Amtech Systems, Inc. (NASDAQ:ASYS) Q4 2023 Earnings Call Transcript

Amtech Systems, Inc. (NASDAQ:ASYS) Q4 2023 Earnings Call Transcript December 13, 2023

Operator: Good day, and welcome to the Amtech Systems Business Update Conference Call. Please note that this event is being recorded. I would now like to turn the call over to Michael Funari of Sapphire [Investment] (ph) Relations.

Michael Funari: Good afternoon, and thank you for joining us for Amtech Systems’ business update conference call. With me on the call today are Bob Daigle, Chairman and Chief Executive Officer; Lisa Gibbs, Chief Financial Officer; and Paul Lancaster, Vice President of Sales and Customer Service. After close of market today, Amtech released a summary of its revenue and business status as of September 30, 2023. The press release is posted on the company’s website at www.amtechsystems.com in the Investor 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 could cause actual results to differ materially from those in forward-looking statements are changes in the technologies used by customers and competitors; change in volatility and demand for products; the effect of changing worldwide political and economic conditions, including trade sanctions; the effect of overall market conditions, including equity and credit markets and market acceptance risks; ongoing logistics, supply chain and labor challenges; capital allocation plans; the COVID-19 pandemic; and our ability to effectively integrate our acquisition of Entrepix, Inc., which we acquired in January 2023.

Other risk factors are detailed in our SEC filings, including Form 10-K and Forms 10-Q. I will now turn the call over to Amtech’s Chief Executive Officer, Bob Daigle.

Bob Daigle: Thank you, Mike. Good afternoon, everyone, and thank you for joining our conference call. In today’s call, we will provide a business update. Reporting of our full financial results will be delayed due to the complexity and judgment involved in the valuation and impairment analysis that’s underway. I’d like to share a few observations I’ve made about Amtech and speaking with both customers and stakeholders over the past four months and discuss the subsequent actions we are taking. Amtech is a company with well-recognized brands, great products and technologies, dedicated and talented employees, and best-in-class service capabilities which support a diverse customer base. Our company has tremendous promise and is well-positioned to capitalize on several secular trends that will drive demand for our equipment and consumables.

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Q&A Session

The advanced mobility market, including electric vehicles, is expected to drive growth not only for semiconductors and subsystems within the vehicles, but also for battery cooling systems and a broad array of electric vehicle power modules, which our tools serve. Within the broader semiconductor market, our tools are used for advanced packaging of processors for high-performance computing and artificial intelligence applications. And across the electric — electronics industry as a whole, the pandemic and global tensions have made it abundantly clear that more resilient semiconductor and electronic assembly supply chains are needed. This will also expand the opportunities for our tools. As we evaluate the strategic roadmap for Amtech, we are focusing on those areas where we have strong differentiation and are able to add significant value in the markets we serve and for our shareholders.

As a part of this evaluation, we have come to three realizations. First, technology, innovation, and customer partnerships remain core to what sets Amtech apart in the industry. Often the applications we target are amongst the most difficult in the industry, requiring not only industry-leading performance and precision, but also a support organization well equipped to assist customers as they refine their own manufacturing processes. Second, as we dug in deeper into the product set Amtech currently offers, we have realized some products are not particularly well suited for the opportunities they target today. This includes products that have matured and provide limited profit opportunity, as well as other products requiring significant investments to deliver capabilities that are not yet needed.

Third, the past three years have demonstrated to us the need to be nimble both in our supply chains and manufacturing operations to have the ability to quickly adapt to rapid cyclical changes in the industries we serve. Going forward, we will continue to invest in the products and customer support organizations within the semiconductor segment where Amtech has the strongest differentiation in the market. This includes equipment utilized for advanced packaging, electronic assembly, EV battery cooling systems, and power semiconductor substrates. While the advanced packaging and electronic assembly business has been meaningfully impacted by the slowdown in the semiconductor market, our tools continue to be very highly regarded. We are confident that as markets recover, we will see orders rebound commensurate with our position with further opportunity to gain share as applications such as advanced packaging for artificial intelligence processors continue to gain greater traction.

Within the substrate and material segment, we similarly see a very strong opportunity for consumables as well as our cleaning tools, chemical mechanical polishing equipment upgrades, and our CMP foundry services. Related to each of these product sets, our goal going forward is to ensure that we are tightly aligned with our customers. By understanding the problems they are trying to solve and developing our own product roadmaps to address these needs, we will be well positioned for growth. As we evaluated the products in the material and substrate portfolio, we came to the conclusion that our legacy polishing machines are no longer a strong fit for the marketplace, and while demand does exist, it is not large enough to justify continued investment.

As a result, we have notified customers that we will cease manufacturing of these products. With regards to the latest version of these machines, which we have been testing with silicon carbide customers, we have realized that the market is not yet ready for the capabilities we offer. With many players still in the early stages refining their own production processes, primarily with establishing repeatable high-quality boules for wafer production, the market for high volume batch tools has not materialized along the line — timeline that we originally estimated. Unlike our legacy polishing machines, however, we are moving this technology to Entrepix where we will continue to provide customer access for trials. Operationally, as we discussed on prior calls, we have begun to qualify third-party contract manufacturers to add incremental capacity for select products where we have high demand and to optimize our cost structure.

For example, in the fourth quarter, we shipped over a dozen high-temperature belt furnaces that leverage significant content from manufacturing partners. As we look ahead, our manufacturing operation will focus on large complex systems, and we will outsource simpler units and subassemblies where practical. This will allow us to improve profitability and our ability to respond quickly to changes in demand. While we are exposed to several large market opportunities which we believe will drive strong growth in the mid to long term, we also need to ensure that Amtech can generate sufficient profitability and cash flow even in downturn conditions like we are currently experiencing. After taking time to evaluate the performance and opportunities for each of our businesses, I made the decision to take several actions to reduce fixed costs and expenses.

These actions are expected to contribute over $4 million in annualized savings without jeopardizing the long-term growth opportunities for the company. Provide investors with a framework on how we view the opportunity ahead, we’re rolling out a long-term target model of $180 million in annual revenue with 18% EBITDA margins. Our top-line target is based on several factors, including a return to cyclical growth in our core markets, continued growth in emerging opportunities such as advanced mobility applications, and the potential for additional inorganic opportunities. While today we are inwardly focused on optimizing our existing operations, over time, inorganic investments will remain a part of our strategy. Related to the associated EBITDA margin at these levels, we believe leveraging an outsourcing model where appropriate will help us generate better margins while limiting volatility.