The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our “Condensed Consolidated
Financial Statements” in Item 1 of this Quarterly Report on Form 10-Q
(“Quarterly Report”) and our consolidated financial statements and related notes
included in Item 8, “Financial Statements and Supplementary Data” in our Annual
Report on Form 10-K for the fiscal year ended
Overview
We are a leading, global manufacturer of capital equipment, including thermal
processing and wafer polishing and related consumables used in fabricating
semiconductor devices, such as silicon carbide (SiC) and silicon power devices,
analog and discrete devices, electronic assemblies and light-emitting diodes
(LEDs). We sell these products to semiconductor device and module manufacturers
worldwide, particularly in
We operate in two reportable business segments, based primarily on the industry
they serve: (i) Semiconductor, and (ii) SiC/LED. In our Semiconductor segment,
we supply thermal processing equipment, including solder reflow ovens, diffusion
furnaces, and custom high-temp belt furnaces for use by semiconductor and
electronics assembly manufacturers. In our SiC/LED segment, we produce substrate
consumables and machinery for lapping (fine abrading) and polishing of
materials, such as silicon wafers for semiconductor products, sapphire wafers
for LED applications, and compound substrates, like silicon carbide wafers, for
power device applications.
Our semiconductor customers are primarily manufacturers of integrated circuits
and optoelectronics sensors and discrete (O-S-D) components used in analog,
power and radio frequency (RF). The semiconductor industry is cyclical and
historically has experienced fluctuations. Our revenue is impacted by these
broad industry trends. Although semiconductor demand for our products may have
reached its cyclical peak in our fiscal year ended
believe that continued technological advances and emerging industries, such as
silicon carbide power devices, will sustain our long-term performance.
Strategy
We continue to focus on our plans to profitably grow our business and have
developed a strategic growth plan and a capital allocation plan that we believe
will support our growth objectives. Our strategic growth plan calls for
profitable growth as the semi industry recovers, with the following areas of
focus:
• Emerging opportunities in the SiC industry - We believe we are
well-positioned to take part in this significant growth area,
specifically as it relates to silicon carbide wafer capacity expansion.
We are working closely with our customers to understand their SiC growth
plans and opportunities. We are investing in our capacity, next
generation product development, and in our people. We believe these
investments will help fuel our growth in the SiC industry.
• 300mm Horizontal Thermal Reactor - We have a highly successful and proven
300mm horizontal diffusion solution for growing power semiconductor
applications. We have a strong foundation with the leading 300mm power
chip manufacturer, and, in fiscal 2019, we announced an order to another
industry-leading manufacturer. In February 2020 , we announced another
order from a top-tier global power semiconductor customer in Asia , and in
August 2020 , we announced a repeat order for our 300mm solution. We
believe we have a strong opportunity to continue expanding our customer
base and grow revenue with our 300mm solution.
• As a major revenue contributor to our organization, BTU International,
Inc. (BTU) will continue to track semi industry growth cycles for our
advanced semi-packaging and SMT products, in addition to specialized
custom belt furnaces used in automotive and other specialized industrial
applications. We believe that through investments in product innovation,
BTU has an opportunity to grow further, especially in high growth
applications of electric vehicles (EV) and 5G communications.
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We anticipate that the required investments to achieve our revenue growth
targets will be in the range of
and capital expenditures. We may also need to make investments in other areas of
our business, such as management information systems and capacity expansions at
other existing manufacturing facilities. Our current capacity expansion plans
include the relocation of our
expiration of the current lease in the third quarter of 2021. The new facility
will increase capacity in support of our Pyramax product line, serving our
Advanced Packaging, other semiconductor packaging and SMT customers.
Additionally, as a capital equipment manufacturer, we will need working capital
to support and fuel our future growth. We are and will continue to closely
scrutinize these planned investments, in light of the COVID-19 challenges, and
we may defer some of our projects. However, we intend to continue to invest in
our business to support and fuel our future growth.
In addition to these investments in our organic growth, another key aspect of
our capital allocation policy is our plan to grow through acquisitions. We have
the expertise and track record to identify strong acquisition targets in the
semi and SiC growth environment and to execute transactions and integrations to
provide for value creating, profitable growth in both the short-term and
long-term. As of the date of the filing of this Quarterly Report on Form 10-Q,
we do not have a definitive agreement to acquire any acquisition target.
COVID-19
On
COVID-19. In
by the
widespread, including in all of the markets in which we operate. The COVID-19
outbreak has had a notable impact on general economic conditions, including but
not limited to the temporary closures of many businesses; “shelter in place” and
other governmental regulations; and reduced spending due to both job losses and
other effects attributable to COVID-19. As a key supplier to essential
businesses, we have continued to supply our products and services to those
businesses deemed essential businesses in the states in which we operate.
However, our business is subject to the general health of the economy and
federal and local guidelines and restrictions have significantly curtailed the
level of economic activity in affected areas, which include the areas in which
we conduct our business. Despite this backdrop, and the natural volatility of
the capital equipment markets we serve, we have been successful in mitigating
disruptions to our business while limiting operating losses to nominal levels.
Although we still do not yet know the full duration and extent the impact of
COVID-19 will have on our operations, we currently expect the negative impact to
be a temporary trend. We have implemented procedures to maximize our ability to
continue to provide products and services to our customers and to mitigate the
effect of the downturn on our results of operations, including minimizing costs
where appropriate. There remain many unknowns and we continue to monitor the
expected trends and related demand for our products and services and have and
will continue to adjust our operations accordingly. Please see additional
information in “Item 1a. Risk Factors.”
equivalents as of
In addition, we are pursuing relief options available to us, such as deferring
social security tax payments, payroll tax credits, and utilizing certain changes
in tax loss carryback rules to receive refunds for prior tax years. We are
reviewing and implementing actions on an ongoing basis to reduce cash outlays
and expenses. As a result of these efforts and our strong balance sheet, we
believe we have enough cash to sustain us for at least the next twelve months.
However, if the recovery takes longer than expected, we believe we have the
ability to make additional adjustments as needed.
Solar and Automation Divestitures
On
determined that it was in the long-term best interest of the Company to exit the
solar business segment and focus our strategic efforts on our semiconductor and
silicon carbide/polishing business segments in order to more fully realize the
opportunities the Company believes are presented in those areas. We completed
the sale of our solar subsidiaries, SoLayTec and Tempress, on
the sale of our automation division, R2D, to certain members of R2D’s management
team.
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Segment Reporting Changes
With the divestiture of our Automation segment in the first quarter of fiscal
2020, we evaluated our organization structure and concluded that we have two
reportable business segments following the divestiture.
Results of Operations
The following table sets forth certain operational data as a percentage of net
revenue for the periods indicated:
Three Months Ended December 31,
2020 2019
Net revenue 100 % 100 %
Cost of sales 58 % 60 %
Gross margin 42 % 40 %
Selling, general and administrative 29 % 29 %
Research, development and engineering 7 % 3 %
Operating income 6 % 8 %
Loss on sale of subsidiary - % (14 )%
Interest expense and other, net (1 )% - %
Income (loss) from continuing operations before
income taxes 5 % (6 )% Income tax provision 1 % - % Income (loss) from continuing operations, net of tax 4 % (6 )% Loss from discontinued operations, net of tax - % (3 )% Net income (loss) 4 % (9 )%
In the second quarter of 2019, we began the process to divest our solar
business. As such, we have reported the results of the Solar segment as
discontinued operations in our Condensed Consolidated Statements of Operations
for all periods presented.
Net Revenue
Net revenue consists of revenue recognized upon shipment or installation of
equipment, with the exception of products using new technology, for which
revenue is recognized upon customer acceptance. Spare parts sales are recognized
upon shipment and service revenue is recognized upon completion of the service
activity, which is generally ratable over the term of the service contract.
Since the majority of our revenue is generated from large system sales, revenue
and operating income can be significantly impacted by the timing of system
shipments and system acceptances.
Our net revenue by operating segment was as follows (dollars in thousands):
Three Months Ended December 31,
Segment 2020 2019 Incr (Decr) % Change
Semiconductor $ 15,575 $ 17,232 $ (1,657 ) (10 )%
SiC/LED 2,400 2,817 (417 ) (15 )%
Non-segment related - 643 (643 ) (100 )%
Total net revenue $ 17,975 $ 20,692 $ (2,717 ) (13 )%
Total net revenue for the quarters ended
million
million
customers’ expansions, and our results have been negatively impacted by the
uncertainty in the global economy due primarily to the impact of the COVID-19
virus, as well as lingering trade tensions between the
believe the impact from the COVID-19 virus on both our
are temporary trends, as we experienced a return to near-capacity in our
factory during the third fiscal quarter of 2020.
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However, we also believe that we will continue to experience some level of
volatility in our bookings and shipments as various states and countries
experience resurgences of the virus as well as the possible emergence of new
strains of the virus. Despite the uncertainty caused by the COVID-19 virus, we
believe there remains significant potential in the SiC industry and long-term
growth in power semiconductor. SiC/LED revenue decreased due to lower machine
sales between periods. Non-segment related revenues relate to R2D, the
automation division that we divested in
Backlog and Orders
Our backlog as of
thousands):
December 31,
Segment 2020 2019 Incr (Decr) % Change
Semiconductor $ 12,750 $ 12,764 $ (14 ) (0 )%
SiC/LED 1,049 680 369 54 %
Total backlog $ 13,799 $ 13,444 $ 355 3 %
New orders booked in the three months ended
follows (dollars in thousands):
Three Months Ended December 31,
Segment 2020 2019 Incr (Decr) % Change
Semiconductor $ 15,483 $ 15,094 $ 389 3 %
SiC/LED 2,386 2,531 (145 ) (6 )%
Total new orders $ 17,869 $ 17,625 $ 244 1 %
As of
18% and 11% of our backlog. No other customer accounted for more than 10% of our
backlog as of
as of
approved customer purchase orders believed to be firm and are generally expected
to ship within the next twelve months. Because our orders are typically subject
to cancellation or delay by the customer, our backlog at any particular point in
time is not necessarily representative of actual sales for succeeding periods,
nor is backlog any assurance that we will realize profit from completing these
orders.
Gross Profit and Gross Margin
Gross profit is the difference between net revenue and cost of goods sold. Cost
of goods sold consists of purchased material, labor and overhead to manufacture
equipment and spare parts and the cost of service and support to customers for
installation, warranty and paid service calls. Gross margin is gross profit as a
percent of net revenue. Our gross profit and gross margin by operating segment
were as follows (dollars in thousands):
Three Months Ended December 31,
Segment 2020 Gross Margin 2019 Gross Margin Incr (Decr)
Semiconductor $ 6,912 44 % $ 7,186 42 % $ (274 )
SiC/LED 600 25 % 979 35 % (379 )
Non-segment related - - % 9 1 % (9 )
Total gross profit $ 7,512 42 % $ 8,174 40 % $ (662 )
Gross profit for the three months ended
million
respectively, a decrease of
capacity utilization and the type and volume of machines and consumables sold
each quarter. Gross margin on products from our Semiconductor segment increased
compared to the three months ended
product mix. Gross margin on products from our SiC/LED segment decreased
compared to
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the three months ended
over higher fixed costs as a result of our capacity expansion in fiscal 2020.
Selling, General and Administrative
Selling, general and administrative expenses (“SG&A”) consists of the cost of
employees, consultants and contractors, facility costs, sales commissions,
shipping costs, promotional marketing expenses, legal and accounting expenses
and bad debt expense.
SG&A expenses for the three months ended
million
year quarter due primarily to reduced legal fees related to the Solar
divestiture, no longer having R2D SG&A included in our results and lower travel
due to the COVID-19 pandemic.
Research, Development and Engineering
Research, development and engineering (“RD&E”) expenses consist of the cost of
employees, consultants and contractors who design, engineer and develop new
products and processes as well as materials and supplies used in producing
prototypes. We receive reimbursements through governmental research and
development grants which are netted against these expenses when certain
conditions have been met.
RD&E expense, net of grants earned, for the three months ended
and 2019 were
expense is due to increased spending related to product improvement projects at
our Semiconductor segment and the development of new products at our SiC/LED
segment.
Income Taxes
For the three months ended
expense at our continuing operations of
Tax expense for the three months ended
approximately
uncertain tax positions. In the three months ended
recorded income tax expense of
income tax provisions are based upon estimates of annual income, annual
permanent differences and statutory tax rates in the various jurisdictions in
which we operate, except that certain loss jurisdictions and discrete items are
treated separately.
Generally accepted accounting principles require that a valuation allowance be
established when it is “more likely than not” that all or a portion of deferred
tax assets will not be realized. A review of all available positive and negative
evidence needs to be considered, including a company’s performance, the market
environment in which the company operates and the length of carryback and
carryforward periods. According to those principles, it is difficult to conclude
that a valuation allowance is not needed when the negative evidence includes
cumulative losses in recent years. We have concluded that we will maintain a
full valuation allowance for all net deferred tax assets related to the
carryforwards of
continue to monitor our cumulative income and loss positions in the
foreign jurisdictions to determine whether full valuation allowances on net
deferred tax assets are appropriate.
Our future effective income tax rate depends on various factors, such as the
amount of income (loss) in each tax jurisdiction, tax regulations governing each
region, non-tax deductible expenses incurred as a percent of pre-tax income and
the effectiveness of our tax planning strategies.
Discontinued Operations
As disclosed previously in the “Solar and Automation Divestitures” section, we
announced that our Board determined that it was in the long-term best interest
of the Company to exit the solar business segment and focus our strategic
efforts on our semiconductor and silicon carbide/polishing business segments in
order to more fully realize the opportunities we believe are presented in those
areas. The divestitures included our Tempress and SoLayTec
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subsidiaries, which comprised substantially all of our Solar segment. As such,
we reported the results of the Solar segment as discontinued operations in our
Condensed Consolidated Statements of Operations. SoLayTec was sold effective
additional information).
Liquidity and Capital Resources
The following table sets forth for the periods presented certain consolidated
cash flow information (in thousands):
Three Months Ended December 31,
2020 2019
Net cash provided by (used in) operating activities $ 104 $ (168 )
Net cash used in investing activities (198 ) (820 )
Net cash provided by financing activities 42 598
Effect of exchange rate changes on cash, cash
equivalents and
restricted cash 596 1,141
Net increase in cash, cash equivalents and restricted
cash
544 751
Cash, cash equivalents and restricted cash, beginning
of period*
45,070 59,134 Cash, cash equivalents and restricted cash, end of period*$ 45,614 $ 59,885 * Includes Cash, Cash Equivalents and Restricted Cash that are included in Held-For-Sale Assets on the Condensed Consolidated Balance Sheets for periods prior toJanuary 22, 2020 . Cash and Cash Flow
The increase in cash and cash equivalents from
million
favorable effect of exchange rate changes on our cash balances. We maintain a
portion of our cash and cash equivalents in RMB at our Chinese operations;
therefore, changes in the exchange rates have an impact on our cash balances.
Our working capital was
as of
due to increases in our accounts receivable and cash balances, which were
partially offset by increases in accounts payable and accrued compensation. Our
ratio of current assets to current liabilities was 9.4:1 as of
2020
The success of our growth strategy is dependent upon the availability of
additional capital resources on terms satisfactory to management. Our sources of
capital in the past have included the sale of equity securities, which includes
common stock sold in private transactions and public offerings, long-term debt
and customer deposits. There can be no assurance that we can raise such
additional capital resources when needed or on satisfactory terms. We believe
that our principal sources of liquidity discussed above are sufficient to
support operations for at least the next twelve months. We have never paid
dividends on our common stock.
Cash Flows from Operating Activities
Cash provided by our operating activities was approximately
three months ended
activities of
increase of approximately
31, 2020
offset by
operating assets and liabilities. During the three months ended
2019
was offset by
operating assets and liabilities.
Cash Flows from Investing Activities
For the three months ended
activities was
The amount for the first quarter of fiscal 2021 relates solely to
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capital expenditures. The amount for the first quarter of fiscal 2020 reflects
the divestiture of our automation business as well as approximately
of capital expenditures. We expect capital expenditures to increase throughout
2021 as we initiate and complete the relocation of our Semiconductor
manufacturing facility in
third quarter of 2021.
Cash Flows from Financing Activities
For the three months ended
financing activities was comprised of approximately
received from the exercise of stock options, which was mostly offset by payments
on long-term debt of
million
of proceeds received from the exercise of stock options, which was partially
offset by payments on long-term debt of
Off-Balance Sheet Arrangements
As of
Item 303(a)(4) of Regulation S-K promulgated by the
reasonably likely to have a current or future effect on financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to
investors.
Contractual Obligations
Unrecorded purchase obligations at our continuing operations were
as of
increase of
There were no other material changes to the contractual obligations included in
Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” of our Annual Report on Form 10-K for the year ended
Critical Accounting Policies
Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” of this Quarterly Report discusses our condensed
consolidated financial statements that have been prepared in accordance with
accounting principles generally accepted in
preparation of these condensed consolidated financial statements requires us to
make estimates and assumptions that affect the reported amount of assets and
liabilities at the date of the condensed consolidated financial statements, the
disclosure of contingent assets and liabilities at the date of the condensed
consolidated financial statements and the reported amounts of revenue and
expenses during the reporting period.
On an ongoing basis, we evaluate our estimates and judgments, including those
related to revenue recognition, inventory valuation, accounts and notes
receivable collectability, warranty and impairment of long-lived assets. We base
our estimates and judgments on historical experience and on various other
factors that we believe to be reasonable under the circumstances. The results of
these estimates and judgments form the basis for making conclusions about the
carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
A critical accounting policy is one that is both important to the presentation
of our financial position and results of operations, and requires management’s
most difficult, subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain.
These uncertainties are discussed in Part I, Item 1A of our Annual Report on
Form 10-K for the year ended
accounting policies relate to the more significant judgments and estimates used
in the preparation of our consolidated financial statements.
We believe the critical accounting policies discussed in the section entitled
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations – Critical Accounting Policies” in our Annual Report on Form 10-K
for the fiscal year ended
judgments and estimates
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used in the preparation of our consolidated financial statements. There have
been no significant changes in our critical accounting policies during the three
months ended
Impact of Recently Issued Accounting Pronouncements
For discussion of the impact of recently issued accounting pronouncements, see
“Part I, Item 1. Financial Information” under “Impact of Recently Issued
Accounting Pronouncements.”
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