Amtech Systems, Inc. — Q1 FY2012 Form 10-Q
Reporting period: Three months ended December 31, 2011; compared with the three months ended December 31, 2010. Amtech designs and sells capital equipment and related products for solar, semiconductor, and wafer manufacturing. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 FY2012 | Q1 FY2011 |
|---|---|---|
| Revenue | $24.7 million | $53.7 million |
| Gross profit / margin | $7.2 million / 29% | $19.6 million / 36% |
| Operating income (loss) | $(1.8) million | $8.4 million |
| Net income (loss), consolidated | $(1.4) million | $5.0 million |
| Net income (loss) attributable to Amtech | $(0.9) million; $(0.09) per diluted share | $5.0 million; $0.52 per diluted share |
| Cash from operating activities | $(6.1) million | $(4.3) million |
SG&A was $6.3 million, or 25% of revenue, versus $10.4 million, or 19%. Net R&D expense rose to $2.8 million from $0.8 million. The tax benefit was $0.3 million, compared with tax expense of $3.3 million. The consolidated loss included a $0.6 million net loss attributable to noncontrolling interests.
Liquidity, balance sheet, and cash flow
- At December 31, 2011, cash and cash equivalents were $54.9 million and restricted cash was $6.9 million, versus $67.4 million and $6.6 million, respectively, at September 30, 2011. Restricted cash includes $4.0 million in escrow for ion-implant development.
- Working capital was $90.1 million; the current ratio was 2.5:1. Total assets were $181.3 million, total liabilities $63.7 million, and total equity $117.6 million.
- Cash declined $12.4 million during the quarter, including $6.1 million used in operations, $4.1 million used in financing (primarily a share repurchase), $0.5 million used for capital expenditures, and a $1.8 million adverse exchange-rate effect.
- The filing does not provide a clear conventional debt balance. It reports $11,000 of payments on long-term obligations during the quarter and $2.4 million of long-term income taxes payable.
- Purchase obligations were $32.7 million at quarter-end, down from $47.2 million at September 30, 2011. Management expected approximately $17 million of income tax payments during the remainder of FY2012.
Material changes and operating trends
- Revenue fell 54% year over year, primarily because solar-equipment shipments declined. Solar revenue was $15.6 million, down 66% from $45.9 million; higher semiconductor shipments and recognition of previously deferred revenue partly offset the decline.
- New orders were $11.1 million, versus $137.0 million a year earlier and $16.8 million sequentially. Backlog fell to $69.2 million from $172.9 million a year earlier; approximately $55.8 million related to solar customers. One customer represented 26% of backlog.
- Management cited solar-industry overcapacity, global economic conditions, and fluctuating government subsidies as factors slowing customer capacity expansion and the order pipeline. Backlog may be canceled or delayed and is not assurance of future sales or profit.
- Gross margin declined with lower volume and capacity utilization and product mix, including R&D systems sold to solar research institutes. Recognition of previously deferred profit partly offset the pressure: $4.9 million of net profit was recognized, compared with $5.1 million deferred in the prior-year quarter.
- R&D investment increased partly for the solar ion implanter and other solar manufacturing technologies. Amtech expects R&D expense to remain higher over the next two quarters.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance was provided. Management said available liquidity should support operations for at least 12 months, while noting that the growth strategy depends on access to additional capital on satisfactory terms.
- Management remained positive on the solar market’s long-term prospects but said the duration of the downturn was difficult to predict. The business serves cyclical markets and depends on product development and adapting to market conditions.
- Foreign-currency translation reduced comprehensive income and equity; the quarter included a $3.7 million translation loss in comprehensive income. Management also reported that a 10% currency move could affect the translation of its $84.2 million net investment in foreign operations by approximately $8.4 million.
- A $0.2 million uncertain tax position was resolved favorably. Unrecognized tax benefits were approximately $1.9 million at quarter-end. Management expected a higher worldwide effective tax rate in FY2012, principally due to valuation allowances associated with Kingstone’s ion-implanter development losses and lower anticipated revenue.
- Management said ordinary-course litigation was not expected to materially affect results or financial condition. No off-balance-sheet arrangements were reported. The company disclosed no material changes to previously reported risk factors.
- After quarter-end, Amtech amended its Executive Chairman’s employment agreement, including raising base salary to $400,000, and filed amended and restated Articles of Incorporation.
Important facts for investors to verify
- Whether solar demand, customer expansion plans, new orders, and backlog stabilize or continue to weaken; verify backlog conversion, cancellations, and customer concentration.
- Whether deferred revenue and profit are recognized as expected following installation and customer acceptance, and how that affects reported margins and cash conversion.
- Liquidity after planned tax payments, continued operating cash use, share repurchases, purchase commitments, and ion-implanter funding needs.
- Progress, costs, and commercial prospects for the ion implanter, including the recoverability of related deferred tax assets and other development investments.
- Foreign-currency exposure and the impact of exchange-rate movements on cash, backlog, earnings, and equity.