Amtech Systems, Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended December 31, 2022; comparison is with the three months ended December 31, 2021. Amtech manufactures semiconductor and thermal-processing equipment, wafer-polishing equipment, and related materials and consumables. Amounts below are in U.S. dollars.
Financial results
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Revenue | $21.6 million | $26.5 million | Down 19% |
| Gross profit / margin | $8.3 million / 39% | $9.9 million / 37% | Profit down $1.6 million; margin up 2 points |
| Operating income (loss) | $(2.7) million | $1.2 million | Turned to loss |
| Net income (loss) | $(2.7) million | $1.0 million | Turned to loss |
| Diluted EPS | $(0.20) | $0.07 | Turned to loss |
| Operating cash flow | $(2.5) million | $2.5 million | Turned to cash use |
Gross margin improved overall, primarily because Material and Substrate sold more higher-margin consumables and had better capacity utilization. Semiconductor gross margin was 37%, versus 38% a year earlier; Material and Substrate margin rose to 46% from 33%. SG&A rose to $9.2 million from $7.1 million, including $1.4 million of Entrepix acquisition-related transaction expense. The quarter also included $0.4 million of severance expense related to the founder’s retirement.
Financial position and liquidity
- Cash and cash equivalents were $44.5 million at December 31, 2022, down from $46.9 million at September 30, 2022. Total assets were $129.5 million and total liabilities were $33.3 million.
- Working capital was $77.8 million, down from $80.3 million; the current ratio was 4.6:1, compared with 4.5:1 at fiscal year-end.
- Operating cash use was $2.5 million. Investing cash use was $0.2 million, primarily capital expenditures; financing provided less than $0.1 million. Cash declined by $2.3 million overall.
- At December 31, 2022, reported finance lease liabilities and long-term debt were approximately $0.1 million, excluding operating lease liabilities. After quarter-end, Amtech borrowed $12.0 million under a five-year term loan and had an $8.0 million revolving facility available, with no revolver borrowings as of the filing date.
Changes, orders, and business developments
- Semiconductor revenue fell 26% to $16.9 million, attributed to lower Shanghai production and fewer diffusion-furnace shipments. Material and Substrate revenue rose 26% to $4.7 million on higher consumables shipments tied to customer capacity expansion.
- New orders decreased 20% to $25.2 million. Backlog increased 12% year over year to $54.5 million; three Semiconductor customers represented 28%, 15%, and 11% of backlog. Orders may be delayed or canceled and do not assure future sales or profits.
- On January 17, 2023, Amtech acquired Entrepix, a CMP and wafer-cleaning business, for $35.0 million, subject to customary purchase-price adjustments. It used cash on hand and term-loan proceeds; purchase accounting was not finalized at filing.
- On February 7, 2023, the Board authorized a new share repurchase program of up to $5 million over one year. Repurchases are discretionary. No shares were repurchased during the reported quarter.
Outlook, commentary, and risks
Management stated that it expected increased material costs to continue at least through the first half of FY2023 and rising labor costs to persist. Amtech is reviewing pricing and supplier agreements but continues to face customer pricing pressure. It expects capital expenditures to increase during FY2023, including targeted IT-system investments, and anticipates continued investment in research and development, capacity, and talent. Management said existing liquidity sources were sufficient to support operations for at least the next 12 months. The filing provides no specific revenue or earnings guidance.
- Risks include semiconductor-industry cyclicality, changing demand, shipment timing, cost inflation and pricing pressure, supply-chain and logistics disruption, and possible future COVID-related shutdowns in Shanghai. The Shanghai facility had returned to normal capacity levels following its 2022 shutdown.
- The new loan is secured by substantially all borrower assets and imposes financial covenants, including minimum working capital of $35.0 million and leverage and coverage tests beginning March 31, 2023. The acquisition increases debt and integration demands.
- One customer accounted for 11% of quarterly revenue; one customer represented 14% of receivables at December 31, 2022. Management also disclosed a full valuation allowance on deferred tax assets related to U.S. net operating losses and foreign tax credits.
- The filing corrected immaterial prior-period presentation errors: distributor sales discounts were reclassified from SG&A to revenue reductions. The correction did not affect operating income, net income, balance sheets, or cash flows.
Important facts for investors to verify
- Whether order trends, Semiconductor shipments, and Shanghai production recover, and whether backlog converts to revenue on schedule.
- Entrepix’s final purchase accounting, integration performance, and contribution to revenue, earnings, and cash flow relative to the $35.0 million purchase price.
- Post-acquisition cash, debt, covenant headroom, and compliance with the loan’s working-capital, leverage, and coverage requirements.
- Whether material and labor inflation, customer pricing pressure, and acquisition-related or other unusual costs continue to weigh on margins and operating results.
- Customer concentration, the potential for order cancellations or delays, and any material developments in the disclosed legal, cybersecurity, or other contingencies.