Amtech Systems, Inc. — Fiscal 2024 Second-Quarter 10-Q
Reporting period: Three and six months ended March 31, 2024; fiscal year ends September 30. Unless stated otherwise, amounts are in U.S. dollars. The filing was signed May 8, 2024.
Business context and results
Amtech manufactures semiconductor capital equipment, wafer polishing and cleaning systems, and related consumables. Its reportable segments are Semiconductor and Material and Substrate. Management describes the semiconductor industry as cyclical; revenue can vary with the timing of equipment shipments.
| Metric | Three months ended March 31, 2024 | Prior-year quarter | Six months ended March 31, 2024 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $25.4 million | $33.3 million | $50.4 million | $54.9 million |
| Gross profit / margin | $8.5 million / 33% | $13.5 million / 40% | $16.7 million / 33% | $21.8 million / 40% |
| Operating income (loss) | $1.4 million | $0.5 million | $(7.6) million | $(2.2) million |
| Net income (loss) | $1.0 million | $3.2 million | $(8.4) million | $0.5 million |
| Diluted EPS | $0.07 | $0.23 | $(0.59) | $0.03 |
Financial position, cash flow and operating trends
- Revenue and segments: Quarter revenue fell 24%; six-month revenue fell 8%. Second-quarter Semiconductor revenue was down 21% year over year and Material and Substrate revenue down 29%. For the six months, the respective declines were 10% and 3%.
- Margins: Gross margin declined to 33% from 40% in both comparisons. Management cited Semiconductor product mix, higher material costs and lower Shanghai facility utilization; six-month Material and Substrate margin also reflected an intangible-asset impairment.
- Orders and backlog: Second-quarter orders were $19.8 million, down 42%; six-month orders were $42.9 million, down 28%. Backlog at March 31 was $44.3 million, down 33% from a year earlier. Two customers represented 29% and 23% of backlog. Remaining performance obligations were also approximately $44.3 million, with included orders expected to ship within 12 months.
- Cash flow: Operating cash flow was $5.3 million for the six months, compared with cash used of $5.3 million a year earlier. Investing activities provided $0.7 million, including $2.7 million of property-sale proceeds, partly offset by $2.0 million of capital expenditures. Financing activities used $6.4 million, primarily for debt payments. Cash decreased $0.1 million to $13.0 million.
- Liquidity: Current assets were $70.3 million and current liabilities $25.9 million; reported working capital was $44.4 million and the current ratio was 2.7:1. The loan agreement separately requires at least $35 million of covenant-defined working capital.
- Debt: The term loan balance was $4.2 million; finance lease liabilities were approximately $0.1 million. The $14 million revolving facility was undrawn at quarter-end, with a $0.3 million letter of credit outstanding. Loan debt was classified as current because the lender may call it at the end of the forbearance period.
Material changes and unusual items
- Six-month results included $6.4 million of goodwill impairment and $1.3 million of intangible-asset impairment in Material and Substrate, following a December 2023 impairment trigger when book value materially exceeded market value. These charges drove the reported six-month operating loss.
- Second-quarter operating income included a $2.2 million gain on sale of fixed assets. The Arizona headquarters property sale generated approximately $2.5 million of net cash proceeds, according to management.
- Second-quarter SG&A decreased to $8.3 million from $11.4 million, reflecting lower shipping and employee costs and the absence of prior-year Entrepix acquisition expenses. The company also recorded $0.1 million of severance expense in the quarter.
- Total assets declined to $116.5 million from $137.0 million at September 30, 2023, including the effects of impairment charges. Shareholders’ equity declined to $80.9 million from $88.4 million.
Outlook, risks and controls
- Outlook: The filing provides no specific revenue or earnings guidance. Management’s strategy emphasizes power semiconductors, advanced mobility, supply-chain resiliency and AI-related advanced packaging. Management expects capital expenditures to increase in fiscal Q3 as Massachusetts operations move to a smaller facility, and expects $8.6 million of lease right-of-use assets and liabilities to be recognized when new leases commence in that quarter.
- Demand and execution risks: Management reported softness in advanced-packaging and SMT shipments, particularly related to weaker consumer-market demand; lower wafer-cleaning equipment and spare-parts sales; increased material costs; customer pricing pressure; and potential adverse effects on backlog. The company is shifting toward contract manufacturing and has made targeted labor reductions.
- Credit agreement: The company entered a lender forbearance and modification agreement through January 17, 2025, after prior debt-to-EBITDA and fixed-charge-coverage covenant defaults. It reported compliance with the amended minimum EBITDA covenant at March 31, with positive covenant-defined EBITDA of $1.0 million for the six-month period against a permitted minimum of negative $0.8 million. A failure to obtain further relief or meet applicable covenants could permit acceleration of debt and termination of credit commitments; management says it cannot guarantee sufficient liquidity to repay accelerated debt.
- Other risks: The filing highlights industry cyclicality, customer concentration, foreign currency and international operations, potential further impairment, warranty costs, and the possibility that rising costs pressure pricing or orders. Purchase obligations not recorded as liabilities were $16.3 million at March 31.
- Internal controls: Management concluded disclosure controls and procedures were not effective at a reasonable assurance level due to previously disclosed material weaknesses, including goodwill and intangible-asset valuation processes and general IT controls. Remediation is ongoing; management anticipated completing remediation during fiscal 2024, subject to testing and effective operation over time.
Key facts for investors to verify
- Whether order intake and backlog stabilize or continue to decline, particularly in Semiconductor, and how concentrated the backlog remains among major customers.
- Whether gross margins recover as product mix, facility utilization, material costs and pricing evolve; distinguish recurring operating performance from the property-sale gain and impairment charges.
- Progress on the UMB Bank forbearance, covenant compliance and the ability to maintain access to borrowing capacity through and after January 17, 2025.
- Whether the reported cash and covenant-defined working capital provide adequate liquidity after planned facility moves, lease commencement and purchase commitments.
- Whether impairment assumptions remain supportable and whether additional charges arise; also track remediation and independent effectiveness testing of material-weakness controls.