Amtech Systems, Inc. (NASDAQ:ASYS) Q2 2024 Earnings Call Transcript May 8, 2024
Amtech Systems, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and welcome to the Amtech Systems Fiscal Second Quarter 2024 Earnings Call. Please note that this event is being recorded. I would now like to turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead.
Erica Mannion: Good afternoon, and thank you for joining us for Amtech Systems’ fiscal second quarter 2024 conference call. With me on the call today are Bob Daigle, Chairman and Chief Executive Officer and Lisa Gibbs, Financial Officer. After close of market today, Amtech released its financial results for the fiscal second quarter of 2024. The earnings release is posted on the company’s website at www.amtechsystems.com in the Investors section. Before we begin, I’d like to remind everyone that the safe harbor disclaimer in our public filings covers this call and our webcast. Some of the comments to be made during today’s call will contain forward-looking statements and assumptions that are subject to risks and uncertainties, including, but not limited to, those contained in our SEC filings, all of which are posted within the Investors section of our corporate website.
The company assumes no obligation to update any such forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of today. These statements are not a guarantee of future performance, and actual results could differ materially from current expectations. Among the important factors, which would cause actual results to differ materially from those in the forward-looking statements are changes in the technologies used by customers and competitors, change in volatility and the demand for products, the effect of changing worldwide political and economic conditions, including trade sanctions, the effect of overall market conditions, including the equity and credit markets and market acceptance risks, ongoing logistics, supply chain and labor challenges and capital allocation plans.
Other risk factors are detailed in our SEC filings, including our Form 10-K and Forms 10-Q. Additionally, in today’s conference call, we will be referring to non-GAAP financial measures as we discuss the second quarter financial results. You’ll find a reconciliation of these non-GAAP measures to our actual GAAP results included in the press release issued today. I will now turn the call over to Amtech’s Chief Executive Officer, Bob Daigle.
Bob Daigle: Okay. Thanks. Thank you, Erica. So good afternoon everyone and thank you for joining Amtech’s quarterly conference call. I’m pleased with the progress we’re making to improve our cost structure and position the company for strong operating results as markets recover. Revenue of $25.4 million exceeded the high end of our guidance range and more importantly we delivered adjusted EBITDA of $0.8 million with soft overall demand. Macroeconomic landscape for our target end markets remains mixed. Within the semiconductor industry, while we continue to experience softness in near-term demand for back-end packaging applications, we are seeing an uptick in nurture near-shoring activities in North America and at Chinese assets as they add capacity.
Within our materials and substrates end markets, we are seeing a similar balance in puts and takes, consumables demand particularly for silicon carbide semiconductor production has been lumpy due to customer buying patterns and softening in overall electric vehicle demand. However, we are seeing stronger demand for replacement parts and our foundry services. While we await the rebound in demand across broader markets, we continue to focus on optimizing our operations. Through the measures implemented over the past several quarters, we believe we have better aligned the size of our organization to support current market demand. This has resulted in near-term adjusted EBITDA profitability and will help us deliver strong operating results once the broader semiconductor market rebounds.
Moreover, we are actively leveraging contract manufacturing partnerships further enhance our operational efficiencies and provide more flexibility. For example, we showcased our first reflow oven assembled by one of our North American partners at a recent industry tradeshow. This milestone underscores our goal of creating greater flexibility throughout our manufacturing operations from components and assemblies to complete solutions optimize our fixed cost structure. And this positions us well to capitalize on the major investments being made in the semiconductor industry to expand regional manufacturing. We are also building on the actions taken last quarter to refined our pricing to address input cost inflation experienced in recent years.
New tool pricing is now more closely aligned with prevailing costs and we are beginning to see the improvement in the margin profile of our backlog. However, it will be several quarters before we see the full benefit due to existing backlog and parts of our business. In summary, we remain focused on optimizing the aspects of our business within our control as we anticipate the next cyclical upturn in our target markets. The success of our initiatives have resulted in a second consecutive quarter of positive adjusted EBITDA and operating cash flow. Despite the prevailing softness in the markets we serve. Looking ahead, Amtech remains well-positioned to capitalize on several secular trends that will drive demand for our products. Despite near term softness in the electric vehicle market, advanced mobility applications, which include both hybrid as well as full electric vehicles are expected to remain a primary driver of growth for the industry.
Within the broader semiconductor market, our tools play a critical role in the advanced packaging of processors used for and advanced high-performance computing, as well as artificial intelligence applications. Also, with the backdrop of the pandemic and global tensions, sizable investments are being made by governments and industry to build more resilient and secure semiconductor and electronic assembly supply chain. This will create additional opportunities for our tools across the electronics industry. I’m confident that the strategic initiatives we are implementing to enhance operational efficiency and reduce working capital, will generate significant shareholder value as our target markets regain momentum. And with that, I’ll turn it over to Lisa for further details on the second quarter.
Lisa Gibbs: Thank you, Bob. Net revenues increased 2% sequentially and decreased 24% from the second quarter of fiscal 2023. The sequential increase is primarily due to increased consumable sales in our Material & Substrates segment as customers update their buying patterns and adjust inventory levels. The decrease from prior year is primarily attributable to lower sales across most of our product portfolio due to a slowdown in the broader semiconductor market. We ended the quarter with $44.3 million in backlog, a decrease of $5.7 million from December 31, 2023. Our book-to-bill ratio as of March 31, 2024, was 0.8:1. As we have commented previously, our lead times were extending too long. And now with our contract manufacturers, our lead times are improving.
We are shipping out this equipment that was booked in some cases, several months over a year ago, which negatively impacted margins this quarter due to inflation over the past year. We’ve improved our lead times and our booking business with better margin profiles. We are also seeing margin improvement as a result of a product mix within our Material & Substrates segment, which had a 1:1 book to bill this quarter. GAAP gross margin was flat sequentially and decreased compared to the same prior year period. In our semiconductor segment, GAAP gross margin was negatively affected by product mix and increased material costs, both primarily attributed to shipments of our horizontal diffusion furnaces. GAAP gross margin in our Materials & Substrates segment increased sequentially and compared to the same year period due primarily to a more favorable product mix with increased consumable sales partially offset by lower equipment sales.
Selling, general and administrative or SG&A expenses decreased $0.3 million on a sequential basis and decreased $3.2 million compared to the prior year period. The sequential decrease is due primarily to reductions in labor expenses, lower commissions and shipping expenses. Compared to the same prior year period, the decrease is due primarily to $1.5 million of lower acquisition expenses to $8 million of lower amortization expense as well as reductions in labor expenses and lower commissions and shipping expenses. Research, development and engineering expenses decreased $0.7 million sequentially and decreased $0.6 million compared to the same prior year period due primarily to the timing of purchases related to specific projects in our semiconductor segment.
As you saw in our press release, during the second quarter of fiscal 2024 we sold our corporate headquarters building in Tempe, Arizona for a gain of $2.2 million. GAAP net income for the second quarter of fiscal 2024 was $1 million or $0.07 per share. This compares to GAAP net loss of $9.4 million or $0.66 per share for the preceding quarter and GAAP net income of $3.2 million or $0.23 per share in the second quarter of fiscal 2023. Non-GAAP net loss, which includes an adjustment to remove the gain on our building sales for the second quarter of fiscal 2024 was $0.2 million or $0.01 per share. This compares to non-GAAP net loss of $0.6 million or $0.04 per share for the preceding quarter and non-GAAP net income of $2.7 million or $0.19 per share for the second quarter of fiscal 2023.
As a result of our building sale, we generated net cash proceeds of $2.5 million. We used these proceeds to fund approximately $1.2 million of CapEx during the quarter, primarily for the ongoing build-out of BTUs new smaller print building, which we expect to generate approximately $800,000 of annualized savings. The remaining proceeds plus additional cash on hand, we used to pay down our revolving line of credit, which was paid in full as of March 31, 2024. Debt payments during the 3 months ended March 31, 2024, were $6.4 million. Our only remaining debt is our term loan was a balance of $4.2 million as of March 31, 2024. During the six months ended March 31, 2024, we generated $5.3 million in cash provided by operating activities primarily due to improvements in working capital.
Unrestricted cash and cash equivalents at March 31, 2024, were $13 million compared to $17 million at December 31, 2023. Net cash as of March 31, 2024, was $8.8 million compared to $7 million as of December 31, 2023. Now turning to our outlook. For the third fiscal quarter ending June 30 2024, we expect revenues in the range of $22 million to $25 million with adjusted EBITDA nominally positive, which includes some expenses and production downtime associated with BTU facility move. Although the near-term outlook for revenue and earnings remains challenging, we remain confident that the future prospects are strong for both consumables and equipment serving advanced mobility and advanced packaging applications. We took actions during the first and second quarters of fiscal 2024, which will reduce Amtech’s structural costs by approximately $6 million annually and better align product pricing with value.
These steps should significantly improve results and enhance profitability through market cycles. Operating results can be significantly impacted positively or negatively by the timing of orders, system shipments, statistical challenges and the financial results of semiconductor manufacturers. Additionally, the semiconductor equipment industries can be cyclical and inherently impacted by changes in market demand. Actual results may differ materially in the weeks and months ahead. A portion of Amtech’s results is denominated in RMB’s a Chinese currency. The outlook provided is based on an assumed exchange rate between the United States dollar and the RMB. Changes in the value of the RMB in relation to the United States dollar could cause actual results to differ from expectations.
I will now turn the call over to the operator for questions. Operator?
Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session [Operator Instructions] Your first question comes from Mark Miller of Benchmark. Your line is already open.
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