Amtech Systems(ASYS) - 2024 Q2 - Quarterly Report

Cautionary Statement Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) - The report contains forward-looking statements identified by specific terminology such as 'may,' 'plan,' 'anticipate,' 'seek,' 'will,' 'expect,' 'intend,' 'estimate,' 'believe,' 'continue,' 'predict,' 'potential,' 'project,' 'should,' 'would,' 'could,' 'likely,' 'future,' 'target,' 'forecast,' 'goal,' 'observe,' and 'strategy'[10] - Actual results may differ materially from expectations due to various risks and uncertainties, including economic conditions, changes in demand, execution difficulties, competition, industry cyclicality, pricing pressures, new technologies, regulatory developments, litigation, business interruptions, cybersecurity incidents, financial institution issues, and compliance with credit agreements[10] - The Company disclaims any obligation to update or publicly revise forward-looking statements and advises investors to consult further disclosures in subsequent SEC filings and 'Item 1A. Risk Factors'[12] PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income (loss), shareholders' equity, and cash flows, along with their accompanying notes, providing a snapshot of the company's financial position and performance for the periods ended March 31, 2024 and September 30, 2023 Condensed Consolidated Balance Sheets | Metric | March 31, 2024 (Unaudited) (in thousands) | September 30, 2023 (in thousands) | Change (in thousands) | % Change | | :----- | :---------------------------------------- | :-------------------------------- | :-------------------- | :------- | | Assets | | | | | | Total current assets | $70,299 | $81,189 | $(10,890) | -13.4% | | Property, Plant and Equipment - Net | $9,476 | $9,695 | $(219) | -2.3% | | Intangible Assets - Net | $4,352 | $6,114 | $(1,762) | -28.8% | | Goodwill | $21,261 | $27,631 | $(6,370) | -23.1% | | Total Assets | $116,474 | $137,021 | $(20,547) | -15.0% | | Liabilities | | | | | | Total current liabilities | $25,914 | $29,718 | $(3,804) | -12.8% | | Finance Lease Liabilities and Long-Term Debt | $65 | $8,422 | $(8,357) | -99.2% | | Total Liabilities | $35,583 | $48,656 | $(13,073) | -26.9% | | Shareholders' Equity | | | | | | Total Shareholders' Equity | $80,891 | $88,365 | $(7,474) | -8.5% | Condensed Consolidated Statements of Operations | Metric (in thousands) | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | Change | % Change | | :-------------------- | :---------------------------- | :---------------------------- | :----- | :------- | | Revenues, net | $25,433 | $33,310 | $(7,877) | -23.6% | | Gross profit | $8,451 | $13,470 | $(5,019) | -37.3% | | Operating income (loss) | $1,363 | $519 | $844 | 162.6% | | Net income (loss) | $970 | $3,204 | $(2,234) | -69.7% | | Net income (loss) per basic share | $0.07 | $0.23 | $(0.16) | -69.6% | | Net income (loss) per diluted share | $0.07 | $0.23 | $(0.16) | -69.6% | | Metric (in thousands) | 6 Months Ended March 31, 2024 | 6 Months Ended March 31, 2023 | Change | % Change | | :-------------------- | :---------------------------- | :---------------------------- | :----- | :------- | | Revenues, net | $50,353 | $54,868 | $(4,515) | -8.2% | | Gross profit | $16,670 | $21,773 | $(5,103) | -23.4% | | Operating income (loss) | $(7,571) | $(2,161) | $(5,410) | -250.3% | | Net income (loss) | $(8,388) | $460 | $(8,848) | -1923.5% | | Net income (loss) per basic share | $(0.59) | $0.03 | $(0.62) | -2066.7% | | Net income (loss) per diluted share | $(0.59) | $0.03 | $(0.62) | -2066.7% | Condensed Consolidated Statements of Comprehensive Income (Loss) | Metric (in thousands) | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | Change | % Change | | :-------------------- | :---------------------------- | :---------------------------- | :----- | :------- | | Net income (loss) | $970 | $3,204 | $(2,234) | -69.7% | | Foreign currency translation adjustment | $(50) | $384 | $(434) | -113.0% | | Comprehensive income (loss) | $920 | $3,588 | $(2,668) | -74.4% | | Metric (in thousands) | 6 Months Ended March 31, 2024 | 6 Months Ended March 31, 2023 | Change | % Change | | :-------------------- | :---------------------------- | :---------------------------- | :----- | :------- | | Net income (loss) | $(8,388) | $460 | $(8,848) | -1923.5% | | Foreign currency translation adjustment | $219 | $800 | $(581) | -72.6% | | Comprehensive income (loss) | $(8,169) | $1,260 | $(9,429) | -748.3% | Condensed Consolidated Statements of Shareholders' Equity | Metric (in thousands) | Balance at September 30, 2023 | Balance at March 31, 2024 | Change | % Change | | :-------------------- | :---------------------------- | :------------------------ | :----- | :------- | | Common Stock Par Value | $142 | $142 | $0 | 0.0% | | Additional Paid-In Capital | $126,963 | $127,658 | $695 | 0.5% | | Accumulated Other Comprehensive Loss | $(1,695) | $(1,476) | $219 | -12.9% | | Retained Deficit | $(37,045) | $(45,433) | $(8,388) | 22.6% | | Total Shareholders' Equity | $88,365 | $80,891 | $(7,474) | -8.5% | - The retained deficit increased by $8.388 million from September 30, 2023, to March 31, 2024, primarily due to the net loss incurred during the period[25] Condensed Consolidated Statements of Cash Flows | Cash Flow Activity (in thousands) | Six Months Ended March 31, 2024 | Six Months Ended March 31, 2023 | Change | | :-------------------------------- | :------------------------------ | :------------------------------ | :----- | | Net cash provided by (used in) operating activities | $5,307 | $(5,327) | $10,634 | | Net cash provided by (used in) investing activities | $724 | $(36,474) | $37,198 | | Net cash (used in) provided by financing activities | $(6,385) | $11,919 | $(18,304) | | Net Decrease in Cash and Cash Equivalents | $(133) | $(29,141) | $29,008 | | Cash and Cash Equivalents, End of Period | $13,000 | $17,733 | $(4,733) | - Operating activities generated $5.3 million in cash for the six months ended March 31, 2024, a significant improvement from the $5.3 million cash used in the prior year, driven by improved accounts receivable collections and increased customer down payments[29][147] - Investing activities provided $0.7 million, a substantial shift from $36.5 million used in the prior year, primarily due to proceeds from the sale of real property in Arizona, partially offset by capital expenditures[29][148] - Financing activities used $6.4 million, mainly for long-term debt payments, contrasting with $11.9 million provided in the prior year from debt borrowings[29][149] Notes to Condensed Consolidated Financial Statements Basis of Presentation and Significant Accounting Policies - Amtech is a global manufacturer of capital equipment, including thermal processing, wafer polishing and cleaning, and related consumables used in fabricating semiconductor devices (e.g., SiC, silicon power, analog, discrete, electronic assemblies, LEDs), serving markets worldwide[31] - The unaudited condensed consolidated financial statements are prepared under SEC rules and GAAP, with certain disclosures condensed or omitted, and should be read with the 2023 Form 10-K[32] - In the first quarter of fiscal year 2024, the company recorded impairment of definite-lived intangible assets and goodwill in its Material and Substrate segment due to a decline in stock price[38][40] | Contract Liabilities Activity (in thousands) | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | 6 Months Ended March 31, 2024 | 6 Months Ended March 31, 2023 | | :----------------------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Beginning balance | $9,518 | $6,955 | $8,018 | $7,231 | | New deposits | $724 | $3,552 | $3,547 | $4,279 | | Revenue recognized | $(1,218) | $(846) | $(2,544) | $(1,414) | | Ending balance | $9,015 | $9,661 | $9,015 | $9,661 | - Remaining performance obligations totaled approximately $44.3 million as of March 31, 2024, down from $51.8 million at September 30, 2023, with orders expected to ship within the next twelve months[41] | Accrued Warranty Expense (in thousands) | Six Months Ended March 31, 2024 | Six Months Ended March 31, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | | Beginning balance | $965 | $871 | | Additions for warranties issued | $97 | $342 | | Costs incurred | $(19) | $9 | | Changes in estimate | $(280) | $(139) | | Ending balance | $763 | $1,083 | - Shipping expense decreased to $0.5 million for the three months ended March 31, 2024 (from $0.8 million in 2023) and to $1.1 million for the six months ended March 31, 2024 (from $1.4 million in 2023)[43] - Two Semiconductor segment customers each represented 14% of accounts receivable as of March 31, 2024[44] - The company's cash and cash equivalents exceeded federally insured limits by approximately $8.2 million at March 31, 2024[45] - The carrying value of the company's total debt was $4.2 million at March 31, 2024, approximating fair value and classified as Level 2 in the fair value hierarchy[49] - The company is evaluating ASU 2023-07 (Segment Reporting) for its impact on consolidated financial statements, effective for fiscal years beginning after December 15, 2023[51] Long-Term Debt | Debt Component (in thousands) | 2024 | 2023 | | :---------------------------- | :--- | :--- | | Term loan | $4,202 | $10,573 | | Finance leases | $106 | $114 | | Total | $4,308 | $10,687 | | Less: current portion | $(4,243) | $(2,265) | | Finance Lease Liabilities and Long-Term Debt | $65 | $8,422 | - Interest expense on finance lease liabilities and long-term debt was $0.2 million for the three months ended March 31, 2024 and 2023, and $0.4 million and $0.2 million for the six months ended March 31, 2024 and 2023, respectively[54] - The company entered into a Forbearance & Modification Agreement with UMB Bank on December 5, 2023, due to non-compliance with Debt to EBITDA and Fixed Charge Coverage Ratio covenants. The forbearance period extends through January 17, 2025[58][151] - The Forbearance Agreement increased the revolving credit facility to $14.0 million (from $8.0 million) and reduced the term loan commitment to $4.4 million (from $12.0 million). Both maturities were extended by one year[59][152] - As of March 31, 2024, $4.2 million was outstanding on the Term Loan, no amounts were borrowed against the Revolver, and there was a $0.3 million outstanding letter of credit. All outstanding debt was classified as current due to the lender's ability to call amounts at the end of the forbearance period[60][61][152][156] - The company was in compliance with the Minimum EBITDA Covenant for the six-month period ended March 31, 2024, with actual positive EBITDA of $1.0 million (covenant not less than negative $800,000)[60][153] Acquisition - On January 17, 2023, Amtech acquired 100% of Entrepix, Inc., a manufacturer of chemical mechanical polishing (CMP) technology, for a total consideration of $39.2 million ($35.2 million cash to sellers, $4.0 million for debt and transaction costs)[64][65] - The acquisition was partially funded by a $12.0 million term loan from UMB Bank[65] - Goodwill of $16.463 million was recognized, representing estimated future economic benefits from synergies like deeper customer penetration, complementary product offerings, and cost reductions[66][69] | Acquired Intangible Asset | Amortization Period | Amount (in thousands) | Classification of Amortization | | :------------------------ | :------------------ | :-------------------- | :----------------------------- | | Developed technology | 5.0 years | $6,700 | Cost of sales | | Customer relationships | 10.0 years | $2,800 | Selling, general and administrative | | Backlog | 1.0 year | $2,100 | Selling, general and administrative | | Trade names | 10.0 years | $1,800 | Selling, general and administrative | | Noncompetition agreements | 5.0 years | $200 | Selling, general and administrative | | Total intangible assets | 6.1 years (weighted-average) | $13,600 | | | Pro Forma Financial Information (in thousands) | 3 Months Ended March 31, 2023 | 6 Months Ended March 31, 2023 | | :------------------------------------------- | :---------------------------- | :---------------------------- | | Revenues, Net | $34,623 | $63,778 | | Net Income | $4,285 | $1,149 | Earnings Per Share | EPS Metric | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | 6 Months Ended March 31, 2024 | 6 Months Ended March 31, 2023 | | :--------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Net income (loss) per basic share | $0.07 | $0.23 | $(0.59) | $0.03 | | Net income (loss) per diluted share | $0.07 | $0.23 | $(0.59) | $0.03 | - For the six months ended March 31, 2024, the company reported a net loss per basic and diluted share of $(0.59), a significant decline from $0.03 in the prior year, primarily due to the overall net loss[81] - Options for 817,191 and 645,244 weighted average shares were excluded from diluted EPS calculations for the three and six months ended March 31, 2024, respectively, as they were anti-dilutive[78] Inventories | Inventory Component (in thousands) | March 31, 2024 | September 30, 2023 | Change | % Change | | :--------------------------------- | :------------- | :----------------- | :----- | :------- | | Purchased parts and raw materials | $21,558 | $22,627 | $(1,069) | -4.7% | | Work-in-process | $7,058 | $7,774 | $(716) | -9.2% | | Finished goods | $2,692 | $4,444 | $(1,752) | -39.4% | | Total | $31,308 | $34,845 | $(3,537) | -10.1% | - Total inventories decreased by 10.1% from September 30, 2023, to March 31, 2024, with finished goods experiencing the largest percentage decrease of 39.4%[82] Leases | Lease Balance (in thousands) | March 31, 2024 | September 30, 2023 | Change | % Change | | :--------------------------- | :------------- | :----------------- | :----- | :------- | | Total right-of-use assets | $9,890 | $11,340 | $(1,450) | -12.8% | | Total lease liabilities | $10,235 | $11,631 | $(1,396) | -12.0% | | Lease Cost (in thousands) | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | 6 Months Ended March 31, 2024 | 6 Months Ended March 31, 2023 | | :------------------------ | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Total lease cost | $863 | $922 | $1,836 | $1,590 | - The weighted average remaining lease term for operating leases was 7.72 years (vs 7.31 years in 2023) and for finance leases was 4.88 years (vs 2.54 years in 2023) as of March 31, 2024[89] - The company expects to record $8.6 million of ROU assets and lease liabilities upon the commencement of new leases in the third quarter of fiscal 2024[89] Goodwill and Intangible Assets | Intangible Assets (in thousands) | March 31, 2024 | September 30, 2023 | Change | % Change | | :------------------------------- | :------------- | :----------------- | :----- | :------- | | Intangible assets, net | $4,352 | $6,114 | $(1,762) | -28.8% | - The company recorded a total impairment charge for intangible assets in its Material and Substrate segment of $1.3 million during the quarter ended December 31, 2023, related to developed technology, trade name, customer relationships, and non-competition agreements at Entrepix[94][95] | Goodwill (in thousands) | Semiconductor | Material and Substrate | Total Goodwill | | :---------------------- | :------------ | :--------------------- | :------------- | | Balance at September 30, 2023 | $5,905 | $21,726 | $27,631 | | Impairment of goodwill | — | $(6,370) | $(6,370) | | Balance at March 31, 2024 | $5,905 | $15,356 | $21,261 | - A goodwill impairment charge of $6.37 million was recognized in the Material and Substrate segment during the six months ended March 31, 2024, due to the reporting unit's book value exceeding its fair value, triggered by a decline in stock price[97] - The fair value measurements for goodwill and intangible assets fall under Level 3 of the fair value hierarchy, involving significant estimates and assumptions[98] Income Taxes | Income Tax Metric | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | 6 Months Ended March 31, 2024 | 6 Months Ended March 31, 2023 | | :---------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Income tax provision (benefit) (in thousands) | $223 | $(2,946) | $281 | $(2,950) | | Effective tax rate | N/A | N/A | (3.5%) | 118.0% | - The effective tax rate for the six months ended March 31, 2024, was (3.5%), differing from the U.S. statutory rate of 21% primarily due to losses for which no tax benefit could be recognized[100] - The effective tax rate for the six months ended March 31, 2023, was 118.0%, primarily due to the release of a valuation allowance related to the Entrepix acquisition[100] Equity and Stock-Based Compensation | Stock-Based Compensation Expense (in thousands) | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | 6 Months Ended March 31, 2024 | 6 Months Ended March 31, 2023 | | :-------------------------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Expense | $300 | $200 | $700 | $300 | | Stock Option Activity | Options Outstanding at Sep 30, 2023 | Options Outstanding at Mar 31, 2024 | | :-------------------- | :---------------------------------- | :---------------------------------- | | Number of Options | 672,924 | 1,181,433 | | Weighted Average Exercise Price | $8.76 | $7.28 | | Options Granted (6 months) | N/A | 557,500 | | Options Exercised (6 months) | N/A | (5,000) | - The company's stock repurchase program, approved on February 7, 2023, for up to $5 million of common stock, expired during the quarter ended March 31, 2024, with no repurchases made during that quarter[106] Commitments and Contingencies - As of March 31, 2024, the company had unrecorded purchase obligations of $16.3 million, consisting of outstanding purchase orders for goods and services[107] - The company is involved in various legal proceedings and claims, for which it believes it has adequate provisions for probable and estimable losses, though outcomes are inherently unpredictable[108] - Employment contracts and severance plans for certain officers and management employees could result in severance payments ranging from six to twelve months of salary under specified termination circumstances[109] Reportable Segments - Amtech operates in two reportable segments: Semiconductor (thermal processing equipment) and Material and Substrate (consumables and machinery for lapping, polishing, and cleaning materials)[110] | Segment Net Revenues (in thousands) | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | Change | % Change | | :---------------------------------- | :---------------------------- | :---------------------------- | :----- | :------- | | Semiconductor | $17,441 | $22,047 | $(4,606) | -20.9% | | Material and Substrate | $7,992 | $11,263 | $(3,271) | -29.0% | | Total | $25,433 | $33,310 | $(7,877) | -23.6% | | Segment Operating Income (Loss) (in thousands) | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | Change | % Change | | :--------------------------------------------- | :---------------------------- | :---------------------------- | :----- | :------- | | Semiconductor | $896 | $2,950 | $(2,054) | -69.6% | | Material and Substrate | $900 | $297 | $603 | 203.0% | | Non-segment related | $(433) | $(2,728) | $2,295 | -84.1% | | Total | $1,363 | $519 | $844 | 162.6% | | Segment Identifiable Assets (in thousands) | March 31, 2024 | September 30, 2023 | Change | % Change | | :----------------------------------------- | :------------- | :----------------- | :----- | :------- | | Semiconductor | $63,986 | $72,466 | $(8,480) | -11.7% | | Material and Substrate | $50,579 | $61,576 | $(10,997) | -17.9% | | Non-segment related | $1,909 | $2,979 | $(1,070) | -35.9% | | Total | $116,474 | $137,021 | $(20,547) | -15.0% | Major Customers and Foreign Sales - One Semiconductor segment customer accounted for 12% of net revenues for the six months ended March 31, 2024[112] | Geographic Region | Six Months Ended March 31, 2024 (% of Net Revenues) | Six Months Ended March 31, 2023 (% of Net Revenues) | | :---------------- | :-------------------------------------------------- | :-------------------------------------------------- | | United States | 43% | 33% | | Total Americas | 45% | 46% | | China | 23% | 13% | | Total Asia | 39% | 36% | | Germany | 8% | 2% | | Total Europe | 16% | 18% | - Sales to the United States increased significantly from 33% to 43% of net revenues, while China's contribution rose from 13% to 23% for the six months ended March 31, 2024, compared to the prior year[113] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and cash flows for the periods presented, highlighting key trends, strategic initiatives, and significant financial events Overview - Amtech is a global manufacturer of capital equipment (thermal processing, wafer polishing, consumables) for semiconductor devices, including silicon carbide (SiC) and silicon power devices, analog, discrete, electronic assemblies, and light-emitting diodes (LEDs)[116] - The company operates in two reportable segments: Semiconductor (thermal processing equipment) and Material and Substrate (wafer cleaning equipment, substrate consumables)[117] - The semiconductor industry is cyclical, and these broad industry trends impact the company's revenue[118] Strategy - The company's strategic growth plan focuses on Power Semiconductor, leveraging existing experience, products, and capabilities for growth, profitability, and sustainability[119] - Core focus areas include Advanced Mobility (electric vehicles, ADAS), Supply Chain Resiliency (expanding operations outside mainland China), and Artificial Intelligence (reflow oven systems for advanced packaging of AI chips)[119] - Future investments are anticipated in R&D and capital expenditures to meet demand, including a move to a smaller Massachusetts facility and the sale of corporate headquarters real property in Arizona for $2.5 million net cash inflow[120][121] Results of Operations Net Revenue | Segment Net Revenues (in thousands) | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | Change | % Change | | :---------------------------------- | :---------------------------- | :---------------------------- | :----- | :------- | | Semiconductor | $17,441 | $22,047 | $(4,606) | -20.9% | | Material and Substrate | $7,992 | $11,263 | $(3,271) | -29.0% | | Total net revenue | $25,433 | $33,310 | $(7,877) | -23.6% | - Total net revenue decreased by 24% for the three months ended March 31, 2024, primarily due to decreased shipments of belt furnaces, SMT, and packaging equipment in the Semiconductor segment, and lower sales of wafer cleaning equipment and spare parts in the Material and Substrate segment[125][126] | Segment Net Revenues (in thousands) | 6 Months Ended March 31, 2024 | 6 Months Ended March 31, 2023 | Change | % Change | | :---------------------------------- | :---------------------------- | :---------------------------- | :----- | :------- | | Semiconductor | $34,968 | $38,934 | $(3,966) | -10.2% | | Material and Substrate | $15,385 | $15,934 | $(549) | -3.4% | | Total net revenue | $50,353 | $54,868 | $(4,515) | -8.2% | - For the six months ended March 31, 2024, total net revenue decreased by 8%, driven by fewer shipments of horizontal diffusion furnaces, SMT, and packaging equipment in the Semiconductor segment, and decreased consumables shipments in the Material and Substrate segment[126] Orders and Backlog | New Orders Booked (in thousands) | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | Change | % Change | | :------------------------------- | :---------------------------- | :---------------------------- | :----- | :------- | | Semiconductor | $12,061 | $24,606 | $(12,545) | -51.0% | | Material and Substrate | $7,710 | $9,660 | $(1,950) | -20.2% | | Total new orders | $19,771 | $34,266 | $(14,495) | -42.3% | | Backlog (in thousands) | March 31, 2024 | March 31, 2023 | Change | % Change | | :--------------------- | :------------- | :------------- | :----- | :------- | | Semiconductor | $39,455 | $54,767 | $(15,312) | -27.9% | | Material and Substrate | $4,861 | $11,071 | $(6,210) | -56.1% | | Total backlog | $44,316 | $65,838 | $(21,522) | -32.7% | - Total new orders decreased by 42% for the three months ended March 31, 2024, and total backlog decreased by 33% to $44.3 million as of March 31, 2024, compared to the prior year[128][129] - One Semiconductor segment customer accounted for 29% of the backlog, and another customer (across both segments) accounted for 23% as of March 31, 2024[129] Gross Profit and Gross Margin | Gross Profit (in thousands) | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | Change | % Change | | :-------------------------- | :---------------------------- | :---------------------------- | :----- | :------- | | Semiconductor | $5,040 | $8,931 | $(3,891) | -43.6% | | Material and Substrate | $3,411 | $4,539 | $(1,128) | -24.9% | | Total gross profit | $8,451 | $13,470 | $(5,019) | -37.3% | | Gross Margin | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | Change (pp) | | :----------- | :---------------------------- | :---------------------------- | :---------- | | Semiconductor | 29% | 41% | -12 pp | | Material and Substrate | 43% | 40% | +3 pp | | Total gross margin | 33% | 40% | -7 pp | - Overall gross profit decreased by $5.0 million (37.3%) for the three months ended March 31, 2024, with Semiconductor segment gross margin declining due to product mix, higher material costs, and lower Shanghai facility utilization. Material and Substrate segment gross margin increased due to a favorable product mix with increased consumable sales[131][132] - For the six months ended March 31, 2024, total gross profit decreased by $5.1 million (23.4%), with Material and Substrate gross margin impacted by an $0.8 million intangible asset impairment charge[131][133] - The company is experiencing increased material costs across all segments and is exploring partnerships with contract manufacturers and making targeted labor reductions[132] Selling, General and Administrative | SG&A Expenses (in thousands) | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | Change | % Change | | :--------------------------- | :---------------------------- | :---------------------------- | :----- | :------- | | SG&A expenses | $8,252 | $11,434 | $(3,182) | -27.8% | - SG&A expenses decreased by $3.2 million (27.8%) for the three months ended March 31, 2024, primarily due to lower shipping expenses, reduced labor and employee-related costs from staff reductions, and the absence of $1.5 million in Entrepix acquisition transaction expenses from the prior year[134] | SG&A Expenses (in thousands) | 6 Months Ended March 31, 2024 | 6 Months Ended March 31, 2023 | Change | % Change | | :--------------------------- | :---------------------------- | :---------------------------- | :----- | :------- | | SG&A expenses | $16,819 | $20,624 | $(3,805) | -18.4% | - For the six months ended March 31, 2024, SG&A expenses decreased by $3.8 million (18.4%), driven by similar factors including lower shipping, labor, consulting fees, and the absence of $3.0 million in Entrepix acquisition transaction expenses from the prior year[135] Research, Development and Engineering | RD&E Expenses (in thousands) | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | Change | % Change | | :--------------------------- | :---------------------------- | :---------------------------- | :----- | :------- | | RD&E expense | $921 | $1,517 | $(596) | -39.3% | | RD&E Expenses (in thousands) | 6 Months Ended March 31, 2024 | 6 Months Ended March 31, 2023 | Change | % Change | | :--------------------------- | :---------------------------- | :---------------------------- | :----- | :------- | | RD&E expense | $2,509 | $2,910 | $(401) | -13.8% | - RD&E expenses decreased by $0.6 million (39.3%) for the three months and $0.4 million (13.8%) for the six months ended March 31, 2024, primarily due to the timing of purchases related to specific strategic-development projects in the Semiconductor segment[137] Goodwill Impairment - A goodwill impairment charge of $6.4 million was recognized in the Material and Substrate segment during the six months ended March 31, 2024, triggered by a decline in the company's stock price causing book value to materially exceed market value[138][97] Intangible Asset Impairment - An impairment of definite-lived intangible assets totaling $1.3 million was recognized in the Material and Substrate segment during the six months ended March 31, 2024[139] - Of this $1.3 million impairment, $0.8 million was recorded in cost of goods sold, and the remainder in operating expenses[139] Severance Expense | Severance Expense (in thousands) | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | 6 Months Ended March 31, 2024 | 6 Months Ended March 31, 2023 | | :------------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Expense | $112 | $0 | $310 | $400 | - Severance expense for the three and six months ended March 31, 2024, was $0.1 million and $0.3 million, respectively, primarily due to staff reductions across all divisions[140] Income Taxes | Income Tax Metric | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | 6 Months Ended March 31, 2024 | 6 Months Ended March 31, 2023 | | :---------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Income tax provision (benefit) (in thousands) | $223 | $(2,946) | $281 | $(2,950) | | Effective tax rate | N/A | N/A | (3.5%) | 118.0% | - The effective tax rate for the six months ended March 31, 2024, was (3.5%), primarily due to losses for which no tax benefit could be recognized, contrasting with 118.0% in the prior year due to the release of a valuation allowance from the Entrepix acquisition[141] Liquidity and Capital Resources Cash and Cash Flow | Cash Flow Metric (in thousands) | Six Months Ended March 31, 2024 | Six Months Ended March 31, 2023 | Change | | :------------------------------ | :------------------------------ | :------------------------------ | :----- | | Net cash provided by (used in) operating activities | $5,307 | $(5,327) | $10,634 | | Net cash provided by (used in) investing activities | $724 | $(36,474) | $37,198 | | Net cash (used in) provided by financing activities | $(6,385) | $11,919 | $(18,304) | | Net decrease in cash and cash equivalents | $(133) | $(29,141) | $29,008 | | Cash and cash equivalents, end of period | $13,000 | $17,733 | $(4,733) | | Liquidity Metric (in thousands) | March 31, 2024 | September 30, 2023 | Change | | :------------------------------ | :------------- | :----------------- | :----- | | Cash and cash equivalents | $13,000 | $13,133 | $(133) | | Working capital | $44,385 | $51,471 | $(7,086) | | Current ratio | 2.7:1 | 2.7:1 | 0.0 | - The decrease in cash and cash equivalents by $0.1 million from September 30, 2023, was primarily due to long-term debt payments and fixed asset purchases, partially offset by customer down payments, collections, and proceeds from the Arizona real property sale[145] - Working capital decreased by $7.1 million, mainly due to decreases in accounts receivable and inventories[145] Cash Flows from Operating Activities - Operating activities generated $5.3 million in cash for the six months ended March 31, 2024, a significant improvement from $5.3 million used in the prior year, driven by stronger accounts receivable collections and increased customer down payments[147] Cash Flows from Investing Activities - Investing activities provided $0.7 million for the six months ended March 31, 2024, primarily from $2.7 million in proceeds from the sale of Arizona real property, partially offset by capital expenditures. This contrasts with $36.5 million used in the prior year, mainly for the Entrepix acquisition[148] - Capital expenditures are expected to increase in the third quarter of fiscal 2024 due to the relocation of Massachusetts operations[148] Cash Flows from Financing Activities - Financing activities used $6.4 million for the six months ended March 31, 2024, primarily for $6.4 million in long-term debt payments[149] - In the prior year, financing activities provided $11.9 million, mainly from $12.0 million in debt borrowings, partially offset by $0.4 million in debt payments[149] Financing Facilities - The company's debt balance was $4.3 million as of March 31, 2024, including finance lease obligations[150] - A Forbearance & Modification Agreement was entered into with UMB Bank on December 5, 2023, due to non-compliance with Debt to EBITDA and Fixed Charge Coverage Ratio covenants, with the forbearance period extending through January 17, 2025[151] - The agreement increased the revolving credit facility to $14.0 million and reduced the term loan to $4.4 million, extending both maturities by one year[152] - As of March 31, 2024, $4.2 million was outstanding on the Term Loan, no amounts on the Revolver, and a $0.3 million letter of credit. All debt is classified as current due to the lender's discretion to call it at the end of the forbearance period[152][156] - The company was in compliance with the Minimum EBITDA Covenant as of March 31, 2024, with actual positive EBITDA of $1.0 million for the six-month period (covenant not less than negative $800,000)[153] Off-Balance Sheet Arrangements - As of March 31, 2024, the company had no material off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K[158] Contractual Obligations - Unrecorded purchase obligations decreased by $8.0 million to $16.3 million as of March 31, 2024, from $24.3 million at September 30, 2023[159] Critical Accounting Estimates - The preparation of financial statements requires management to make estimates and assumptions, particularly concerning revenue recognition, income taxes, inventory valuation, business combinations, goodwill, and long-lived asset impairment[160][161] - There have been no material changes in critical accounting estimates during the six months ended March 31, 2024[163] Impact of Recently Issued Accounting Pronouncements - The company is evaluating ASU 2023-07, 'Segment Reporting,' which improves reportable segment disclosure requirements, effective for fiscal years beginning after December 15, 2023[51][164] - ASU 2023-09, 'Income Taxes,' effective for fiscal years beginning on or after December 15, 2024, is not expected to materially affect financial condition or results of operations[50] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Amtech Systems, Inc. is electing scaled disclosure reporting obligations and is not required to provide the information requested by this Item - As a smaller reporting company, Amtech Systems, Inc. is exempt from providing quantitative and qualitative disclosures about market risk[165] Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures, identifies material weaknesses, and outlines the remediation plan to strengthen internal control over financial reporting Evaluation of Disclosure Controls and Procedures - Management, including the CEO and CFO, concluded that disclosure controls and procedures were not effective as of March 31, 2024, due to previously identified material weaknesses[167] - A material weakness is defined as a reasonable possibility that a material misstatement of financial statements will not be prevented or detected timely[167] Changes in Internal Control over Financial Reporting - No other material changes to internal control over financial reporting occurred during the six months ended March 31, 2024, beyond the integration of Entrepix's controls[168] Remediation Plan for Existing Material Weaknesses - The company is actively designing and implementing measures to strengthen internal control over financial reporting (ICFR) and remediate material weaknesses[169] - Remediation efforts for goodwill and intangible assets include evaluating internal controls over non-routine transactions and engaging a new valuation firm for impairment assessments[169] - For general information technology controls, remediation includes formalizing IT policies, developing monitoring controls, strengthening user access reviews, enhancing program change management, and assessing segregation of duties[170] - Remediation of material weaknesses is anticipated to be completed during fiscal year 2024, pending sufficient operation and testing of controls[171] PART II. OTHER INFORMATION](index=36&type=section&id=PART%20II.%20OTHER%20INFORMATION) Legal Proceedings The company is involved in various claims and actions arising from business operations, for which it maintains adequate provisions for probable and estimable losses, as detailed in Note 10 to the financial statements - The company is periodically involved in legal proceedings and claims, for which it evaluates the status and makes accruals for probable and estimable losses[173][108] Risk Factors This section refers to the comprehensive risk factors detailed in the company's 2023 Form 10-K and the cautionary statements regarding forward-looking information, noting no material changes to these risks during the reporting period - Investors are referred to 'Item 1A. Risk Factors' in the 2023 Form 10-K and the 'Cautionary Statements Regarding Forward-Looking Statements' for a full understanding of risks[174] - There have been no material changes to the risk factors previously disclosed in the 2023 Form 10-K and the Form 10-Q for the quarter ended December 31, 2023[174] Unregistered Sales of Equity Securities and Use of Proceeds The company's $5 million stock repurchase program, approved in February 2023, expired during the quarter ended March 31, 2024, with no repurchases made during that quarter and no unregistered sales of equity securities - The $5 million stock repurchase program, approved on February 7, 2023, expired during the quarter ended March 31, 2024[175] - No repurchases were made under the program during the quarter ended March 31, 2024[175] - No equity securities were sold that were not registered under the Securities Act of 1933 during the six months ended March 31, 2024[176] Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - There were no defaults upon senior securities[176] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[176] Other Information No directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended March 31, 2024 - No directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended March 31, 2024[176] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and Inline XBRL documents - The report includes certifications pursuant to Rule 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350, as well as Inline XBRL documents[177][178][179][180][181][182][183] SIGNATURES The report is duly signed on behalf of Amtech Systems, Inc. by Lisa D. Gibbs, Vice President and Chief Financial Officer, on May 8, 2024 - The report was signed by Lisa D. Gibbs, Vice President and Chief Financial Officer, on May 8, 2024[185]