AMTECH SYSTEMS INC annual report, FY2021

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Amtech Systems, Inc. — FY2021 Form 10-K

Reporting period: Fiscal year ended September 30, 2021. The filing also reports unaudited fourth-quarter results. Unless stated otherwise, amounts below are in U.S. dollars.

Business context

Amtech manufactures thermal-processing equipment, wafer-polishing machinery, consumables and substrate-process chemicals for semiconductor, electronics, optics and related markets. Its two segments are Semiconductor and Material and Substrate. The company says fiscal 2021 demand improved from the COVID-19-affected prior year. It acquired Intersurface Dynamics in March 2021 for $5.3 million, adding process chemicals to Material and Substrate.

Financial performance and liquidity

  • FY2021 revenue: $85.2 million, up 30% from $65.5 million. Semiconductor revenue rose 32% to $72.1 million; Material and Substrate revenue increased 27% to $13.1 million.
  • Profitability: Gross profit was $34.5 million and gross margin was 41%, versus $24.4 million and 37% in FY2020. Operating income was $3.7 million, compared with an operating loss of $0.5 million. Net income was $1.5 million, or $0.11 per diluted share; FY2020 net loss was $15.7 million, including discontinued-operation losses and the R2D sale loss. Continuing-operations net income was $1.5 million versus a $3.9 million loss.
  • FY2021 fourth quarter: Revenue was $24.3 million, gross margin 37.8%, operating income $1.3 million and net income $0.7 million, or $0.05 per share. In Q4 FY2020, revenue was $15.1 million, gross margin 32.9%, operating loss $1.2 million and net loss $2.0 million, or $0.14 per share.
  • Cash flow: Operating activities used $6.0 million, compared with $1.7 million used in FY2020. Investing activities used $8.1 million, mainly for the acquisition and capital spending; financing activities provided $1.2 million, principally from option exercises. Cash declined $12.2 million to $32.8 million. Management attributed operating cash use in part to higher inventory and year-end receivables.
  • Liquidity and debt: Working capital was $65.8 million, down from $69.1 million; the current ratio was 5.4:1, versus 10.2:1. Long-term debt was $4.8 million, including $0.4 million current, secured by the Massachusetts property and maturing in September 2023. Lease liabilities were $8.9 million. Management stated available liquidity was expected to support operations for at least 12 months.
  • Orders and backlog: New orders increased 84% to $115.4 million. Backlog rose 217% to $44.1 million; two customers represented 25% and 17% of backlog. Orders may be delayed or canceled.

Material changes, outlook and risks

  • Revenue growth reflected higher shipments of reflow and diffusion-furnace products; management also cited favorable Semiconductor product mix and better utilization. Research, development and engineering expense increased to $6.0 million from $3.3 million.
  • Management expected to introduce new or upgraded products in FY2022 and projected $6.0–$8.0 million of investment in R&D and capital expenditures, including information systems and capacity expansion. It noted projects could be deferred. The filing gives no specific revenue or earnings guidance.
  • Management is pursuing growth in silicon carbide and power semiconductors, organic product development and acquisitions. It reported no agreement to acquire a target as of the filing date.
  • Supply-chain lead times and shipping-container shortages caused delays and higher freight costs; management expected shipping challenges to continue into FY2022. COVID-19 resurgence, semiconductor cyclicality, trade and tariff changes, international exposure, supplier concentration, customer concentration and competition are material risks.
  • A cybersecurity incident discovered April 12, 2021 disrupted some subsidiary systems and exposed certain employee and beneficiary information; the company reported no indication of misuse and said production continued. Related expense was about $1.1 million; $0.4 million of insurance reimbursement had been approved, with additional claim information requested.
  • The effective tax rate for continuing operations was 56.1%. Amtech maintained a full valuation allowance on U.S. net operating loss and foreign tax credit carryforwards. The auditor issued an unqualified opinion and identified foreign-jurisdiction income-tax accounting as a critical audit matter. Management reported effective disclosure controls and internal control over financial reporting.

Important facts for investors to verify

  • Whether elevated orders and backlog convert to shipments, revenue and margins, given customer cancellation rights and the concentration of backlog.
  • Whether operating cash flow improves as inventory and receivables are converted to cash, and how cash balances fund planned investment and contractual commitments.
  • Execution and commercial acceptance of FY2022 product launches, particularly the new polishing systems and next-generation reflow platform.
  • Final insurance recovery, any further costs or claims arising from the cybersecurity incident, and the effectiveness of enhanced security controls.
  • Continued exposure to supply delays, freight costs, customer concentration, semiconductor-cycle changes and international markets, including China.