Amtech Systems, Inc.

Good day and welcome to the Amtech Systems Fiscal Fourth Year and Full Year 2024 Earnings Conference 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.

Good afternoon and thank you for joining us for Amtech Systems Fiscal Fourth Quarter and Full Year 2024 Conference Call. With me on the call today are Bob Daigle, Chairman and Chief Executive Officer, and Wade Janke, Chief Financial Officer. After close of market today, Amtek released its financial results for the fiscal fourth quarter and full year of 2024. The earnings release is posted on the company's website at www.amteksystems.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 the 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 investor 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 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 fourth quarter financial and year-end results. You'll find a recommendation non-GAAP measures to our actual GAAP results included in the press release issued today. I would now like to turn the call over to AMTEC's Chief Executive Officer, Bob Daigle.

Thank you, Erica. Well, good afternoon and thank you for joining us today. As we conclude our fiscal year, I'd like to take a moment to reflect on the strides we've made to transform our business and strengthen our foundation for future growth. Looking back over the last 12 months, I'm proud of what our team has accomplished. We've made significant progress in streamlining our business with a specific emphasis on optimizing our operations and delivering positive operating cash flow across all segments, even amid a strong secular downturn. While overall revenue was down 11% year-over-year in fiscal year 2024, we delivered $4 million of adjusted EBITDA profit compared to $1.8 million in fiscal year 23. Contributing to this result, earlier this year, we implemented a comprehensive restructuring plan, which included organizational adjustments, cost reductions, and operational enhancements. These efforts have translated into $7 million of annualized operating savings, making our business both more efficient, and enabling us to mitigate the existing market dynamics more effectively. As a part of this initiative in early 2024, we took the strategic action to streamline our product portfolio by exiting from the unprofitable legacy equipment business at Pura Hoffman and investing in our more profitable and growing consumables business. This shift has paid off as sales of the consumable products at Pierre Hoffman surged by 28% year over year, despite overall revenue growth of just 2%. Within our BTU business, with a sharp decline in demand for equipment, we've accelerated our shift to a hybrid manufacturing model, combining in-house production with outsource capabilities. In addition to strengthening our supply chain, this initiative has allowed us to manage lead times, reduce capital expenditures, and enhance our operational flexibility. From a cost savings perspective, while these efforts remain ongoing, by the middle of the next fiscal year, we expect to realize approximately $2 million in additional operational savings above the $7 million we have previously discussed. Beyond the core operations of our business, in response to the escalating input costs we faced over the past several years, we strategically adjusted pricing across our offerings, helping ensure we protect our margins while maintaining our competitiveness. Combined, despite continued weakness in the market, we managed to maintain positive adjusted EBITDA and reduce working capital to pay off our debt and end the year with a cash balance in excess of $11 million. Most of our efforts in 2024 focused on optimizing our business to improve profitability. As we begin our 2025 fiscal year, we are now focusing much more of our attention on driving sustainable long-term growth with reoccurring revenue streams such as consumables, parts, and services. We believe these revenue strength streams will strengthen our financial performance in the years ahead by providing higher margins with less cyclical revenue growth. To accelerate the growth in these areas of focus, we recently invested in both business leadership and marketing resources. In addition, as we close our fiscal year, we have renamed our business segments to better align with the markets we serve. Our semiconductor fabrication solutions business, previously known as materials and substrate segment, will now focus on growing our consumables, parts, and service offerings for semiconductor wafer and device fabrication. Meanwhile, our thermal processing solutions business, formerly the semiconductor segment, will focus on capital equipment for advanced packaging, with an emphasis on applications that support AI data centers, and on continuing to grow our parts and services businesses. Market demand challenges persist in semiconductor segments that are not associated with AI infrastructure. Our consumables parts and services business did experience some growth in 2024, even with the broad market headwinds, but could not overcome the strong headwinds from very weak demand in equipment in areas that were not associated with AI infrastructure. Timing for a broader market recovery remains uncertain, but we are well positioned to deliver strong operating results when demand recovers. In conclusion, we are quite proud of the progress we've made this year. Through our strategic actions to optimize our operations, reduce costs, and strengthen our balance sheet, we've set ourselves up for more profitable and sustainable growth as markets recover. We are now focused on fully capitalizing on the emerging opportunities in AI infrastructure, and expanding our reoccurring revenue streams to drive margin improvement and accelerate growth. Although the current macroeconomic environment is challenging, we are optimistic that our ongoing transformation will deliver profitable growth with high returns on invested capital so we can create meaningful shareholder value. With that, I'll turn it over to Wade for further details on our financial results. Thank you, Bob.

Net revenues for the fourth quarter decreased 10% sequentially and decreased 13% from the fourth quarter of fiscal 2023. The sequential decrease is primarily due to lower sales of our diffusion furnaces, reflow, and wafer cleaning equipment, partially offset by higher consumable parts and service revenue. The decrease from the prior year is primarily attributable to lower sales across most of our product portfolio due to the slowdown in the broader semiconductor market. In the fourth quarter of our fiscal 2024 period, our GAAP gross margin increased by $7 million compared to the same prior year period. This is driven by better margin profiles, product mix, and cost save this year, while in the fourth quarter of 2023, We had a $4.6 million intangible asset impairment charge and the $1.5 million write-down of inventory related to the polishing equipment line. On a sequential basis, gap gross margins in our thermal processing solution segment was positively affected by product mix, attributed to increased revenue for parts and services, as well as improved material costs. Gap gross margin in our semiconductor fabrication solution segment slightly decreased on a sequential basis, due primarily to less favorable product mix on consumables and equipment. Selling, general, and administrative expenses increased by approximately 0.6 million on a sequential basis and decreased 2.3 million compared to the fourth quarter of 2023. The sequential increase is due primarily to increased consulting, audit, and IT expenses. Compared to the same prior year quarter, the decrease is driven by the $0.5 million in tangible asset impairment charge and lower labor and labor-related expenses as a result of our cost reduction initiatives, as well as lower shipping on expenses and lower revenues. Research and development engineering expenses increased by $0.3 million sequentially and decreased $1.6 million compared to the prior year fourth quarter. with a sequential decrease due primarily to the timing of purchases related to specific projects in both segments, and the decrease from prior year fourth quarter was attributable to development efforts in our semiconductor fabrication solution segment that did not reoccur. Gas net loss for the fourth quarter of fiscal 2024 was 0.5 million, or 4 cents per share. This compares to GAAP net income of $0.4 million or $0.03 per share for the preceding quarter and a GAAP net loss of $12 million or $0.85 per share for the fourth quarter of fiscal 2023. Non-GAAP net loss for the fourth quarter of fiscal 2024 was $7,000 or $0 per share. This compares to non-GAAP net income of $1.1 million or $0.08 per share for the preceding quarter and non-GAAP net loss at $2.5 million or $0.18 per share for the fourth quarter of fiscal 2023. For cash, unrestricted cash and cash equivalent at September 30, 2024 were $11.1 million compared to $13.1 million at September 30, 2023. Debt payments during the three months ended were $4 million, which included the final payment of our term loan and revolving credit facility. Net cash as of September 30, 2024 was $10.8 million compared to $2.4 million as of September 30, 2023. Now, turning to our outlook. For the first fiscal quarter ending December 31, 2024, we expect revenues in the range of $21 to $24 million with adjusted EBITDA nominally neutral. The near-term outlook for revenue and earnings remains challenging. The actions we took in fiscal 2024 will reduce Amtech's structural costs by approximately $7 million annually. Also, by mid next fiscal year, we expect to realize an additional $2 million in operational savings from our outsourcing to contract manufacturing. We are focused on optimizing our operations and delivering positive operating cash flows across all our segments, even amid a prolonged secular downturn. Operating results can significantly be 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. A portion of Amtex 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. I will now turn over the call 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 the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you're using a speakerphone, please lift the handset before pressing any keys. Your first question comes from the line of Craig Irwin from Roth Capital Partners. Your line is now open.

Good evening, and thank you for taking my questions. First, I should say congratulations on the really good execution, bringing down costs, tightening everything up in this environment that we're all operating through. So great, great execution there. Thank you, Craig. My question is this, and it's a little bit high level, but you're renaming your segments, right? And that speaks for a refreshed and renewed strategic focus Can you maybe call out some of the applications or opportunities where you think EmTech can participate in sort of AI and data center growth and, you know, electricity demand growth over the next several years? You know, what do you see as relatively, you know, fresh products that you have to offer into this market? And, you know, how do you expect this to take shape as far as visibility for the investment community?

All right. Great, great, great. Yeah, so let me start again at the high level. There were a couple of reasons for really revisiting our segment definitions. And some of it was, to be frank, I thought it was a little bit confusing. I think some of what we referred to as the semiconductor segment goes back to the days where Amtech was heavily involved with solar. So it was either solar business or semi. And when I'm looking at the portfolio, a lot of what When I look at our business, we really have the semiconductor front end of our business, which is really involved in actual semiconductor device fabrication, which is, again, what will be, and it's broader than just materials and substrates. A lot of what we do there involves services and parts for that part of the business. And then what we've been referring to as the semiconductor segment, it's really back end packaging and assembly of the electronics. So again, it was trying to clean this up and get clearer definition about, you know, we have the front end of our business, which is, you know, semi fab related. And then we have the back end, which is packaging and assembly and trying to get some clarity around that. Now then back to the strategic question of where do we grow? You know, obviously AI, everybody has been targeting AI as a growth driver for their business. We're no different. We play there. We have been playing there. Primarily on the back end, our reflow equipment, for example, is used extensively in terms of the advanced packaging applications for semiconductor production. We are also looking, however, at opportunities that are adjacent, uh, that would relate a little bit. It's more on the consumable side where we, we are working in its early stage with some customers that have some, uh, unique solutions for, uh, packaging and in particular thermal management, which has been, um, you know, talked a lot about in terms of the challenges with these, uh, you know, the more advanced AI chips, how much heat they're generating. We are involved and have been, you know, involved with consumables at the front end with one of our customers that's heavily focused on trying to solve those problems. So I see that as an opportunity really to broaden what we're doing in an area of AI beyond just the, you know, back-end equipment, but also in the consumables areas. But stepping back even further from that, I see the consumables, parts, and service business, which as we noted in the call, even with a very challenging industry dynamics, we did see growth. We were able to grow our consumables, parts, and service business, although less than we would have obviously liked. We did see growth. All of our decline... more than all our decline was driven by weakness in the equipment sector. So when I look ahead, what I want to see is transform Amtech into much more of a consumables parts service business. Not that equipment areas, especially AI related, are very much of interest, but I do see those areas as driving our margins and driving growth opportunities. And as we mentioned in the script, that's really where we're investing. We're, you know, we've brought on, we're bringing talent on board. I'll characterize, you know, we were very, very fragmented in what we're now calling semiconductor fabrication solutions. We were really managing those as three tiny businesses, and they're now under single leadership with shared resources. commercial resources in marketing and sales. We will also share in areas for product development as we move forward. So I see the investments in those areas where, frankly, we've been pretty passive, but I think there's plenty of opportunity, I believe, for us to proactively grow that part of the business It will not only, I think, improve our margins, drive growth, but will also reduce the cyclicality that is inherent to any of these, you know, any business that's heavily reliant on equipment sales. Don't know if that answered your question, Craig, or if you'd like me to elaborate on anything. Happy to add color.

It goes a long way to answering the question. It actually starts to step into the secondary I really wanted to ask about. So many of us following EmTech for the last number of years have been quite excited about the participation in the silicon carbide industry. The emerging power semiconductor technology can be transformational to our economy, not just in electric vehicles, but in industrial equipment, military equipment, all sorts of things. And it appeared that EmTech was particularly well positioned on the consumable side to serve a niche in sort of consumables for wafer production. Can you maybe share with us, you know, your growth in the consumables business? Did you see absolute growth in cassettes and other materials supplied into the silicon carbon industry? That industry is going through a cyclical readjustment, as you pointed out. There is absolute growth going on. You know, are you seeing more growth in things like cassettes for 8-inch wafers than 6-inch wafers? Can you just talk about where the green shoots are in that industry?

Yeah, so we, again, yeah, we've participated pretty broadly and continue to do so in silicon carbide wafer production with our consumables out of PR Hoffman. And as I mentioned, you know, we saw very substantial year-over-year growth in that PR Hoffman industry. part of the business. You know, 28% actually year over year in the consumables out of Pierre Hoffman. A lot of that was related to silicon carbide. So, you know, again, I think the luster and EV has dimmed a bit and there's been some inventory corrections going on. So, At least, and this is purely opinion, Craig, but I do believe where people were expecting 30%, 40% market growth, EV-related, we're likely to see something that's more in the, let's say, normalized 15%, 20%, still very substantial growth. But I think the wild card in all of this is there's been so much investment in silicon carbide globally, and it's continuing, especially in mainland China, that there's a lot of effort right now, frankly, in expanding the application base for silicon carbide. So I think the expectations for silicon carbide growth, where maybe people were saying 30%, 40% tied directly to EV, have been somewhat tempered. I'm not so sure we're not going to see growth rates that approach those levels with the combination of what was going to be EV and these other application areas that everybody's focused on for, you know, expanding their base. So I'm still very optimistic, frankly, around the EV, the silicon carbide growth driver for us. We participate broadly. It's, it's a very attractive market application area. The enthusiasm is tempered around EV, but that made that, that I think, will get offset at least to some degree by other applications.

Understood. Well, thank you for taking my questions. I'll go ahead and hop back in the queue.

All right. Thank you, Craig. Once again, if you have any questions, please press star 1 on your telephone keypad. Your next question comes from the line of Mark Miller from The Benchmark Company. Your line is now open.

I'd like to add my congratulations to the management, the cost management, and the expectations for more cost reductions next year. I was just thinking, I was just trying to understand, your cash went down $2 million last quarter. What is your outlook for cash flow generation over the next six months?

I can take that. So our cash flow generation will be partially fueled by our operation activities as we produce inventory. And then, of course, our positive EBITDA in the future quarters.

Just note, Mark, we paid off, what was the number? We paid off around $4 million. Yeah, so the reason the cash went down is we paid off the rest of our debt, right? We wanted to be debt-free, so... we basically paid off 4 million and we're done. We're done. No more debt right now.

Okay. So there's no more covenants or anything you have to worry about because you paid off your term loan and revolver.

Yeah. And, and, and frankly, you know, again, that was our focus, right? Get the operations to be cashflow positive, even during the downturn, be aggressive on working capital, get rid of the debt. Again, we, we, we control big believer. We were going to control our own destiny and, on costs, we're going to control our own destiny in the medium long term by our growth initiatives that don't just, not just be reliant on market recovery, but look at expanding our business. And also, obviously, it'll be nice when the market actually does recover, which it will, I just don't know when that will be.

Hey, your margins ticked up. You were saying there was mix. I'm just wondering, margin outlook ticked up for the highest of the year for the fourth quarter. I'm just wondering what you're thinking about in terms of margin outlook.

Yeah, sure. Thank you. So for our margin outlook, you know, given the guidance for Q1 coming into fiscal year 2025, it's going to be slightly close just under that Q4 performance. given what we're shipping out that quarter. But going in after that, we expect to be right in that range of 40%.

So a lot of the restructuring we did, Mark, was really aimed at that, right? Is at similar volume revenue numbers, similar mix, you know, being in that 40-ish or better. And then hopefully with, again, Revenue should help that.

Right. When revenue and more volume comes in, we'll get more operating leverage and feed into some of that overhead at that cost of goods sold level, and we'll be able to enhance our margins. Part of that contract manufacturing strategy that Amtech has put in place will help yield even more results in the future. Okay.

R&D kicked up last quarter. Do you expect that to come back down to third quarter in terms of average for 2025? Do you know?

R&D this quarter was up a little bit. It was a little bit offset from last quarter, honestly. Some of our R&D costs pushed out into the Q4 from the Q3. So we're going to go pretty much back to our normal run rate if you average the two quarters.

Can you tell me, relate what that is, please?

Normal run rate. We should be right around a million for the quarter.

Okay. All right. Thank you. Thank you. Yeah, you're welcome.

Thanks, Mark. There are no further questions at this time. I will now turn the call back to Bob Bagel. Please continue.

All right. Well, thank you for joining our conference call today, and I'm looking forward to updating everybody on the progress we're making in the months to come. Thank you, and have a good evening.

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