over financial reporting. The company said pending legal matters were not expected to materially affect its financial position, results, or liquidity.
Important facts for investors to verify
- Whether Solar restructuring achieves the stated annualized savings and improves segment profitability.
- Whether the sharply lower Solar orders and backlog are replaced by demand in Semiconductor and Polishing.
- How much reported earnings and cash generation depend on the Kingstone gain, tax-position resolution, customer deposits, and other working-capital movements.
- Customer concentration, collection of receivables, and the timing and acceptance of large turnkey orders.
- The final effect of FY2019 revenue-standard adoption and the costs associated with the CEO transition and new repurchase program.