Amtech Systems, Inc. — Q2 FY2023 Form 10-Q
Reporting period: Quarter and six months ended March 31, 2023. Amtech manufactures semiconductor equipment and related consumables, reporting in Semiconductor and Material and Substrate segments. Fiscal year ends September 30. Amounts below are U.S. dollars.
Financial performance
| Metric | Three months ended March 31, 2023 | Prior-year quarter | Six months ended March 31, 2023 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $33.3 million | $27.6 million | $54.9 million | $54.0 million |
| Gross profit / margin | $13.5 million / 40% | $11.2 million / 40% | $21.8 million / 40% | $21.1 million / 39% |
| Operating income (loss) | $0.5 million | $2.6 million | $(2.2) million | $3.8 million |
| Net income | $3.2 million; $0.23 per diluted share | $2.0 million; $0.14 per diluted share | $0.5 million; $0.03 per diluted share | $3.0 million; $0.21 per diluted share |
| Operating cash flow | Not separately presented | Not separately presented | $(5.3) million | $(0.4) million |
- Quarterly revenue rose 21%, while six-month revenue increased 2%. For the six-month period, Semiconductor revenue fell 16% to $38.9 million; Material and Substrate revenue rose 108% to $15.9 million, including Entrepix following its January acquisition.
- Quarterly SG&A increased to $11.4 million from $6.8 million, mainly reflecting Entrepix operating costs and acquisition transaction expenses. Six-month SG&A was $20.6 million versus $13.9 million.
- The Q2 $2.9 million income tax benefit drove net income well above pretax income of $0.3 million. For six months, a $3.0 million tax benefit contributed to reported net income despite an operating loss and pretax loss.
Liquidity, debt and capital
- Cash and cash equivalents were $17.7 million at March 31, 2023, down from $46.9 million at September 30, 2022. Working capital was $58.2 million, versus $80.3 million; the current ratio was 3.0:1, down from 4.5:1.
- Six-month cash used in investing was $36.5 million, primarily the Entrepix acquisition; cash provided by financing was $11.9 million, including $12.0 million of term-loan borrowings. The company attributed the cash decline chiefly to the acquisition, funded with cash on hand and debt.
- Debt and finance lease obligations totaled $11.7 million, including an $11.6 million term loan at 6.38%. The new facility also provides an $8.0 million revolver, undrawn at quarter-end. Debt is secured by substantially all borrower assets. The company reported compliance with covenants at March 31, including a minimum $35 million working-capital covenant.
- Management said available liquidity was sufficient to support operations for at least the next 12 months. The filing reports no off-balance-sheet arrangements.
Material changes, outlook and risks
- Amtech acquired Entrepix on January 17, 2023, for total consideration of $39.8 million. Entrepix contributed $6.3 million of revenue and a $0.1 million net loss from acquisition through March 31. Purchase-price allocation remains provisional; reported goodwill increased to $29.3 million from $11.2 million at September 30.
- Orders were $34.3 million in the quarter, up 2% year over year; six-month orders were $59.5 million, down 9%. Backlog was $65.8 million, up 23% from March 2022. Management cautions that orders may be delayed or canceled and backlog does not assure future sales or profit.
- Management cited semiconductor industry cyclicality and fewer Semiconductor shipments, partly offset by belt-furnace production. Material and Substrate growth reflected Entrepix and increased consumables shipments. The company expects rising material costs to continue at least through the second half of FY2023 and expects labor costs to remain elevated; pricing pressure may limit its ability to pass costs on.
- Management expects higher capital expenditures during FY2023 for IT systems and capacity improvements, but gave no specific revenue or earnings guidance. It is evaluating options for its Massachusetts manufacturing facility during the two-year sale-leaseback, including a possible lease extension or relocation.
- Risks highlighted include industry cyclicality, supply and cost pressures, customer concentration, acquisition integration and provisional valuation, China facility disruption, cybersecurity, uninsured bank deposits, and debt covenants and repayment requirements. Entrepix is still being integrated into the control environment, with work expected to continue through FY2024.
- Other notable items: a $0.4 million severance charge related to the founder’s retirement; a $5 million share-repurchase authorization with no repurchases in the quarter; and a prior-period correction that reduced reported Q2 and six-month FY2022 revenue by $1.0 million and $1.9 million, respectively, with no impact on operating income or net income. Management deemed those misstatements immaterial.
Key facts for investors to verify
- Whether Entrepix integration, performance and final purchase-price allocation support expected synergies and goodwill valuation.
- Whether the unusual acquisition-related tax benefit recurs, and how underlying operating profitability develops without that benefit.
- Whether cash generation, working capital and covenant headroom remain adequate as the acquisition debt is serviced and planned investment rises.
- Whether Semiconductor demand and orders stabilize, and whether backlog converts to timely, profitable shipments.
- Whether rising input and labor costs can be passed through despite customer pricing pressure, and whether the Shanghai operation remains uninterrupted.