Amtech Systems, Inc.

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Good day and welcome to the M-Tech Systems Fiscal Third Quarter 2024. This is a Fiscal Third Quarter 2024 earnings conference call. Please note that this call is being recorded and simultaneously webcast. I would now like to turn the call over to Erika Mannion of Sapphire Investor Relations. Please go ahead.

Good afternoon and thank you for joining us for M-Tech Systems Fiscal Third Quarter 2024 conference call. With me on the call today are Bob Daigle, Chairman and Chief Executive Officer, Lisa Gibbs, Chief Financial Officer, and Wade Janke, Incoming Financial Officer, Chief Financial Officer. After close of market today, M-Tech released its financial results for the fiscal third quarter of 2024. The earnings release is posted on the company's website at .mtechsystems.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 on 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. Your caution is 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 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, 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 third 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. Now, I would like to turn the call over to Amtrak's Chief Executive Officer, Bob Daigle.

Good

afternoon, everyone. Thank

you for joining Amtrak's quarterly conference call. In the third quarter, we continue to optimize our cost structure to match the current demand environment and lay the foundation for meaningful operating leverage as the markets we serve recover. Revenue of $26.7 million exceeded the high end of our guidance range, and our adjusted EBITDA was $2.3 million. I'm pleased that we're beginning to see the financial benefits of the actions we've taken over the past few quarters. The macroeconomic landscape for our end markets remains somewhat mixed. Within the semiconductor industry, we have begun to see incremental improvement in demand for advanced packaging applications. While we have not seen a sharp recovery, we are seeing a gradual increase in demand from the cyclical lows of the past few quarters. Based on quoting activity and discussions with our customers, we expect to see continued improvement. Offsetting this incremental tailwind, we have experienced a softening of demand for our horizontal diffusion furnaces, since these tools are primarily targeted for power electronic semiconductor applications in automotive and industrial markets. While this impacts both our backlog and the future revenue in the near term, our overall profit levels remain neutral, as the contribution margin from these products was significantly lower than our corporate average. Within our materials and substrates and markets, we are seeing a stabilization in overall demand. Although demand for consumables used for semiconductor fabrication remains somewhat lumpy, the demand for replacement parts continues to improve. Taken together, we believe we've passed the trough in demand for this segment, although we do not expect a sharp recovery in the near term. While we await the rebound in demand across broader markets, we are continuing to focus on optimizing our operations. In the third quarter, we completed the relocation of our US BTU facility to a smaller, more cost-effective facility in Massachusetts, and expanded our partnership with contract manufacturers to improve operational efficiency and manufacturing flexibility. The smaller facility reduces our fixed costs by about $1 million a year, without impacting the production capacity. In addition, we are beginning to see the benefits of pricing actions we've taken over the last several quarters. That said, it will still be a few quarters before we see the full impact due to existing backlog in parts of our business. Overall, we believe the measures we've implemented over the past few quarters have better aligned our organization to support current market demand while delivering positive near-term adjusted EBITDA profitability. The success of our initiatives has resulted in approximately $7 million in annualized cost savings and allowed us to deliver our third consecutive quarter positive adjusted EBITDA in operating cash flow, despite the ongoing softness in the markets we serve. Looking ahead, we believe Amtech is well positioned to capitalize on several secular trends that will drive demand for our products. Within the automotive market, we expect continued growth of power electronic applications and hybrid and full electric vehicles that will generate strong demand for our consumables and equipment. Within the broader semiconductor market, our tools play a critical role in the advanced packaging of processors used in high-performance computing. As OSAT and OEM utilization rates increase, we expect to see a stronger rebound in demand for our reflow equipment.

In addition,

we expect the benefit from the near-shoring investments being made by government and industry players to build more resilient and secure semiconductor and electronic assembly supply chains. In summary, we remain confident that the strategic initiatives we are implementing to enhance operational efficiency and reducing working capital will generate significant shareholder value as our target markets regain momentum. With that, I'll turn it over to Lisa for further details on the third quarter.

Thank you, Bob. Net revenues increased 5% sequentially and decreased 13% from the third quarter of fiscal 2023. The sequential increase is primarily due to increased sales of our reflow and wafer cleaning equipment and higher parts in services revenue. 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. In the third quarter of fiscal 2024, gap gross margin increased sequentially compared to the same prior year period. On a sequential basis, gap gross margin in our semiconductor segment was positively affected by product mix, attributed to increased revenues for reflow equipment, parts, and services. Gap gross margin in our materials and substrate segment decreased on a sequential basis due primarily to a less favorable product mix of consumables and equipment. Compared to the same prior year period, gap gross margin was relatively consistent between periods. Selling, general, and administrative expenses decreased approximately $40,000 on a sequential basis and decreased $2.1 million compared to the same prior year period. The sequential decrease is due primarily to reductions in labor-related expenses partially offset by increased commissions and shipping expenses on higher sales. Compared to the same prior year period, the decrease is due primarily to lower labor and labor-related expenses as a result of our cost reduction initiative, as well as lower shipping expenses on lower revenue. Research, development, and engineering expenses decreased $2.2 million sequentially and decreased $1.1 million compared to the same prior year period. With the sequential decrease due primarily to the timing of purchases related to specific projects in both segments and the decrease from prior year attributable to development efforts in our material and substrate segment that did not recur. Gap operating income was $0.8 million compared to gap operating income of $1.4 million in the second quarter of fiscal 2024 and gap operating loss of $1.1 million in the same prior year period. Non-Gap operating income was $1.5 million compared to non-Gap operating income of $0.2 million in the second quarter of fiscal 2024 and non-Gap operating income of $0.4 million in the same prior year period. Gap net income for the third quarter of fiscal 2024 was $0.4 million or three cents per share. This compares to gap net income of $1 million or seven cents per share for the preceding quarter and gap net loss of $1 million or seven cents per share for the third quarter of fiscal 2023. Non-Gap net income for the third quarter of fiscal 2024 was $1.1 million or eight cents per share. This compares to non-Gap net loss of $0.2 million or one cent per share for the preceding quarter and non-Gap net income of $0.3 million or two cents per share for the third quarter of fiscal 2023. Unrestricted cash and cash equivalents at June 30, 2024 were $13.2 million compared to $13.1 million at September 30, 2023. Debt payments during the three months into June 30, 2024 were $0.3 million. Net cash as of June 30, 2024 was $8.9 million compared to $2.4 million as of September 30, 2023. As Bob touched on, we are seeing differences in the order values and margins for new orders booked compared to some of the products shipping from older backlogs. Our shipments for the third fiscal quarter of 2024 include a mix of larger furnaces whose profit levels are below our current expectations and corporate average. New orders are trending towards lower order values but higher margin products. And as the semi-market recovers, we will have higher volumes of these types of bookings. As we continue to work down this backlog, we expect our -to-bill, especially in the semi-segment, to stay below one. But over time, our -to-bill should be closer or exceed -to-one as a higher portion of our business trends towards book and ship orders. As we've discussed previously, we expect the gross margin of our backlog and our future gross margins to improve, but it will take another two to three quarters for this to work its way through. Now turning to our outlook. For the fourth quarter of – fourth fiscal quarter ending September 30, 2024, we expect revenues in the range of $22 to $25 million with adjusted EBITDA nominally positive. Although the near-term outlook for revenue and earnings remains challenging, we remain confident that the future prospects are strong for both our 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 AMTAC's structural costs by approximately $7 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, logistical 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. The portion of AMTAC'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. As I sign off, I would like to welcome Wade to AMTAC and thank the AMTAC team for all of their hard work and dedication. I would also like to thank Bob and the board for their support. I am excited for the road ahead for AMTAC and its strong leadership and strategy. Bob, I will turn the call back over to you.

Thank you, Lisa. I would like to take a moment to

recognize and thank Lisa for her contributions to AMTAC over the past eight years. Lisa's commitment to the company and her professional excellence has been invaluable, and I wish her great success with her new role.

I'm pleased

to welcome Wade Jenke, AMTAC's new CFO. Wade has over 15 years of financial and operational experience with global companies.

Most recently,

he served as the CFO of the EMS Group at ASEA Abloy, a $30 billion publicly traded company headquartered in Sweden. Prior to that, he served in a number of senior financial roles within ASEA Abloy and BAE Systems, spanning SEC reporting, FP&A, cost accounting, and manufacturing accounting. He has also led back in acquisition integrations and ERP implementations. I'm excited to welcome Wade to our team. His experience in both financial and operational functions will greatly contribute to our efforts to fully optimize our operations and create greater shareholder value in

the quarters and years ahead. Welcome aboard, Wade. Thank you, Bob, and hello to everyone on the call

today. I'm excited to join Bob and the talented team at AMTAC. I firmly believe that AMTAC has the potential for significant growth in revenue, profit, and cash flow, given the company's leadership position in the markets it serves. I look forward to the exciting journey ahead and getting to know many of

you

personally soon. I will now turn the call over to the operator for questions.

Operator? Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from this polling process, please press star followed by two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment for your first question. Your first question comes from Mark Miller with Benchmark. Please go ahead.

Lisa, I'd like to wish you best in your new endeavor and, Wade, welcome to the AMTAC conference calls. Thank you, Mark. You're welcome. You talked about some pricing actions. What areas were these pricing actions taken?

Yeah, Mark, as we commented earlier, a lot of it has been, let me start by saying, it is broad. So, most of the parts of our business, we felt we needed to take some actions to deal with the inflationary pressures over the past 18, 24 months. So, to answer your question more directly, it has been broad across our portfolio. But I would say disproportionate has really been more on some of the equipment that we're manufacturing, where I think the inflationary pressures in the parts and different components in our systems have been particularly significant and we needed to deal with.

General Motors and Ford both recently reported strong results for their EV sales. And you've seen any impact from that or any in terms of quoting activity, any thoughts that's positive for your future outlook? Yeah, I think,

you know, I do continue to view EV as having some pretty nice tailwinds. I think some of the, however, the improved results we've seen out of the more traditional automakers has been somewhat offset by the weakness from the market leader in terms of over all demand in the power electronics area. One of the things that I also think is encouraging, Mark, for us is the, you know, again, they've tempered expectations in terms of full electric vehicle growth rates. But they're still fairly substantial. So, I think that's a nice secular tailwind. But I also believe that what we're beginning to hear more about is the probably a stronger push to hybridize, replace traditional ICE vehicles with more of the hybrid vehicles, given strong consumer acceptance for those vehicles. In order to meet the fuel efficiency requirements. So, I and again, that's helpful to us because we do play broadly in the power electronics equipment and consumables area. So, I do think that when we look at the puts and takes of kind of a more tempered, fully the outlook with an increasing, you know, projections for the hybrid electric vehicle side of things. We actually see that net net as somewhat favorable to us.

You mentioned the reflow business was one of the drivers for the upside sales. Are you seeing the increased quoting and quoting activity? What does it look like? This will continue.

Yeah, yes. Yes, Mark. Both shipments have been off. Quoting activity is up. And more importantly, I would say the mix is we're seeing an improved mix there. And what had what had really softened tremendously was the the packaging side of the business. Because we manufacture reflow equipment that's used for packaging, advanced packaging, as well as traditional surface mount assembly.

And

what we're seeing is we've seen several quarters where we have sequentially increased demand for the for the packaging side of the business. And that comes in at a higher margin for us and a higher ASP than than the surface mount equipment.

I just have a couple of housekeeping issues. I'll jump back into Q. Cash from operations and capex. What were they for the quarter?

I've got the year to date numbers in front of me here, Mark. We had cash provided and offered provided by operations of nine million dollars, which is great year to date. And capex a little bit over five million. You know, we finished the bills out of that building in Massachusetts, which was a significant part of our cap. And I would say in the near term, I would expect that to be more just, you know, maintenance type of capex.

OK, so these were your date over the last three quarters. OK, thank you.

Thank you. As a reminder, if you wish to ask a question, please press star, then one on your touch tone phone. We will just stand by for one moment. Your next question comes from Kevin Garigan with West Park Capital. Please go ahead.

Yeah, hey, guys, thanks for letting me ask a few questions. Bob, I think I may have asked you this last time, but, you know, has has anything gotten better or worse versus three months ago in the market to kind of give you hope that things may be turning around or getting better for your businesses? Yeah,

no. Yeah, I'd say generally more positive. You know, I think that the areas that have clearly seen some rebound, I would say, are parts side of the business, as we mentioned earlier. And because, again, some of the that had a lot of the parts business and service side of things had kind of dried up to a great degree about, you know, six months ago or so. And we've seen incremental improvement in, you know, people maintaining equipment and parts replacements. And then, of course, you know, I think what's what's very significant here is the fact that, you know, we're nowhere near peak demand for the reflow equipment, but sequentially we're seeing improvements in demand and in particular chip packaging. I really I would say in the consumables area, as I mentioned, that's that's that's lumpy. I would I would still characterize it as as stable. You know, it's not it's not always consistent, but we're not seeing either either significant headwind or tailwind in that area. And in and in general, I wouldn't say that it seemed I mean, my sense is that, you know, we saw the bottom in the industry, you know, a couple of quarters ago. And that, you know, although we had all hoped for this V shape recovery, the sharp recovery in the in the markets we serve, we're not seeing that. But at least we're seeing some some incremental

improvements. OK, got it. Got it. Yeah, I've heard similar that we're kind of

just bouncing along the bottom at this point. Everyone's kind of still waiting. Yeah, I would.

I can just add something. And that's kind of again, our our strategy or approach has really been to. You know, we can't deal with the market demand conditions, but we can deal with our cost structure and operating performance. And that's really while while we wait for something more substantial, as you point out, maybe things are bouncing a lot at the bottom is make sure as things are bouncing along the bottom, we're financially in good shape and doing the best we can

to drive EBITDA. Yeah, yeah, absolutely. That makes a ton of sense. OK,

perfect. And then just as a as a follow up, Lisa, congrats on the new role and invest of what going forward.

Can you just give

us the give us the focus for Amtech in terms of capital allocation for the rest of twenty twenty four and is is M&A kind of a bit of a focus for you guys?

You know, I would say that, you know, with with a continued focus on positive EBITDA generation, even as we kind of bounce along here at the bottom, as we were saying, you know, we finished that build out of the building in Massachusetts. And here in the near term, I think we kind of return to a maintenance cap. That's we're going into our annual budgeting cycle here in the next month or two. So, you know, I would expect, you know, potentially a little bit more capex next year as Bob and Wade look at areas to invest in the business on the M&A front. I will turn that back to Bob since he's the more forward looking person at this table right now.

Yeah, I would say in current environment, not not in the short term, but I do think it's definitely something that we're starting to dig into more in the medium term in terms of how to deploy

capital to enhance growth. OK, perfect. I appreciate the color. Thank you.

Thank you. As a reminder, if you wish to ask a question, please press star then one on your touchtone

phone. There

are no further questions at this time. I will now turn the call back over to CEO Bob Dagle for closing remarks.

Well, thank you again for joining our conference call. And I look forward to updating you on the progress we're making in the coming months. Have a good afternoon evening, everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Thank you. Thank you. Thank you. Thank you. Thank you.

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you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Billy. . . . . . . . . . . .

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