Amtech Systems, Inc. — Q3 FY2012 Form 10-Q
Business context and period: The quarter and nine-month periods ended June 30, 2012. Amtech designs, sells and installs capital equipment and consumables for solar, semiconductor and wafer manufacturing, and is developing a solar ion implanter. Its markets are cyclical; results are particularly sensitive to solar-equipment demand, shipment timing and customer acceptance.
Financial performance
Amounts below are in millions of dollars except per-share data. Prior-period comparisons are for the three or nine months ended June 30, 2011.
| Metric | Q3 FY2012 | Q3 FY2011 | Nine months FY2012 | Nine months FY2011 |
|---|---|---|---|---|
| Revenue | $24.3 | $71.9 | $70.6 | $186.8 |
| Gross profit / margin | $4.8 / 20% | $26.1 / 36% | $16.1 / 23% | $70.4 / 38% |
| Operating income (loss) | $(5.3) | $12.1 | $(13.1) | $33.0 |
| Net income (loss), consolidated | $(4.1) | $7.1 | $(11.2) | $19.5 |
| Net income (loss) attributable to Amtech | $(3.0) | $7.3 | $(8.9) | $19.8 |
| Basic loss per share attributable to Amtech | $(0.31) | $0.76 income | $(0.94) | $2.10 income |
- Revenue and margins: Q3 revenue fell 66%, chiefly on reduced solar-equipment shipments; solar revenue declined 75% to $15.2 million. Nine-month revenue fell 62%, with solar revenue down 74% to $41.4 million. Lower volume and factory utilization compressed margins. Q3 gross profit was also affected by $3.7 million of charges for excess and obsolete inventory, potential purchase-order cancellations and warranty-related items; corresponding nine-month charges totaled $5.1 million.
- Operating costs and unusual items: Q3 SG&A declined to $6.4 million from $12.0 million, but rose as a share of revenue to 27% from 17%. Net R&D expense increased to $3.7 million from $1.9 million in Q3 and to $9.7 million from $3.7 million year to date, in part for solar ion-implanter and other solar-process development. A $0.7 million impairment charge was recorded in Q2 FY2012; nine-month impairment expense was $0.688 million.
- Cash flow: Operating activities used $17.5 million in the first nine months of FY2012, versus providing $5.4 million a year earlier. Investing activities used $1.5 million; financing activities used $4.1 million, including $4.08 million to repurchase shares issued in connection with the Kingstone acquisition. Cash and cash equivalents declined by $25.1 million to $42.3 million; restricted cash was $3.3 million.
- Liquidity and debt: Working capital was $80.3 million, and the current ratio was 2.9:1 at June 30, 2012. Total liabilities were $44.3 million. The balance sheet does not show a conventional borrowings line; it reports $2.39 million of long-term income taxes payable. Management said available liquidity was adequate to support operations for at least 12 months.
Changes, outlook and risks
- Orders and backlog: Backlog was $35.6 million, down from $140.5 million a year earlier, including $26.1 million tied to solar customers versus $130.0 million. Q3 bookings were $6.1 million versus $13.5 million; nine-month bookings were $35.3 million versus $223.0 million. Management estimated about $10.0 million of orders would not be delivered within the next 12 months. One customer represented 25% of backlog. Backlog can be canceled or delayed and is not assurance of future sales or profit.
- Outlook: Management expected the solar-market downturn to continue for at least the next two quarters and said the timing of recovery was difficult to predict. It cited global solar manufacturing overcapacity, subdued customer capacity-expansion plans and fluctuating government subsidies. Management expected the worldwide effective tax rate to be adversely affected in 2012, principally because of valuation allowances related to Kingstone losses and development spending.
- Other exposures: Purchase obligations were $17.0 million, down from $47.2 million at September 30, 2011; actual payments could be lower if agreements are renegotiated, canceled or terminated. The company also had a contractual obligation to fund Kingstone solar-tool development. It expected approximately $5.0 million of income-tax payments during the remainder of calendar 2012. Management reported no material expected impact from ordinary-course litigation and no off-balance-sheet arrangements.
- Currency and concentration: The company recorded $5.4 million of foreign-currency translation losses in the nine-month period. Management estimated a 10% currency movement could change translation-related other comprehensive income or loss by approximately $7.1 million. Four customers individually accounted for 27%, 14%, 12% and 11% of Q3 revenue. Two customers represented 26% of trade receivables at quarter end.
- Controls: Management concluded disclosure controls were effective as of June 30, 2012 and reported no material change in internal control over financial reporting during the quarter. It reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether solar orders, shipments and customer acceptances recover, and whether the stated downturn extends beyond management’s near-term outlook.
- How much of the $35.6 million backlog converts to shipments and recognized revenue, given delays, cancellations and the $10.0 million delivery-timing estimate.
- Whether inventory, warranty and potential cancellation charges recur or increase as customer demand and capacity utilization remain weak.
- Cash consumption, expected tax payments and Kingstone development funding against management’s 12-month liquidity assessment.
- Customer and geographic concentration, currency exposure, and the assumptions underlying tax valuation allowances and deferred-revenue recognition.