Amtech Systems, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended September 30, 2019. The filing also reports fourth-quarter results for the three months ended September 30, 2019. Unless stated otherwise, dollar amounts below are in millions.
Business context
Amtech manufactures semiconductor thermal-processing equipment, wafer-lapping and polishing equipment and consumables, and automation systems. Following its decision to exit solar, continuing operations were reported in Semiconductor, SiC/LED, and Automation. These segments contributed 78%, 16%, and 6% of continuing revenue, respectively. The semiconductor equipment market is cyclical; management said demand may have peaked in FY2018.
Key financial results
| Metric | FY2019 | FY2018 |
|---|---|---|
| Continuing revenue | $85.0 | $100.1 |
| Gross profit / margin | $33.4 / 39% | $36.9 / 37% |
| Operating income | $4.9 | $6.1 |
| Income from continuing operations, net of tax | $3.1 | $6.6 |
| Discontinued-operations result, net of tax | $(8.3) | $(1.3) |
| Net income (loss) | $(5.2) | $5.3 |
| Net income (loss) per diluted share | $(0.36) | $0.35 |
| Operating cash flow | $0.2 | $(13.8) |
| Capital expenditures | $0.7 | $1.5 |
Continuing revenue fell 15%, mainly because Semiconductor revenue declined 17% to $66.5 million; SiC/LED was nearly flat at $13.7 million, while Automation decreased 20% to $4.9 million. Gross margin improved, with higher-margin Semiconductor parts and upgrades contributing; Automation margin fell to 13% from 18% as lower sales spread fixed costs over fewer shipments. SG&A declined to $24.3 million, while research, development and engineering expense rose to $3.1 million. FY2019 included $1.1 million of restructuring charges; FY2018 included $2.2 million of continuing-operations impairment charges and a $2.9 million gain on asset sale.
Fourth quarter: Revenue was $20.2 million, gross margin 42.4%, and operating income $1.7 million. Continuing-operations income was $1.0 million and net income was $0.8 million. In Q4 FY2018, revenue was $23.1 million, gross margin 35.5%, operating loss $1.1 million, and net loss $9.0 million; the prior-year quarter included impairment charges and significant discontinued-operations losses.
Liquidity, debt and balance sheet
At September 30, 2019, continuing-operations cash and cash equivalents were $53.0 million, plus $0.1 million restricted cash. Working capital was $77.6 million; the current ratio was 3.5:1 including held-for-sale items and 7.1:1 excluding them. Continuing-operations debt was approximately $5.5 million, principally a mortgage secured by the Massachusetts property; the mortgage rate was 4.11% through September 2021. Total assets were $126.5 million and shareholders’ equity was $87.5 million. Cash, cash equivalents and restricted cash consolidated across continuing and held-for-sale operations totaled $59.1 million at year-end.
Operating cash flow was only $0.2 million despite a $5.2 million net loss, reflecting working-capital movements and noncash adjustments, including a $3.2 million inventory write-down. Management stated that available liquidity was expected to support operations for at least the next 12 months. Contractual obligations totaled $18.8 million, including $5.5 million of debt, $8.9 million of operating leases and $4.4 million of purchase obligations.
Material changes, outlook and risks
- Solar exit: Solar discontinued operations generated $25.1 million revenue and an $8.3 million net loss in FY2019, compared with $76.4 million revenue and a $1.3 million net loss in FY2018. SoLayTec was sold in June 2019, producing a $1.6 million gain included in discontinued operations. Tempress remained held for sale; management expected a disposal loss and estimated sale-related costs of about $0.75 million, potentially higher depending on timing or price.
- Automation disposition: R2D was sold in November 2019. Amtech expected to recognize an approximately $3.0 million loss in Q1 FY2020.
- Growth investment: Management identified SiC opportunities, 300mm silicon horizontal thermal reactors, and BTU products as growth priorities. It anticipated $6–$8 million per year in research and development and capital expenditures to support growth, with possible additional spending for IT and capacity expansion. This is an investment plan, not revenue or earnings guidance.
- Orders and backlog: Year-end backlog declined 34% to $17.3 million, and FY2019 new orders fell 25% to $76.6 million. One customer represented 13% of backlog. Orders may be canceled or delayed, so backlog is not assurance of future revenue or profit.
- Customer dispute: A customer terminated a turnkey Phase II contract; negotiations did not produce a settlement, and the customer indicated it intended to pursue arbitration. Amtech removed the remaining work from backlog and reported no material effect to date.
- Other risks: Management highlighted semiconductor cyclicality, competitive and pricing pressure, international trade and tariff exposure, customer and receivables concentration, long supplier lead times, inventory obsolescence, foreign exchange, and execution risks from restructuring and growth investments. The effective tax rate on continuing operations was 45.6%; management cited foreign and state taxes and maintained full valuation allowances on specified deferred tax assets.
- Audit and controls: The auditor gave an unqualified opinion on the financial statements and internal control over financial reporting. Amtech adopted ASC 606 in FY2019 without a material effect on results.
Investor verification points
- Track the completion, proceeds, costs, and final accounting for the Tempress disposal, and confirm the reported R2D sale loss.
- Review the arbitration outcome and any resulting settlement, legal expense, or changes to customer-related balances.
- Assess whether orders and backlog stabilize after their FY2019 declines, particularly in Semiconductor and SiC/LED.
- Verify cash generation, working-capital needs, and inventory quality, including the effect of the FY2019 inventory write-down.
- Compare the planned $6–$8 million annual R&D and capital-spending level with actual spending and operating performance.
- Monitor customer concentration, the recoverability of receivables, tax valuation allowances, and the impact of lease commitments and future facility costs.