BTU International, Inc. (NASDAQ:BTUI)
Q2 2014 Earnings Conference Call
July 29, 2014 5:00 p.m. ET
Paul van der Wansem - Chairman and Chief Executive Officer
Peter Tallian - Chief Operating Officer
Jim Griffin - Vice President of Sales and Service
Good day everyone and thank you for standing-by. Welcome to BTU International Second Quarter 2014 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, Bridget 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 second quarter 2014 results. We are pleased that you could all join us. With me here are, Peter Tallian, our Chief Operating Officer as well as Jim Griffin, Vice President of Sales and Service. As we’ve done in the past, this call will consist basically of four parts. First of all Peter will begin with a brief introduction and a report on our second quarter 2014 results. After that we will give a short overview of our products and markets by Jim and our immediate outlook strategy will be discussed finally by myself. And then we have a Q&A session for as long as time permits.
So with that, Peter, please go ahead with your introduction.
Thank you, Paul and good afternoon. 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 a press release issued today regarding the Company’s second quarter 2014 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 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 second quarter 2014 results, and then we will take you through products and markets. In the second quarter our revenue was driven by strength in our electronics business. Our gross margin of 41.8% in the second quarter was up from 35.6% gross margin in Q1 due to positive revenue mix and strong factory utilization in our China factory.
Operating expenses were up slightly from the first quarter due to sales commissions on the quarterly increase in revenue. Our tax provision in the second quarter was $129,000 which primarily reflects Chinese withholding taxes.
Now let’s take a look at some of the details. Second quarter net sales were $16.4 million up 41% compared to $11.7 million in the preceding quarter and up 15% compared to the $14.2 million for the same quarter a year ago.
Net income for the second quarter of 2014 was $0.6 million or $0.06 per diluted share compared to a net loss of $1.8 million or $0.19 per diluted share in the preceding quarter and compared to a net loss of $0.3 million or $0.03 per diluted share in the second quarter of 2013.
Net sales for the six months ended June of 2014 were $28.1 million compared to the year ago half of $24.7 million.
Net loss for the first six months of 2014 was $1.2 million or $0.12 per diluted share compared to a net loss of $3.4 million or $0.36 per diluted share for the first half of 2013.
We ended the second quarter with $10 million in cash.
We expect underutilization in our American factory and full utilization in our Chinese factory during the third quarter, and less favorable revenue mix leading to a gross margin percentage similar to the first quarter of 2014 in our upcoming third quarter.
Our operating expenses are anticipated to be essentially flat to the second quarter. Inventory is expected to decline modestly from Q2 to Q3. For modeling purposes, we use the third quarter tax provision in the range of $175,000 to reflect taxes related to our China operation.
Now let me turn this call over to Jim to talk about what he sees in terms of sales and markets.
Thank you, Peter and thank you all for joining us today for our Q2 2014 earnings call. In this segment of the call we’ll review the highlights of the second quarter of 2014 in our electronics and alternative energy markets. In our electronics business we serve the printed circuit-board assembly and semiconductor packaging markets. In alternative energy, our key focus is on the solar and nuclear fuel markets.
So we’ll start now with the electronics business. Q2 was the strong quarter in our core electronics business, with healthy contributions from both our semi-packed and printed circuit-board assembly markets. In our semi-packed space, BTU provides reflow equipment to the assembly end of the OEM fabs, and to the assembly suppliers to the foundries, commonly referred to as the SATS or Semiconductor Assembly and Test Services companies. Our business in Q2 more than doubled quarter over quarter, with our SATS customers, driven by market extension and shifting of upstream business from OEM to the foundries.
BTU holds a very strong position in the SATS market with customers choosing performance equipment to meet stringent process requirements. BTU’s Pyramax, with its unique closed loop convection control provides consistent repeatability from oven-to-oven and site-to-site that is critical for the SATS manufacturers. The semi-packed market typically is cyclical in nature, with a stronger first half. However, our Q3 sales remain solid and they’re our focus indicators from the foundries that second half will remain healthy.
In our printed circuit-board assembly, market sales were up over 20% quarter over quarter in Q2. China remains our largest market. However, we realized solid contributions from our global market place, leveraging our China manufacturing facility, and an enhanced worldwide stocking strategy. BTU offers a two-tier platform of reflow ovens for the electronics market to meet the requirements of each market segment and provide the lowest cost of ownership. The Pyramax product line drives our revenue in electronics. The Pyramax platform continues to be the system of choice for customers demanding precision, performance, flexibility and low cost of ownership in both the printed circuit-board assemblies and assembly conductor packaging markets. The latest additions to the Pyramax platform include our energy pilot that optimizes operation costs by reducing power and gas consumption. BTU was driven to continue to redo its cost of ownership to enhance our customers’ ability to compete.
The Dynamo, our latest platform offering is designed around the form function factors of the consumer product market and offers a unique flow pattern utilizing BTU’s closed loop convection control of technology, delivering repeatable process control at a competitive market price point. The Dynamo is designed to meet the needs of the high growth consumer product market segment, including tablets and smartphones that are projecting a compound annual growth rate exceeding 34% through 2016 per Gartner.
Now we’ll take a look at the alternative energy and solar markets. BTU exhibited at the SNIEC show in Shanghai in May, introducing our new SWIFT, which is a stacked wafer Inline Diffusion Technology that can yield up to 15,000 wafers per hour. The SWIFT Technology is being developed in conjunction with [inaudible], with the plan to implement at our beta site partner a little bit later this year. We continue to collaborate with customers in our research projects and proof of process for improving solar efficiencies, and lowering cost per watt for new and existing processes. For Q3, we have booked units for multiple customers for pilot-mind applications, targeted at increasing solar efficiency, reducing manufacturing cost and reducing material cost. Based on current activity, we expect to see additional pilot-mind orders in the second half.
So now we’ll take a look at our nuclear market. Our coating activity has increased in our nuclear market for both new and upgrade opportunities. China and Russia are the key markets and we have a long successful track record in both locations. In addition to our core businesses, we continue to focus on conventional belt furnace business, leveraging BTU’s core competency in terminal and atmosphere control for other industrial applications. In Q2 we shipped repeat orders from key automotive customers.
With that I will now return you back to Paul.
Paul van der Wansem
Thank you, Jim. To wrap up we are very obviously encouraged by the strength in the electronics market and our performance in delivering the best technology, coupled with the best up time to a demanding industry. The need for very highest throughput with consistent uniformity for processing semiconductor packaging and PC ward assembly is key to maintaining margins for these customers in a very competitive industry.
Similarly, for other market applications, BTU provides equipment and processes which enable our customers to perform at very high level of productivity. Our traditional bulk printing business increased over the last quarter and they’re seeing an increase in request for quotations. As Jim mentioned, our nuclear business is expected to receive orders within the next six months for both rebuilds as well as new equipment. Solar is seeing the start of activity in terms of technology developments and the receipt of some R&D pilot line systems primarily and customers systems for advanced processes and solar fabrication.
With the continuation in growth of solar energy, it is generally that we’ll see capital equipment expenditures to really start going in the first half of 2015. We are looking forward to strengthening our product offerings for the key markets where our technology can be most beneficial to our customers’ needs. And I’m glad to conclude that we are starting to see the light at the end of a long tunnel. We all look forward and wish our employees and shareholders a happy and rewarding future.
With that I’d like to turn it over back to Bridget for coordination of our Q&A session. Bridget, go ahead.
Thank you. (Operator Instructions) I’m not showing any questions at this time.
Paul van der Wansem
All right, give it one moment, Bridget, maybe. Give it one minute.
Sure, not a problem (Operator Instructions).
Paul van der Wansem
Okay, Bridget, let’s conclude.
Okay, great. Ladies and gentlemen this does conclude the end of the conference. Thank you for joining. You all have a great day.
Paul van der Wansem
Okay, Bridget, thank you. Our next earnings call will be announced and is planned for the end of October when we’re going to talk about the results for the third quarter of 2014. The press release will go out approximately 4:30 pm that afternoon of the announcement, and at 5:00 pm as usual we’ll have our conference call. So I want to thank everybody for your time today and hope that you will be back next time for our third quarter results. And we look forward to talking to you all again. Again thank you very much and best. Thank you.
Thank you and you all have a great day.
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