Amtech Systems Inc: Form 10-Q for the period ended Dec 31, 2024

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our “Condensed Consolidated Financial Statements” in Item 1 of this Quarterly Report on Form 10-Q (“Quarterly Report”) and our consolidated financial statements and related notes included in “Item 8. Financial Statements and Supplementary Data” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024 (the “2024 Form 10-K”).

Overview

We provide equipment, consumables and services for semiconductor wafer fabrication and device packaging. Our products are used in fabricating semiconductor devices, such as silicon carbide (SiC) and silicon (Si) power devices, digital and analog devices, power electronic packages, advanced semiconductor packages and electronic assemblies. We sell these products to semiconductor device and module manufacturers worldwide, particularly in Asia, North America and Europe.

We operate in two reportable segments, based primarily on the industries they serve: (i) Thermal Processing Solutions and (ii) Semiconductor Fabrication Solutions. Our thermal processing solutions include reflow equipment for chip packaging and electronic assembly, diffusion furnaces and furnaces used to produce ceramic based power semiconductor packages and passive electronic components. Our semiconductor fabrication solutions include consumables, equipment and services for wafer polishing, cleaning, slicing and dicing.

The markets we serve are historically cyclical, but not seasonal, with constantly evolving technical requirements and can be subject to tariffs and sourcing restrictions driven by geopolitical tensions. Our revenue is impacted by these broad industry trends.

Growth and Investment Strategy

We believe there are three key secular trends that are key to our future growth:

• Advanced Mobility - Advanced Mobility encompasses both the development and adoption of electric vehicles and charging infrastructure, including both electric vehicle (EV) and hybrid electric vehicles (HEV), as well as advanced automotive electronics including Advanced Driver Assistance Systems (ADAS), infotainment and telematics. Our products intersect these markets in multiple ways: CMP consumables and wafer cleaning systems for the SiC substrates used in the EV power investors; thermal processing systems for producing EV battery cooling systems and ceramic substrates for HEV power semiconductor packaging; and reflow ovens for ADAS, infotainment and telematics component assemblies.
• Supply Chain Resiliency - There is a global trend of creating supply chain resiliency by expanding and/or relocating operations outside of mainland China. We believe these factory openings will create demand for new equipment and services in growing regions like Mexico and Southeast Asia.
• Artificial Intelligence - With Artificial Intelligence (AI), our reflow oven systems are the favored choice for Outsourced Semiconductor Assembly and Test Services (OSATS) providers who perform advanced packaging of the AI chips.

We continue to invest in research and development, including the introduction of our next-generation reflow platform, Aurora, in 2023. Historically, we have grown our business primarily through acquisitions, including the businesses that currently comprise our two reportable segments in the Thermal Processing Solutions and Semiconductor Fabrication Solutions industries: BTU, PR Hoffman, Intersurface Dynamics and Entrepix. Our 2023 acquisition of Entrepix bolstered our offerings in the CMP technology space and incorporated wafer cleaning into our existing capital equipment product lines. We continue to believe this inorganic growth strategy is the backbone of who Amtech is as a company, we also have a complimentary strategy of pursuing organic growth, particularly during times when we lacked sufficient capital resources to pursue growth through acquisitions. We will continue to pursue acquisitions to supplement organic growth and have added market development resources globally to accelerate organic growth.

In March 2024, we completed the sale of our corporate headquarters real property in Arizona. The sale resulted in a net cash inflow of approximately $2.5 million, after settlement of related sale expenses. Following the closing of this transaction, we entered into a lease agreement for a new office for our corporate headquarters, which commenced during the third quarter of fiscal year 2024. In addition, we are evaluating business continuity and resiliency within our operations, our management information systems, and our needs to allow for greater efficiencies and to ensure our infrastructure can support our future growth plans. As a capital equipment manufacturer, we will continue to invest in our business to drive future growth.

Results of Operations

The following table sets forth certain operational data as a percentage of net revenue for the periods indicated:

Net Revenue

Net revenue consists of revenue recognized upon shipment or delivery of equipment. Spare parts sales are recognized upon shipment and service revenue is recognized upon completion of the service activity, which is generally ratable over the term of the service contract. Since the majority of our revenue is generated from large system sales, revenue, gross profit and operating income can be significantly impacted by the timing of system shipments.

Our net revenue by reportable segment was as follows, dollars in thousands:

Total net revenue for the three months ended December 31, 2024 and 2023 was $24.4 million and $24.9 million, respectively, a decrease of approximately $0.5 million or 2%. Our Thermal Processing Solutions results for the first quarter of fiscal 2025 reflect increases in shipments of our horizontal diffusion and high-temperature furnaces, partially offset by decreases in parts and service and packaging equipment shipments. Semiconductor Fabrication Solutions revenue decreased due primarily to lower sales of our wafer cleaning equipment.

Orders and Backlog

New orders booked by reportable segment were as follows, dollars in thousands:

Our backlog by reportable segment was as follows, dollars in thousands:

As of December 31, 2024, one of our Thermal Processing Solutions segment customers individually accounted for 18% of our backlog. Additionally, one customer of both our Thermal Processing Solutions and Semiconductor Fabrication Solutions segments accounted for 27% of our backlog. No other customer accounted for more than 10% of our backlog as of December 31, 2024. The orders included in our backlog are generally credit approved customer purchase orders believed to be firm and are generally expected to ship within the next twelve months. Our backlog at any point in time is not necessarily representative of actual sales for succeeding periods, nor is backlog any assurance that we will realize profit from completing these orders. During the three months ended December 31, 2024, the improvement in lead times across all of our product lines favorably contributed to the decline in our backlog.

Gross Profit and Gross Margin

Gross profit is the difference between net revenue and cost of goods sold and intangible asset impairment. Cost of goods sold consists of purchased material, labor and overhead to manufacture equipment and spare parts and the cost of service and support to customers for installation, warranty and paid service calls. Gross margin is gross profit as a percent of net revenue. Our gross profit and gross margin by business segment were as follows, dollars in thousands:

Our gross margins can be affected by capacity utilization, material costs, and the type and volume of machines and consumables sold each quarter. Gross profit for the three months ended December 31, 2024 and 2023 was $9.4 million (38% of net revenue) and $8.2 million (33% of net revenue), respectively, an increase of $1.1 million. Gross margin on products from our Thermal Processing Solutions segment increased compared to the three months ended December 31, 2023, due to changes in our product mix and lower costs. Gross margin on products from our Semiconductor Fabrication Solutions segment increased compared to the three months ended December 31, 2023, primarily due to an $0.8 million intangible asset impairment during the period ended December 31, 2023. We are working with contract manufacturers, who can leverage their buying power on a larger scale to reduce costs. Throughout fiscal 2024, we made targeted labor reductions as a result of the shift to contract manufacturing amid the slowdown in the broader semiconductor industry.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expenses consists of the cost of employees, consultants and contractors, facility costs, sales commissions, shipping costs, promotional marketing expenses, legal and accounting expenses and bad debt expense.

SG&A expenses for the three months ended December 31, 2024 and 2023 were $8.1 million and $8.6 million, respectively. SG&A decreased compared to the prior year quarter primarily due to fixed cost reductions.

Research, Development and Engineering

Research, development and engineering (“RD&E”) expenses consist of the cost of employees, consultants and contractors who design, engineer and develop new products and processes as well as materials and supplies used in producing prototypes. RD&E expenses may vary from period to period depending on the engineering projects in process. Expenses related to engineers working on strategic projects or sustaining engineering projects are recorded in RD&E. However, from time to time we add functionality to our products or develop new products during engineering and manufacturing to fulfill specifications in a customer’s order, in which case the cost of development, along with other costs of the order, are charged to cost of goods sold. Occasionally, we receive reimbursements through governmental research and development grants which are netted against these expenses when certain conditions have been met.

RD&E expense, net of grants earned, for the three months ended December 31, 2024 and 2023 was $0.9 million and $1.6 million, respectively. The decrease in RD&E is due to the timing of purchases related to specific strategic-development projects at our Thermal Processing Solutions and Semiconductor Fabrication Solutions segments. Additionally, the prior year period included expenditures related to new product development projects at our Semiconductor Fabrication Solutions segment, which have not recurred. Grants earned are immaterial in all periods presented.

Goodwill Impairment

During the quarter ended December 31, 2024, we recognized no impairment of our goodwill as a result of no triggering event identified at the end of the first quarter.

During the quarter ended December 31, 2023, we recognized impairment of our goodwill of $6.4 million at our Semiconductor Fabrication Solutions segment as a result of a triggering event identified at the end of the quarter. See Note 6 for a description of the facts and circumstances leading to the goodwill impairment.

Intangible Asset Impairment

During the quarter ended December 31, 2024, we recognized no impairment of our definite lived intangible assets.

During the quarter ended December 31, 2023, we recognized impairment of our definite lived intangible assets of $1.3 million at our Semiconductor Fabrication Solutions segment. As stated above, $0.8 million of this impairment was recorded in cost of goods sold, and the remainder was recorded within operating expenses in the Condensed Consolidated Statement of Operations. See Note 6 for a description of the facts and circumstances leading to the intangible asset impairments.

Severance Expense

Severance expense was $0.1 million and $0.2 million for the three months ended December 31, 2024 and 2023, respectively. For the three months ended December 31, 2024, the amount relates to staff reductions at our Thermal Processing Solutions segment. Severance expense for the three months ended December 31, 2023 relates to staff reductions in our Thermal Processing Solutions and Semiconductor Fabrication Solutions segments.

Income Taxes

Our effective tax rate was 58.8% and (0.6%) for the three months ended December 31, 2024 and 2023, respectively. The effective tax rate for the three months ended December 31, 2024 differs from the U.S. statutory tax rate of 21% primarily due to foreign income taxed at a foreign rate different than 21% for permanent items, and changes in valuation allowances. For the three months ended December 31, 2024 and 2023, we recorded income tax expense of $0.4 million and an income tax expense of $58,000, respectively. The quarterly income tax provision is calculated using an estimated annual effective tax rate, based upon expected annual income, permanent items, statutory rates and planned tax strategies in the various jurisdictions in which we operate. However, losses in certain jurisdictions and discrete items are excluded from the determination of the estimated annual effective tax rate.

Our future effective income tax rate depends on various factors, such as the amount of income (loss) in each tax jurisdiction, tax regulations governing each region, non-tax deductible expenses incurred as a percent of pre-tax income and the effectiveness of our tax planning strategies.

Liquidity and Capital Resources

Cash and Cash Flow

The following table sets forth for the periods presented certain consolidated cash flow information, in thousands:

A summary of our cash position as of December 31, 2024 and September 30, 2024, is as follows, in thousands, except the current ratio:

The increase in cash and cash equivalents from September 30, 2024 of $2.1 million was primarily due to increased collections from customers and reduced inventory. We maintain a portion of our cash and cash equivalents in Renminbis, a Chinese currency, at our operations in China; therefore, changes in the exchange rates have an impact on our cash balances. The $0.5 million increase in working capital from September 30, 2024, was primarily due to a decrease in current liabilities.

During periods of weakening demand, we typically generate cash from operating activities, which we may decide to reinvest in our business via strategic projects. Conversely, we are more likely to use operating cash flows for working capital requirements during periods of higher growth. Our sources of capital in the past have included the sale of equity securities, which includes common stock sold in private transactions and public offerings, the incurrence of long-term debt and customer deposits.

Cash Flows from Operating Activities

Cash provided by our operating activities was $2.9 million for the three months ended December 31, 2024, compared to $5.0 million provided by operating activities for the three months ended December 31, 2023. Our accounts receivable collections exceeded new accounts receivable due to the timing of shipments and collections across both time periods. Additionally, during the period ended December 31, 2023, we received more down payments from customers for future shipments.

Cash Flows from Investing Activities

Cash used in investing activities was $0.1 million for the three months ended December 31, 2024, compared to $0.8 million used in investing activities in the three months ended December 31, 2023. Both periods consist solely of capital expenditures.

Cash Flows from Financing Activities

For the three months ended December 31, 2024, cash provided by financing activities was $0.1 million, primarily comprised of proceeds from the exercise of stock options. For the three months ended December 31, 2023, cash used by financing activities was $0.5 million, comprised of $0.6 million in payments on long-term debt partially offset by less than $0.1 million of proceeds received from the exercise of stock options.

Off-Balance Sheet Arrangements

As of December 31, 2024, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K promulgated by the SEC that have or are reasonably likely to have a current or future effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Contractual Obligations

Unrecorded purchase obligations were $7.9 million as of December 31, 2024, compared to $12.1 million as of September 30, 2024, a decrease of $4.2 million.

Other than as described in Note 2, there were no material changes to the contractual obligations included in "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2024 Form 10-K.

Critical Accounting Estimates

"Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report discusses our condensed consolidated financial statements that have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the condensed consolidated financial statements, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, income taxes, inventory valuation, business combination, goodwill, and long-lived asset impairment. We base our estimates and judgments on historical experience, expectations regarding the future and on various other factors that we believe to be reasonable under the circumstances. The results of these estimates and judgments form the basis for making conclusions about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

A critical accounting estimate is one that is both important to the presentation of our financial position and results of operations, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These uncertainties are discussed in Part I, Item 1A of our 2024 Form 10-K. We believe our critical accounting estimates relate to the more significant judgments and estimates used in the preparation of our consolidated financial statements.

We believe the critical accounting estimates discussed in the section entitled “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in our 2024 Form 10-K represent the most significant judgments and estimates used in the preparation of our consolidated financial statements. There have been no material changes in our critical accounting estimates during the three months ended December 31, 2024.

Impact of Recently Issued Accounting Pronouncements

For discussion of the impact of recently issued accounting pronouncements, see “Part I, Item 1. Financial Information” under “Impact of Recently Issued Accounting Pronouncements.”

As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and, therefore, are not required to provide the information requested by this Item.

Evaluation of Disclosure Controls and Procedures.

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), has carried out an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2024, pursuant to Exchange Act Rules 13a-15(e) and 15(d)-15(e). Disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including the principal executive and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, our CEO and CFO have concluded that as of such date, our disclosure controls and procedures in place were effective.

Changes in Internal Control over Financial Reporting

None.

We refer you to documents filed by us with the SEC, specifically “Item 1A. Risk Factors” in our 2024 Form 10-K, which identifies important risk factors that could materially affect our business, financial condition and future results. We also refer you to the factors and cautionary language set forth in the section entitled “Cautionary Statements Regarding Forward-Looking Statements” immediately preceding “Item 1. Condensed Consolidated Financial Statements” of this Quarterly Report. This Quarterly Report, including the accompanying condensed consolidated financial statements and related notes, should be read in conjunction with such risks and other factors for a full understanding of our operations and financial condition. The risks described in our 2024 Form 10-K and any described herein are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results. There have been no material changes to the risk factors previously disclosed in our 2024 Form 10-K.