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Fremont, California and Sydney, Australia; 30 April 2020 — Pivotal Systems Corporation (“Pivotal” or the “Company”) (ASX: PVS), a leading provider of innovative gas flow control (GFC) solutions to the semiconductor industry, is pleased to release a Quarterly update and Appendix 4C Report for the period ending 31 March 2020.
Key highlights
- During the quarter, Pivotal made solid customer and product progress despite the COVID 19 pandemic
- Maintained U.S. manufacturing operations despite “shelter at home” orders due to status as an “essential business” as a result of being a supplier to medical diagnostic and IT customers
- GFC production at our China based Contract Manufacturer and our Fremont Facility was maintained without interruption except for a 3-week shutdown and
all GFC Product shipments were on time to customer request - Received repeat production orders from a leading Japanese OEM o Successfully qualified the GFC at two leading Chinese Foundries o Received multiple repeat orders from a leading European foundry o Received multiple repeat orders in Taiwan
- Received multiple repeat orders in the USA
- Unaudited revenue of US$4.3 million for Q1 2020 GFCs
- Net cash outflows from operating and investing activities of US$3.4 million reflects business
operations, product development, inventory, purchases of production tooling and fixed assets - Backlog (confirmed orders not yet shipped) at 31 March 2020 was US$2.5 million
- The Company successfully closed its RBI Preferred Stock Financing on 24 February 2020.
March 2020 Quarter Cash Flow
The Company finished the Q1 2020 quarter with a cash balance of US$11.7 million which included a US$2.5 million balance drawn against the term loan with Bridge Bank. There are currently no borrowings against the Bridge Bank revolving line of credit (with US$2.45 million available to be drawn). Cash flow from financing increased US$9.7 million as the Company closed the first tranche of US$10 million RBI Preferred Stock funding previously announced in February.
Cash receipts from customers for the period were US$4.8 million, up from US$3.1 million last quarter, due primarily to collections from strong shipments at the end of 2019.
Cash payments for Product Manufacturing were US$5.6 million reflecting the increase in quarterly shipments relative to Q4 and certain cost increases while the Company temporarily transitioned select manufacturing activities back to Fremont, California and added a second shift in its manufacturing facility in Fremont to address social distancing measures. Pivotal continued to invest in product development with US$0.8 million in capitalized costs incurred during the quarter although product development progress has been limited to some degree by the “shelter in place” order in California which has now been extended through May 2020.
As commented on previously, Pivotal has made this investment in response to four customer-led product initiatives, along with increased inventory build of the new High Flow GFC and the new High Temperature GFC (also called the Remote GFC).
During the quarter, the Company made salary and payments of U$283,000 to related parties and their associates including executive director’s salary payments, non-executive director fees, and fees for consulting services provided by a director-related entity.
Post-quarter end financing
On 21 April, 2020, the Company was able to secure a loan with Western Alliance Bank for US$0.9 million that is guaranteed by the U.S. Small Business Administration or SBA and is part of a program created by the U.S. Coronavirus Aid, Relief, and Economic Security Act, “CARES Act”, which provides financial relief from the COVID-19 emergency. The loan will mature in 2 years but the SBA may forgive all or part of this loan if all employees are kept on the payroll for eight weeks and the money is used for employee payroll and associated expenses.
Product update
Sales of the standard low flow GFC, commonly used for etch applications, continued its momentum in the 1stth Quarter of 2020 driven by spending by IDM’s in Korea as well as deliveries to IDMs in China, Taiwan, Japan and Europe.
The Company continued its High Temperature GFC fanout with a leading Japanese OEM during the quarter.
The Smartstik architecture was successfully used by Pivotal as part of the qualification process at the Korean Etch OEM and is currently continuing trials with a leading Chinese Etch OEM. The SmartStik architecture provides a live demonstration of the standard GFC’s industry leading performance in both speed and accuracy, while also demonstrating the ability of the OEM to effectively eliminate redundant hardware required by older technology pressure based and thermal MFCs utilized by our competitors. SmartStik continues to demonstrate a method for etch OEMs to improve process tool performance and potentially reduce costs.
The recently introduced Flow Ratio Controller for etch applications (three channel) continues to perform well in production at a leading Korean IDM. Pivotal successfully demonstrated the new FRC for deposition applications (two channel) at a leading US OEM in Q1 2020. Additionally, Pivotal expects to officially launch the three channel FRC in the first half of 2020.
Operations Update
First quarter full-time headcount was 46 employees.
Pivotal will complete the establishment of a new “transformation” center in Korea in 1H 2020. During the quarter, Pivotal continued its previously announced temporary transition of certain manufacturing activities to Fremont as it completes initiation of final product transformation in South Korea. This resulted in the continuation during Q1 of final product transformation activities and product shipments from Pivotal’s Fremont facility. In future periods, the Fremont facility will continue as an auxiliary capability to Korea. Pivotal has sufficient capacity to meet expected customer demand for Pivotal’s GFCs commensurate with known requirements in the semiconductor manufacturing equipment sector for 2020.
Pivotal also established its repair and upgrade center in Korea. The facility, which is operated (but not owned) by Pivotal commenced operations in January 2020 and provides both repair and software upgrades to both IDM and OEM customers globally. As noted previously, Pivotal’s large global installed base continually has an increasing number of units coming out of warranty. Pivotal therefore expects the repair and software upgrade business to grow in scale over the short to medium term.
Industry Update
Prior to COVID-19, SEMI®1 estimated that global semiconductor manufacturing equipment sales are expected to increase 5.5% to US$60.8 billion in 2020, but the industry has had to adjust its expectations and plans due to the COVID-19 pandemic and related challenges. SEMI expects the 2020 equipment market recovery to come primarily from advanced logic and foundry, new projects in China, and, to a lesser extent, memory.
“Interestingly, in the first quarter, it was apparent that mobile computing customers increased demand or did not reduce orders on concerns over future supply allocations. While this is promising in the near term, the industry has entered a low visibility period for the 2nd half of 2020. Both our OEM and IDM customers are cautious in this period of uncertainty,” stated Pivotal Chairman and CEO, John Hoffman.
Mr. Hoffman continued, “The recent coronavirus pandemic is a reminder to all of us that the future is always uncertain, and things can change quickly. With the worldwide economic disruption, the Company may be adversely affected going forward in ways currently unforeseeable to us.”
Outlook
Pivotal’s growth strategy continues to focus on successfully leveraging established IDM customers’ acceptance of its GFC technology into new semiconductor processes while gaining increased acceptance by the major OEMs into new applications or tool sets. We continue to move positively towards our market penetration and fan out objectives for FY2020 based on the acceptance of the High Flow GFC, the High
Temperature GFC and the Flow Ratio Controller (FRC). At this time, there is much uncertainty about the overall semiconductor 2020 outlook and we are closely monitoring end market semiconductor demand as well as IDM CAPEX announcements as we navigate through the beginnings of the COVID-19 pandemic.
Investor Conference Call
The Company will host an investor conference call at 9.30am AEST today 30 April (4.30pm PDT on Wednesday, 29 April) with Mr. John Hoffman, Chairman and CEO and Mr. Timothy Welch, CFO. Pre- registration and dial-in details are available at the following link:
https://s1.c-conf.com/diamondpass/10005761b-invite.html
Alternatively, you may dial in with the following details, approximately ten minutes before the scheduled start time and provide the Conference ID to an operator.
Conference ID: 10005761
Participant Dial-in Numbers:
Australia Toll Free: 1800 908299
Australia Local: +61 2 9007 8048
New Zealand: 0800 452 795 Canada/USA: 1855 624 0077
Hong Kong: 800 968 273
Japan: 006 633 868 000
China: 108 001 401 776
Singapore: 800 101 2702
United Kingdom: 0800 0511 453
THIS RELEASE DATED 30 APRIL 2020 HAS BEEN AUTHORISED FOR LODGEMENT TO ASX BY THE BOARD OF DIRECTORS OF PIVOTAL SYSTEMS.
– ENDS –
For further information, interview and photos:
Investor Relations & Media (Australia):
Dr Thomas Duthy Nemean Group
tduthy@3.227.228.84
+61 402 493 727
Media Contact (US):
Rob Haralson
ANZU Partners
rhh@anzupartners.com