Amtech Systems, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and first nine months ended June 30, 2023. Financial statements are unaudited; amounts below are in millions unless noted. Amtech manufactures semiconductor and thermal-processing equipment, polishing equipment, and related consumables. Its two reportable segments are Semiconductor and Material and Substrate.
Financial performance
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Revenue | $30.7 | $20.0 | $85.6 | $74.0 |
| Gross profit / margin | $11.0 / 36% | $5.9 / 30% | $32.8 / 38% | $27.0 / 36% |
| Operating income (loss) | $(1.1) | $9.6 | $(3.3) | $13.4 |
| Net income (loss) | $(1.0) | $10.2 | $(0.6) | $13.2 |
| Diluted EPS | $(0.07) | $0.73 | $(0.04) | $0.93 |
- Cash flow: Operating cash used was $7.2 for the nine months, versus $5.1 provided a year earlier. Investing cash used was $36.9, mainly reflecting the Entrepix acquisition; financing provided $11.6, including $12.0 of term-loan borrowings.
- Liquidity: Cash was $14.3 at June 30, down from $46.9 at September 30, 2022. Working capital was $56.0, compared with $80.3; the current ratio was 3.1:1 versus 4.5:1.
- Debt: Debt and finance lease liabilities totaled $11.2, including an $11.1 term loan bearing 6.38% interest. No revolving-facility borrowings were outstanding; $8.0 of revolving availability was provided under the credit agreement. The company reported compliance with its debt covenants at June 30.
Material changes and business developments
- Q3 revenue increased 54% year over year; nine-month revenue increased 16%. Entrepix, acquired January 17, 2023, contributed $13.6 of revenue and $0.3 of net income from acquisition through June 30. Q3 Material and Substrate revenue included approximately $7.2 from Entrepix.
- For the nine months, Semiconductor revenue fell 4% to $58.8, while Material and Substrate revenue rose 115% to $26.8, reflecting the acquisition and increased consumables shipments. Semiconductor orders fell 20% for the nine months; Material and Substrate orders rose 40%.
- Q3 gross margin improved to 36% from 30%, helped by Semiconductor product mix and better capacity utilization. Material and Substrate margin declined to 39% from 48%, partly because acquired equipment sales carry lower margins than consumables.
- SG&A rose to $10.3 in Q3 from $7.2, including acquisition-related operating costs and higher consulting and ERP-project expenses. Nine-month SG&A was $30.9 versus $21.0, reflecting Entrepix costs, transaction expenses, and audit and consulting expenses.
- Cash fell substantially following the $39.2 Entrepix transaction consideration and related cash outlays; the acquisition was partly funded by the new term loan. The balance sheet also reflects higher goodwill and intangible assets from the acquisition.
Outlook, risks and unusual items
- Outlook: The filing gives no specific revenue or earnings guidance. Management describes growth priorities in silicon carbide (SiC), 300mm horizontal diffusion furnaces, and BTU’s semiconductor and specialized furnace products. It expects investment in R&D, capacity, talent, IT systems, and capital expenditures.
- Management cited softness in global consumer demand affecting advanced packaging and surface-mount technology equipment. The semiconductor industry is cyclical; pricing pressure, rising material and labor costs, customer shipment timing, and supply-chain or operating disruptions may affect results.
- Orders were down 13% in Q3 and 10% for the nine months. Backlog was $61.3 at June 30, down 2% year over year, and may be canceled or delayed. One customer represented 19% of backlog; three Semiconductor customers represented 20%, 17%, and 13%, respectively.
- Unrecorded purchase obligations were $26.1. A customer represented 20% of accounts receivable at June 30. The credit agreement is secured by substantially all borrower assets and includes financial and other restrictive covenants.
- The nine-month comparison is affected by a $12.5 gain on the 2022 sale-leaseback of the Billerica property, which materially increased prior-year operating income and net income. FY2023 included $0.4 of severance expense related to the founder’s retirement and $2.5 of acquisition costs. The nine-month tax benefit was $2.7, primarily reflecting release of part of a valuation allowance in connection with Entrepix-related deferred tax liabilities.
- Management said liquidity sources are expected to support operations for at least twelve months. The Billerica facility leaseback is for two years; the company was exploring an extension or a new manufacturing facility. A separate lease expected to commence in fiscal Q1 2024 would add approximately $2.5 of right-of-use assets and lease liabilities.
- Management concluded disclosure controls were effective, but its June 30 controls assessment excluded Entrepix. Integration of Entrepix into the control environment was expected to continue through fiscal 2024.
Key investor verification points
- Track orders and backlog, particularly Semiconductor demand, cancellations, shipment timing, and customer concentration.
- Assess whether operating cash use, lower cash balances, acquisition integration, and planned investment remain manageable under the loan covenants.
- Evaluate the durability of gross margins amid product-mix shifts, pricing pressure, and rising input and labor costs.
- Review Entrepix integration, final purchase-price and tax accounting adjustments, and the contribution of acquired operations to earnings and cash flow.
- Monitor the Billerica facility decision, lease commitments, and execution of capacity and IT investments.