Amtech Systems, Inc.

Good day, and welcome to the AMTEC Systems Fiscal Fourth Quarter and Year-End 2021 Earnings Conference Call. Please note that this conference is being recorded. I would now like to turn the call over to Erica Mannion of Sapphire Investor Relations.

Good afternoon, and thank you for joining us for AMTEC Systems Fiscal Fourth Quarter and Full Year 2021 Conference Call. With me on the call today are Mike Wang, Chief Executive Officer, Lisa Gibbs, Chief Financial Officer, Paul Lancaster, Vice President of Sales and Customer Service. After close of market today, Amtech released its financial results for the fiscal fourth quarter and full year of 2021. The earnings release is posted on the company's website at www.amtechsystems.com in the Investors section. During today's call, management will make forward-looking statements. All such forward-looking statements are based on information available as of this date, and the company assumes no obligation to update any such forward-looking statements. These statements are not a guarantee of future performance and actual results could differ materially from current expectations. Among the important factors which could 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 and supply chain challenges, capital allocation plans, and the worldwide COVID-19 pandemic. All risk factors are detailed in the company's SEC filings, including its Form 10-K and Forms 10-Q. I will now turn the call over to Mike Wang, Chief Executive Officer.

Thank you, Erica. Fiscal 2021 was a strong year for Amtech, with over $115 million in bookings, $85.2 million in revenue, and $44.1 million in backlog exiting the year. representing year-over-year growth rates of 84%, 30%, and 217%, respectively. Driving this performance during the year was the acceleration of advanced packaging spending, which began in 2020, followed by a return of SMT and high temp furnace demand following the pandemic. Exiting the year, the run rate demand for our products remained strong, with Q4 reported bookings of $34.2 million, up 10% sequentially and nearly 150% year-over-year, and revenues of $24.3 million, a record over the past three years. While we are encouraged to see the strength continuing into 2022, ongoing logistical challenges related to container availability and rising costs are impacting our ability to ship products, some Q4 revenue moving into the following quarter. Our supply chain teams continue to actively work the situation, and many of those products which were delayed have now shipped. However, given the ongoing strength in demand and continuing global logistical challenges, it is likely similar in the quarter timing volatility will continue until conditions normalize. As it relates to component and raw material supply, while overall tightening continues due to the global shortages and the ripple effects of production outages on part of our suppliers, thus far we are navigating the situation through rigorous planning. As such, material supply has not yet severely impacted our ability to manufacture against orders received. Fortunately, as evidenced by our strong bookings and backlog, the persistent component shortages being felt globally in several cases translates to an increased need for Amtek's production equipment. As we look to the drivers behind this robust demand, activity within the semi-market continues at a strong pace with continued record bookings and further upside opportunities across our served markets. For our advanced packaging products, the last 18 months have been characterized by very strong order rates driven by end-of-market growth. Strength in this market continued in Q4 and again into Q1, with some orders extending to Q2 as our customers timed shipments to align with their capital expansion needs. For products targeted at the SMT market, demand remains strong across all geographies with an incremental emphasis on the automotive sector given the ongoing supply constraints. As we mentioned last quarter, to service the increased orders, in August we moved into a larger manufacturing facility in Shanghai. I am pleased to report the transition went smoothly and we have returned to normalized production levels with the ability to increase as demand warrants. Within the power semi-market, we continue to have strong engagements with our customers as they move forward with their capacity expansion plans. In some instances, in addition to placing new orders, customers have asked us to accelerate delivery of prior orders, which has been difficult given the supply chain constraints I referenced earlier. We view this as a strong signal, both to the underlying demand in the market but also in our leadership position as a tool of record for nearly all of the power chip manufacturers already producing on 300 millimeter. As these and other manufacturers continue to build that capacity, we believe we are well positioned to capture additional opportunities as they emerge. Moving on to our material and substrate segment, in Q4, we saw an improved mix in equipment shipments as customers once again began expanding capacity following the pandemic. Within the silicon carbide wafer market, we continue to have healthy discussions with our customers on an ongoing basis. Recently, these have become more productive with discussions around production planning as capacity constraints begin to emerge. Given our market-leading position in consumables, roadmap for new machine platforms, and recently completed capacity expansion investments, we remain as excited as ever about the mid- to long-term opportunities in front of us. While we are encouraged by heightened demand across all of our supermarkets, as we mentioned last quarter, we remain cautious about the ongoing market uncertainties, which we do not directly control. Industry-wide challenges such as supply chain constraints, inflation, and significant increases to freight costs and availability require ongoing management and vigilance. Looking beyond these near-term uncertainties, we strongly believe our leadership in the market segments with exposure to several secular tailwinds creates a significant opportunity to drive increased profitability and shareholder value as demand accelerates and we realize the operating leverage built into our current business model. With that, I'll now turn the call over to Lisa.

Thank you, Michael. Net revenues increased 5% sequentially and 61% from the fourth quarter of fiscal 2020, with the sequential increase primarily attributable to strong shipments of our advanced packaging and SMT equipment and increased shipments of our polishing machines. The prior year period was affected by the COVID-19 pandemic. Relative to last quarter, gross margin decreased in the fourth quarter of fiscal 2021, primarily due to a less favorable product mix an increase compared to prior year due to product mix and increased capacity utilization partially offset by rising labor and material costs. Selling, general, and administrative expenses, SG&A, decreased $0.7 million on a sequential basis. Adjusting for cyber incident expenses of $1.1 million in the third quarter of fiscal 2021 and the partial insurance reimbursement for this incident of $0.4 million in the fourth quarter of fiscal 2021 SG&A increased sequentially by $0.8 million due primarily to increased consulting, shipping, and logistics costs. SG&A increased $1.3 million compared to the prior year period due primarily to SG&A from the acquisition of Intersurface Dynamics as well as increased travel and consulting expenses. Research, development, and engineering decreased $0.2 million sequentially and increased $0.5 million compared to the same prior year period, due primarily to the timing of materials used in our strategic R&D projects. Operating income was $1.3 million compared to operating income of $1.2 million in the third quarter of fiscal 2021 and operating loss of $1.2 million in the same prior year period. Income tax provision was $.7 million for the three months ended September 30th, 2021 compared to a provision of $.7 million in the preceding quarter and $0.5 million in the same prior year period. Net income for the fourth quarter of fiscal 2021 was $0.7 million or 5 cents per share. This compares to net loss of $2 million or 14 cents per share for the fourth quarter of fiscal 2020 and net income of $0.4 million or 3 cents per share in the preceding quarter. Turning to cash, unrestricted cash and cash equivalents at September 30th, 2021 were $32.8 million compared to $37 million at June 30th, 2021. The decrease is primarily due to cash used to support our working capital needs due to our strong order flow, which includes increasing inventory in preparation for upcoming shipments scheduled in the first and second quarter of fiscal 2022. Approximately 83% of our cash balance is held in the United States. As we conclude our 2021 fiscal year, we are very pleased with our annual results of $85 million in revenue an increase of 30% from fiscal 2020, and net income of $1.5 million, or 11 cents per share. We also continue to be pleased with the performance of our semiconductor segment, with our book-to-bill ratio increasing to 1.5 to 1 in the fourth quarter. As Mike mentioned earlier, the logistics and supply chain challenges had a greater than anticipated impact on our fourth quarter results, where without them our results would have compared quite favorably to our guidance for the fourth fiscal quarter. Looking ahead, as demand for our products tends to correlate with overall semi-capx spending, we believe the strength and demand we are experiencing will continue in line with the broader industry. Now turning to our outlook, for the fourth quarter ending December 31, 2021, our fiscal first quarter, revenues are expected to be in the range of $24 million to $27 million. Gross margin for the fiscal first quarter is expected to be approximately 40% due to a shift in product mix. with operating margin in the mid to upper single digits. The semiconductor equipment industry is cyclical and inherently impacted by changes in market demand, and the recent semiconductor shortages may also have impacts on our customers and supply chain. Our outlook reflects the anticipated ongoing logistical impacts and related delays for goods shipped to and from China. Actual results may differ materially in the weeks and months ahead. Additionally, operating results can be significantly impacted, positively or negatively, by the timing of orders, system shipments, and the financial results of semiconductor manufacturers. A portion of Amtek's results is denominated in RMBs, 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. Now let's turn the call over to the operator for questions. Operator?

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you were using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions.

We'll take our first question from Craig Irwin with Roth Capital Partners.

Hi, this is Andrew on for Craig. Thanks for taking my questions. I was wondering, so you mentioned the supply change constraints in your forward outlook, but can you maybe provide some more commentary on puts and takes where you saw that impacting frictional costs and potentially revenues in the quarter?

Well, certainly having a key production facility in China, we've seen a lot of impacts from the ongoing container shortages, which I think we read about almost every day, and that's very significant to us. But we're seeing logistical issues in other locations in Europe and here in the U.S., as well as rising costs. So it's affecting us throughout. And so I would say that within this quarter, we certainly had anticipated continuing logistics issues with this container shortage. But having it spread, you know, into other parts of our geographies, you know, it was a higher number than we anticipated.

Awesome. Thanks for the call. And then the second one for me is if you could maybe provide some commentary on how discussions have gone for customers with containers 8-inch wafer consumables for silicon carbide and whether you guys are ready for commercial production once 8-inch production ramps and 8-inch adoption ramps.

Sure. We've had a number of discussions with our customers regarding our capabilities on 8-inch and with some even provided samples. So it's, you know, relatively speaking, it's just an increase in diameter. The technology kind of consumables will be the same. There are some parameters when you go to a larger diameter, but we will be more than ready to accommodate.

Great. Thank you. Great to hear, and that's all from me for now.

Thank you.

Thank you. We'll take our next question from Jeff Osborne of Cowan & Company.

Good afternoon. This is Jeff Rossetti on for Jeff Osborne. Thanks for taking our questions. Hi, Jeff. First, if I could just ask if you could provide some additional commentary on what you're seeing for back-end packaging. Is supply catching up with demands, or do you expect high-capacity additions throughout next year?

Hi, Jeff. This is Paul Lancaster. I'll answer that question. Right now, we're still seeing pretty good visibility in the advanced packaging. Our customers, primarily the OSATs, are still fairly strongly predicting growth across all their segments. We've actually expanded a little bit in that area with new customer additions this past quarter. What's going on also with the supply chains and things, people are giving us a little bit more visibility as they plan for potential disruptions. So we do have a pretty good line of sight on that.

Okay, great. And then just shifting back to silicon carbide, could you just give any more detail on how you maybe expect seeing any market share shifts or any shifts from batch to non-batch given significant capacity expansions underway?

Yeah, I'll take that, Jeff. So we're not, at this moment, we're not seeing significant shifts in terms of the current market leaders. We are seeing new entrants. We are seeing signs of that, right? We are seeing signs of, at the very least, capacity expansion in planning from the smaller all the way up to the larger wafer players. So it's definitely a good signal. And one reminder is, fortunately, adding wafer capacity, it's a long, drawn-out process for silicon carbide. We can't quite equate it to silicon wafer capacity expansions, mainly because of the difficulties and the complexities of growing the crystals. But definitely, from our conversations with current customers and potentially new customers, there are a lot of activity being planned for expansion.

Okay, great. Thanks. That's all I have. Thank you, Jeff.

Thank you. We'll take our next question from Mark Miller with Benchmark Company.

Congratulations on strong orders and the record backlog. I just wanted to talk about... You're welcome. I just want to talk about, you said some things sales might have been slipped into the 2022 early. Are you expecting a front-end loaded year of 2022? Is it too early to tell?

You know, Mark, I think that there's going to be some shifting, you know, throughout probably the whole year. I don't expect that this is going to just suddenly pop in a quarter or two. We're monitoring it very closely, and I don't have that crystal ball to say for certain, but we're anticipating somewhat of a domino effect for a few quarters at least.

In terms of your existing backlog, your margins were down last quarter. They're coming back up. Would you think the margins of the existing backlog are equivalent to what you expect in the fourth quarter, lower or higher?

You know, our backlog is quite heavily comprised of our BDS, our diffusion furnace, our horizontal diffusion furnace, which has a lower margin profile than some of our advanced packaging equipment. So if I were to characterize our backlog at this point, I would lean more towards the gross margin in the fourth quarter.

Thank you.

You're welcome.

Thank you. This concludes our question and answer session. At this time, I'll turn it back to management for closing remarks.

Thank you for your time today and your interest in AMTEC.

This concludes today's call. Thank you for your participation.

You may now disconnect.