Amtech Systems, Inc. — Q1 FY2024 Form 10-Q
Reporting period: Three months ended December 31, 2023; fiscal year ends September 30. Comparisons are to the three months ended December 31, 2022, unless otherwise noted. Amounts are in U.S. dollars.
Business context and performance
Amtech manufactures semiconductor and thermal-processing equipment, wafer polishing and cleaning systems, and related consumables. It reports Semiconductor and Material and Substrate segments and serves cyclical markets worldwide.
- Revenue: $24.9 million, up 16% from $21.6 million. Semiconductor revenue increased 4% to $17.5 million; Material and Substrate revenue increased 58% to $7.4 million, including approximately $3.8 million from acquired Entrepix.
- Profitability: Gross profit was $8.2 million versus $8.3 million; gross margin fell to 33% from 39%. Operating loss was $8.9 million versus $2.7 million, and net loss was $9.4 million ($0.66 per diluted share) versus $2.7 million ($0.20 per share).
- Impairments: The quarter included $6.4 million of goodwill impairment and $1.3 million of intangible-asset impairment, both in Material and Substrate. A portion of the intangible impairment was included in cost of sales.
- Cash flow: Operating activities provided $5.0 million, compared with $2.5 million used in the prior-year quarter. Capital expenditures were $0.8 million; cash increased $3.9 million to $17.0 million.
- Liquidity and debt: Working capital was $52.0 million and the current ratio was 3.0:1 at December 31. Debt and finance leases totaled $10.1 million, including $5.6 million drawn on the revolver. Total liabilities were $45.4 million.
Changes versus the prior comparable period
- Revenue growth was led by Material and Substrate, primarily reflecting Entrepix, while Semiconductor shipments were mixed. Segment operating income was $1.1 million for Semiconductor and a $7.8 million loss for Material and Substrate; the latter included impairments.
- New orders declined 8% to $23.1 million. Semiconductor orders fell 19% to $17.1 million, while Material and Substrate orders rose 44% to $6.0 million. Backlog declined 8% year over year to $50.0 million.
- Margin pressure reflected product mix, lower utilization at the Shanghai facility, lower-margin equipment sales at Entrepix, slow-moving inventory charges, and intangible impairment. Management also cited higher material costs and customer pricing pressure.
- Cash from operations improved, helped by collections and increased customer down payments. Cash was substantially below the prior-year quarter-end balance of $44.5 million.
Outlook, risks and unusual items
- Management stated that available liquidity is expected to support operations for at least the next twelve months. No specific revenue or earnings guidance was provided.
- A December 2023 forbearance and loan modification followed non-compliance with debt-to-EBITDA and fixed-charge coverage covenants at September 30, 2023. The forbearance period runs through January 17, 2025. The revolver limit increased to $14 million, its maturity was extended to January 17, 2025, and the term-loan commitment was reduced to $4.4 million with maturity extended to January 17, 2029. The facility is secured by substantially all borrower assets.
- Under amended terms, the company reported compliance with the minimum EBITDA covenant at December 31, 2023; its actual EBITDA for the covenant period was $0.2 million against a minimum of negative $1.2 million. A $35 million minimum working-capital covenant also applies. Failure to comply, or expiration of forbearance without an extension or waiver, could permit acceleration of debt and termination of further credit commitments. The filing warns that liquidity may be insufficient to repay accelerated debt. Amtech made a $2.0 million revolver principal payment in January 2024.
- Management cited consumer-market softness affecting advanced packaging and SMT equipment, semiconductor cyclicality, competition, cost and pricing pressures, and possible further impairments if performance or share price weakens. The Material and Substrate impairment testing followed a decline in share price that left book value materially above market value; further impairment charges remain possible.
- Amtech is relocating its Massachusetts operations to a smaller facility and expects higher capital expenditures in Q2 and Q3 FY2024. A new lease not yet commenced is expected to add $7.1 million of right-of-use assets and lease liabilities in Q3.
- At December 31, 2023, two customers represented 31% and 21% of backlog. Unrecorded purchase obligations were $19.7 million. The company disclosed no material off-balance-sheet arrangements.
- Disclosure controls were not effective at December 31, 2023 because of previously reported material weaknesses, including weaknesses relating to goodwill and intangible-asset valuation controls and general IT controls. Remediation is ongoing; management anticipated completing IT-control remediation during FY2024.
Key facts for investors to verify
- Subsequent covenant compliance, any further waivers or amendments, revolver availability under borrowing-base requirements, and the effect of the January 2024 debt payment.
- Whether operating cash generation and liquidity can be sustained without relying on customer deposits or additional borrowing.
- Order trends, backlog conversion and customer concentration, particularly in Semiconductor and Material and Substrate.
- Assumptions underlying impairment valuations and whether additional goodwill or intangible impairments are required.
- Progress in remediating internal-control material weaknesses and any effects on financial reporting.