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BTU International, Inc. (NASDAQ:BTUI)

Q4 2013 Earnings Conference Call

February 25, 2014 5:00 PM ET

Executives

Paul van der Wansem - Chairman and CEO

Peter Tallian - COO

Jim Griffin - VP of Sales and Service

Analyst

Paul Siegel - Columbia Management

Operator

Good day everyone and thank you for standing-by. Welcome to BTU International Fourth Quarter and Fiscal Year 2013 Earnings Result Conference Call. This call is being recorded. Presently all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At this time for opening remarks and introductions I would like to turn the call over to BTU’s Chief Executive Officer, Mr. Paul van der Wansem. Mr. van der Wansem, please go ahead, sir.

Paul van der Wansem

Thank you, Michelle and good afternoon to all of you. I am Paul Wansem, CEO of BTU and it is my pleasure to conduct this conference call regarding our fourth quarter and fiscal year 2013 results. We’re pleased by technical [indiscernible]. With me here are, Peter Tallian, Chief Operating Officer; and on the line we also have Jim Griffin, Vice President of Sales and Service.

This call will consist of four parts, first of all Peter will begin with a brief introduction and a report on our fourth quarter and year-end results. After that we will give a short overview of our products and markets followed by our immediate outlook and a few comments from me. And finally we’ll have the Q&A session for as long as time permits. So with this Peter please go ahead.

Peter Tallian

Thank you, Paul. Before we begin I’d like to note that the statements made during this call will include forward-looking statements including statements concerning our future financial and operating performance, our expectations regarding future orders for our products, the capabilities of our products and the ability to meet the needs of our customers, the Company’s marketing and sales strategies and expected trends in the industry served by BTU. These forward-looking statements are not promises, nor guarantees but are subject to risks and uncertainties that could cause actual results to differ materially from those described or implied in the forward-looking statements.

Such factors are described in the Company’s latest filings with the SEC and in the press release issued today regarding the Company’s fourth quarter and fiscal 2013 results. Statements made during this call are current as of today only and the Company undertakes no obligations to publicly update or revise these forward-looking statements unless required by law. A copy of our earnings release can be found on the BTU website btu.com or you may request a copy by calling 978-667-4111.

So let’s begin with a brief summary of what we do at BTU. BTU is in the business of providing advanced thermal processing equipment for the electronics manufacturing applications, such as printed circuit-board assembly and semiconductor packaging, and for alternative energy applications, such as manufacturing of solar cells and nuclear fuels. All of these applications require precise temperature and atmosphere control for high volume manufacturing processes.

And now I’d like to talk about the fourth quarter and fiscal year 2013 results. And then we will take you through the products and markets. In the fourth quarter our revenues continued to be driven by our electronics business. Our gross margin percentage of 27.7% in the fourth quarter was slightly down from the 29.4% gross margin in the third quarter of 2013. Gross margin percentage for the year was just under 31% up from 28% in 2012.

Gross margins in Q4 was impacted by factory underutilization in our U.S. and China facilities. Operating expenses were down from the third quarter primarily due to the one-time charge we incurred in the third quarter related to a customer legal settlement. Our tax provision in Q4 was 208,000 which primarily reflects Chinese withholding taxes.

Now let’s take a look at some of the details. Fourth quarter net sales were $11 million down 8.5% compared to the $12 million in the preceding quarter and down 16% compared to the 13.1 million for the same quarter a year ago. Net loss for the fourth quarter of ’13 was $3 million or $0.32 per diluted share compared to a net loss of 5.1 million or $0.53 per diluted share in the preceding quarter and compared to a net loss of 4.4 million or $0.47 per diluted share in the fourth quarter of 2012.

Net sales for the year were 47.8 million compared to 58.1 million for the year 2012. Net loss for ’13 was 11.5 million or $1.20 per share compared to a net loss of $11 million or $1.16 per diluted share for the preceding year 2012. We ended the year 2013 with $14 million in cash. We expect under-utilization in our China and U.S. factories during the first quarter. Our gross margin percentage is anticipated to be in the low 30% range in the first quarter, operating expenses are expected to be essentially flat versus the fourth quarter and inventory is expected to be similar to the fourth quarter of 2012.

For modeling purposes we use a fourth quarter tax provision in the range of $300,000 to reflect taxes related to our China operation.

With that as a brief overview let me turn this call over to Jim, to talk about what he sees in terms of sales and markets.

Jim Griffin

Thank you, Peter and thank you all for joining us today for our Q4 2013 and year-end earnings conference call. In this segment of the call we will review the highlights of the fourth quarter and fiscal year 2013 in our electronics and alternative energy markets. In our electronics business we serve the printed circuit-board assemblies and semiconductor packaging markets. In alternative energy our key focus is on the solar and nuclear fuel markets.

So we will start now with the electronics business. 2013 was a solid year for our electronics business in total with our semiconductor packaging segment leading the way. BTU has a very strong position within the top SATS customers and the SATS stands for semiconductor assembly and test services companies. In Q4 we saw increased bookings in our SATS market as projected in our last earning call as well as technical and seasonal trends with lower bookings in our printed circuit assembly business.

The key driver in our electronics business is the device market which consists of PCs, phones and tablets. But you got to note the device market is expected to grow 7.6% in 2014 compared to 3.9% growth in 2013. The total units will be in the 2.5 billion unit range, this projects positively for our electronics business in 2014. BTU has developed a two-tier strategy to meet the needs of electronics reflow market with our Pyramax and Dynamo product lines.

The Pyramax product line drives our revenue in electronics, BTU’s Pyramax Reflow Oven platform with this unique closed loop convection control provides consistent repeatability from oven-to-oven and site-to-site that is critical to meet both the SATS manufacturer’s stringent process requirements as well as the flexibility required for global EMS and OEM printed circuit board assembly customers.

The Dynamo is our newest product platform. The Dynamo is designed around the full function effect in the consumer product market and offers a unique flow pattern utilizing BTU’s closed loop convection control technology. This technology again delivers repeatable process control at a competitive market price point with a high growth consumer product market segment. We continue to build momentum with the Dynamo platform and expect to realize increasing sales quarter-over-quarter in 2014.

In addition to equipment development we continue to enhance our service and distribution network with the addition of our directory in sales and service network through our global team.

Now we’ll take a look at alternative energy. In solar, the lower capacity situation for solar sub manufacturing continues however we see positive indicators that equipment buying opportunities around the horizon in the second half of 2014. Estimates for solar installations for 2013 will wrap-up to be in the 36 gigawatt to 38 gigawatt range, and 2014 is projecting to be in the mid 40 gigawatts. During the current overcapacity environment BTU is focused on providing technology solutions that can address the current challenges that face our customers in reducing cost and increasing efficiencies.

CapEx budgets are still pretty tight however we continue to collaborate with customers on proof of process in our lab equipment, and equipment placed at our customers’ facilities. In addition we are continuing our partnership with fund off of to develop lower cost manufacturing solutions with the use of in-line diffusion.

Now taking a look at the nuclear market, as detailed in our earnings release we recognized a delay in shipment of a larger retrofit order in Q4. We do see China and Russia will be the leaders in expanding nuclear field manufacturing and BTU has a solid position in both of those markets. In addition to our core businesses that we just reviewed we continue to focus on conventional belt furnace business leveraging BTU’s core competency in terminal and atmosphere control for other industrial applications.

So at this time I will return it back to Paul.

Paul van der Wansem

Thank you, Jim. As we previously heard out of Jim we have the surprise shortfall on our revenues in the fourth quarter which stripped us up in our forecast. This together with the absence of solar business allowed us to record low quarterly and yearly revenues in 2013. Although our first quarter of 2014 will still be at a similar level to the fourth quarter we do expect to see higher revenues starting in the second quarter based upon anticipated upturn in electronics and as well as additional nuclear revenues.

Due to the still prevailing overcapacity within solar sale supply chain we continue to be cautious about a new recovery for solar equipments in the immediate future. Given the circumstance we have and will continue to review and review its expenses in order to preserve cash and concentrate on our core strengths to grow in the most lucrative markets for our technologies and products. Obviously 2013 was another tough year for us but we have good hopes for the future to be able to increase our revenues and get our bottom-line into a better shape.

Now I’d like to turn the call over to Michelle for a coordination of the Q&A session. Michelle, go ahead.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Paul Siegel with Columbia Management. Your line is open.

Paul Siegel - Columbia Management

Hi. I was wondering if your Q1 expectation includes those orders or shipping those orders that had been delayed from the fourth quarter?

Paul van der Wansem

Part of the orders which slipped out of the fourth quarter part of that will be in the first quarter but not all of it.

Paul Siegel - Columbia Management

So, then how bad or how -- what would first quarter revenues be without those delayed shipments that were pushed?

Paul van der Wansem

It will probably make a difference somewhere in the eight to nine end of [indiscernible].

Paul Siegel - Columbia Management

Okay. And with that one shipment where you were waiting for the contractual payment, has that been settled?

Paul van der Wansem

Partially settled partners have gone through and part be a little bit more delayed and probably dumped into the next quarter.

Paul Siegel - Columbia Management

Okay. And you said the gross margin you expected to get back into the low 30s in Q1?

Paul van der Wansem

Yes, don’t forget that the gross margins are highly affected if you look in the past by two key items one is the under absorption and the other one is significant write-offs we did on our solar equipment inventory. The inventory write-offs are primarily all behind us. There is always a little bit lingering in the general business but most of that is behind us I would say and the under absorption is still affect us but in the meantime we’re working hard to reduce our expenses further, and so that our breakeven becomes at a lower revenue level.

Paul Siegel - Columbia Management

Okay. And then I guess your expectation that the electronics business will pick up in Q2. Is that based on orders in hand or what leads you to believe that?

Paul van der Wansem

Now let me turn it over to Jim. Jim can you answer that?

Jim Griffin

Sure. I think well first of all Paul there is a seasonality if you look at it where Asia dominated and we have the Chinese New Year that slows things down in Q1 but typically Q1 is a lower quarter and we look at with communications with a number of our key customers their plans are calling for expansion as they roll into Q2 and Q3, and then typically Q4 is down a little bit as well.

We’ve also gotten some positive indicators from some of our customers’ customers who are looking at actually thinking that they may have the opportunity to not have the seasonal tail off a little bit at the end of the year as well. So, that combined with as I mentioned in my discussion that we’re looking at a very positive growth rate for the device market for 2014 and in particular market segments for example in the semi-pac area for the SATS their projection for growth is up in the high-teens.

So at this point it looks good. It’s not all booked because the delivery for the electronics equipments that we offer is typically in the four to eight week timeframe. So we typically don’t have a quarter in advance of full bookings. But we feel that the information that we’ve gotten from the macro forecast and from individual customer forecast that we should have a solid year.

Paul Siegel - Columbia Management

Okay. Thank you.

Paul van der Wansem

Thank you, Paul.

Operator

Thank you. (Operator Instructions) I am not showing any further questions at this time, and I would like to turn the call back to management for any closing remarks.

Paul van der Wansem

Okay. Thank you, Michelle. Obviously, this was a tough year. We’re working hard and this is a bit at least for the markets we will start to do better and better. So, I look forward to our next earnings call. We will announce that and it is planned for the end of April 2014, when we’re going to talk about the results for the first quarter of 2014. More over we’ll talk about our immediate outlook for the second quarter and a press release as usual will go out at approximately 4:30 PM on the day of our conference call and at 5 PM we’ll then have the conference call itself.

So with I want to thank everybody for your time and questions today and I hope to have you back next time for our first quarter results. And look forward to talking to you all again. Thank you very much and good luck. Bye, bye.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.

Paul van der Wansem

Thank you, Michelle.

Jim Griffin

Thank you. Bye, bye.

Peter Tallian

Bye, bye.

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